McAuliffe Inc.

McAuliffe Inc.

The Department of Justice appears to be investigating real estate deals in which Clinton’s chief fundraiser may have profited from political connections

by Stephanie Mencimer

Although Terry McAuliffe has thus far managed to avoid serious entanglement in the White House fundraising scandals, several real estate deals involving McAuliffe appear to have been under investigation by the Department of Justice for more than a year. Mother Jones has learned that the office of the U.S. Attorney for the District of Columbia is reviewing these deals, including at least one lease with a government agency for which McAuliffe’s firm received a possibly illegal $375,000 contingency fee.

McAuliffe maintains that the fee went to his firm and that there was nothing improper about it. “I heard [the DOJ] looked at it and found nothing, absolutely nothing,” he told Mother Jones.

The DOJ first began investigating McAuliffe’s deals in the fall of 1995, after the Washington Business Journal reported that Prudential Insurance Co. promised to pay McAuliffe the $375,000 fee when the Pension Benefit Guaranty Corp. (PBGC) signed a 15-year, $187 million lease for a downtown Washington building owned by Prudential. At the time of the deal in 1993, McAuliffe ran the Business Leadership Forum, a fundraising arm of the Democratic National Committee. (Prudential contributed $85,000 to Democrats in 1993, including $35,000 for two “presidential dinners” shortly after the lease in question was signed.)

According to the DOJ, federal law restricts contingency fees in deals involving federal agencies such as the PBGC, in part to prevent politically connected businesses from gaining an unfair advantage in government deals.

“There is not supposed to be any contact with the government to influence the transaction after best and final offers have been submitted,” says Neil Levy, a lawyer who specializes in government office leasing.

The DOJ has declined to comment on its investigation, but court records show that it has requested copies of a 1995 U.S. District Court case in Virginia that detailed allegations (including the PBGC deal) against McAuliffe and The Boland Group, a real estate partnership with which he was associated. The group had sued former partner David Nunes for fraud; in a countersuit, Nunes alleged that The Boland Group used the political connections of McAuliffe and former Rep. Tony Coelho (D-Calif.) to obtain “improper” real estate commissions.

Nor was Nunes alone. A lawsuit filed in the Washington, D.C., Superior Court by another former business associate, Joseph Gargan, also claimed McAuliffe and Coelho used their political clout to snare lucrative deals. Gargan’s suit alleged that between 1990 and 1995 McAuliffe and The Boland Group took in $2.4 million in real estate commissions, without giving Gargan his cut. The group recruited Gargan in 1990 to serve as its licensed real estate agent in the District of Columbia; Gargan claimed the group had fraudulently used his real estate license to broker deals behind his back.

Other deals mentioned in Gargan’s suit:

  • In 1991 McAuliffe used The Boland Group to buy real estate his father-in-law, Richard Swann, had lost when his American Pioneer savings and loan became insolvent. The S&L had sold its customers $10 million in junk bonds, and required a $495 million bailout. When the government began to auction off American Pioneer’s assets, McAuliffe’s investment firm, American Capitol, stepped up as a bidder and bought some of the S&L’s assets for $38 million.

  • A lease in March 1995 for the Clinton/Gore re-election committee was brokered by Boland Advisory Services — a reorganized Boland Group without McAuliffe — which pocketed a $150,000 commission. McAuliffe was the chief fundraiser for Clinton/Gore at the time.

McAuliffe responded to Gargan’s suit by claiming he was never a partner in The Boland Group and that he only received referral fees. He also claims to have severed ties with the group in March 1994, never receiving a commission from the Clinton/Gore lease. “People in this business will bring suits to try to extort money out of you,” McAuliffe explains.

Both Gargan and Nunes settled out of court and, bound by confidentiality agreements, would not discuss their cases.

But McAuliffe’s troubles are not over. According to a House staffer, the Justice Department apprised the Oversight and Investigations Subcommittee last year that the DOJ would not release findings on its investigation until after the ’96 election. On January 8, the subcommittee’s chair, Rep. Peter Hoekstra (R-Mich.), sent a letter to Attorney General Janet Reno asking for an update on the case and referencing Gargan’s lawsuit. At press time, the subcommittee had received no response.

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