The unethical house

Insight on the News, Feb 26, 1996 by Paul M. Rodriguez, Michael Rust

The House ethics committee has been asked by Rep. Jennifer Dunn, a Washington Republican, to investigate various real-estate, banking and ethics-law matters involving House Minority Leader Richard Gephardt and the Nessouri Democrat's purchase of a $700,000 vacation house along the Outer Banks of North Carolina.

"My interest" in this matter began with a news account that appeared in Insight magazine in August of last year," Dunn wrote in a letter to the ethics panel, formally called the Committee on Standards of Official Conduct. "That article spurred further research of public records and has resulted in [the ethics] filing."

At issue, as first reported in the Aug. 8, 1995, edition of Insight, are a series of complicated financial transactions in which Gephardt used a tax loophole called a Starker Exchange to "swap" a piece of property in Duck, N.C., for another in nearby Corolla Light. The congressman, who was House majority leader at the time, did not pay capital-gains taxes, claiming the transaction was part of a business deal that ultimately led to construction of the home as an investment property. Gephardt, his wife Jane and two business partners generate about $ 100,000 in yearly rentals from this home.

While Gephardt was securing various loans, deeds and sales of the "like-kind" properties, he failed to report on his annual financial-disclosure forms what he was doing. Although he initially told the ethics panel that the property swap in 1991 was not business relatecl he apparently told the Internal Revenue Service something else, claiming the tax-free exchange of the Duck and Corolla Light properties.

Gephardt began a series of fund-raising events after he "bought" the expensive Corolla Light house, "Northern Star" Prior to the week that he signed various loan and deed papers in North Carolina, he spent no money for fund-raising events in the state. Beginning the same week and contmumg through at least 1995 (based on available public records), Gephardt not only spent large sums of money with no discernible return for fund-raisers, some of the money allegedly spent went to local companies owned and/or controlled by one of the men who also owned and/or controlled the development company that built the Corolla Light community and provided the congressman with loans to build his dream house.

There is also the matter of loan and deed records. Gephardt, his wife and partners all signed and/or initialed documents several times stating that the Corolla Light property would not be used for rental purposes.

Finally, there are loan transactions that do not appear on Gephardt's annual financial-disclosure reports as required. Dunn wants the ethics panel to detemine why.

When Insight first reported this story, the congressman's lawyers and staff claimed he was innocent of wrongdoing. After lengthy questioning, however, they conceded there could be some technicalities involved. But, they argued, the reputation of Gephardt as an honest man should dispel any suggestions of wrongdoing.

After the Insight article appeared, the Gephardt staff went to great lengths both to denounce the story and the reporter who wrote it. Despite numerous requests before and after the story appeared, the Gephardt staff still has not provided documentation to refute or explain discrepancies that seem to exist between and among the relevant bank loans, land deeds, tax forms and financial-disclosure reports.

Laura Nichols, the Democratic leader's press secretary, says that Dunn's complaint is "a rehash of old and discredited allegations" riddled with inaccuracies. Nichols suggests the Dunn complaint is Republican payback for Democratic ethics complaints against House Speaker Newt Gingrich, some of them highly technical.

Dunn denies the charge. In her complaint to the ethics panel, she said that, "regarding certain real-estate transactions, Mr. Gephardt told the House one thing while telling his bank and the Internal Revenue Service something very different. You can't have it both ways."