Bethany McLean is a contributing editor at Vanity Fair and bestselling author. Her recent book is “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants,” published by Columbia Global Reports.
As you may have seen, the Campaign for Accountability (CFA), a D.C. watchdog group, has called for an SEC and ethics investigation of Sen. Bob Corker (R-TN) for insider trading. Between 2008 and 2015, Corker, his wife and daughters made approximately 70 (70!) opportune and very profitable trades in the stock of a company called CBL Associates Properties (CBL), which is one of the country’s largest shopping mall REITs. (Just FYI, investors usually own REITS for their dividends, not as trading vehicles. It’s also worth noting that the senator told Yahoo Finance several years ago that he had a Bloomberg terminal.) Nor was the full extent of Corker’s trading disclosed until very recently, after the Wall Street Journal began asking questions. Corker has blamed his accountants for a technical mistake involving the use of a methodology that didn’t require disclosure of the date of purchase. His spokesperson downplayed the CFA complaint and added that “these baseless accusations from a political special interest group are categorically false and nothing more than a smear campaign.”
It’s true that the picture is far from complete, but there’s another element worth noting. In its complaint, the CFA suggests UBS was a likely source of tips. But if Corker has benefited from buying and selling CBL, there’s an argument that the company has also benefited from its relationship with the senator. To wit: Corker has voted in favor of at least several pieces of legislation for which CBL, via its membership in several trade groups, has lobbied. Right now, there’s legislation in need of reauthorization, for which Corker’s real estate constituents are pushing hard. To complicate matters, it involves a controversial industry for which Corker’s fundraising consultant works.
Some may say this messy state of affairs is business as usual in today’s Washington. They might be right. Members of Congress simply don’t want to have to behave in transparent, conflict-free ways that they themselves would probably mandate for everyone else. But remember that old-fashioned thing about public office being a public trust?
A long relationship
As the complaint—filed with the SEC and the Senate Select Committee on Ethics—details, Corker and CBL go way back. Corker began his career at a company whose primary business was subcontracting for CBL and which is now substantially owned by CBL. CBL executives were Corker’s “first and most generous donors,” as the complaint put it, when Corker filed to run for Congress in 2006. CBL is run by the Lebovitz family, whose members are also involved in several real estate trade groups. Stephen Lebovitz, the CEO of CBL, is currently the chair of the International Council of Shopping Centers, or the ICSC. He is also a member of the advisory board of governors of the National Association for Real Estate Investment Trusts, or NAREIT. (CBL did not return an email requesting comment.)
Both directly and indirectly, CBL have given generously to Corker. According to the complaint, CBL’s executives, directors and their spouses rank among the senator’s top campaign donors, contributing $88,706 to his campaign committee and PAC since his 2006 run. Since Corker’s arrival in the Senate, CBL executives have contributed more than $50,000 each to NAREIT and ICSC—which, in turn, were part of a nine-PAC consortium that held a fundraiser for Corker in Washington in 2011. NAREIT and ICSC also donated $15,000 directly to his campaign committee since his arrival in the Senate.
There are at least several examples where Corker has supported or co-sponsored legislation that the ICSC and NAREIT have wanted.
A few years ago, the Environmental Protection Agency and the Army Corps of Engineers issued a rule called “Waters of the United States,” which would have expanded the EPA’s jurisdiction. In announcing the implementation of the rule, President Obama called it “another step towards protecting the waters that belong to all of us.”
Both the ICSC and NAREIT were among the many who fought against it. “If the rule is enacted in its current form, developers can expect major project permitting delays, costly resource outlays,” the ICSC wrote in June 2014. Along with NAREIT, the ICSC was also part of a coalition that wrote to the EPA in August 2014 to “express their opposition to most of the rule,” as NAREIT put it in an update. Using a rarely used tool called a Congressional Review Act, the Senate passed a resolution last month by a vote of 53 to 44 to rescind the rule. Corker’s vote in favor of rescinding the rule was celebrated on Twitter.
Taxing Internet sales
Then there’s the long, vicious fight over online retailers not charging sales tax, because states are barred from collecting sales tax from out-of-state companies. This has been an area of particular concern to companies like CBL, which own shopping malls, and which stand to lose out if consumers choose to buy online.
Back in 2013, a measure called the Marketplace Fairness Act, which would have required online retailers to collect sales taxes, failed in part because some top Republicans opposed it. Corker supported it. Just this spring though, a bipartisan group of senators including Corker reintroduced the measure. The ICSC applauded Corker, along with the others, for his support; a blog post notes that if supporters “remind elected officials on Capitol Hill just how important this legislation is to American shoppers, businesses and communities,” that support would “go a long way to supplementing the current efforts of the International Council of Shopping Centers, Marketplace Fairness Coalition, NAREIT” and others.
Time will tell what happens to the 2015 version of the bill.
In addition, the CFA’s complaint notes that CBL would be a beneficiary of another bill sponsored by Corker. This one, which passed the Senate Banking Committee—where Corker serves—in the spring of 2014, would lead to the demise of Fannie Mae and Freddie Mac. One firm that probably would have benefited from that bill is Wells Fargo (WFC), because without Fannie and Freddie, the big banks would be able to capture more of the mortgage industry’s profits. Wells Fargo is CBL’s chief bank. (As CBL’s CFO noted on a 2009 conference call, Wells “has been our lead bank since 1978… it’s totally a relationship driven business.” The retired head of Wells Fargo’s commercial real estate business, A. Larry Chapman, joined CBL’s board in August 2013.)
It is probably a coincidence — and this is not in the complaint — but on July 11, 2014, Corker personally invested in a shopping center called McGowin Park that is being developed by the Hutton Company in Mobile, Ala. Several top executives at the Hutton Company, including its president, joined Hutton after stints at CBL. According to Corker’s disclosure form, his investment is worth between $1 million and $5 million. His investment came six days before Wells Fargo filed its financing statement with the Alabama secretary of state. Wells Fargo declined to comment. Hutton’s CEO says “that assessment of the timing is inaccurate,” that investors “are not involved with the banks,” and that Hutton “interviewed and worked with several lenders and was working with several banks to select the best fit.” She adds that there are limited options in Chattanooga for people to move between commercial real estate developers.
Visa program controversy
Although CFL didn’t highlight this, there’s also an interesting nexus between Corker’s campaign finance manager and a program that is a favored child of the real estate industry. The so-called EB-5 visa program was started some 20 years to enable foreigners who wanted to start businesses in the United States to get lawful permanent residence here as long as they invest a minimum of $500,000 to $1 million, and create jobs for U.S. workers.
This has morphed into a convenient source of cheap capital for the real estate industry (one industry publication calls it a “vital capital source”). But a key part of it, which allows foreign investors to pool their capital into things like real estate projects, was due to expire this fall, and at least some are desperate to hang onto it. The ICSC has held panels about how to use EB-5 funds. The Real Estate Roundtable, which has highlighted “the urgent need to reauthorize the EB-5 investment program by December 11, 2015,” and also describes itself as a “founding member” of a “broad-based EB-5 coalition that seeks to reform and reauthorize the program.” Stephen Lebovitz, the CEO of CBL, is a member of the Real Estate Roundtable’s FY 2016 board of directors.
The program is highly controversial. At the end of 2014, Corker, who chairs the Senate Committee on Foreign Relations, along with Sen. Chuck Grassley (R-Iowa) and then-Sen. Tom Coburn (R-OK), called upon the GAO to investigate. “I’ve had too many whistleblowers coming forward expressing concerns…to not have some trepidation,” said Grassley. The resulting report, which was issued in August, highlighted a number of problems with the program, including “unique fraud risks,” like “uncertainties in verifying that the funds invested were obtained lawfully.” But do these senators want to kill the program? Actually, no. Grassley and ranking member Sen. Patrick J. Leahy (D-VT.) are now pushing a reauthorization bill that would reform, but preserve, the key part of the program. The Washington Post wrote in an editorial that “even if it were reformed…the EB-5 would still be a bad idea. It’s corporate welfare, enabling certain businesses to attract capital more cheaply than others based on a government-conferred sweetener — namely, a visa.”
Meanwhile, Corker’s campaign finance chair, Kim Kaegi, is also the managing director of investor relations for a firm called LCR Capital Partners. According to its website, LCR “sources its capital from global high net worth investors seeking permanent U.S. residency through the EB-5 investment visa program.” (In 2010, Kaegi caused a bit of a dust-up, when during the height of negotiations over Dodd Frank financial reform, she sent an email offering prospective donors the opportunity to dine with Corker. “We are hoping for $10,000 for meal events or $5,000 for small meetings,” she wrote. Kaegi still serves as a fundraising consultant for Corker, according to her biography.)
LCR is also listed as part of the coalition to protect the EB-5 program. Last summer, a coalition member named Jeff Campion wrote in a post that he had “been fortunate to meet with Senators Grassley, Cornyn and Corker,” among others.
Congress has extended the deadline for reauthorization until mid-December.
In its complaint, the CFA notes that the Senate Ethics manual says that “the public has a right to expect members, officers and employees to exercise impartial judgment…the receipt of gifts…may interfere with this impartial judgment, or may create an appearance of impropriety that may undermine the public’s faith in government.” In Corker’s case, they argue that “the receipt of stock tips from company insiders creates exactly the sort of appearance of impropriety that the Gift Rule was designed to address.” That’s all the more true if there’s even a hint of the appearance of a quid pro quo.
A spokesperson for Corker says that “Sen. Corker supports legislation based on what he believes is the best thing for Tennesseans and our country. She notes that 31 states have filed suits against “Waters of the U.S.,” while 26 governors, along with 348 organizations, support the Marketplace Fairness Act. That’s very fair: Each of these pieces of legislation are broad-based enough that it’s hard to argue beyond a reasonable doubt that he was doing a specific favor for one constituent, or even a group of constituents. On the EB-5 program, she notes that Corker has been very clear that the program needs to be reformed, and says that “while it is unclear at this time how EB-5 may be reauthorized (whether through a standalone bill or attached to other legislation), the senator would oppose a straight reauthorization if it were to be considered as a standalone bill.” She adds that Corker had nothing to do with the financing for McGowin Park.
It’s probably naïve to want the behavior of our elected officials to be above even this type of questioning. But according to a new report from the Pew Research Center, only 19% of Americans say they can trust the government always or most of the time, among the lowest levels in the past half-century. Maybe if we knew elected officials were devoted to legislating, instead of to investing and trading, we’d have a little more faith.
Read more from Bethany McLean:
Does the SEC inflate its numbers?
The biggest remaining risk in today’s financial system, hiding in plain sight
- Politics Government
- Bob Corker
- CBL Associates Properties