Saturday, July 2, 2005

Investigation of Congressman Cunningham Just Got a Whole Lot More Serious

The investigation of Rep. Randy (Duke) Cunningham related to the sale of his San Diego area home in 2003 to Mitchell Wade, a campaign contributor and founder/president of MZM Inc., a small defense contractor, took a decidedly more serious turn on Friday when FBI and IRS agents, along with Defense Criminal Investigative Service agents, executed search warrants at his home in California and the yacht owned by Wade on the Potomac River on which Rep. Cunningham lives while Congress is in session. The agents also searched the offices of MZM in Washington D.C. Only this past Tuesday was it disclosed that a grand jury in San Diego issued a subpoena duces tecum to Cunningham for documents related to the house sale, a transaction that has come under close examination because Wade resold it a year later for $700,000 less than he paid Rep. Cunningham even though San Diego has experienced an explosive increase in housing prices (see earlier post here). The investigation appears to be looking into whether there has been any quid pro quo arrangement between Rep. Cunningham, who sits on the Defense Appropriations Subcommittee, and noncompetitive contracts awarded by the Defense Department to MZM, which has seen its revenue increase substantially over the past two years.

Why the sudden switch from a grand jury investigation conducted with subpoenas to execution of a search warrant, a less common method of obtaining documents in white collar crime investigations? One possibility is that the investigators received information that records, including computer files and e-mail, were at risk of being destroyed if not obtained immediately. Grand jury subpoenas are much easier to issue from an administrative point of view, but they present an increased risk when the recipient is a possible target of the investigation, who may not provide relevant documents and even try to eliminate incriminating evidence. The presence of DCIS agents indicates that Pentagon contracts are one area of focus in the investigation, and the participation of IRS CID agents (note that Revenue Agents cannot participate in criminal cases) usually signals the government believes possible secret payments may have been made that -- not surprisingly -- don't show up on a tax return as income. The investigation certainly appears to be expanding, and the risk to both MZM and Rep. Cunningham has increased from a political sideshow to a potential criminal prosecution. An AP story (here) discusses the search warrant and grand jury investigation. (ph)

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