Part Two: The Corruption of Bob Corker

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“A Nasty, Huge Old Debt and the heart- warming story of how a Big Bank miraculously saved the day!”

Or…

“Wells Fargo bails out Bob Corker and his cronies.”

When Bob Corker ran for the U.S. Senate, he did so by running on the story of a successful businessman who could “get things done.”  In reality, Corker – like a lot high-flying developers leading up to and during the housing crisis – was trying to get his name off millions in debt guarantees.  And Corker’s cash windfall from the sale of his properties to a controversial businessman named Henry Luken likely did not relieve him from his honker of a debt.  Whatever continued debt (also known as a “contingent liability”) Corker is holding, it has remained a secret, since Senate financial disclosure rules didn’t require him to admit to “contingent liabilities.”  But that didn’t make the debt any less real.  And in reality, if the market downturn started picking up speed (which it did), those loan guarantees could ruin Corker and probably Henry Luken as well.

The best we can determine is that Luken assumed the debt from his conveniently-timed purchase of Corker’s properties, while giving Corker $500,000 (believed to be a cash advance to help Corker, whose assets were mostly locked up in his commercial properties).  The “Big Lebowski” of the debt was $28.1 million owed to GE Capital.  When Corker rolled up the debt with GE Capital, he was required to (and did) submit a Universal Commercial Code (UCC) filing, placing his name on the debt. When the debt was satisfied, either by payment or transfer, GE Capital was supposed to release Corker with another filing.  This is where it starts to get murky.  RTP asked our accountant (Ernie T. Eyeshade, CPA) if he could find any such release in the financial disclosures or elsewhere.  He came up empty.

So the first question for Bob should be:  Did GE Capital release you from a $28.1 million debt?   And if not, where is that debt now and how was it satisfied?  And before Bob gets his tighty-whiteys in a wad, we again acknowledge that the disclosure report doesn’t require the listing of a contingent debt.  But we ask anyway because, for as you will see, the existence of that debt and where it went is key.

Show Me Da’ Money

pay-upIt’s an important question.  For if GE Capital did not release Corker from his contingent liability, and if Luken and/or Corker could not cough up the cash as the commercial and housing market began to spiral downward in 2008-2010, then GE Capital would send some accounting goons around to collect from Luken.  If Luken couldn’t pay, then they would come after Corker for the dough.

How Corker made this debt disappear is not a tale of business or financial derring-do but a tale of apparent skirting, and perhaps stepping over a legal or regulatory line.

Bear with us, because this gets a little complicated.  But it is a tale that must be told.

The Deal

When Corker, who seemed to be leveraged out the ying-yang, decided he wanted to run for the Senate, he had a little problem – liquidity.  He need cash, and lots of it, for a successful campaign.  He needed a buyer.

So Corker turns to one Henry Luken to sell the bulk of his commercial real estate “empire” – assets, debt and all.  Luken agreed and, as they say, the rest is history.  But history has a way of circling back on people, and not in a good way.

Corker was the owner of real estate worth between $62 million and $228 million. He had bought Coca Cola heiress Alice Lupton’s old mansion on Minnetonka Road and was the mayor of Chattanooga.  In addition, he was the former roommate and friend of Pilot Oil scion, Jimmy Haslam (and brother to the soon-to-be governor, Bill Haslam).  So Bobby was connected — big time.

But Corker was also the owner of a debt that could strangle some third-world countries. According to the Knoxville News-Sentinel, Corker “had between $24 million and $120 million in debt, mostly through mortgages on real property holdings that were part of the sale of properties to Chattanooga businessman Henry Luken.”  And despite loans, special relationships with bankers and politicians, all the available accounting tricks, accounts receivable, valuations, etc., etc. big-time developers like Corker are usually just one big deal away from a huge fortune or one step away from bankruptcy if the economy or a deal goes sour.  In 2005, as he was dreaming of hobnobbing with the political elite of Washington, Bob Corker needed to come in off the high wire and cash out as best he could.

Enter Henry Luken.

Luken dropped in on Chattanooga in the 90’s and immediately started throwing money around.  While amassing a lot of cash, Luken played on a highwire.  In 2013 a big part of his business was forced into bankruptcy after he lost $47.4 million from a “fraudulent transfer” verdict stemming from his communications company’s 2008 purchase of a television network.

When the full housing/real estate/banking crisis hit in early 2009, Luken was left holding a bag like a Cub Scout on a snipe hunt.  GE Capital gave Luken two 6-month extensions on his debt, but time was quickly running out.  The financial and political damage to Corker of Luken going belly-up was palpable.

Corker, Wells Fargo and a “Harmonic Convergence” of interests.wells-fargo-cartoon-3

Luken admitted to the Chattanooga Times Free Press he could not find any takers to finance the lousy mountain of debt he had taken off Corker.  Even his own manager confessed: “[It was a] horrible time for everyone …because of the market there weren’t a lot of people letting go of a lot of money,” Ms. Childress said. “We were technically in event of default.”

But never fear!  Luken had an ace in the hole – his old friend Bob Corker and, more to the point, Corker’s position on the Senate Banking Committee.

The real story is that GE Capital would have had to sell off the Luken loan at a discount or move to collect the outstanding balance themselves.  The latter would have put GE in a very difficult spot:  having to sue a sitting U.S. Senator who sat on the committee that was unquestionably the most important committee in Congress for a firm like GE Capital.

In rides Wells Fargo, who inexplicably decided to refinance the Luken/old Corker debt at a time when most banks were spirally down the toilet and re-financing was just a pipe dream for most.  Luken “discovered” Wells Fargo and convinced them to finance an under-capitalized loan with a huge debt attached.  The story they spun at the time was that Wells was “excited” about Chattanooga’s economic prospects – this at a time when the country and banks were facing economic disaster.  Such refinancing of loans were not just hard to find in 2009 – they were damn near impossible. Hell, even Warren Buffet couldn’t refinance a loan during the 2009-2010 meltdown.

According to our sources in the financial community, in practically every similar circumstance, if a firm like Wells were to take over such a loan it would have insisted on a refinance discount – a discount Luken and/or Corker would have to pay.  Again, a bad position to be in against a U.S. Senator. More likely, Wells bought the entire loan – maybe even at a premium that would have allowed Corker to be removed as a contingent liability.  Since researchers have found no record of Corker making another UCC filing removing himself from the loan, there is a possibility he is still on the hook.  But now he would be on the hook to his friends at Wells – who were coming in and out of his door to lobby him like ants to a picnic on such things as GSEs (more on this later).

But we are asked to believe that somehow Luken just stumbled on Wells Fargo and arranged a loan that 99% of the rest of the world couldn’t or wouldn’t secure.  How convenient.

Why would Well Fargo do that, you may ask?  Well if you were a mega-bank like Wells and were holding over half of the nation’s mortgages, why wouldn’t you rush to bail out the close buddy and business associate of a member of the Senate Banking Committee?  After all, the Banking Committee held Wells Fargo’s future in their hands.  Wells was lobbying the crap out of Corker and the committee at the exact same time Luken came begging with hat in hand.  It appears the narrative spun by Luken, Corker and Wells was nothing more than a cover for a raging conflict-of-interest involving their relationship with the member of the very senate committee that was deciding the fate of banks like Wells Fargo.

Wells Fargo’s rescue was nothing short of miraculous.  It is believed they took over the Corker/Luken debt, maybe even paying a premium for doing so. and did it while the financial world was in flames.  If true, wouldn’t this be the very “corporate cronyism” and “rigged system” that President-elect Trump keeps talking about?

Was what Wells, Corker, et al did illegal?  There is a good chance that was the case.  But was what happened unbelievably unethical and sleazy?  You’re damn right it was.pig-cartoon

As they say down in Pulaski, comparing the stench of this deal to that of pigs wallowing in the mud is an insult to pigs.

Since all this happened, and as you may have read in the papers, Wells Fargo is now in a heap of trouble for other reasons.  Not the least of their worries is how they opened up over 2,000,000 new accounts in their customer’s names, without bothering to tell the customers.  That has resulted in the appointment of an outside law firm to do an independent investigation of the internal workings of Wells Fargo.  One would think that any “arrangements” involving one or more members of the Senate Banking committee would be of immense interests to them as well as the Feds.

If the review of Wells finds any impropriety, then some people might want to start practicing the “perp walk.”

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