Monday, March 02, 2009

Parties dispute bid confidentiality as Lupton trial begins

MILWAUKEE--Prosecutors told a federal judge today a real estate agent sought a kickback in the proposed sale of a state office building to cover his gambling losses and other financial troubles.

But Larry Lupton's defense attorney downplayed his financial troubles while insisting the real estate agent was operating within his contractual obligations and abiding by the law in negotiating a commission split.

Lupton is charged with soliciting an illegal $75,000 kickback and sharing confidential bid information with a broker representing a potential buyer of the Department of Administration building in Madison. He is also charged with lying to an FBI agent.

The building was valued at about $30 million. Lupton represented Equis, the commercial real estate firm that had the contract to sell the building for a 4.3 percent commission.

The government was to wrap its case up today. It was unclear in court today when the defense would present its side, but it could be as soon as Tuesday afternoon or as late as Thursday, depending on scheduling and other issues. The parties have agreed to proceed without a jury and U.S. District Judge Lynn Adelman is hearing the case.

Assistant U.S. Attorney Gregory Haanstad said today Lupton attempted to arrange for buyer's broker Gabrielle Silverstein to pay him 0.25 percent of the sales price from Silverstein's commission and then shared information to ensure Silverstein's buyer would be able to make a winning bid. Silverstein immediately contacted the FBI regarding the initial conversation and assisted in the investigation, according to Haanstad.

Haanstad said Lupton then lied about whether he revealed confidential information regarding bids to an FBI agent investigating the complaint. Haanstad said that despite the agent telling Lupton not to contact any potential witnesses, Lupton immediately phoned Silverstein after the interview.

Haanstad worked to establish Lupton's financial difficulties prior to meeting with Silverstein in April 2007 by noting that a foreclosure judgment on Lupton's home was issued in November 2006 and that he showed only $281 in adjusted income on his 2006 tax return.

Haanstad also pointed to a string of roughly $20,000 in gambling losses Lupton incurred from Dec. 26, 2006, through April 3, 2007, of which $2,000 came the day before his initial conversation with Silverstein. Lupton had been receiving $6,000 each month since November 2006 in advances from Equis, and the firm would have recouped that money before paying Lupton his remaining share of the commission.

But Lupton's defense attorney, Joseph Owens, painted a different picture of Lupton's finances and the nature of the bidding process and commission arrangement.

Pointing to the same casino records the government used, Owens showed that Lupton won almost $31,000 over the four occasions he visited the casino prior to the losses detailed by prosecutors. He also noted that Lupton showed little income in 2006 because he was unemployed for part of the year and then was paid in the form of advances he didn't need to report. Owens said the government failed to mention the bank reconstituted Lupton’s mortgage five weeks after it foreclosed.

Owens said Lupton was free to share bid information in negotiating the sale with other brokers. Owens noted that a confidentiality clause at the end of the template Lupton provided bidders was meant to prevent bidders from talking together to drive the price down, not to limit what Lupton could share. He also noted that the information Lupton provided Silverstein about a competitor's bid came from phone conversations and was provided to Silverstein two hours before the competitor sent the letter of intent to Lupton with the confidentiality clause in it.

Owens agreed that Lupton told the FBI investigator that he did not reveal confidential information, but that the two were "talking past each other" and what the FBI thought was confidential was, in fact, not confidential.

Owens pointed out that the letters of intent from many of the bidders had buyer broker commissions of up to 1.5 percent. This figure was based on the 4.3 percent commission the state was going to pay, Owens said.

The state however, was in the process of attempting to change its contract with Equis to offer only 1.75 percent commission. This, Owens said, would have left Equis with virtually no commission if the buyer broker commissions weren't negotiated lower. Owens said Lupton was instructed to renegotiate commissions as a contingency plan. Disclosure of the commission split would have been required during the closing, Owens said, which never occurred because the state scuttled the contract when the government announced it would seek charges against Lupton.

Gov. Jim Doyle proposed selling the DOA building on West Main Street in downtown Madison in his 2007-09 budget. The governor did not propose making a second attempt at selling the building in the budget he unveiled last month.

By David Wise

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