In Its Attempt To Show Giannoulias' Dishonesty, Chamber Ad Just Reveals Its Own

October 21, 2010 6:56 pm ET

The U.S. Chamber of Commerce's new ad seeks to taint voters' opinions of Illinois Senate candidate Alexi Giannoulias (D) by attacking him over his leadership of Illinois' Bright Start program and at Broadway Bank, his family's company. But Giannoulias wasn't responsible for Bright Start's losses: The program was managed by OppenheimerFunds, whose investment went awry, and Giannoulias actually negotiated to recoup a significant amount of investors' money. Furthermore, the ad's claims that Giannoulias was dishonest in telling the public when he left Broadway Bank are unfounded. Giannoulias says he stopped taking clients in 2005, when he began his run for state treasurer, and logged part-time hours to wrap up old duties during 2006.

U.S. Chamber of Commerce: "Public's Money"

Alexi Giannoulias and the public's money: Unfortunately for Illinois, the record shows he loses a lot of it. When he was head of the Bright Start program, Illinois families lost roughly $73 million. But when it comes to his money, well, Giannoulias smartens up, taking a huge tax deduction by telling the IRS he worked at Broadway Bank in 2006 despite telling us he left in 2005. Call Giannoulias. Tell him to stop wasting the public's money. The U.S. Chamber is responsible for the content of this advertising.

OppenheimerFunds, Not Giannoulias, Devastated Bright Start Savings

Bright Start Program Managed By OppenheimerFunds, Whose Investment Went Wrong. According to FactCheck.org: "Here's what happened: the Bright Start 529 plan is managed by OppenheimerFunds, as are those of several other states. Oppenheimer put some of the money that individuals had invested in the 529s into its own Core Bond fund. Bond funds are normally prudent and relatively safe investments. But in this case, things went wrong. ... Core Bond was just one of 21 funds that Bright Start owned, so most of the money in the 529 was not affected." [FactCheck.org, 7/9/10]

Illinois — With Giannoulias As State Treasurer — Was The First State To Notice Problems With Core Bond Fund. According to FactCheck.org's examination of another political ad attacking Giannoulias over his involvement with Bright Start:

The ad charges that Giannoulias, who is state treasurer, "fell asleep at the wheel" while overseeing the Illinois Bright Start 529 college investment plan. On screen there's a mock highway sign with the quote "bad investment choices...leading to outsized losses" and a citation to the Chicago Sun-Times. It's a reference to losses in one of the funds the plan owns, the Oppenheimer Core Bond fund, in 2008.

The words in the ad indeed appeared in a Chicago Sun-Times story last year. But they were used in reference to the Core Bond fund's managers, not to Giannoulias. Those managers, as the Morningstar investment research firm put it, "gained exposure to the battered commercial mortgage-backed securities market through derivatives that had a leveraging effect on the fund, amplifying losses." Remember credit default swaps?

And a Giannoulias spokesman said that Illinois was the first state to notice problems with the fund and investigate. Of the approximately $150 million of investors' money that was lost in the Core fund (one of 21 funds owned by Bright Start, which is a $2 billion program), Giannoulias reached a settlement with Oppenheimer to recover $77 million. [FactCheck.org, 10/1/10, emphasis added]

Giannoulias Reached A Settlement With Oppenheimer To Recover $77 Million Of The Investors' Money. As reported by the Chicago Tribune: "The $77 million settlement with OppenheimerFunds Inc., announced Tuesday by Treasurer Alexi Giannoulias and state Attorney General Lisa Madigan, would partially reimburse about 65,000 account holders." [Chicago Tribune, 12/23/09]

Even Giannoulias' Opponent Initially Acknowledged Oppenheimer — Not Giannoulias — Was To Blame For The Fund Going Awry. The Chicago Tribune reported: "But rather than criticize the first-term Democratic state treasurer, Kirk went after 'a state bureaucrat that has a bad record.' Asked by a reporter who that bureaucrat was, Kirk replied it was the person who ran the Oppenheimer 'core plus' fund-who is not a state employee. That's the argument that Giannoulias has been making in trying to recover the funds." [Chicago Tribune, 10/12/09]

Giannoulias Stopped Taking New Broadway Bank Clients In 2005

Giannoulias Spokesman: Giannoulias "Stopped Taking New Clients" At Broadway Bank In 2005. From CNN.com:

"The Chicago Tribune article makes very clear that Alexi has been consistent about his role at the bank," Giannoulias spokesman Scott Burnham told CNN.

"First, Alexi paid his taxes properly. Second, Alexi stopped taking new clients when he announced for (state) treasurer in 2005 and left the bank entirely in 2006."

[CNN.com, 9/29/10]

In 2006, Giannoulias' Was On Paid Leave To "Close Out Old Responsibilities." From the Chicago Tribune:

Giannoulias said he has been clear that he left the "day-to-day" operations of the bank in September 2005 to prepare his first run for public office, but was on paid leave until May 2006 when he left completely to campaign full time for treasurer.

That 2006 work consisted of roughly 30 hours a week closing out his responsibilities before quitting as a bank officer, and didn't involve making new loans, Giannoulias explained in a recent interview. It was more than enough to qualify him for the tax break, he said.

IRS regulations allow taxpayers to deduct business losses from certain types of corporations if they've logged significant hours there for five of the last 10 years. Giannoulias started at the bank in 2002, so working at least 500 hours in 2006 qualifies Giannoulias for the tax break.

[Chicago Tribune, 9/29/10]

No Evidence Giannoulias Took Improper Tax Break

Chicago Tribune: "There Is No Suggestion" Giannoulias "Took A Tax Break He Didn't Deserve." From the Chicago Tribune: "Giannoulias was able to take a $2.7 million tax deduction last year because he reported working hundreds of hours at Broadway Bank in 2006. Giannoulias says there's no contradiction, and in fact there is no suggestion the Democratic state treasurer took a tax break he didn't deserve." [Chicago Tribune, 9/29/10]

Giannoulias Donated Tax Refund To Charity. From the Chicago Tribune:

Democratic U.S. Senate candidate Alexi Giannoulias didn't have to pay any state or federal income taxes last year because of big losses tied to his family's failed Broadway Bank, according to his campaign and tax returns released Friday.

The wealthy state treasurer stands to collect about $30,000 in refunds, but immediately announced he would donate the money to charities. Giannoulias sought to avoid having his tax situation become a campaign issue that could anger voters who make less money, pay their taxes and don't have much sympathy for a rich guy getting a break.

Giannoulias reported $2.7 million in losses last year. That represents the 3.6 percent of Broadway Bank he owned in non-voting shares, said campaign spokeswoman Kathleen Strand.

[...]

Giannoulias was paid $135,669 last year as treasurer. He paid $4,512 in state and $25,459 in federal income taxes withheld from his paychecks. The refund of those taxes is what he said he'll send to charities.

Giannoulias' campaign pointed to Senate economic disclosures that showed Giannoulias' net worth has dropped by approximately half in just a year.

[Chicago Tribune, 7/2/10]

Giannoulias Played A Limited Role In Broadway Bank's Failure

Giannoulias Wasn't Even At Broadway Bank When More Than 90% Of Its Failed Loans Were Made. According to Factcheck.org: "Giannoulias was fresh out of law school when he joined the family business, and says his role in the bank's failure was limited. Both he and the bank have said that only 9 percent of the nonperforming loans held by Broadway at the beginning of 2010 were made during his time at the bank. Furthermore, not all of those were approved by him. He has said that he takes his "share of the responsibility for mistakes that were made ... in investing too heavily in commercial real estate and not diversifying into other sectors." He denied that the loans were "reckless or risky," though. [FactCheck.org, 10/1/10]

  • Since The Beginning Of 2009, More Than 200 Community Banks Have Failed Because Of The Economic Downturn. According to FactCheck.org: "It's also true, as Giannoulias points out on his website, that more than 200 community banks have failed since the beginning of 2009, and the shutterings continue, because of the economy's downturn and particularly the collapse of the real estate market. Unfortunately, Broadway has lots of company." [FactCheck.org, 10/1/10]
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