- Lester Munson, Legal Analyst
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Time to brush up on your classics, boys and girls, and the life lessons they can teach. (Please keep those comments about Courtside Seat's classical gas problem to yourselves!) We're going all the way back to one of the most iconic epic poems of all time to get to the moral of this particular classic story about one of the most iconic epic quarterbacks of all time. (Or at least of all Central Standard Time, which is the way they measure it in Chicago.) We'll get to Ryan Leaf in a moment, but today we start with
"Trojans, don't trust this horse!"
For Jim McMahon, the trouble began in 2002 when a group of Greeks arrived bearing gifts. They offered him a share of a new restaurant. They arranged for an advantageous $4 million loan from a bank to build it. They offered stock in the private bank that made the loan. And finally, they offered a membership on the board of directors of the bank. Sign here, Jim.
The man with the plan for the restaurant was Gus Cappas. The men at the bank were the Giannoulias brothers (Demetris, George and Alexi).
An array of investment opportunities like that does not come along often. Most restaurant developers don't want outside investors. Stock in privately-held banks is rarely offered on the open market. And membership on a bank board can be expected to lead to other golden circumstances.
McMahon, the former Chicago Bears quarterback who led the team to a resounding win in Super Bowl XX, was intrigued and wanted to invest. But according to a number of his friends and advisors who spoke on condition of anonymity because of the sensitivity of the issues, several people told McMahon to stay away from Cappas and the Giannoulias brothers and their schemes. Don't go near them, they said.
They told McMahon the restaurant business is tricky and that the bank was making some loans to some dubious characters. The most dubious was Michael "Jaws" Giorango, a hoodlum who has been convicted twice of syndicate bookmaking and also did time in a penitentiary for operating a nationwide prostitution ring known as "The Circuit." The Giannoulias brothers and their Broadway Bank loaned $40 million to Giorango, including a mortgage on a hotel in Miami that he operated as a brothel.
Other dubious Broadway Bank loans went to Demetri Stavropoulos, another bookie with ties to organized crime who was incarcerated at the time of the closing of one of the loans (his wife signed the papers); and to a Chicago politician named John D'Arco Jr., who had been convicted of taking bribes while in the Illinois State Senate and of bribing a judge.
McMahon ignored the friends and advisors who told him to stay away. And sure enough, trouble came early. The restaurant was built to resemble the old Chicago Stadium and, in fact, was to be called "Chicago Stadium." It was an interesting idea, but Chicago's powerful Wirtz family, whose enormous empire included the stadium and the Chicago Blackhawks, was not happy. On the eve of the restaurant's opening, after McMahon and Cappas had spent the borrowed millions to build and furnish the restaurant, the Wirtz family filed suit against them and quickly and easily obtained a court order prohibiting them from using the name.
It was the first in a series of setbacks that has cost McMahon his entire investment and probably a lot more.
Operating the renamed restaurant as "McMahon's Arena," the business went well for a few months until McMahon began to notice some funny things. The place always seemed to be packed with customers, but the monthly payments of $4,000 he'd been getting for the use of his name stopped. He stopped receiving his 5 percent of the gross, too. And Cappas had stopped paying the vendors who supplied the restaurant. Where was the money going?
Less than a year after it opened, the place closed. McMahon was left with nothing but a lawsuit against the elusive Cappas.
"This restaurant should never have been closed," observed Paul Vickery, one of McMahon's lawyers at the time of the closing. "This is a classic case of trust and betrayal. Jim threw in with somebody he trusted, and that trust was betrayed."
With McMahon as a stockholder and member of its board of directors, the bank -- like the restaurant -- went well for a time. But also like the restaurant, that situation deteriorated, too. Seeking rapid growth, the Giannoulias brothers orchestrated a series of loans on condominium and restaurant projects that were highly risky. Later inspections by the Federal Deposit Insurance Corporation and a State of Illinois agency that regulates banks showed that many of the borrowers had no credit and little capacity to repay the loans. Beginning in 2005, the regulators were issuing official warnings to the bank -- not something an investor like McMahon wants to see.
Finally, on the morning of June 24, 2008, the bank examiners met personally with the board of directors. It is not known whether McMahon attended the meeting. (His attendance at previous meetings had been spotty.) The regulators told the bankers that they must change their ways and reduce their risk taking. On the same afternoon, however, the bank directors approved what the FDIC now says were two "grossly imprudent loans" which later resulted in $12 million in losses to the bank.
Ignoring the warnings from the regulators, the bank's managers and its board continued to make risky loans that resulted in large losses. On April 10, 2010, the regulators seized control of the bank, closed it, and appointed the FDIC as its receiver. The actions cost McMahon and the others their entire investment in the bank. The FDIC estimates that the bank's losses have resulted in payments of $391.4 million from the FDIC's deposit insurance fund.
It was a dramatic fall for McMahon and the Giannoulias brothers, one of whom, Alexi, was a candidate for the U.S. Senate at the time of the bank's failure.
And the problems for McMahon continue. In a lawsuit filed last month against McMahon and others responsible for the losses at Broadway Bank, the FDIC is now seeking $104 million, citing a series of specific loans in which the decision-making by the board and the bank's staff was particularly egregious.
McMahon is trying to fight back. He declined to discuss the situation with ESPN.com, and his lawyers at the Chicago firm of Katten & Temple would not discuss the specifics of the FDIC's allegations. But the firm issued a prepared statement that says McMahon had been "proud to have served" as a director of the bank. The statement suggests that the bank, founded "by an immigrant who left Greece in 1962 to find a better life in America," has provided "capital for economic development and expansion that gave homes and jobs to tens of thousands of people."
Sounds like a nice little affirmation of the American Dream, doesn't it?
McMahon and his lawyers had to say something. Apparently, that statement is the best they could do.
The FDIC, not surprisingly, tells a different story about the American Dream, at least as it applies to banking, in its lawsuit. In the specific charges against McMahon, the FDIC describes a loan for $28 million that McMahon and the other directors approved to one Les G. Jones for a real estate project. It was a loan that required Jones to pay only the interest on it; and as a further favor for Jones, the bank included in the loan proceeds the first year of interest payments.
The loan was to be invested in a townhouse project known as "Normandy Shores," another of those nice touches of American history that real estate sharps love to use. This bit of Normandy was in Miami Beach and was already "behind schedule" and "millions of dollars over budget," according to the FDIC lawsuit. And, incredibly, Jones, the developer and borrower, had been living in Brazil for five years at the time the bank approved the loan without requiring him to produce tax returns or any other evidence that he could repay it.
Try that one at home. Call a bank and tell them you're building a house a few thousand miles away that is already behind schedule and over budget. Tell the bank you need a mortgage for twice the current value of the project. Tell them you want to pay interest only, and that you don't want to pay the first year's interest at all. See what they say after they stop laughing.
Whether the loan was made by a family of Greek immigrants or by a family whose ancestors arrived in this country on the Mayflower, the Normandy Shores deal was a bad one, doomed to fail.
It isn't a big surprise, then, that the FDIC is accusing McMahon and the Giannoulias brothers and others of "gross negligence" that led to "reckless growth" and ultimately the failure of the bank.
The restaurant now stands empty. The FDIC, as receiver of the Broadway Bank, is its owner. It is entangled in multiple liens and the FDIC litigation. The bank is dead. And McMahon is now living in Arizona.
A priest named Laocoon in Virgil's "Aeneid" first warned against "Greeks bearing gifts." Millions of students have studied the story of the Trojan Horse in Latin and literature classes, with its lesson that applies to any too-good-to-be-true opportunity. It's a warning that should be heeded by any professional athlete with funds to invest.
A falling Leaf
Facing two sets of serious charges in Montana and the likelihood of hard time in a penitentiary in Texas, Ryan Leaf appears to have reached the lowest point yet of his addiction.
Will it be a turning point for him? His medical and criminal records both point to an addiction to painkillers, and the literature on addiction and recovery and the principles of 12-step programs agree that an addict must "deflate" or "hit bottom" before anything good can happen.
For Leaf, the descent to his current "bottom" has been painful and public. Twice in the last two weeks in his home town of Great Falls, Mont., a place where people leave their doors unlocked, he has been caught in strangers' homes grabbing their prescription pain medications.
Once the town's football hero, he now sits in the Cascade County Jail facing multiple charges of burglary and criminal possession of dangerous drugs.
Even worse, the arrests and the charges will soon be the basis for a demand by authorities in Canyon, Texas, to revoke Leaf's probation and to send him to the penitentiary for what could easily be a long-term stay. The probation came in 2008 after he admitted guilt to eight felony charges resulting from his thefts of pain pills.
It's a classic story of addiction, recovery and relapse. Leaf went through six weeks of rehab after his arrests in Texas in 2008, and he seemed to do well for a while. But he appears now to be in the middle of what addiction counselors call a "slip." His drug of choice in the recent series of legal run-ins is hydrocordone, a highly addictive pain control drug that for some people produces a buzz that is instant and lasting.
Leaf's crimes pose difficult questions for law enforcement, questions faced in thousands of cases in the U.S. each day. Do we punish the crimes of addiction or do we treat the causes of the addiction? Will it be rehabilitation and treatment, or incarceration and punishment?
The authorities in Montana seem willing to try the treatment route for Leaf. Cascade County Attorney John W. Parker told ESPN.com that he is considering a "rigorous, lockdown form of treatment." It is available within the state's corrections system in a program known as "Nexus."
But the authorities in Texas are not interested in treatment. Randall County District Attorney James Farren says, "We will argue against giving Mr. Leaf another chance. He has had his chance, and he has blown that chance."
Farren says he will ask for "serious penitentiary time." What does he mean by "serious?" He told ESPN.com that the charges against Leaf are significant felonies and that "they should result in a sentence of 10 to 20 years."
Bill Kelly, an attorney who starred as a wide receiver and running back at North Carolina and now represents Leaf in Texas, says, "I would hope that the state of Texas would take a good look at the underlying problem and see it for what it is. I don't see what incarceration will do to get Ryan out of the rut and back on track."
There's little doubt that Leaf has blown his second chance, but there's also little doubt that treatment makes more sense than incarceration. Incarceration produces frustration, rage and ennui. Treatment restores hope, healing and health.
Here's the way it looks in the view from this Courtside Seat: The courts of Montana and Texas should find a way to offer rehab and treatment to Leaf, because it just might take hold. And if it does, he could spend the next 10 to 20 years helping others who face the same obsessive disease instead of sitting in a penitentiary at public expense.
11hAdam Lewis, Special to ESPN.com