LOS ANGELES (Reuters) - Federal prosecutors who have already indicted President Donald Trump’s former campaign chairman Paul Manafort on charges of money laundering, bank fraud and covertly lobbying for pro-Russian interests may have additional leverage arising from a loan he received while engaged in the bankruptcies of properties in California, several former law enforcement officials say.
Reuters has found new information about Manafort’s handling of the loan and its potential link to the bankruptcies as Special Counsel Robert Mueller seeks to pressure Manafort to cooperate with his investigation into Trump’s campaign team and possible collusion with Russian efforts to interfere in the 2016 election.
At issue is whether the failure to disclose a loan from a lender that was also the main creditor in the California bankruptcy cases represented an illegal concealment of material information.
Reuters has also learned that over the past several months Mueller has begun focusing on Jeffrey Yohai, Manafort’s former son-in-law and his partner in four California property deals that failed and were placed in bankruptcy, as a potentially valuable witness in his probe.
Last week Mueller filed new criminal charges against Manafort and Rick Gates, a former business partner who served as Trump’s deputy campaign manager. The California bankruptcies might be yet another avenue of inquiry for Mueller’s team, said Frank Figliuzzi, who was assistant director of counterintelligence for the Federal Bureau of Investigation under Mueller until 2012.
“It’s all about increasing pressure on Manafort to cooperate,” he said.
A Reuters review of property records and California bankruptcy court filings shows that a Manafort-controlled company secured in early 2017 a loan against a Brooklyn home from Genesis Capital LLC, now owned by Goldman Sachs, which was the top secured creditor in the bankruptcies of the four high-priced properties in the Los Angeles area.
Genesis signed off on the $303,750 (£216,070) loan two days after a judge overseeing the bankruptcies agreed to release from creditor protection one of the properties - a Spanish colonial-style home.
The move, pushed by Manafort’s lawyers and requested in court by a lawyer representing the bankrupt properties, allowed Genesis to put the property up for sale, while the loan helped Manafort finalise a $6.8 million refinancing of the Brooklyn home with another lender. (Graphic: tmsnrt.rs/2BQ5MPe)
Neither Manafort, Genesis, nor the lawyer representing the bankrupt properties disclosed the Brooklyn loan to the bankruptcy court - and all told Reuters they had no obligation to do so. Yohai was also kept in the dark, his lawyer said.
Under federal law, the knowing concealment of an asset or financial transaction that materially impacts a bankruptcy proceeding constitutes bankruptcy fraud. Four former federal prosecutors who reviewed Reuters’ findings said not disclosing the Brooklyn loan could amount to fraud if the loan and the Spanish colonial home’s release were connected to each other and deliberately concealed.
“You can’t just do things on the side and not tell,” said Patrick Cotter, a criminal defence lawyer in Chicago and former assistant U.S. attorney in New York.
Dan Guthrie, a Dallas white collar defence lawyer and former federal prosecutor, said it would be unlikely that a prosecutor would pursue an indictment without firm evidence of a “quid pro quo”
“As a prosecutor you are not going to want to go forward with an indictment without solid proof of that connection,” he said.
Catherine Bauer, the judge overseeing the bankruptcy cases in California, and Michael Hauser, the U.S. trustee assigned to the cases, both declined to comment.
Matthew Browndorf, a partner at the law firm that represented Manafort, said all of its court filings “followed the required process and disclosures of the California Bankruptcy Court.” He declined further comment.
Jeffrey Dulberg, a lawyer for Genesis, said his client was unaware of what was behind the decision to release the Spanish colonial home from bankruptcy. Of the other three properties, Genesis foreclosed on one and two remain in bankruptcy proceedings.
Manafort referred questions to his spokesman, who declined to comment, citing a gag order in the criminal case.
Marc Forsythe, who represented the four limited liability companies that filed for bankruptcy, said he was not required to disclose the loan because he was never told that MC Brooklyn Holdings, LLC, the Manafort company that received the loan from Genesis, was a party to or had any interest in the bankruptcies.
On Thursday, Mueller filed new criminal charges against Manafort and Gates, supplementing indictments in October. The two men stand accused of laundering more than $30 million, using secret offshore accounts, duping banks to get loans, and failing to register as foreign agents for the lobbying they did for a pro-Russian Ukranian political party.
On Friday, Gates pleaded guilty to conspiracy against the United States and lying to investigators, and he is cooperating with the probe, but Manafort maintains his innocence and has vowed to take his case to trial.
As a close business partner Yohai was privy to many of Manafort’s financial dealings. They were 50-50 partners in parent company of the four bankrupt LLCs and were working together on refinancing strategies before they had a falling out last September over a plan to buy two of the four properties out of bankruptcy, court filings and emails show.
Mueller’s prosecutors interviewed Yohai in June, asking him about Manafort’s relationship with Trump, his ties to Russian oligarchs, and his recent mortgaging of various properties in New York, two people familiar with the matter said.
A Los Angeles federal prosecutor overseeing a separate probe into alleged financial wrongdoing by Yohai has recently pressured him to sign a plea deal that includes a cooperation component, they said. Reuters was unable to determine what sort of cooperation that deal sought.
Yohai’s lawyers did not respond to questions about the interview or the Los Angeles investigation.
A spokesman for Mueller declined to comment.
The key events related to the loan for Manafort’s Brooklyn brownstone played out in early 2017. On Jan. 13, two days after bankruptcy judge Bauer agreed at a hearing to release the Spanish colonial home, Genesis gave MC Brooklyn Holdings the $303,750 loan.
The loan was critical for Manafort to bridge the gap between $6.8 million needed to refinance the brownstone and $6.5 million that Federal Savings Bank agreed to lend him, two people familiar with the matter said.
Yohai was in an Arizona facility being treated for anxiety and was unaware of the loan at the time, according to those familiar with the matter.
When he left the facility in mid-January the decision to release the Spanish colonial-style home was not yet binding and Yohai had Forsythe draft a motion arguing the initial request did not reflect his views and seeking its reversal. But Yohai did not submit the motion and eventually agreed to let the move go forward in February.
Reporting by Nathan Layne; Editing by Kieran Murray and Tomasz Janowski