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Ald. Patrick Daley Thompson got secret deal from Bridgeport bank shut down for ‘massive fraud’

He bought a summer home in Michigan with an unrecorded loan from Washington Federal Bank for Savings and now is under investigation for claiming deductions on his tax returns for interest authorities found he never paid, sources tell the Sun-Times.

Ald. Patrick Daley Thompson.
Ald. Patrick Daley Thompson won’t comment on the loan.
Colin Boyle / Sun-Times file

Shortly after his election to the Chicago City Council in April 2015, Ald. Patrick Daley Thompson (11th) bought a $340,000 summer home in Michigan with a secret loan from a small Bridgeport bank that federal regulators later shut down for “massive fraud,” the Chicago Sun-Times has learned.

Washington Federal Bank for Savings never publicly recorded the loan, for which federal authorities have found that Thompson never made any payments on the principal or interest, according to sources familiar with an ongoing criminal investigation into the bank’s failure.

But the authorities found that the Bridgeport alderman still deducted thousands of dollars in interest payments that he owed — but never paid — the bank on the federal income-tax returns he and his wife filed with the Internal Revenue Service for several years, the sources say.

Thompson, who didn’t respond to attempts to reach him, has come under scrutiny as part of the federal investigation, the Sun-Times has reported. Sources say Thompson is among several bank customers under investigation for tax fraud regarding loans they received from Washington Federal Bank. They say authorities have been examining the loan for his summer home and his tax returns as part of their broader investigation into the collapse of the bank.

In an age when bank failures are rare, federal regulators shut down Washington Federal in December 2017. That was less than two weeks after John F. Gembara — its president, chief executive officer and major shareholder — was found hanged in the master bedroom of his bank customer and friend Marek Matczuk’s million-dollar Park Ridge home. Matczuk had five outstanding loans from Washington Federal totaling about $1.8 million.

Washington Federal Bank for Savings, 2869 S. Archer Ave., was shut down in December 2017 for “unsafe or unsound practices” days after its president and chief executive officer, John F. Gembara, was found dead at a bank customer’s home. A federal audit uncovered an $82.6 million fraud at the bank.
Washington Federal Bank for Savings, 2869 S. Archer Ave., was shut down in December 2017 for “unsafe or unsound practices” days after its president John F. Gembara was found dead at a bank customer’s home in what authorities labeled a suicide.
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Federal authorities investigating Washington Federal’s failure have found that the bank Gembara’s grandfather founded in 1913 to serve his fellow Polish immigrants made loans in some cases that customers didn’t have to repay, loans that were made either without requiring any collateral or without appraising the value of the collateral.

Four bank officials have been indicted on bank fraud charges in the ongoing cases, though a prosecutor has said “more” will be charged in the coming weeks.

Robert M. Kowalski.
Robert M. Kowalski, an attorney and developer who was among Washington Federal Bank for Savings’ biggest customers, has been charged with embezzling as much as $29 million from the bank.
Provided

And one of the bank’s biggest customers, attorney and developer Robert M. Kowalski, has been charged with embezzling as much as $29 million from the bank. Gembara was the godfather of Kowalski’s son.

The bank’s other four board members — including Gembara’s sister Janice Weston and William Mahon, a stalwart of the Daley family’s 11th Ward political machine who is a deputy commissioner of the city of Chicago’s Department of Streets and Sanitation — have retained criminal defense attorneys.

Thompson, an attorney who is the grandson and nephew of Chicago’s two longest-serving mayors, and his wife Kathleen, who is assistant principal of a Bridgeport school, owe income taxes, penalties and interest totaling in the six figures to the IRS related to the Washington Federal loan, sources say.

It’s the second time the Thompsons have run afoul of the IRS. On June 16, 2010, the IRS placed a lien against the couple for failing to pay $38,635 in income taxes, records show. The lien was removed eight weeks later.

Besides Thompson’s personal loan, the alderman also got an $80,000 loan from the bank two months before it was shut down for what he previously has told the Sun-Times was to make repairs to the 11th Ward Regular Democratic Party headquarters at 3659 S. Halsted St.

The 11th Ward Regular Democratic Party headquarters, 3659 S. Halsted St.
The 11th Ward Regular Democratic Party headquarters, 3659 S. Halsted St.
Kevin Tanaka / Sun-Times file

The only public notice of the party’s loan was in campaign-finance reports the Daley organization filed with the Illinois State Board of Elections after the bank closed.

Sources say that, when regulators shut the bank down, they discovered the 11th Ward organization hadn’t made any payments on the loan.

In May 2018, months later, Thompson and Cook County Commissioner John P. Daley, one of his uncles, negotiated a new loan with Royal Savings Bank, which took over Washington Federal’s deposits and a few loans, records show. The 11th Ward organization has been using campaign contributions to repay the loan, which is due to be fully paid off in 2023.

About a year after Washington Federal was shut down, Thompson and his wife refinanced the mortgage on their Bridgeport bungalow — the home where his grandfather, the late Mayor Richard J. Daley, raised seven children — and took out a mortgage on their summer home, both loans from Morgan Stanley Private Bank. It’s unclear whether they used the money to repay the Washington Federal loan, which was among those that were taken over by the Federal Deposit Insurance Corporation.

The Morgan Stanley mortgages total $704,000 and were signed by Thompson and his wife. Both mortgages include a disclaimer that says Thompson’s wife “is not assuming any personal liability for repayment of the debt.”

Kathleen Thompson wouldn’t comment.

Patrick Daley Thompson, 51, is the youngest child of the late Mayor Daley’s eldest child Patricia Martino, who, after a divorce, raised her three children next door to her parents’ bungalow in the 3500 block of South Lowe Avenue.

Thompson and his wife owned two Bridgeport homes at the time of his grandmother Eleanor “Sis” Daley’s death in 2003. They then bought the historic bungalow from the family estate for $415,000, sold one of their homes to a city worker who is part of the 11th Ward organization and kept the other house, which is two doors south of the Daley family bungalow.

Even before he first sought public office, Thompson — who in his private law practice worked on development cases overseen by city officials during the tenure of his uncle, former Mayor Richard M. Daley — had long been seen as a likely candidate. After his uncle retired, Thompson mounted his first race for elected office, winning a seat on the board of the Metropolitan Water Reclamation District of Greater Chicago, the sewage-treatment agency.

Thompson was sworn into office in December 2012. That came just a day after one of his cousins, Richard J. “R.J.” Vanecko, was indicted for involuntary manslaughter after a special prosecutor, appointed in the wake of a Sun-Times investigation, found that Vanecko threw a punch that killed David Koschman eight years earlier. Vanecko later pleaded guilty and spent two months in jail.

When former Ald. James Balcer (11th) announced he’d be retiring in 2015, Thompson gave up his seat on the water reclamation district board and ran for alderman of the South Side ward that’s his family’s longtime political stronghold.

Thompson won the aldermanic seat on April 6, 2015.

The summer home in New Buffalo, Michigan, that Ald. Patrick Daley Thompson bought.
Patrick Daley Thompson bought this summer home in New Buffalo, Michigan, for $340,000 from Frank Giglio, a plumber who once represented Calumet City in the Illinois House of Representatives.
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At that point, Thompson and his wife owned two homes — the one where they live in Bridgeport and a second one nearby that they rented out. Within three weeks, they also owned the the vacation home in New Buffalo, Michigan.

They had a $505,000 mortgage from 2004 on their residence and two other mortgages, totaling $293,500, on their rental property two doors away. No mortgage was recorded with Michigan officials, which would have indicated how the Thompsons financed their new summer home.

In January 2017 — 20 months after they bought the Michigan home — the Thompsons sold their rental property on South Lowe for $335,000, which was about $175,000 more than they paid for it in 1998, and repaid both mortgages on that home.

Later that year, on Dec. 3, 2017, Gembara’s body was found with a rope wrapped around a railing and his neck in Matczuk’s locked master bedroom.

Gembara’s death was ruled a suicide by the Cook County medical examiner’s office, but his widow’s lawyer has said she suspects that someone killed him.

Gembara had been told that federal regulators had found a massive fraud scheme at the family-run bank and planned to shut it down, which they did on Dec. 15, 2017.

Regulators later found that Gembara’s bank had lost $82.6 million through bad loans, some made without collateral or even any paperwork, and that bank board members had been allowed to approve loans without any oversight from the rest of the board.

Sources say the investigation found that Thompson had gotten the loan for about $350,000 but never made any payments on the principal or interest but that he and his wife filed joint annual tax returns with the IRS in which they declared they had made interest payments on the loan — a deduction that lowered the amount of taxes they owed by thousands of dollars over multiple years.

During the course of the federal investigation, the Thompsons got two 30-year mortgages from Morgan Stanley: a $454,000 mortgage on their Bridgeport home obtained on Nov. 21, 2018, and a $250,000 loan on the Michigan home on Dec. 5, 2018.

In September 2019, a federal grand jury in Chicago subpoenaed officials in Cook County and Berrien County, Michigan, for all documents, including deeds and mortgages, filed since 2011 regarding the Thompsons’ Bridgeport home, the rental home they owned two doors south and their summer home, records show.

Thompson’s campaign fund had business dealings with Washington Federal Bank that began in November 2014, when he started running for alderman, paying the bank about $1,572 in fees.

Over the past several years, campaign-finance records show Washington Federal made eight campaign contributions totaling $2,325 to the 11th Ward Democratic Party’s campaign fund.

Thompson and his family have long ties to Washington Federal’s former accounting firm, Bansley & Kiener, which gave the bank a clean bill of health five months before the bank was shut down for fraud. Since 1999, the campaign funds for the 11th Ward Democratic Party, John Daley, Richard M. Daley and Thompson have paid Bansley & Kiener a total of nearly $400,000 in accounting fees.

Bansley & Kiener, which initially refused to comply with a government subpoena for its Washington Federal records, paid the FDIC $2.5 million last August though it made no admission of wrongdoing. That was to settle unspecified claims over the bank’s failure, though the FDIC could still seek restitution from the firm.

Read Sun-Times’ initial investigation

The first story in the Sun-Times investigation of the failed Bridgeport bank Washington Federal Bank for Savings, published March 4, 2018.
The first story in the Sun-Times investigation of the failed Bridgeport bank Washington Federal Bank for Savings, published March 4, 2018.
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