Former Ald. Patrick Daley Thompson was the first Daley family member to face trial and the first sitting Chicago Council member to do so in more than two decades. He was convicted on all counts Feb. 14 in his trial for income tax fraud and lying to federal regulators about money he got from a failed Bridgeport bank, Washington Federal Bank for Savings.

Ald. Patrick Daley Thompson is about to be the first Daley family member to face trial and the first sitting Chicago Council member to do so in more than two decades. He was charged in connection with the investigation of a failed Bridgeport bank, Washington Federal Bank for Savings.

Ashlee Rezin / Sun-Times

A Daley goes on trial, writing a new chapter in Chicago history

Ald. Patrick Daley Thompson’s tax fraud case opens Monday. He’ll be the first from Chicago’s Daley political family to face trial and the first sitting Chicago City Council member on trial in more than two decades.

When Richard M. Daley walked away from the mayor’s office in 2011, his nephew Patrick Daley Thompson picked up the family’s political mantle, running for and winning a seat on the board of the Metropolitan Water Reclamation District of Greater Chicago, the government agency that treats Cook County’s sewage.

Around that time, Thompson got a $110,000 loan from what was then a little-known Bridgeport bank that later was shut down for massive fraud.

Now, as he goes on trial Monday for income-tax fraud, that deal with Washington Federal Bank for Savings threatens to end the political career of the late Mayor Richard J. Daley’s grandson, the only Daley family member of his generation to hold public office.

VIEWING PATRICK DALEY THOMPSON TRIAL

VIEWING THE TRIAL


Public access to the courtroom for Ald. Patrick Daley Thompson’s tax-fraud trial is restricted because of the COVID-19 pandemic. But anyone who wants to observe will be able to from the 25th-floor ceremonial courtroom at the Dirksen Federal Building, 219 S. Dearborn Ave.


Thompson, who has represented Bridgeport and the 11th Ward on the Chicago City Council since 2015, is one of 15 people who have been charged with crimes stemming from the federal investigation into the bank’s failure.

All but one of the 14 others — including William Mahon, a longtime fixture at City Hall who resigned his high-ranking post with the Department of Streets and Sanitation in December — worked for or were on the bank’s board or got money from the bank, which authorities have said handed out loans with no expectation the money would ever have to be repaid.

No member of the Daley family has gone on trial before, though another grandson of the late mayor, Richard J. “R.J.” Vanecko, pleaded guilty in January 2014 to involuntary manslaughter, admitting he threw the punch that caused David Koschman’s death in 2004.

The trial, before U.S. District Judge Franklin Valderrama, also would be the first of a sitting Chicago City Council member in more than two decades. Though others have faced criminal charges, they pleaded guilty, avoiding trial.

BANK TIES

Thompson, 51, had a seven-year relationship with Washington Federal and John F. Gembara, its president, chief executive officer and major shareholder, with whom court files show he exchanged emails over a yearslong span.

Besides the $110,000 loan, the bank also gave Thompson $20,000 in 2013 to pay a debt to the Internal Revenue Service and $89,000 in 2014 to avoid foreclosure on a two-flat in Bridgeport — a total of $219,000 in loans.

Thompson owed the bank nearly all of that money plus interest when he was elected to the Council in April 2015 — debts he wasn’t required to disclose on his yearly City Hall ethics statements.

John Gembara.

John Gembara.

Provided

Court records show Thompson’s final email to Gembara about his loans was sent Nov. 30, 2017.

That was two days after the banker was suspended by the Washington Federal board at the urging of federal regulators who had uncovered a “massive fraud scheme” they later said resulted in the disappearance of nearly $90 million.

What Thompson wrote in that email hasn’t been made public.

Three days after he sent it, Gembara was found dead with a rope around his neck in the main bedroom of a $1 million Park Ridge home owned by a Washington Federal customer who owed the bank millions of dollars. That’s when the yearslong scheme at the Bridgeport bank began to unravel.

Federal regulators closed the bank on Dec. 15, 2017.

THE ACCUSATIONS

Thompson — who is raising his three children in the same Bridgeport bungalow where his grandfather raised his seven children — is charged with five counts of filing false federal income tax returns, covering the years 2013 through 2017.

He also is charged with lying to federal regulators in early 2018. Prosecutors say the Bridgeport politician — who, with Cook County Commissioner John Daley, his uncle, also heads the 11th Ward Regular Democratic Organization — told authorities then that he owed Washington Federal far less than he actually did, just $110,000.

Washington Federal Bank for Savings, 2869 S. Archer Ave., before it was shut down in December 2017 for “unsafe or unsound practices” days after CEO John F. Gembara was found dead at a bank customer’s home in what authorities called a suicide.

Washington Federal Bank for Savings, 2869 S. Archer Ave., before it 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 called a suicide.

Google Street View

Thompson got the unsecured $110,000 personal loan in November 2011 to make his capital contribution — his buy-in — to join a new law firm, Burke Warren McKay & Serritella, records show.

He had made only one payment toward that loan, of $389.58, until after the bank was shut down, according to prosecutors.

But a Gembara employee, Alicia Mandujano, has pleaded guilty in the separate case involving Washington Federal employees and the bank’s board and is expected to testify that she made bookkeeping entries to falsely make it appear Thompson had been making payments to the bank even though he hadn’t.

After Thompson won a seat on the sewage district board, he got another $20,000 from the bank in March 2013 to pay his federal taxes after the IRS threatened to place a lien against his home because he owed $13,614.

The bank gave Thompson another $89,000 in January 2014 after his wife, Kathleen Thompson, was served with a lawsuit by North Community Bank over a mortgage on the couple’s rental property two doors south of their bungalow.

DEDUCTION DISPUTE

He made only one payment on all of the money he borrowed from the bank, as Gembara’s employees kept adding the unpaid interest that was being accrued to the total he owed.

Thompson didn’t make any interest payments.

And authorities have described the money Gembara gave Thompson as a personal loan, unsecured by any collateral. So the interest couldn’t lawfully be deducted on his federal tax returns.

Yet the bank sent him annual IRS 1098 forms showing he paid interest.

Court records show Thompson turned those over to Bansley & Kiener, his accountants as well as the longtime accounting firm for Gembara’s bank, Thompson’s campaign fund and the 11th Ward Democratic organization.

The federal income tax returns Thompson and his wife filed for the years 2012 through 2017 falsely claimed deductions for interest to Gembara’s bank, according to court records, though he’s charged for only the years 2013 through 2017.

According to prosecutors, Thompson, who is a real estate lawyer, should have known he couldn’t deduct interest on an unsecured loan on his federal income tax returns.

After the bank was closed, Thompson’s loan was turned over to Planet Home Lending, which sent him a statement saying he owed $269,120.58.

Thompson called the company on Feb. 23, 2018, saying, “I borrowed $100,000 dollars,” and, “I have no idea where the 269 number comes from,” court records show.

On March 1, 2018, Thompson again told Federal Deposit Insurance Corp. contractors he’d borrowed only $110,000.

But he settled his entire debt more than nine months later — around the time federal agents came to his door.

Clout’s piggy bank

THOMPSON DEFENSE: ‘DISORGANIZED’

Since Thompson’s indictment last April, he has said he committed no crime.

His lawyer Chris Gair, a former federal prosecutor, has said Thompson didn’t pay interest on the Washington Federal loans because he expected to refinance the debt with the mortgages on his home and rental property and repeatedly tried to get Gembara to approve that.

Gair has painted an unflattering portrait of Thompson in his court filings to explain what he says were mistakes, not crimes: “Mr. Thompson’s lack of organization and lack of attention to the details of his personal financial affairs are central to his defense.”

Thompson’s secretary will testify he “is one of the, if not the, most disorganized lawyers she has ever worked with,” Gair wrote. “His office contains disorganized piles of paperwork all over his desk, the chairs and even the floor.”

Gair has said Thompson put the bogus interest forms from Washington Federal in a folder and didn’t realize that his accountants used them to claim a mortgage-interest deduction year after year.

‘ASTUTE’ AND ‘ATTENTIVE’

Prosecutors Brian Netols and Michelle Petersen have said Thompson “is a practicing lawyer and an elected official who serves on committees, debates legislation and represents his constituents’ interests. Undoubtedly, there are situations where [Thompson] is astute and attentive to details.”

Gair has said Thompson had “simply forgotten” about the additional $109,000 he received from the bank when he told Planet Home Lending and the FDIC he owed only $110,000.

Prosecutors, who need to prove Thompson knew his statements were false, have said Thompson received that money under “unique, stressful and very memorable circumstances” — while under threat from the IRS and after his wife had been served with a lawsuit.

In a pretrial victory for Thompson, Valderrama has ruled that prosecutors can’t tell jurors Thompson got money to avoid an IRS lien and a foreclosure on his rental property.

The judge also has ruled that Gair can show jurors the amended tax returns Thompson filed in April 2019 for the years 2013 through 2017 and that the Council member paid the $15,000 he had improperly deducted.

Gair said that was the result of a settlement Thompson reached with Planet Home Lending in November 2018 to pay off his Washington Federal debt for the principal balance of $219,000 — though not the unpaid interest.

When Thompson told his accountant that deal didn’t require him to pay the interest on the loan, Gair said the accountant told him he had improperly claimed interest deductions on his tax returns.

According to Gair, Thompson’s first conversation with the accountant on that subject was in late November or early December 2018.

According to prosecutors, the amended tax returns were prompted by a visit paid by federal agents to Thompson home on Dec. 3, 2018. Thompson’s accountant, Robert Hannigan of Bansley & Kiener, testified at a hearing last month that he discovered a note that indicated he first spoke to Thompson about amending the tax returns on Dec. 7, 2018, four days after the agents’ visit.

That’s also around the time Thompson paid off the Washington Federal debt, records show.

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Click here to read the Sun-Times’ initial investigation of the failure of Washington Federal Bank for Savings.

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