Feds raid Cunningham home, MZM offices and boat

By: MARK WALKER - Staff Writer | Friday, July 1, 2005 10:18 PM PDT ∞

Dozens of federal agents conducted searches at opposite ends of the nation Friday in a widening investigation of U.S. Rep. Randy "Duke" Cunningham, breaking into his Rancho Santa Fe home and carrying away boxes of evidence from the house and from a contractor's office in Washington, D.C.

Agents spent hours combing Cunningham's home, an action his attorneys called "strong-arm tactics" designed to generate headlines.

Cunningham is under fire for his dealings with the defense contracting firm MZM, Inc. and its owner, Mitchell J. Wade, who bought a house from the congressman and then sold it for $700,000 less than what he paid.

Cunningham has denied any wrongdoing.

Also searched were MZM's offices, Wade's home in northwest Washington and his boat, which Cunningham used as a residence from April 2004 until recently.

The FBI confirmed its role in the searches, which stem from a criminal investigation being directed by the U.S. attorney's office in San Diego and in Washington.

In addition to the FBI, two other federal agencies, the Defense Criminal Investigative Service and the Internal Revenue Service, also took part in Friday's action. Their participation was the first disclosure of their involvement and a signal that Cunningham, MZM and Wade face questions on multiple fronts.

A San Diego federal grand jury has been looking into the Cunningham-Wade relationship for at least two weeks.

At the heart of the investigation is why Wade paid Cunningham $1.675 million for the congressman's Del Mar Heights home in October 2003, only to put it back on the market two months later and eventually sell it in late 2004 for $700,000 less than what he was willing to pay Cunningham.

In the months after the real estate transaction, MZM reported on its Web site that its revenues from Defense Department contracts had tripled. In 2002, MZM received a "no bid" government contract for up to $250 million.

The investigation also may include questions about Cunningham's stay on Wade's 42-foot yacht in exchange for $13,000 in dock and maintenance fees, which the congressman said he paid in lieu of traditional rent.

Wade and numerous MZM officials have personally contributed to Cunningham's congressional campaign committee, as has MZM's political action committee.

The Defense Criminal Investigative Service is the investigative arm of the Department of Defense's Office of the Inspector General. Officials with that agency said this week that they are reviewing all of MZM's contracts.

It was not immediately clear why the IRS was involved. Calls to its headquarters in Washington were not returned.

Assistant U.S. Attorney Channing Phillips in Washington confirmed the searches, saying the warrants that led to them were all sealed and that he could not comment any further.

Calls to Cunningham's Washington office and two of his key aides on Friday were not returned.

A source close to the investigation who did not want to be named said agents conducted the raids in Washington and Rancho Santa Fe simultaneously and spent hours at each site.

"They're looking for documents," the source said.

No one was taken into custody, federal officials said.

After the federal agents left, Mark Holscher, one of Cunningham's lawyers, appeared at the front of the home and called the search an unnecessary use of government power.

"Last week, we pledged full cooperation with the Department of Justice's investigation," he said. "Today, a secret search warrant was executed on Duke's house and we believe this was an abuse of due process."

A short time later, the lead lawyer Cunningham has hired, K. Lee Blalack, issued a statement from his Washington office accusing the government of taking an overly aggressive and unnecessary step.

"Just yesterday, we reiterated privately to the government that Duke was going to fully cooperate and that we would be shortly producing the requested documents," the statement read. "They will apparently not take yes for an answer and have instead opted to use strong arm tactics that were designed to generate headlines. As he has said before, Congressman Cunningham welcomes a fair investigation because he is confident that any such inquiry will eventually clear his good name."

Holscher said that the subpoena did not require the document production until next week.

On Tuesday, Blalack said Cunningham had been served with a grand jury subpoena seeking documents and that he had been directed to comply as soon as possible.

Using the profits from the home sale to Wade, Cunningham and his wife, Nancy, an Encinitas Union School District official, purchased a sprawling, $2.6 million five-bedroom home in upscale Rancho Santa Fe in early 2004.

When word of Friday's searches got out, television news helicopters began hovering over the home.

When agents arrived at the home, no one was present so a lock was broken in order to gain entry, another source close to the investigation said.

"They couldn't even wait for Duke's wife to get home," the source said.

The Associated Press reported the FBI agents carried more than a dozen boxes of material with them when they left.

In a written statement issued last week, Cunningham denied any wrongdoing or impropriety in his dealings with Wade and MZM. He said that he had exercised "poor judgment" in the way the house transaction was handled, describing Wade as a personal friend whose company wanted the home for corporate housing and as a place to store secure communications equipment.

He denied ever using his position to influence the awarding of contracts to MZM and said in the statement that he will not answer any questions while the investigation is under way.

The 63-year-old lawmaker now serving in his eighth term is no longer staying aboard Wade's boat, according to a source close to the investigation. That ended about two weeks ago, the source said, and a Capitol Hill newspaper reported on Thursday that the boat is up for sale. It is not clear where Cunningham is now living when he is in Washington.

Wade is being represented by the Washington law firm Wilmer, Cutler, Pickering, Hale & Door, which declined to comment when reached late Friday afternoon.

MZM is a high-tech firm that specializes in homeland security, information systems and human intelligence. It has received more than $163 million in government contracts in the last couple of years, however, it has been rocked by the reports of its ties to Cunningham.

In mid-June, Wade resigned as MZM president. Its new president, James C. King, said in an e-mail to company employees on Monday that he agreed to take the post only after Wade relinquished all control and agreed to sell the company.

Cunningham's troubles may have extended this week to a company he owns, Top Gun Enterprises Inc. He started that company in 1987, primarily as a means of marketing a book he wrote about his experiences as a Navy fighter pilot during the Vietnam War.

A Web site for the company sold the book and other items, including a $595 Buck knife that featured an imprint of Cunningham in his flight suit and what the site said was the Seal of Congress.

Use of that seal on commercial products is prohibited without specific approval from Congress, which Cunningham does not appear to have secured. On Thursday, the Web site had removed the knife and all the products it had been offering and put up a note saying only that the site was under construction.

The treasurer of Cunningham's campaign committee, Friends of Duke Cunningham, said Friday that he knew nothing of the investigation nor the searches.

"I am totally surprised," said Kenneth Batson. "I feel a great deal of sadness for Duke and Nancy (his wife), and I hope and assume they are going to be vindicated."

Cunningham has not announced whether he will seek re-election in 2006, however he is collecting campaign contributions.

Back in Washington, Keith Ashdown of the budget watchdog group Taxpayers for Common Sense said he was surprised at the government's actions.

"There must be some reason why they had to move this quickly," said Ashdown, the group's vice president of policy and communications. "Remember, this is a U.S. congressman."

Staff writers William Finn Bennett and Phil Diehl contributed to this report. Contact staff writer Mark Walker at (760) 740-3529 or mlwalker@nctimes.com.

First name only. Comments including last names, contact addresses, e-mail addresses or phone numbers will be deleted. Attempts to misrepresent your identity or impersonate any person will not be approved. All comments are screened before they appear online, so please keep them brief. Comments reflect the views of those commenting and not necessarily those of the North County Times or its staff writers. Click here to view additional comment policies.