CHARLOTTE, NC (Rick Rothacker/The Charlotte Observer) - An ongoing federal investigation of Rep. Robert Pittenger's former real estate company is focusing in part on a $250,000 campaign loan that came at a pivotal time in his first run for Congress in 2012, according to a source familiar with the matter.
The Observer has previously reported that authorities are examining whether Pittenger improperly transferred money to his 2012 campaign from his real estate company. Documents that were part of a legal settlement this year raise new questions about the source of $250,000 that Pittenger loaned his campaign in early 2012.
The Charlotte Republican first disclosed the federal probe in August 2015 and has repeatedly denied any wrongdoing. FBI and IRS agents have interviewed investors, congressional staffers and other people familiar with Pittenger's role at the company, sources have told the Observer.
In a new development, sources told the Observer this week that representatives of the U.S. Justice Department in Washington and the U.S. Attorney's Office in Charlotte started participating in interviews this spring, and they have continued in recent weeks. It's not clear if any charges will result from the probe.
"Nothing has changed my opinion that Congressman Pittenger committed no crimes," Pittenger's attorney Ken Bell said this week, without commenting further. The U.S. Attorney's Office in Charlotte and the U.S. Justice Department declined to comment.
This spring, Pittenger Land Investments reached a settlement in which investors agreed to forgo potential legal claims against the company in return for a management change that ended the Pittenger family's role at the firm.
Documents sent to investors as part of that settlement and obtained by the Observer included a 2012 email exchange between Pittenger and a man named Shelton Smith who worked for the real estate firm.
On Feb. 27, 2012, Pittenger, then chief executive of PLI, sent an email to Smith asking him to gather $250,000 from various accounts at the firm, according to the documents. The email does not say why Pittenger wanted the money.
Three days later on March 1, Pittenger made a personal loan of $250,000 to his campaign at a time when he was facing a contentious Republican primary, federal records show. He went on to win the contest and the general election. He's running for a third term in November.
A source familiar with the matter said investigators are looking at the $250,000 detailed in the email and the subsequent personal loan as part of a broader probe of Pittenger Land Investments. The investigation is looking at PLI's management of limited liability companies that held property purchased with money pooled from investors, said the source, who spoke on the condition of anonymity because of the sensitive nature of the investigation.
The Charlotte Republican gave his 2012 campaign about $2.3 million in personal loans and contributions. The $250,000 loan was the biggest of the campaign.
Candidates are allowed to loan or contribute an unlimited amount of money to their campaigns. But they cannot accept contributions from businesses, said Larry Noble, general counsel of the Campaign Legal Center, a nonpartisan organization focusing on campaign finance and other issues.
"If he had a right to that money and he put it into his campaign that would be OK," said Noble. "If he did not have a right to that money but it went into his campaign that could be an illegal contribution."
Emails raise questions
Pittenger started his real estate company in 1985. Over the years, Pittenger Land Investments gathered investors to buy raw land with the objective of later selling the properties to developers at a higher price. The individual property investments were held in limited liability companies, or LLCs.
After he was elected to Congress, Pittenger transferred ownership to his wife, Suzanne, to meet House ethics rules. Last year, some investors began complaining about the slow pace of land sales and what they called a lack of transparency around PLI's operations. An Observer story last year showed how the company marked up the prices of certain parcels before they were sold to investors.
Suzanne Pittenger has said she believed PLI has "always acted in the best interest" of the company's investors, and Robert Pittenger has said the mark-ups were ordinary industry practice. Some investors, including former N.C. Gov. Jim Martin, have praised the company's management.
Two major investors, however, hired attorneys to investigate the company's operations, resulting in the settlement agreement with the company in March.
In documents related to the settlement, the attorneys raised concerns about undocumented expenses, undisclosed loans and the markups applied to land purchases.
The documents included a December 2015 letter from Womble Carlyle attorney Jim Cooney to PLI that said investors had been paying excessive fees to oversee LLCs that were supposed to require little management. PLI had little documentation to support charges to investors, the letter added.
"This lack of supporting documentation was especially troubling in light of emails indicating that purported 'marketing' charges in 2012 were, in reality, arbitrary amounts that Mr. Pittenger directed PLI to charge the LLCs in response to a cash shortage, with the charges later obscured through application of a 'marketing code,'" the letter states.
Cooney's letter also included the email exchange between Pittenger and Smith, who worked for PLI.
At 12:33 p.m. on Feb. 27, 2012, Smith sent an email to Pittenger regarding "cash in hand." The email had the subject line "San Antonio," which may have referred to an LLC that held property in San Antonio, Texas.
Six minutes later, Pittenger responded: "Ok please try and assemble $250k." The email doesn't say what Pittenger needed the money for.
A little more than an hour later, Shelton said: "I collected another 40k in Admin fees due. You need another 210k. open the attachment and use the right column to tell me which accounts and how much per account."
Each LLC had an account that was used to manage fees and expenses for each property.
About two hours later, Pittenger responded: "$40k from SA...and $5k from those who can. To equal $170k thanks."
Smith's next message came at 6:10 a.m. on Feb. 28: "5k is not enough, will have to take 10k from some. OK?? Is this to be coded to Marketing?"
Pittenger responded at 7:15 a.m.: "Yes."
Smith did not respond to requests for comment. Cooney, the Womble Carlyle lawyer, declined to comment.
Investors approved the settlement agreement in May, and the deal officially closed in June, shifting management of the LLCs to a Charlotte-based real estate firm, South Street Partners. As part of the agreement, PLI received $6 million but it gave up investment stakes that could have been worth $30 million, according to documents sent to investors.
In a statement, Charlotte attorney James Wyatt said he has represented PLI and Suzanne Pittenger. "PLI is no longer an operating entity," he said. "I have total confidence that the business practices of PLI and Suzanne Pittenger were handled properly."
As to the involvement of the U.S. Attorney's Office and Justice Department in the ongoing investigation, Duke University law professor Lisa Kern Griffin said those agencies would likely be involved from the start of a case involving a member of Congress. Prosecutors might be taking a more active role now in interviewing witnesses, she said, if they are assessing whether to seek an indictment from a grand jury.
"It's taken very seriously whether there is probable cause to seek an indictment in the case and whether there is likelihood of success at trial," she said.
If prosecutors reach this stage, Griffin said it's not certain that charges will be brought. She also said it's not unusual for an investigation to take this much time. "These are very complex investigations," she said.
Pittenger is currently running for a third term in a redrawn 9th Congressional District that stretches from South Charlotte to Cumberland County. He won the Republican nomination by 133 votes over opponent Mark Harris in the June primary.
In the current campaign, Pittenger has had total receipts of about $935,000, according to federal records. The records show no personal loans or contributions to his campaign this cycle.
In the general election, his Democratic opponent is Christian Cano, who says the investigation is an issue that voters bring up to him on the campaign trail.
"Even though our platform has not been based on the issues he has had, it's one of the things that is brought up to us a lot," Cano said. "It's a big concern of ours and unfortunately it takes the focus off what the issues really are in our district."