John Delaney helped found loan financing firm CapitalSource in 2000. (NIKKI KAHN/THE WASHINGTON…)
To hear John Delaney tell it, his success in the financial world is a key reason that voters should send him to Capitol Hill, as he “wants to bring the perspective of an entrepreneur to a gridlocked Congress.”
To state Sen. Robert J. Garagiola (Montgomery), his chief opponent in the April 3 Democratic primary, Delaney’s business record is precisely why he shouldn’t be handed the party’s nod in Maryland’s 6th District to fight for the seat held by Rep. Roscoe Bartlett (R).
Delaney’s money — he is worth at least $50 million, according to his personal financial-disclosure form — helped gain him entree into the elite circles of Democratic politics. He has solicited hundreds of thousands of dollars for the party’s candidates and causes. Delaney raised more than $800,000 for then-Sen. Hillary Rodham Clinton’s 2008 presidential campaign. This month, he won Bill Clinton’s endorsement.
And Delaney’s success has helped make him competitive against the more-established Garagiola, allowing him to pour nearly $1.4 million of his own money into campaign coffers, according to Federal Election Commission reports filed Thursday.
Before stepping onto the public stage as a candidate, Delaney made a name for himself in the financial arena as the founder of CapitalSource, a multibillion-dollar commercial finance firm. The Chevy Chase outfit provides loans of up to $100 million to small and mid-size businesses.
Delaney, who lives in Potomac, is a father of four who has portrayed himself as a political outsider whose experience in the business world would make him an effective leader. In addition to his companies, he founded Blueprint Maryland, a nonprofit group that aims to create jobs in the state. If elected, Delaney said his first priority would be “jobs and our economy.”
“I understand how to create jobs and the needs of small businesses — and it’s small businesses that are the job creation engine,” Delaney said in a statement announcing his candidacy.
Because Delaney, 48, is new to the political world, Garagiola has focused his attacks almost exclusively on Delaney’s business record.
Industry experts said that CapitalSource has traveled an usual path, from commercial lender to real estate investment trust to bank, in its 12 years in business. But those moves kept the company afloat during the downturn, when borrowers struggled to repay loans and real estate values plummeted, said analyst Henry Coffey of Sterne Agee.
“Delaney has built up a successful business and proven himself to be nimble in tough financial environments,” Coffey said.
Garagiola, 39, accuses CapitalSource of loaning money to unscrupulous companies and gouging businesses with exorbitant interest rates — charges officials at the firm say are unfounded.
The state senator maintains that Delaney showed little moral fiber in choosing who his company would do business with, decisions that reflect poorly on his ability to lead.
Justin Schall, Delaney’s campaign manager, said the Garagiola campaign has a “gross misunderstanding of how the financial market works.” Garagiola, Schall said, is “a lobbyist turned politician, who is losing and is desperate and is lying and will say anything to get elected.”
A portion of CapitalSource’s portfolio is comprised of asset-based, or secured, loans made to companies in the health-care and real estate sectors. One of those companies is Aeon Financial, a Chicago-based firm that purchases tax liens on residential properties from municipalities.
Garagiola has accused CapitalSource, in conjunction with Aeon, of foreclosing on homes throughout Maryland and Ohio in order to collect those liens. CapitalSource Bank FBO Aeon Financial LLC is listed as the plaintiff in hundreds of foreclosure proceedings.
Aeon Financial chief executive Robert Brown said CapitalSource was not involved in bringing any of the complaints. He said Aeon obtained a loan from CapitalSource in 2009, secured by a portfolio of tax liens. Aeon, he said, routinely includes the name of the lender it borrowed money from when it attempts to foreclose on homeowners who are delinquent in paying their tax liens.
By doing so, Brown said, it becomes easier for CapitalSource to seize the collateral in the event Aeon defaults on its loan. “It’s extra protection for the lender,” he explained.
Several finance attorneys said Aeon’s model, while not widely practiced, has been followed by some other companies.
CapitalSource spokesman Michael Weiss said the company has “no direct involvement in the tax lien business . . . we make loans to companies, but we are not in the business of owning or operating them.”
But Garagiola’s campaign manager, Sean Rankin, contends that CapitalSource “invested specifically via Aeon to purchase liens with an intention of forcing quick foreclosures by taking homes from families.”