Orange Beach x-Mayor Russo in Land Flip Investigated by FBI

Flips are what makes investing profitable. However, when a mayor makes this kind of profit with a business associate of one of his developer/partners I think it looks like a duck. Here's the story.

Sunday, February 19, 2006
By RYAN DEZEMBER
Staff Reporter

Indicted former Orange Beach mayor made $400,000 in one-day deal with help of developer, according to agent's report.

New claims that former Orange Beach Mayor Steve Russo, aided by developer Jim Brown, reaped a profit of $400,000 in a one-day real estate deal are made by an FBI agent in documents recently unsealed in the U.S. government's corruption case against Russo.

The two near-identical affidavits, which Special Agent Adam Scholtz used to obtain search warrants for Russo's condo, safety deposit box and a self-storage unit, also add detail to prosecutors' previous allegations.

Russo's properties were searched by investigators on the same January day that state and federal indictments against the then-mayor were unsealed, according to court records.

Russo is charged in a seven-count federal indictment, to which he's pleaded innocent. It accuses him of not reporting about $33,000 in campaign funds and using the money to pay for vacations, clothing and other goods as well as illegally billing Orange Beach for more than $2,000 in personal expenses, such as limousine services and theater tickets, incurred while on an official trip to New York.

Also, in two state indictments Russo is charged with a host of misdemeanors and felonies. One accuses him of hiding and then spending the election money while the other charges Russo with soliciting and accepting bribes from Brown as well as breaking state ethics laws.

The charges were made against a backdrop of Orange Beach's rapid development into a ritzy resort town where land values have skyrocketed, public amenities are some of the best in the state, and millions of dollars hang on the decisions of the city's government.

Russo, who was first elected in 1998 and oversaw much of the city's transformation, served in Orange Beach's top post until resigning last month after being indicted.

Also indicted by the state are:

Brown, who is accused of bribing the mayor and City Attorney Larry Sutley.

Sutley, who is charged with accepting the developer's bribe. Earlier this month Sutley, who authored the legal documents that founded Orange Beach in 1984 and has been city attorney since 1998, was granted an indefinite leave of absence by the City Council.

Former City Councilman Joe McCarron, who prosecutors say traded his votes on the council and the Planning Commission to developers in exchange for their business with his insurance agency. McCarron, who was appointed to the council in 1998, was defeated by Ed Carroll in the August 2004 election.

All four men charged by the state are scheduled to be arraigned Friday morning in Baldwin County Circuit Court in Bay Minette. Russo's federal trial is slated to begin in April.

In the six-page affidavits Scholtz outlined his reasons for wanting to search Russo's property for real estate records and other documents. Among them is the claim that Russo pocketed $400,000 by "flipping" a piece of waterfront property in Orange Beach to one of Brown's business partners.

Russo bought the property, just over an acre on the southern shore of where Wolf Bay narrows into Portage Creek, from a Daphne woman named Claudia Bankester on Aug. 15 for $1.2 million, according to the affidavit.

"A review of bank records of Russo, as well as other evidence, does not reflect any apparent independent financial ability for Russo to purchase this property," Scholtz wrote.

That same day Russo sold the property to Deck Investments LLC, a Louisiana corporation registered to investor Don Chunn, for $1.6 million.

Through a corporation called Deck, Wall & Brown LLC, Brown and Chunn are business partners, the affidavit says. A search of online Alabama secretary of state records did not turn up such a company, but corporate filings do indicate that Brown and Chunn share interest in another corporation, Island Resources LLC.

That company, according to the state records, is registered to both men as well as a corporation held by local developer Ken Wall and a Mobile couple operating under CCM LLC.

Russo deferred comment to his attorney, Richard Horne, who could not be reached.

Birmingham-based David Luker, who is Brown's attorney according to Circuit Court records, did not return calls Friday or Saturday requesting comment. Neither Wall, who has a pending proposal to build a high-rise hotel in Orange Beach with Brown, nor Chunn could be reached Friday or Saturday either.

"Evidence developed during the investigation is that the arrangement to have Russo benefit from this land 'flip' of the Bankester property was precipitated by Jim Brown," Scholtz wrote in the affidavit.

Deeds reflecting Russo's purchase and sale of the land are filed in Baldwin County Probate Court, but there is no mortgage in his name to indicate that he borrowed any money to make the transaction happen.

It is common in south Baldwin County's fast-paced real estate market for investors to buy and then quickly resell, or flip, property before closing on it. In such scenarios, simultaneous closings are held in which the party ending up with the property pays the original owner and anyone who held rights to it in between. Those who held the rights to the property in between usually don't have to take out mortgages since they never actually owned the real estate.