Ambassador at center of impeachment probe has deep roots in lending
Gordon Sondland, the U.S. ambassador to the European Union who has emerged as a key figure in the Trump impeachment saga, is often described as a hotelier from the Pacific Northwest.
But that’s only part of the story of Sondland’s career. Another part — far less glamorous than the high-end hotels that he owns — involves the distressed lending business. Sondland has long been involved with lenders of last resort in both commercial and residential mortgage lending.
Earlier this year, Sondland became enmeshed in efforts by President Trump to pressure Ukraine’s president to investigate a gas company where the son of former Vice President Joseph Biden had served on the board. Sondland testified Thursday before House committees that are running the impeachment inquiry.
What follows is a look at Sondland’s sometimes controversial career in finance and how he found himself under a harsh public spotlight this week.
In 1985, Sondland was in his late 20s and working as a commercial real estate broker in Seattle when he decided to purchase a hotel that was in bankruptcy. “Never looked back,” he said in a 2016 interview. “Quit the brokerage business and went into the hotel business.”
But as Sondland was building a hotel empire, he put his expertise in distressed assets to use as a co-founder of Aspen Capital, a private equity firm based in Beaverton, Ore.
Key business partners at Aspen included Steven Rosenberg, who brought experience in commercial real estate lending, and Lawrence Mendelsohn, a financial industry veteran whose record included a guilty plea to a felony charge of filing a false tax return.
Aspen specialized in hard money loans to commercial borrowers who might not qualify for conventional real-estate financing. Such loans are made based on value of the collateral rather than the creditworthiness of the borrower, and they typically carry relatively high interest rates.
During the housing boom of the early 2000s, Aspen Capital expanded into the residential mortgage business.
According to a 2010 article in The Oregonian, an Aspen-affiliated company called Gregory Funding made loans to homeowners to help pay off delinquent mortgages. High-risk borrowers paid interest rates as high as 11% plus fees. The short-term loans, which often carried balloon payments, seemingly made sense only as home prices continued to rise.
The Oregonian found that about 49% of the company’s mortgages in the Portland area over five years fell into foreclosure. Sondland told the newspaper that he was only a minor investor in Gregory Funding and had no management role.
“I believe we are helping people,” Sondland said. “I can sleep at night.”
In 2012, the Oregon Department of Consumer and Business Services entered into a consent order with Gregory Funding.
The order stated that the company accepted partially blank loan applications in some instances and failed to include required disclosure forms in other cases. The firm did not admit wrongdoing but agreed to pay a $50,000 penalty, $10,000 of which was suspended.
Gregory Funding is now a servicer of residential mortgages. Since the financial crisis, the Beaverton-based company has received funding from the Troubled Access Relief Program for its role in modifying the mortgages of cash-strapped borrowers.
According to securities filings, Gregory Funding services mortgages for an affiliated firm called Great Ajax Corp. Great Ajax targets re-performing mortgages — for which at least five of the seven most recent payments have been made — as well as non-performing mortgages.
“It can be very profitable,” said Marc Dann, an Ohio attorney who who sued Gregory Funding in a 2017 case that alleged the company wrongfully tried to foreclose on his clients. He explained that companies in the distressed mortgage business pay discounted prices and can then recover not only the loan principal but also various fees.
Before being confirmed as an ambassador last year, Sondland disclosed that he held ownership stakes in Gregory Funding LLC, Great Ajax FS LLC and Aspen Capital Management LLC. His total assets exceed $65 million, according to his financial disclosure form.
Aspen Capital said in an email that Sondland is an indirect investor in various real estate investment entities affiliated with the firm.
“He is not and has not been a director, officer, or control person of any such entity and, for many years, he has not be actively involved in these investment activities,” the company’s statement read.
Sondland’s financial disclosure form also revealed that he held an ownership stake in Genesis Financial Solutions, which offers credit to non-prime consumers.
Oregon-based Genesis originated and serviced private student loans for Corinthian Colleges Inc., which filed for bankruptcy and was liquidated four years ago.
In 2014, the Consumer Financial Protection Bureau sued Corinthian for allegedly luring tens of thousands of students into loans by advertising bogus job prospects. The CFPB eventually won a default judgment against Corinthian. Genesis was not accused of wrongdoing.
“We did the servicing and that was it,” Genesis founder Irving Levin told The Oregonian in 2014. “We didn’t have anything to do with the underlying structure of the loan.”
Genesis did not respond to a message seeking comment on whether Sondland still owns a stake in the company. Sondland also did not respond to requests for comment.
In his congressional testimony, Sondland described himself as a lifelong Republican. But he noted that he has also forged ties with Democratic politicians. In fact, he said that he worked briefly with former Vice President Biden’s office on an anti-cancer initiative.
Former Oregon Gov. Ted Kulongoski, a Democrat who served from 2003 to 2011, appointed Sondland as chair of the Governor’s Office of Film & Television. Kulongoski also named Sondland’s wife, Katherine Durant, to the Oregon Investment Council, which oversees state pension fund investments.
During the 2016 campaign, Sondland committed to raising money for Trump but withdrew his support after the Republican nominee criticized the Muslim family of a slain U.S. soldier. After Trump was elected, Sondland changed course again, donating $1 million to the inaugural committee.
In May 2018, Trump nominated Sondland to be America’s man in Brussels. Though he had no significant foreign policy experience, his nomination drew bipartisan support in the Senate.
In his testimony Thursday, Sondland said that inviting a foreign government to launch investigations aimed at influencing an upcoming U.S. election would be wrong.
“I did not and would not ever participate in such undertakings,” he maintained.