MIAMI U.S. Representative Alan Grayson, a Florida Democrat, lost about $18 million in a scheme involving a Reston, Virginia-based firm that loaned customers funds in exchange for securities posted as collateral, his office said on Monday.
The loss was confirmed by Lauren Doney, communications director of Grayson's office in Washington, D.C., who said the firm in question "sold the congressman's collateral without his permission."
The head of the firm, William Dean Chapman, was sentenced to a lengthy prison term by a federal court judge in Alexandria, Virginia, last week for defrauding scores of investors of more than $35 million.
Prosecutors said Chapman and his company, Alexander Capital Markets, sold stocks and other securities belonging to Grayson without his knowledge or consent, at a time when they should have been held as collateral.
"Basically, his (Grayson's) investments performed very well, but when it came time for the defendant to pay him what he had earned, the defendant did not pay him the full amount," Doney told Reuters by email.
"Because the defendant sold it (the collateral), it wasn't there to return to the congressman when his loans matured," Doney added.
Grayson himself could not be reached for immediate comment and it was not immediately clear how much, if any, of the $18 million the congressman lost were so-called "paper gains" in investments that he was simply never able to collect on.
The term refers to unrealized gains, or losses, on securities held in a portfolio based on a comparison of the current market price to the original cost.
At one point, in his defense, Chapman argued that he recalled paying Grayson about $10 million as a result of the transactions that he entered into with the congressman.
He also acknowledged, however, that the financial crisis had driven Alexander Capital Markets into insolvency by April 2008.
Grayson, 55, is best known for some of his more incendiary comments about Republicans. He recently likened the Tea Party to the Ku Klux Klan, saying it was the "home of bigotry and discrimination in America today."