Lipinski challenger Newman went into restaurant business with convicted felon

As she tries to score an upset over seven-term Democratic U.S. Rep. Dan Lipinski in the March 20 primary, challenger Marie Newman is selling herself to voters as a onetime ad agency partner, marketing executive, author and anti-bullying advocate.

Absent from her resume: Less than four years ago, Newman and husband James went into business with a convicted felon who spent time in federal prison for his role in a large-scale mortgage fraud scheme.

The Newmans joined with James Garofalo to invest in and run three suburban breakfast cafes and Luigi’s House, a popular Aurora restaurant once owned by restaurant magnate Dick Portillo. The venture began in September 2014. By April 2015, the two sides had parted ways, documents show.

Marie Newman said she and her husband didn’t know about Garofalo’s criminal conviction, and started taking steps to end their involvement after they found out. Asked this week what voters should make of her failure to adequately vet Garofalo’s background, Newman said that “things will go wrong” in business or any organization.

“What speaks to your character is when you immediately fix it. And my husband and I immediately fixed our error,” she said. “I think it speaks very clearly that I’m very transparent, and that when I see that I’ve made a mistake or an error I’m very accountable and I own it, and then I fix it immediately and I move on, and I don’t make that mistake again.”

The 53-year-old LaGrange businesswoman is running against the veteran Lipinski in the 3rd Congressional District, which covers parts of the Southwest Side and southwest suburbs. The contest has drawn national attention as a case study of left-wing Democrats taking on one of the party’s more conservative members. Lipinski opposes abortion rights unless a mother’s life is at stake, and voted against the Affordable Care Act and the DREAM Act to protect young undocumented immigrants — positions Newman says are out of step with the district.

Lipinski, 51, has positioned himself as a pragmatist working to find compromise and get things done. He has warned that Newman represents a move toward “a Tea Party of the left” that would lead to more gridlock and hurt the country.

A Feb. 27-28 poll conducted for an abortion rights group backing Newman had Lipinski at 43 percent and Newman at 41 percent, within the survey’s error margin of 3.9 percentage points. Another 15 percent were undecided. The group, however, declined to release the poll questions.

The restaurant in question, Luigi’s House, opened in 2000 on a busy strip of Route 59 near Fox Valley Mall. It was the brainchild of Portillo, the property’s landlord who was getting out of the restaurant business and into real estate investments when Garofalo and the Newmans came on the scene.

Garofalo was a restaurateur, but also had been a homebuilder who co-owned Madison Home Partnerships, according to court records. In 2008, a federal grand jury indicted Garofalo, accusing him of selling houses to straw buyers at inflated prices and paying kickbacks of 5 to 30 percent of the sale price to co-defendants. Some of the kickbacks also went to homebuyers so they could get to closing.

Garofalo was among 400 indicted during a nationwide probe dubbed Operation Malicious Mortgage, an investigation authorities said ensnared builders, buyers, appraisers, loan officers, real-estate agents and lawyers.

Chicago federal prosecutors said that in the case tied to Garofalo and several other defendants, those accused caused lenders to make loans totaling more than $95 million to the straw buyers. The lenders suffered losses of about $19 million because some of the loans were not repaid, homes went into foreclosure and were resold for less than the balances on the mortgages, prosecutors said.

In 2010, Garofalo pleaded guilty to two counts of wire fraud, was sentenced to six months in federal prison and ordered to pay $1.37 million in restitution. He was released in 2011.

More than three years later, the Newmans, who had taken over an Italian restaurant in Oak Park, were looking for other investment opportunities. Marie Newman said the couple didn’t know Garofalo until their real-estate broker suggested him as a potential partner.

Garofalo said he and the Newmans formed a company in September 2014 to buy Luigi’s House and Honey-Jam Cafe breakfast restaurants in Batavia, Bolingbrook and Downers Grove.

Marie Newman said that within a month or so, a friend brought Garofalo’s fraud conviction to the couple’s attention. Newman said she and her husband started taking steps to end their involvement with him.

“I don’t recall the whole conversation (with Garofalo),” Newman said. “I will tell you that we were very clear that we were hugely disappointed, and that we didn’t feel like we could move forward.”

Restaurant operations continued over the next several months, however. In October 2014, Garofalo stepped aside from managing the limited liability corporation he had registered with the state to run Luigi’s, and the Newmans took over as managers, according to state records. By December 2014, that company had obtained a liquor license for Luigi’s House.

Newman said those steps were part of making sure the business kept operating so they could pull out and get back their $353,000 ownership stake.

“You have to. In order for that restaurant to stay up and running, it requires that it had a member of the holding group as the holder of the license. So we had to complete that process,” she said.

Marie Newman described her involvement in the restaurant venture as limited, with her husband playing a more active role.

“In the restaurant group, I did some very light consulting in those first few weeks around marketing,” she said. “Mr. Garofalo did not want my advice. It was clear I was not welcome into it, so I actually removed myself. My husband continued to work with him.”

Garofalo said Marie Newman “was very involved in the marketing aspect of it and that was her big part. Jim Newman was more into the I.T. (information technology) and the financials of it.”

“They were good,” Garofalo said of the Newmans. “They were new at the restaurant business, but they were very smart and willing to learn. But the restaurant business is different than any other.”

Eventually they parted ways, but not amicably, Garofalo said.

“Any time there’s a split, I think neither side is very happy,” according to Garofalo, who said the Newmans “got back every dime (of their investment) plus interest.”

The April 2, 2015 divestiture and settlement agreement lays out the deal Garofalo and the Newmans had reached to run the restaurants and states that both sides wanted out. It sets terms under which Garofalo would repay the Newmans their $353,000 buy-in, with 6 percent annual interest on the unpaid portion.

Luigi’s House eventually closed. By August 2016, Portillo had signed a lease clearing the way to demolish the restaurant, which made way for Miller’s Ale House, part of a Florida-based chain of sports bars.

kskiba@chicagotribune.com

jebyrne@chicagotribune.com

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