Excerpted from Insight magazine

Nestled among the dunes at an exclusive beach along the Outer Banks in North Carolina is a palatial summer house called Northern Star. In the upscale community of Corolla Light, the house shines no brighter than those of wealthy neighbors except for one reason: It belongs to Rep. Richard Gephardt, D-St. Louis, a presidential hopeful in 1988, the speaker-in-waiting until last year and now leader of the minority House Democrats.

Gephardt and his wife, Jane, own Northern Star along with two business partners, Michelle and Jeffrey Conley. In an average year it generates about $100,000 in rental income. Split between the couples, that's $50,000 that Gephardt can add to his annual salary of $148,400, plus income his wife receives from her job at a medical association.

An Insight review of how Gephardt would up with a luxury beach house worth more than $700,000 suggests that the Democratic leader may have violated various banking and tax laws, as well as financial-reporting requirements of the Ethics in Government Act. As a result, the 10-term congressman could end up under close scrutiny by the House Ethics Committee.

-- First, there is the matter of how Gephardt acquired his luxury beach home and how, for purposes of tax and federal financial disclosure, he explains a series of complicated financial transactions that included a tax-free "exchange" of one home for another. Known as a Starker Exchange, this tax scheme, permitted under Section 1031 of the Internal Revenue Code, allows individuals to swap investment property and avoid taxes on capital gains. Second homes or vacation houses generally don't qualify under Section 1031, even if the property may have been used to generate rental income.

A year before Gephardt initiated his land swaps, a property of modest value he and his wife owned in Duck, N.C., was listed on his annual federal financial-disclosure report as a rental. In 1991, the next reporting year, when Gephardt "exchanged" the Duck property for the vacant lot in Corolla Light, the Duck property wasn't listed (nor was the new Corolla Light lot) on the congressman' financial-disclosure report.

In a letter to the House Ethics Committee dated June 3, 1992, Gephardt explained: "I did not disclose this sale on my 1991 report because it was my understanding that the sale of a personal residence, including a secondary residence or vacation home, did not need to be disclosed if the residence was not used for rental purposes. While in prior years I have rented my vacation home, and, therefore, disclosed it on my reports, in 1991, the home was not rented, and we received no income from it."

When he filed his 1992 financial-disclosure report, Gephardt listed a second home-mortgage liability, but he didn't list all of the banking transactions associated with the new property, of which there were several. Under House rules, these were required. Curiously, if as Gephardt claimed in 1991, a second home didn't have to be listed, then who do so in 1992 but not fully?

In his 1993 and 1994 financial-disclosure reports Gephardt listed the Corolla Light property as a rental. By so doing and, again, by not listing all of the related banking transactions, several questions are raised: Was and is the house a second home or a business investment and, whichever its classification, how does that correspond to his claims on tax forms that it is an investment property for tax purposes but on loan papers that it is a nonrental second property?

Based on available band and land records, Gephardt's various loans over the years for the Corolla Light beach property specifically state that it couldn't be used for rental purposes.

-- Second, at about the same time that Gephardt "exchanged" the Duck and Corolla Light properties, his congressional campaign committee began a spending spree for "fund-raising" events along the Outer Banks that continued well into 1994. What makes these campaign-related activities interesting is that, prior to March 1991, Gephardt's campaign appears to have spent no money at the seashore or in all of North Carolina. It wasn't until the week that Gephardt was in the state signing purchase agreements to acquire the Corolla Light property that the "fund-raising" expenses began.

A close review of these "fund-raising" expenses spots the crux of the potential problems. Since 1991, his campaign committee has spent well over $100,000 in the Corolla Light area, with an estimated $70,000 for catering and lodging going to a group of companies owned, in part or in whole, by Richard A. Brindley or associates. Besides the catering-related firms, Brindley and/or his family also own Outer Banks Ventures, the company that developed Corolla Light. OBV is also the firm that provided Gephardt an initial $304,205.52 loan to buy the premier lot worth $375,000 where he later would erect Northern Star at an estimated cost of about $300,000, according to local builders.

Brindley also appears to have provided Gephardt with a generous extension of nearly six months past the due date of the original note. Gephardt didn't disclose this information on his annual financial-disclosure reports as either a debt or a gift. If, as Gephardt's aides suggest, such information didn't have to be disclosed because the house was viewed as a second home, then how did it qualify for the federal Starker Exchange? And why list some of the financial transactions, but not all, such as the possible loan extension from OBV?

Gephardt aides have sought to dismiss such matters by arguing that the congressman would "never knowingly" violate the laws or claiming that, at worst, "these are very technical matters" that nobody cares about. Perhaps. But didn't the Gephardt staff, along with staffs of other Democrats, work night and day to collect similar "technical" violations by other congressmen, including two Gephardt rivals, House Speaker Newt Gingrich and Rep. Charles Rose of North Carolina?