A Friendship Takes Political Toll on D.A.

Newport Beach businessman Patrick Di Carlo had been investigated by the Orange County district attorney’s office for so long that he said it amounted to harassment. He thought it was time for a new district attorney.

Tony Rackauckas was an Orange County judge known as an independent thinker who believed in giving people who deserved it second chances.

When Rackauckas ran for top prosecutor five years ago, Di Carlo quickly became one of his biggest supporters, contributing thousands of dollars to the campaign and mingling with potential donors at fund-raisers.

The campaign spawned a relationship that culminated on the night of Rackauckas’ inauguration, when the new district attorney slipped into a tuxedo and celebrated at Di Carlo’s Mediterranean villa overlooking Newport Bay.

Within three years, however, the friendship became a focus of investigations by the grand jury and state attorney general as well as the catalyst for a battle that continues to divide the office.

Last June, the Orange County Grand Jury issued a civil report accusing Rackauckas of abusing his power to help several friends and campaign contributors, including Di Carlo. Among its findings, the panel faulted Rackauckas for reassigning an investigator who was looking into Di Carlo’s business practices.

Even though no law enforcement agency filed any charges against Rackauckas or Di Carlo, questions about this unlikely friendship persist, particularly in the district attorney’s office.

Friends describe Di Carlo, 65, as gregarious and generous, a man who turns routine business meetings into social engagements and whose face lights up when talking about his seven children.

But according to interviews, court records and regulatory documents, Di Carlo has made false statements on a concealed-weapons permit application and in bank and SEC reports.

He’s been sued at least 25 times since 1976 and was ordered to pay damages totaling nearly $3 million in 13 of those cases. He has said that he attended USC, played on the school’s football team and worked as an assistant football coach, but later admitted those claims were untrue.

Di Carlo, who now runs an investment consulting firm with his son, denied some of the accusations against him and said the rest are distortions -- regarding innocent mistakes that should not reflect on his character, or Rackauckas’. He said he’s an ethical businessman who has been unfairly hounded for years by authorities.

Rackauckas has steadfastly defended Di Carlo, even though the friendship baffles some of the district attorney’s supporters.

“There is an irony in all this, in the sense that [Rackauckas] always had an impeccable reputation as being a hard-charging, straight-shooting, very ethical guy,” said Superior Court Judge C. Robert Jameson, a Rackauckas friend. “And I don’t know if these allegations [against Rackauckas] are true, but I guess the problem is getting yourself into a situation where they could be made in the first place.”

To others, Rackauckas’ loyalty to Di Carlo is in keeping with the sense of independence that marked the former’s tenure as a judge, when he was known for putting fairness above politics even if it meant making unpopular decisions.

“When he was appointed to the bench, he showed judicial courage,” said defense attorney Ron Brower, another longtime friend. “ He would make tough calls without any worry to what anyone’s reaction to it would be.”

Rackauckas would not comment for this story. But in past interviews, he has said that the friendship with Di Carlo should not be hard to understand.

“I enjoy the guy’s company,” Rackauckas said in a 2001 interview. “In my view, he’s an honest businessman.”

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In the 1980s, Rackauckas was a rising star in the Orange County district attorney’s homicide unit, a man so passionate about his beliefs that he took an unpaid leave to campaign against state Supreme Court Chief Justice Rose Bird after she reversed one of his death sentences. Gov. George Deukmejian appointed Rackauckas to the Orange County judiciary in 1990. Rackauckas gained a reputation as a GOP stalwart but also as a judge more likely than many colleagues to give defendants a second chance.

If he thought the “three strikes” sentence was too harsh for a given crime, for example, he simply wouldn’t impose it.

Rackauckas has said his views are shaped in part by his own troubled teen years as a gang member in Long Beach and by a stint in Los Angeles County’s juvenile hall.

Rackauckas dropped out of high school, joined the Army and eventually earned his equivalency diploma. He said he decided to go to law school because, as a teen, he was impressed by the power lawyers wielded in the courtroom.

“He’s a guy who doesn’t see himself as better than other people,” said Nancy Clark, who works as a sentencing consultant for Orange County defense attorneys.

When he decided to run for district attorney in 1998, Rackauckas quickly won the support of much of Orange County’s law enforcement community, which saw him as a fair, honorable judge who would do away with what many viewed as the politically driven policies of his predecessor.Rackauckas easily defeated one of Capizzi’s assistants in the 1998 election, and most of the more than 200 lawyers in his office were thrilled.

“They all thought a new era of personnel fairness and higher ethical standards was coming in,” said Devallis Rutledge, a former top Rackauckas assistant. The honeymoon wouldn’t last. By the middle of his first term in office, some prosecutors in the office were grousing about their boss’s relationship with his new friend.

While Rackauckas was building a career in the district attorney’s office in the 1980s, Di Carlo was having trouble in his own business. The Pennsylvania native had set up shop in Orange County, running businesses that dealt with everything from real estate to stock investments.

By the mid-1980s, federal and state authorities were investigating Di Carlo and a business associate, W. Patrick Moriarty, in a probe into bank fraud. Moriarty admitted bribing a bank official who approved $1.7 million in loans to a firm owned by Di Carlo.

Di Carlo was under scrutiny by the district attorney’s office and local law enforcement for several years, he said. But in the end, no law enforcement agency ever charged or prosecuted him. Moriarty was convicted of bank fraud and bribing council members of the city of Commerce. He served 27 months in federal prison.

Di Carlo has been accused in numerous civil lawsuits of dishonesty. For example, in a 1982 civil case, one bank accused him of pledging in loan documents that he had no lawsuits or judgments against him when in fact he did.

In that lawsuit, California Canadian Bank, the financial institution at the center of the Moriarty investigation, sued Di Carlo, contending that he was involved in the scheme to bribe one of its officials who helped approve the loan to a company he operated. Moriarty testified in a deposition for that civil suit that Di Carlo was involved in the bribery. A judge awarded California Canadian $700,000, but Di Carlo never paid the judgment, records show.

In an interview last week, Di Carlo denied Moriarty’s bribery accusation and said he agreed to the settlement because he could not afford to fight the bank.

Testifying in the bank’s lawsuit, Di Carlo acknowledged that he had falsely portrayed himself for many years as a USC graduate, a fabrication he said helped him get a job in Hawaii, according to a transcript of a 1985 deposition. Di Carlo testified that he also falsely reported in SEC filings that he graduated from USC .

Di Carlo, in an interview, acknowledged that he is not a USC graduate, saying: “It looked good, so I let it ride.”

Di Carlo also said he falsely described himself in that same deposition as a member of the 1957 USC football team and a USC tight end and fullbacks coach in the 1970s. He said he lied in the deposition because he didn’t like the attorney who was asking the questions. “I was very sarcastic. I said the damnedest things,” he added. “I was pulling their strings.”

Di Carlo said he did nothing wrong in the Moriarty matter. He insists his problems were caused by onetime officials in the district attorney’s office who had a vendetta against him. He said these officials improperly helped civil attorneys suing him.

“If these people ... thought I knew about those bribes, they would have put me so far in jail they would have had to pipe [in] lights,” he said. “I’ve never even been charged.

“How can [Moriarty], a guy that went to jail for [29 months], say that I knew about it? And you’re asking for my credibility?”

Di Carlo describes himself as a man who started with nothing and built a successful business -- one that has experienced the same ups and downs as many others.

“Litigation is a cost of doing business,” said Di Carlo’s son and business partner, Patrick Jr.

Indeed, Di Carlo was so unhappy with the way authorities treated him that in 1988 he filed a $150-million harassment claim against the Orange County Sheriff’s Department and district attorney’s office, alleging that a sheriff’s informant would follow him into bars, count his drinks and then telephone deputies in an effort to have him arrested for drunken driving. The county rejected the claim, and Di Carlo did not pursue a lawsuit.

In 1997, Di Carlo learned that Rackauckas was running for Orange County district attorney.

He helped organize a fund-raiser for Rackauckas at South Coast Plaza’s Ristorante Antonello, a favorite restaurant for Orange County’s politicians and deal brokers. He then tapped friends and business associates at places such as the Balboa Bay Club to support the cause.

“Di Carlo said he thought the prior [district attorney’s] administration was harassing him and he wanted a new D.A. He asked me to arrange a fund-raiser for Tony, and I did,” said Jack Kayajanian, a Costa Mesa attorney.

That event was held at an ocean-view Newport Beach home and it generated more than $10,000 for Rackauckas, Kayajanian said.

But some law enforcement officers voiced concern when they saw Di Carlo’s name listed in a campaign brochure, said former prosecutor Rutledge.

Barry Foye, then head of the district attorney’s organized-crime unit, said that during the campaign he became so concerned about the friendship that he photocopied some 1980s newspaper articles in which Di Carlo was mentioned in connection with Moriarty. He said he asked a supervisor to show them to Rackauckas.

After Rackauckas took office, the subject came up at staff meetings. But some of his top aides said he did not appear to take the warnings seriously.

“I can still see him laughing about it and shaking his head ....I don’t know why he thought it was so funny,” said Christopher Evans, a former top assistant to Rackauckas.

During Rackauckas’ first year in office, his friendship with Di Carlo continued to blossom, according to interviews and grand jury documents. They took fishing trips on Di Carlo’s boat, MJ’s Spartan, named after Di Carlo’s wife, Mary Jane, an active Republican party supporter. The two men also frequently met for lunch and watched football games at Di Carlo’s home.

“Di Carlo is a big, personable guy, and you can’t help liking him,” said Newport Beach attorney Richard Higbie, echoing others who describe Di Carlo as a natural charmer.

About six months after taking office, in the summer of 1999, Rackauckas and his wife, Kay, went to his house to warn him that somebody might be tapping his phone, Di Carlo said. A few days later, FBI agents went to his house to assure him that no one was monitoring his telephone calls, he said.

Rackauckas and his wife moved into the Di Carlo home for several days in 2000 after authorities told them they had uncovered a plot by a prison gang to have Kay Rackauckas kidnapped and held for ransom.

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The incident that would provoke some of the strongest criticism from the grand jury occurred on a Saturday morning in the spring of 2000 when Di Carlo asked Rackauckas for help. He wanted the district attorney to listen to what he considered a threatening telephone message.

The caller implored Di Carlo to pay him a commission for an investment deal and inquired about Di Carlo’s family, according to interviews and grand jury records. Di Carlo told Rackauckas that the caller had connections with a New York City mob family, according to the grand jury report.

Rackauckas called Barry Foye, the supervisor of his organized-crime unit, at home and told him to open an investigation into Di Carlo’s complaint, Foye said.

The interview did not go as Di Carlo expected. District attorney investigator Lyle Wilson said he questioned Di Carlo about his business, his license status with regulatory agencies, even his work experience and education. Wilson said he asked probing questions about Di Carlo’s involvement with one company’s stock related to the alleged threat.

Di Carlo strongly denies he did anything wrong and said Wilson was immediately hostile. After the interview, Di Carlo complained to Rackauckas that Wilson had been confrontational. Rackauckas ordered Wilson off the case. Rackauckas, in a 2001 interview, said he told the investigator that if he believed Di Carlo committed a crime, he should bring him proof. He said he never got that proof.

“I was expecting them to wheel the file in a big bucket,” he said. Rackauckas also said that he felt the investigators “mistreated” Di Carlo, handling him “as if he were a criminal suspect and not a victim.”

A few weeks after removing Wilson, Rackauckas gave Di Carlo a gift for his 63rd birthday: a Glock .40-caliber handgun.

Di Carlo then got a concealed-weapons permit from the Orange County Sheriff’s Department, stating in the application that he had not been a party to a lawsuit in the previous five years. Court records show he had been a defendant in two Orange County lawsuits during that time.

Di Carlo also indicated in the application that he never before had been the subject of a restraining order. But a judge in 1977 had issued a temporary restraining order against him in a case involving a business rival who said Di Carlo threatened to have Honolulu longshoremen assault him unless he stopped doing business with a man Di Carlo was suing.

Di Carlo last week defended the veracity of the application, saying he’d never been served with a copy of the restraining order and didn’t consider himself a party in the lawsuits. He also denied threatening the business rival.

“If anybody was going to do anything to him, I wouldn’t have called longshoremen.... I weighed 280 pounds and had 22-inch arms,” he said.

Di Carlo, a gun collector, said he didn’t know why Rackauckas picked the Glock as a gift but added: “I like it. ... If you wanted to give me a gift to make me happy, you’d give me a gun.”

The Orange County Grand Jury concluded that Di Carlo wanted to carry the gun as “protection” against organized-crime investigators who worked for Rackauckas. But Di Carlo said the grand jury’s assertion was an “absolute fabrication.”

In the end, Rackauckas rejected almost all of the grand jury’s conclusions, arguing that the panel was unduly influenced by critics unhappy with his efforts to reform the office. “It is not a conflict of interest to determine whether or not a crime has been committed upon a person ... even if that person is a friend,” he wrote in his formal response to the report.

Rackauckas’ handling of the Di Carlo case led to rumbling within the office.

In the spring of 2001, Rackauckas issued a staff memo in which he suggested that some in the office held a grudge against the businessman that dated to the Moriarty investigation. “I will not tolerate ... attempts to settle old scores,” he wrote.

About the same time, three deputy district attorneys flew to Sacramento and met with senior prosecutors in the state attorney general’s office. They said Rackauckas’ actions amounted to obstruction of justice. After the flap became public, Rackauckas asked the attorney general to take over the investigation into the alleged extortion against Di Carlo.

Atty. Gen. Bill Lockyer launched his own investigation of the office in 2001, gathering evidence from a district attorney employee who wore a hidden recording device.

Lockyer said he ended the investigation without filing any charges. But he publicly accused Rackauckas of being unethical. “I’ve never seen a district attorney get so close to the line repeatedly,” Lockyer said.

Rackauckas easily won reelection last year even though his opponent tried to make the Di Carlo link a campaign issue.

In January, Rackauckas began his second term and in an interview said for the first time that he had made mistakes during his first term. He said he should have tried harder to avoid situations with the appearance of a conflict of interest.

Rackauckas and Di Carlo still describe themselves as friends. Di Carlo said he sees the district attorney once or twice a week. But it’s a friendship, he’s quick to add, that has come at a steep price to his reputation and business because of the publicity the turmoil has generated.

“We enjoyed a fruitful life -- until I became friends with Tony,” he said. “Then the fruitful life stopped.”

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Times staff writers Jack Leonard and Christine Hanley contributed to this report.