Bell Reforms Aimed at Poker Club Corruption : Dadanians’ Trial Details How Two City Officials Used Their Office, Hid Ownership, Aided Business Partners

John Pitts walked into a Los Angeles jewelry store in March, 1981, and picked up $25,000 in packets of 10 hundred-dollar bills from the owner’s desk. Pitts, city administrator at the time, agreed not to make any large purchases that could be traced and put the money in his briefcase. Later he stashed it in a floor safe in his master bedroom at home.

Nearly every month for the next 28 months, according to Pitts’ testimony in federal District Court in Los Angeles, he picked up $5,000 at George and Jean Dadanian’s jewelry store. George Dadanian told him to take the neatly stacked bills from the top of his desk so that he could say he never bribed Pitts, Pitts told the jury.

The Dadanians last month were convicted for their role in the scheme that saw two city officials cash in on the establishment of the California Bell Club, one of the state’s largest casinos.

The officials, Pitts and then-Councilman Pete Werrlein Jr., have pleaded guilty to forming a secret partnership with prospective poker club owners in 1977, drafting city ordinances to pave the way for the gambling business, and ensuring that their business partners would obtain the club license. In return, Pitts and Werrlein received a 51% interest in the club.

It is a scenario that Bell city officials hope will never be repeated.

The six-week trial of the Dadanian brothers has driven home the lesson that “ ‘power corrupts, and absolute power corrupts absolutely,’ ” City Administrator Byron Woosley said in an interview. He was appointed acting city administrator at the height of the scandal.

“It’s going to be a tough battle to restore public confidence in City Hall,” Woosley said. “We realize that we’ve got kind of an uphill road, but we’ll do it.”

To help “avoid a hint of public corruption,” he said, the city has taken the following steps to provide “some checks and balances” over the city’s supervision of the club, which continues to operate.

- A three-man committee composed of Woosley, Bell-Cudahy Police Chief Frank Fording and Finance Director Steve Klotzsche reviews the club’s operations and makes recommendations to the council about investors in the club.

“Now there’s no one person on the city staff that can make all those decisions with respect to that card club,” Woosley said. Before federal indictments were filed a year ago in the poker case, Pitts directed investigations of prospective investors.

- Fees are collected for background investigations of prospective club employees and shareholders, as stipulated in the card club ordinance. Before the federal indictments, no fees were charged, Woosley said.

- The City Council has directed staff members not to begin investigating prospective investors until their names have been cleared by the state Gaming Commission. A state law effective last July requires all prospective investors in gaming clubs to register and be investigated by the commission.

- Police Chief Fording will be asked to review as many as nine investors (out of 59) in the California Bell Club who have not yet registered with the state and are in violation of the Gaming Registration Act, said James Watson, state Gaming Registration Program manager.

- The city will contract an independent firm to monitor the casino floor and ensure that seat rental fees are collected properly. Previously, the monitoring was done by a distant relative of a club owner, said Woosley. Cities collect revenue by sharing in the fees paid by gamblers to play.

Pitts testified he conceived the idea of establishing a poker club in the city as a way to generate revenue for the city.

The revenue--as much as $2 million a year in Bell--makes poker clubs attractive despite their potential for corruption, said city officials.

The scandal in Bell is not unique. In the City of Commerce, the former mayor, two former councilmen and the former director of economic development in 1984 pleaded guilty to federal charges of accepting hidden shares in the California Commerce Club in return for helping two businessmen set up the casino.

In Gardena one year ago, the City Council toughened its poker ordinance, passed in the 1930s. It requires that the city manager, city attorney and police chief together approve investors and oversee operations.

The ordinance includes “very detailed, very thorough” requirements for background investigations of prospective shareholders, said the Gaming Commission’s Watson.

The City of Bell, new to the card club business, was “not that sophisticated,” he said. “They had not perhaps realized how people can forge documents, lie about financial backing . . . and they got taken to the cleaners.”

Watson conceded, however, that not even the state’s investigation of prospective shareholders is fail-safe. If a person is “willing to perjure himself and front money for someone, he can get away with it,” Watson said.

Bell-Cudahy Police Chief Fording agreed that “it’s extremely difficult to prohibit these types of offenses.” The police department checks for criminal background in prospective investors and investigates their finances, but, Fording asked, “How do you determine (whether) they’re purchasing the points for someone else?

“Anytime you’re going to deal with large sums of money, a certain caliber of person is going to be tempted,” Fording said. “We’ve instituted some things that hopefully will prohibit a recurrence of this type of offenses. If you have a bad apple or two, it doesn’t mean the tree is bad.”

The Dadanian brothers’ trial, which ended Dec. 21, gave a blow-by-blow account of the scandal in which participants fought among themselves, cheated each other--even secretly taped private conversations--long before law enforcement officials had a hint of wrongdoing.

In the wood-paneled chambers of U.S. District Judge Terry Hatter Jr., the Dadanians sat impassively as their former friends and conspirators, now government witnesses, unraveled a tale of corruption.

The Dadanians, Pitts testified, had publicly held his secret shares in the poker club, which he wasbarred by state law from owning as a public official. His shares generated hundreds of thousands of dollars in profits annually from the club, according to court documents. The Dadanians were to funnel this money to Pitts and in return, Pitts testified, he promised the brothers he would try to get them a license to operate a second card club.

Pitts told the jury that he drafted the card club ordinance to give himself the responsibility of investigating prospective shareholders and, in the face of considerable public opposition, lobbied with Werrlein for its passage.

At the outset of the scheme, Pitts testified, he called Cudahy businessmen Daniel and Carl Abajian, to discuss forming the poker club and they brought in Jack Simonian, a Montebello businessman with some expertise in poker clubs.

From the beginning, Pitts said, “I had aspirations and I could see the possibility of sharing in this venture. . . . We knew that our paramount problem was to persuade the Bell City Council that a poker club was desirable and necessary in the city.”

As a result, Pitts and his business friends decided that Pitts should approach councilman Werrlein and ask for his help--without telling him about the prior meetings. Werrlein agreed to the idea, Pitts testified.

At a meeting in 1977, Pitts, Simonian and the Abajians watched as Werrlein drew a circle on a piece of paper and divided it roughly into two portions--one portion representing a 51% interest for Pitts and himself and one portion representing a 49% interest for the business partners, Pitts testified.

A week later, the Abajians, who were related to Werrlein through marriage, brought in their business partner, John Gasparian, to be the public owner of their secret shares, Pitts testified. He and Werrlein then brought in Santa Monica lawyer Kevin Kirwan to hold their shares, and Kirwan became a general partner in the club along with Gasparian and Simonian.

The Abajians pleaded guilty to federal charges of conducting an illegal gambling business. Gasparian has received immunity for his cooperation with federal prosecutors, while Kirwan has pleaded guilty to mail fraud. Simonian has been indicted and awaits trial on 11 counts of mail fraud, racketeering and conducting an illegal gambling business.

The investor group secured an option to lease property known as the Cheli Air Depot in the industrial section of town.

Second Ordinance

One month after the card club ordinance passed, Pitts and Werrlein secured the passage of a second ordinance, which changed zoning laws to permit card clubs. Next, the council rezoned the Cheli property, making it the only property in town to qualify for a card club.

A referendum to repeal the gambling ordinances was defeated narrowly in a bitterly contested election in late 1978. A license was issued to the group, headed publicly by Kirwan, and construction began.

To make way for a second card club and fulfill his deal with the Dadanians, Pitts testified, he initiated a land exchange in which the city would construct a National Guard armory in return for property currently owned by the U.S. government.

Pitts testified he later became distrustful of Kirwan and had his secret shares transferred to the Dadanians. Werrlein, when he was defeated in the 1980 City Council elections, arranged a bogus transaction in which he “bought” his secret shares from Kirwan, according to testimony.

On the witness stand, Pitts seemingly held nothing back during long hours of questioning by by defense and prosecution attorneys.

‘Painful Decision’

Pressed as to why he had downplayed the Dadanians’ role in early interviews with the FBI, Pitts testified that he “had already (confessed) that I was involved in the scheme, and it was a very painful and tough decision for me to have to reveal that I was a corrupt official and that I had taken money.”

With the cash payments from the Dadanians, Pitts told the jury that he made a down payment on a 1982 Cadillac, took pleasure trips with his wife, installed a patio and spa and remodeled a bathroom in his Anaheim home and bought new bookcases, drapes and a gun collection.

His wife, Barbara Pitts, testified that she never asked her husband why he was depositing money in a floor safe instead of a bank but said she knew he was committing a crime. Asked whether she knew that she was buying drapes with money illegally obtained, Barbara Pitts said she “never gave it much thought.”

John Pitts testified that he was never billed for new carpeting, a television, video equipment and furniture he picked out at stores owned by friends of the Dadanians. The Dadanians also gave Pitts jewelry, including watches, diamond pendants, gold chains and a string of pearls that he never paid for, Pitts said. The Dadanians deducted all these goods from their payments to him, he told the jury.

In fact, “a substantial amount of what Pitts’ (shares) generated was retained by the Dadanians,” prosecutor Fred Heather said in an interview. “What was Pitts going to be able to do? He had very little leverage.”

$900,000 in Profits

The Dadanians received more than $900,000 in profits from their 15.5% ownership interest in the club (Pitts’ nine shares, plus shares they purchased legally) but paid only about $100,000 in cash and goods to Pitts, according to documents in the case.

Government witness Gasparian testified that he had arranged the agreement between his “very close friends” the Dadanians, and Pitts, for transfer of Pitts’ hidden points to the two brothers.

Gasparian testified that he publicly held the Abajians’ shares in the club but insisted he “did not commit any bribery.” Early on, Gasparian said, he began to distrust his co-conspirators and taped some 115 conversations with them, turning the tapes over to the FBI in return for immunity from federal prosecution.

The Dadanians, who were convicted Dec. 21, will be sentenced Feb. 11.

George Dadanian was convicted on four counts of mail fraud and one count each of racketeering, interstate travel in aid of a racketeering enterprise and conducting an illegal gambling business. Jean Dadanian was convicted on four counts of mail fraud and one count of conducting an illegal gambling business. He was acquitted of interstate travel in aid of a racketeering enterprise; the jury was unable to reach a decision on the racketeering charge.

Because George Dadanian was convicted on a racketeering charge, he must forfeit to the U.S. government the shares he held in the club but not the profits he has already earned, said Heather. Jean Dadanian may keep his shares, Heather said.

Plead Guilty to Mail Fraud

In September, in return for cooperating with federal prosecutors, Pitts and Kirwan each pleaded guilty to two counts of mail fraud, while Werrlein admitted to one count each of mail fraud and conducting an illegal gambling business.

Kirwan and Werrlein were required to give up their shares and forfeit about $400,000 each in profits they received from the club as part of their plea agreement with the government, while Pitts was permitted to keep the funds he had collected through the Dadanians.

Pitts, Werrlein and Kirwan will be sentenced Jan. 14, along with the Abajians, who pleaded guilty to one count each of conducting an illegal gambling business.

Simonian is awaiting trial on nine counts of mail fraud and one count each of conducting an illegal gambling business and racketeering.

The state attorney general has found Gasparian to be in violation of the Gaming Registration Act for false statements on his application, and he has been told to give up his shares in the club by Jan. 27 or face state prosecution. Federal prosecutors allowed him to keep his shares and his profit.

Mail fraud carries a maximum sentence of five years in prison and a $1,000 fine, and conducting an illegal gambling business carries a maximum sentence of five years and a $20,000 fine. Racketeering and interstate travel in aid of racketeering carry respective maximum sentences of 20 years and a $25,000 fine, and five years and a $10,000 fine.

Federal prosecutor Heather would not comment on why the original conspirators were allowed to plead guilty to two counts each or were given immunity, while the Dadanians, who were recruited to the scheme later on, were prosecuted under the racketeering laws, which carry more serious penalties.

It is “not uncommon” for the government to plea bargain to avoid a lengthy trial and get a defendant’s cooperation in the case, Heather said in an interview.

Mayor Clarence Knechtel, who has served on the Bell City Council for 14 years, says there is something to learn from the convictions.

“It’s fortunate that we caught them,” he said. “Maybe it’s a good example for the whole industry.”

The council wrote a good ordinance, he said, “but you still can’t keep people from deception. If they lie to you, what can you do?”

“The best thing to do,” Knechtel said, “is to have a good honest city administrator.”