Trial Turns Into Numbers Game : Hedgecock’s Attorney Pokes Holes in Financial Analyses

Attorneys and accountants turned Mayor Roger Hedgecock’s felony perjury and conspiracy trial into a war of numbers Wednesday.

The war will resume today and, in the interim, both sides believed that they had scored key--though often confusing--points with the jury.

In scenes straight out of “Perry Mason,” Hedgecock’s attorney, Michael Pancer, wielding finely honed cross-examination questions like a cudgel, poked holes in prosecutors’ allegations of financial wrongdoing in Hedgecock’s 1983 mayoral campaign.

Under Pancer’s intense questioning, the district attorney’s own accountant was forced to concede that there was not, as he had originally claimed, an $11,000 discrepancy in Hedgecock’s campaign bills. The defense attorney also disputed several other damaging theories and implications put forth by the accountant or prosecutors.

Another accountant, however, testified that Tom Shepard & Associates, the political consulting firm that ran Hedgecock’s campaign, lost about 52 cents on every dollar that it spent in Hedgecock’s behalf in the 1983 race. Assistant Dist. Atty. Richard D. Huffman called that testimony “a pivotal factor” in the case, while Pancer, who will get his chance to cross-examine that witness today, called the accountant’s financial analysis “totally bogus.”

Raymond Tatum, an accountant who works for the district attorney’s office, was on the witness stand for nearly 3 1/2 hours Wednesday, seeking to lead the six-man, six-woman jury through a maze of numbers and financial transactions that prosecutors contend document a conspiracy by Hedgecock and three of his prominent backers to illegally funnel money to the mayor’s 1983 campaign through Shepard’s firm.

Tatum testified that former La Jolla financiers J. David (Jerry) Dominelli and Nancy Hoover invested $361,859 in Shepard’s consulting firm during 1982 and 1983. Of that amount, the two had pumped $267,650 into Shepard’s firm through May, 1983, when Hedgecock won a special race to replace Pete Wilson after the latter’s election to the U.S. Senate.

Hedgecock characterizes Hoover’s and Dominelli’s transactions as a “routine business investment” intended to help Shepard start his own business. However, prosecutors, noting that Shepard’s firm was heavily losing money during most of that two-year period, argue that those investments were tantamount to contributions to Hedgecock because they were used to prop up an integral part of his campaign.

Pancer Attacks Testimony

Pancer, though, used Tatum’s testimony to drive a wedge in that key prosecution argument.

“You’re not trying to tell us that that $267,000 was a campaign contribution to Roger Hedgecock, are you?” the defense attorney asked.

“No,” Tatum replied.

Pointing out that Hoover and Dominelli invested about $95,000 in Shepard’s firm in the last half of 1983, after Hedgecock’s campaign was over, Pancer added, “You’re not telling us that that . . . was a contribution to whatever candidates Tom Shepard & Associates was doing work for (then)?”

“No,” Tatum responded.

Frequently consulting his own accountant, seated next to him, Pancer also managed to turn around other figures revealed by Tatum--numbers that, initially, appeared damaging to Hedgecock--to reflect favorably on the mayor’s position.

For example, Tatum testified that the Hedgecock campaign had paid Shepard’s firm $352,731 but that receipts of the firm’s campaign-related bills totaled only $341,646. Prosecutors have suggested that the alleged $11,085 discrepancy might be evidence showing either that Shepard’s company under billed Hedgecock’s campaign or that invoices have been destroyed.

Pancer, however, referred to the invoices to show how Tatum had miscalculated several transactions, ranging from $20 to more than $5,000, which accounted for $9,582 of the alleged “difference” between receipts and billings.

“There really is no ($11,000) difference, is there, Mr. Tatum?” Pancer asked.

“No,” Tatum said.

During his questioning of Tatum, deputy Dist. Atty. Charles Wickersham also elicited testimony suggesting that the Hedgecock campaign should have been billed about an additional $70,000 to cover Shepard’s overhead expenses, such as staff salaries, rent and other administrative costs.

Pancer relentlessly whittled away at that figure, repeatedly citing “assumptions” that he hopes to prove later in the case to bolster his contention that the Hedgecock campaign committee’s contract with Shepard’s firm was, “a fair, just arrangement.” Initially paid a $750 monthly retainer by Hedgecock’s campaign, Shepard’s firm later received 15% of the cost of all advertisements bought on Hedgecock’s behalf. Tatum’s figures showed that the firm received a payment of $26,433, based on the purchase of $184,006 in television and radio ads.

One of Pancer’s major “assumptions” holds that Shepard and some of his employees actually volunteered their time to the Hedgecock campaign and were paid for other work they did within the firm. Shepard believed, Pancer argued, that his “hard work” on the Hedgecock campaign could lead to “some future reward,” hoping that running a successful mayoral campaign would enhance his firm’s reputation and attract other clients.

“Maybe Mr. Pancer can prove that Mr. Shepard volunteered his time in his own business,” Huffman said outside the courtroom during a brief recess. “But that strikes me . . . as pretty flimsy.”

Overhead Expenses Argued

Pancer also emphasized that Shepard’s firm handled other accounts, albeit small ones, at the same time that it worked on Hedgecock’s campaign, arguing that the company’s overhead expenses benefited all of its clients. In addition, Pancer said that Shepard’s costs involved in maintaining and updating a computerized mailing list that Hedgecock sold to the consultant--work that prosecutors say primarily benefited Hedgecock --should not be considered a campaign expense because Shepard was required to do the work under the contract that gave him the right to use the list for other clients.

The question of how much--if any--of the overhead costs of Shepard’s firm should have been paid by Hedgecock’s campaign is a central issue in the Superior Court trial and was the focus of the testimony Wednesday of Arthur Brodshatzer, an accounting professor at San Diego State University.

Jurors received copies of four analyses of the Shepard firm’s and Hedgecock campaign’s finances that were prepared by Brodshatzer. Those analyses show that:

- Shepard’s firm paid out in direct costs, such as bills for ads, campaign signs or other miscellaneous bills, 96.8% of the money it received from Hedgecock’s campaign, compared to 50.6% for the rest of its clients. The firm received $352,731 from Hedgecock’s campaign and paid bills totaling $341,646, while the bills for other clients accounted for $20,276 of the $40,073 in revenue

- If a pro-rated portion of Tom Shepard & Associates’ staff expenses, overhead and operating costs are added to the Hedgecock campaign’s bill, the firm lost $181,936--or 51.6%--on the campaign. In other words, for every dollar that the firm took in from Hedgecock, it spent $1.52 on his behalf, according to the formula used by Brodshatzer.

Brodshatzer defended the validity of his analyses, saying that businesses normally “price their services in such a way that it covers all costs and (leaves) a profit.”

Pancer, however, charged that Brodshatzer had based his analyses on “utterly absurd accounting techniques” and said he hopes to demonstrate during cross-examination that the studies have “no validity or relation to this case.”

“It’s irrelevant whether Tom Shepard made money, broke even or lost money” on the Hedgecock campaign, Pancer said. Arguing that Hedgecock’s campaign committee had a valid contract with Shepard’s firm, the mayor and his attorney contend that the question of whether Shepard’s 15% commission on media ads was sufficient to cover all of his direct and indirect costs was a matter of concern only to the consultant, not the mayor’s committee.