Mayor Contradicted on Dominelli Role : Schuster Describes His Financial Aid to Hedgecock, Talks of Shepard’s Backing

A local investment counselor testified in Mayor Roger Hedgecock’s trial on Monday that Hedgecock told him in November, 1981, that financier J. David (Jerry) Dominelli was “going to invest sufficient funds” in Tom Shepard & Associates so that the political consulting firm would be able to run Hedgecock’s 1983 campaign.

The testimony by Harvey Schuster--perhaps the most damaging to date in Hedgecock’s felony perjury and conspiracy trial--directly conflicts with the mayor’s oft-stated contention that he was unaware that Dominelli had invested in Shepard’s political consulting firm. The mayor has said he believed that Nancy Hoover, a principal in Dominelli’s now-bankrupt La Jolla investment firm, was Shepard’s financial backer and she only wanted to help Shepard start his own business, not assist Hedgecock in his mayoral campaign.

Despite an intense cross-examination, Hedgecock’s attorney, Michael Pancer, was unable to seriously shake Schuster’s testimony. However, after Monday’s session in Superior Court, both Hedgecock and Pancer charged that Schuster had lied in his testimony.

“We will have more than ample evidence to show that (Schuster) was lying today,” Hedgecock said outside the courtroom. Without providing specifics, the mayor contended that certain conversations in which Schuster testified that Hedgecock discussed Dominelli’s investment in Shepard’s firm “not only did not take place, but could not have taken place.” Pancer also charged that Schuster was trying to damage Hedgecock’s defense because he was angry over not being awarded a contract to develop the county’s bayfront parking lots while Hedgecock was a county supervisor.

However, Assistant Dist. Atty. Richard D. Huffman, who is expected to rest the prosecution’s case today, dismissed Hedgecock’s and Pancer’s comments as “some pretty scurrilous name-calling” designed to discredit Schuster.

Schuster, the president of California Investment Counsel Inc., a Sorrento Valley real estate management and investment firm, was the source of controversy even before he reached the courtroom Monday. The district attorney’s office did not identify Schuster as a possible witness until late December, prompting Pancer to seek a mistrial on the grounds that his late introduction constituted a “prejudicial surprise” that could “completely undermine” Hedgecock’s case. Judge William L. Todd Jr. denied the mistrial motion, but agreed to delay Schuster’s testimony to give Pancer time to prepare for cross-examination.

Throughout his testimony, Schuster, who is asthmatic, kept several bottles of pills and medicine in front of him on the witness stand. Saying that “one of the things that triggers my asthma is stress,” Schuster told Todd that he brought the medicine “in case I need a quick fix.” Although he took several cough drops during his nearly 3 1/2 hours of testimony, Schuster did not take any of the medication in court.

Questioned by Huffman, Schuster said that, as early as 1979, then-county Supervisor Hedgecock began discussing his aspirations to run for mayor in the event that then-Mayor Pete Wilson “would move on” to statewide or federal office. Wilson’s election to the U.S. Senate in 1982 triggered the special mayoral election that Hedgecock won in May, 1983. Pancer has argued that serious discussions about Hedgecock’s possible mayoral bid did not begin until mid-1982, after Wilson had won the Republican nomination for the U.S. Senate race.

Schuster, however, testified that in mid-1981, Hedgecock asked him to participate in a “kitchen cabinet” of “financial angels” in preparation for a possible mayoral race.

In early 1981, Schuster said, Hedgecock discussed with him for the first of many times the financial problems that he was experiencing due to an unsuccessful condominium project in which Hedgecock was a partner with developer Michael Turk. Hedgecock told him, Schuster testified, that payments on the condominiums--which proved difficult to sell because of soaring interest rates in the early 1980s--were a serious drain on his personal finances. Schuster said he agreed, at Hedgecock’s request, to consider buying some of the condos.

Schuster quoted Hedgecock as saying that he was “worried that his children . . . might end up sleeping in a tent . . . in the park.” Moreover, Hedgecock was concerned that a personal financial collapse would make it “difficult to run for mayor . . . on a platform that he’s a strong leader,” Schuster said.

“If it got out that he couldn’t manage his own affairs . . . he thought that could be very damaging,” Schuster said.

Hoping to help Hedgecock find a solution to his financial problems, Schuster said, he set up a November, 1981, appointment on Hedgecock’s behalf with a Century City lawyer and later paid the $500 consultation fee. Hedgecock had said he preferred to discuss the matter “with an out-of-town attorney,” apparently in an attempt to prevent news leaks, Schuster said.

Schuster testified that he drove Hedgecock to Los Angeles to see the lawyer. During the return trip to San Diego, Hedgecock told him that Shepard planned to leave his county supervisorial staff to set up a political consulting firm “to work on Roger’s campaign . . . for mayor,” Schuster said.

Hedgecock “indicated that Jerry Dominelli had committed to invest sufficient funds to make the firm viable,” Schuster said. “I asked him why Mr. Dominelli was going to do this. Roger said Dominelli was like putty in the hands of Nancy Hoover, and if Nancy asked Jerry to do this, he would do it.”

Evidence introduced during the trial has shown that Dominelli and Hoover invested more than $360,000 in Shepard’s firm in 1982 and 1983. Because Hedgecock was the Shepard firm’s major client during that period, prosecutors allege that the investments were tantamount to illegal donations to Hedgecock that were used to prop up an integral element of his campaign. Shepard, Hoover and Dominelli are scheduled to be tried separately on charges that they conspired with Hedgecock to illegally funnel the money to his campaign.

Amid Hedgecock’s continuing concerns over his personal finances, Schuster said he agreed in late 1981 to purchase one and possibly two of Hedgecock’s condominiums.

Because Schuster planned to bid on the county’s proposed bayfront development project, Hedgecock said “it might look funny” if the investment executive purchased the condos in his own name, Schuster said. Schuster agreed, and suggested that he could make the purchase in the name of his family’s retired housekeeper and her daughter.

After Schuster had contacted a bank and made other preliminary moves aimed at purchasing the condos, Hedgecock asked to meet with him and Jean Kauth, Schuster’s business associate, on March 12, 1982, at the Hilton hotel on Mission Bay, Schuster said.

Hedgecock appeared “very overwrought, concerned and upset” at the meeting, Schuster said. “It was probably the worst I’ve ever seen Roger look.”

At the meeting, Hedgecock said he “didn’t think it was a good idea” for Schuster to proceed with his plans to buy the condos, and asked instead for a $24,000 loan to prevent Sumitomo Bank from foreclosing on his property, Schuster said.

Hedgecock asked that the loan be made to Homeowners Management Co., a property management firm owned by his wife, Cindy, Schuster testified. Schuster added that Hedgecock told him “it would be a disclosure problem” if the loan were made directly to him.

Schuster said he agreed to loan Hedgecock the money, in return for a promissory note signed by Hedgecock. After Hedgecock provided the note, Schuster made out a check and, when he left town in late March, 1982, left it with Kauth, who notified Hedgecock that it was ready. (Kauth, who testified earlier in the trial, was re-called to the witness stand on Monday after Schuster, and concurred with his testimony.)

Hedgecock never picked up the check, however, and in mid-April told Schuster that he no longer needed the loan, explaining that he had instead sold some stock, Schuster said.

Pancer sought to undermine Schuster’s credibility by implying that he was testifying against Hedgecock only because he was upset that his company had not been awarded the county development contract.

Among other tactics, Pancer consistently cited discrepancies between Schuster’s version of events and that of John Armstrong, an investigator in the district attorney’s office who interviewed the investment executive last month. In response, Schuster said that Armstrong had taken some of his remarks out of context.

Pancer also charged that Schuster hoped to use his friendship with Hedgecock in “a totally inappropriate” way to win his support on the county project and other matters. In addition, Pancer argued that it was Schuster--not Hedgecock--who had suggested that the proposed condominium sale be recorded in someone else’s name, and that the later uncashed $24,000 check be made payable to Cindy Hedgecock’s company rather than to Hedgecock himself.

“Isn’t it true that you suggested putting the condos in some other name and Roger Hedgecock said no?” Pancer asked.

“No, that’s not true,” Schuster answered. “It was never my idea. Roger . . . suggested it.”

“Sir, is it not a fact . . . that you came up with the idea of putting (the check) in the name of Homeowners Management?” Pancer asked.

“That’s not correct,” Schuster replied. “Roger came up with the idea. Why would I have anything to benefit by putting it in the name of Homeowners Management?”

“We’ll prove that, sir, we’ll prove that!” Pancer said.

Huffman than asked Schuster whether he had “told us the truth today.”

“You and . . . the Pope of Rome couldn’t influence me to commit perjury,” Schuster said.