Mayor’s Talks: Conspiracy or Normal Brainstorming?

When Assistant Dist. Atty. Richard D. Huffman looks at a June, 1980, meeting at which then-county Supervisor Roger Hedgecock and his closest backers discussed Hedgecock’s long-range aspiration to be mayor of San Diego, he sees the seed that would later sprout a political conspiracy to help Hedgecock achieve that goal.

When Hedgecock and his attorney look at the same meeting, they see nothing but an ambitious politician engaging in some casual “what-if” brainstorming with his supporters--the kind of conversation that is a normal part of politics, a profession in which, as in chess, the good players are always thinking a few moves ahead.

The conflicting perceptions of the same event illustrate how, through 3 1/2 weeks of testimony in Hedgecock’s felony perjury and conspiracy trial, two diametrically opposed theories of the case have emerged, often from the same set of facts.

From Hedgecock’s perspective, prosecutors have perverted routine political and business behavior into a complex conspiracy theory--seeing intrigue where there is none, finding sinister motives in innocuous actions.

“Time and time again, they’ve ignored simple, perfectly legal explanations and come up with complicated, illegal (ones) that conform to their crazy theory,” Hedgecock said.

Huffman, however, contends that Hedgecock’s past personal and political financial dealings are not nearly so innocent as the mayor would have his six-man, six-woman Superior Court jury believe.

Overriding Questions

Prosecutors charge that, to become mayor, Hedgecock conspired with former J. David & Co. principals Nancy Hoover and J. David (Jerry) Dominelli in a scheme to funnel tens of thousands of dollars in allegedly illegal contributions to Hedgecock’s 1983 race through a political consulting firm owned by Tom Shepard, a close friend of the mayor. Hedgecock also illegally relied on Hoover’s and Dominelli’s largess, prosecutors contend, to transform his rundown South Mission Hills house into a mansion. To conceal the allegedly illegal transactions, Hedgecock falsified financial disclosure statements, according to Huffman.

Although prosecutors allege that Hedgecock committed 57 overt acts in furtherance of the conspiracy, the testimony to date has demonstrated that the charges focus on several overriding questions, including:

- Was the more than $360,000 that Dominelli and Hoover invested in Tom Shepard & Associates, the political consulting firm that ran Hedgecock’s 1983 campaign, a legitimate business investment, or an illegal subsidy to Hedgecock’s campaign?

- Did Hedgecock’s campaign receive free staff time and other services from Shepard’s firm, or was the contract between the campaign and the firm legitimate?

- Are errors and omissions on Hedgecock’s financial disclosure statements inadvertent ones, as Hedgecock contends, or intentional falsifications intended to hide his ties to Hoover and Dominelli?

According to the prosecution’s theory, the alleged conspiracy had three major beneficiaries: Hedgecock, Shepard and Hoover.

“If the plan succeeded, Roger Hedgecock would be mayor, Tom Shepard would have a successful business and Nancy Hoover would be a big behind-the-scenes power broker,” Huffman said.

Huffman argues that the conspiracy was already in place by the time that Shepard left Hedgecock’s supervisorial staff to start his consulting firm in January, 1982. In an attempt to show that the founding of Tom Shepard & Associates was inextricably linked to Hedgecock’s mayoral aspirations, Huffman has stressed that Hedgecock and his partisans were contemplating a possible mayoral campaign as early as the spring of 1980, shortly after Hedgecock had been reelected to a second supervisorial term.

During his questioning of witnesses, the prosecutor has gone into painstaking detail about those early meetings, repeatedly asking where they were held, who was present and what was discussed. To Huffman, the Hedgecock camp’s meetings, which became more frequent throughout 1981 and 1982, are the foundation on which the conspiracy was constructed.

However, Michael Pancer, Hedgecock’s attorney, argues, and the mayor’s supporters have testified, that Huffman is reading too much into those early meetings, which the defense characterizes as the kind of speculative long-range planning sessions common in politics.

“They were certainly not campaign meetings . . . because there was no campaign at that time,” testified J. Michael McDade, Hedgecock’s chief of staff and his 1983 campaign manager. “I’ve participated in these kinds of (meetings) for virtually every political candidate I’ve ever worked for.”

Other witnesses have stressed that, from 1980 to 1982, any possibility of a mayoral campaign hinged on whether and when then-Mayor Pete Wilson might move on to state or federal office.

“It was very speculative,” added Peter Aylward, one of Hedgecock’s top campaign aides. “We were kind of organizing on a ‘what-if’ basis.” Those political hypotheses became reality when Wilson won the November, 1982, U.S. Senate race, prompting the City Council to schedule a special May, 1983, mayoral election.

Evidence introduced in the trial has shown that throughout 1982 and 1983, Dominelli and Hoover invested more than $360,000 in Shepard’s firm. Because Hedgecock’s campaign was the firm’s major client during most of that period, prosecutors argue that Dominelli’s and Hoover’s investments were tantamount to illegal campaign donations that helped prop up an integral component of his campaign.

Hedgecock has consistently denied knowing that any J. David money was flowing into Shepard’s firm and has described Hoover’s and Dominelli’s investments as “routine business investments” designed primarily to help Shepard start his own business, not to get Hedgecock elected mayor. Pancer also notes that Hoover and Dominelli invested nearly $95,000 in the firm in 1983 after Hedgecock had been elected.

A key prosecution witness, however, testified last week that Hedgecock had boasted to him in November, 1981, that Dominelli was “going to invest sufficient funds” in Shepard’s firm so that it would be able to run Hedgecock’s 1983 campaign. Sorrento Valley investment counselor Harvey Schuster said that Hedgecock told him in a conversation that month that Dominelli “was like putty in the hands of Nancy Hoover, and if Nancy asked Jerry to do this, he would do it.”

Hoping to refute the damaging testimony, Hedgecock and Pancer argued that Schuster lied in his testimony because of his anger over not receiving a lucrative 1982 contract to develop the county’s bay-front parking lots. Architect Gil Ontai, who worked with Schuster on the 1982 proposal, testified that Schuster was “very upset” when he was not awarded the contract and spoke about “getting back” at then-Supervisor Hedgecock for not supporting his proposal.

Point of Contention

Pancer also has sought to discredit Schuster’s account through testimony by Robert Meadow and Gregory Dennis--two of Shepard’s former partners--that Hoover’s name was not discussed as a potential investor in the political consulting firm until after the date that Schuster claims to have discussed the matter with Hedgecock.

In addition, Terry Bianco, a consultant, testified that Hoover and Dominelli seriously considered buying Seacoast Magazine in North County in late 1981 and making Shepard the magazine’s publisher. That plan was not abandoned until December, at which time Hoover agreed to help Shepard start a political consulting firm, Dennis said.

The contract between Hedgecock’s campaign and Shepard’s firm is another major point of contention in the trial. Initially paid a $750 monthly retainer, Shepard’s firm later received a 15% commission on all television and radio advertisements bought on Hedgecock’s behalf--a formula that resulted in a fee of about $30,000.

Prosecutors, however, argue that Shepard gave Hedgecock a cut-rate contract that resulted in a heavy financial loss for the consulting firm--a contention that has precipitated a war of numbers between accountants for the two sides.

Arthur Brodshatzer, an accountant called to testify by the prosecution, explained that if a pro-rated portion of the firm’s overhead costs are assigned to the Hedgecock campaign, the firm actually lost more than $140,000 on the race.

Pat Ford, the defense’s accounting consultant, countered that Brodshatzer’s financial analysis was based on an accounting method more applicable to manufacturing businesses than service industries such as consulting firms.

In one of the trial’s more dramatic moments, Pancer also forced the district attorney’s own accountant, Raymond Tatum, to concede that there was not, as he had originally claimed, an $11,000 discrepancy in Hedgecock’s campaign bills. During an intense cross-examination straight out of “Perry Mason,” Pancer showed how Tatum had miscalculated several payments and other transactions.

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

“No,” Tatum conceded.

The defense’s overriding argument in response to questions about the contract is that Shepard viewed the Hedgecock campaign as a “loss leader” that could significantly enhance his young firm’s reputation and thereby attract other clients--which, in fact, proved to be the case. City Councilman Mike Gotch, for example, testified that the “most important factor” in his selection of Shepard’s firm to handle his 1983 reelection campaign was its success in the mayoral race

‘Very Fortunate’

Meadow also testified that the firm’s leaders “felt very fortunate” to obtain Hedgecock as a client and hoped that running a successful mayoral campaign would be the first step toward becoming “the premier political consulting firm in California . . . and one of the best known in the country.”

Reinforcing the defense’s position, Joseph Cerrell, a Los Angeles political consultant who has run numerous statewide campaigns, testified that Shepard’s contract was a fair one that resulted in a “very generous” fee for a new firm with no track record in running a major citywide campaign.

Cerrell, president of the American Assn. of Political Consultants, added that he saw “nothing at all unusual” about Shepard’s willingness to absorb a financial loss by running the Hedgecock campaign to “establish his reputation.”

Arguing that Hedgecock’s campaign committee had a valid contract with Shepard’s firm, Pancer also contends 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.

Huffman has pointed out, however, that Shepard and his employees did work for Hedgecock during the first half of 1982, before the firm even had a contract to run the mayor’s campaign. Because much of that work involved updating a computerized mailing list used to target mailers in Hedgecock’s campaign, Huffman cites it as evidence of free service given to Hedgecock by Shepard’s firm and as proof of prosecutors’ contention that the firm functioned more as an arm of Hedgecock’s campaign committee than an independent business.

‘Volunteer Basis’

Pancer, though, has elicited testimony from Meadow and others that the pre-August, 1982, work was done on a volunteer basis by the Shepard staff members. And, contrary to prosecutors’ suggestions that Shepard’s firm did little other than work on Hedgecock’s behalf in the early months after its formation, Meadow testified that the firm sent out dozens of letters attempting to solicit business during its first six months, characterizing those activities as being “not unlike” those of any new company. Meadow also said that the computerized mailing list was a “valuable asset” that the firm used to try to attract other clients.

The perjury charges facing Hedgecock allege that he intentionally falsified personal and campaign financial disclosure reports required of public officials, primarily--according to the prosecution--to disguise his links to Hoover and Dominelli. Beyond the allegedly unreported financial aid that prosecutors argue Hedgecock received through Shepard’s firm, the perjury charges focus on two major areas: the $130,000 loan that Hedgecock used to remodel his house, and a controversial $16,000 promissory note that the mayor sold to Hoover.

From the beginning of the investigation into his finances, Hedgecock has insisted that the $130,000 loan, which he repaid last year with interest, came from Hoover. Huffman, however, argues that the renovation project cost much more than $130,000 and contends that the mayor received additional unreported money from J. David & Co.

Two construction officials who supervised the project said that the $130,000 figure was accurate. But a carpenter testified that one of the officials had told him that the renovation had actually cost more than $200,000 and that he was “juggling figures” to lower the bill to $130,000.

In addition, two bank officials testified that they were told in February, 1984, by Larry Cushman, a prominent Hedgecock backer, that the mayor needed to arrange a loan to pay off “a home improvement loan” from the J. David firm. Cushman testified that he did not recall making such a comment and said he believed that the loan was to repay Hoover. McDade also said he never heard Hedgecock refer to anyone but Hoover as being the source of the loan.

‘Personal Reasons’

The $16,000 promissory note at issue in the trial was acquired by Hedgecock as part of the dissolution of an unsuccessful condominium development partnership with contractor Michael Turk. Hedgecock sold the note, secured by a trust deed on an El Cajon house, to Hoover in the fall of 1982, but, citing “personal reasons,” asked her attorney not to record the sale until June 23, 1983--a delay that prosecutors argue was designed to conceal his financial ties to Hoover until after the May, 1983, mayoral election.

Hedgecock, however, says that he delayed the reporting of the sale for tax reasons. Turk testified that he told Hedgecock that he would realize “a major tax advantage” if he did not sell the note for at least one year after the partnership’s final June 22, 1982, dissolution agreement.

Under Pancer’s questioning, lawyer Leo Sullivan testified that he helped Hedgecock prepare more than one dozen amendments to his financial statements in the spring of 1984. Those corrections, Pancer argues, are proof of the mayor’s “good-faith effort” to comply with the complex financial disclosure regulations.

One of the trial’s daily rituals involves Huffman and Hedgecock stopping briefly in the hallway outside the courtroom after the session has ended to give their analyses of the day’s testimony to reporters. Not surprisingly, the prosecutor and defendant normally argue that the day’s events have strengthened their hand.

“I guess one of us is wrong,” Huffman joked one day.

Even Hedgecock sees humor in the daily hallway battle to help shape public opinion about the trial.

“The only people whose opinions really matter now are the jury,” Hedgecock said.