Moriarty’s Trustee to Demand Return of Campaign Gifts

Scores of California politicians, including Gov. George Deukmejian and Assembly Speaker Willie Brown, will be sent letters demanding that they return hundreds of thousands of dollars in campaign contributions donated by Orange County businessman W. Patrick Moriarty and laundered by some of his associates, the lawyer for Moriarty’s court-appointed bankruptcy trustee said Thursday.

James Stang, lawyer for trustee Richard M. Pachulski, said letters demanding return of the money should start going out next week to help pay Moriarty debts reportedly totaling at least $20 million, much of it in unpaid bank loans.

Stang’s action was sparked in part by Lt. Gov. Leo T. McCarthy who last month independently sent the bankruptcy account $10,000 to refund a political contribution McCarthy had received in 1981 from Moriarty associate John E. (Pete) Murphy. Murphy has told The Times that the money really was Moriarty’s.

In the days preceding receipt of McCarthy’s money, Stang said, he had discussed with his law partners the possibility of demanding return of the contributions as allowed under the bankruptcy law.

Then, he said, McCarthy’s check came in “totally unsolicited--just showed up on my desk” and Stang decided to pursue the rest of the money.

Stang said the bankruptcy limitations extend from November, 1984, when creditors filed to force him into bankruptcy, through November, 1981.

All told, Moriarty, his businesses and associates have donated about $634,000 since 1980, according to records that The Times has been able to trace so far. Of that amount, Moriarty personally and through his companies has taken credit for about $58,000 and former associates like Murphy and Richard Raymond Keith have said another $272,000 was Moriarty money that they “laundered” to politicians.

A large amount of the money was given in 1981 and 1982 when Moriarty was backing legislation to prevent cities from banning the sale of so-called “safe-and-sane” fireworks, the kind manufactured by the Anaheim-based Red Devil fireworks company formerly controlled by Moriarty. The bill cleared the Legislature but was vetoed by then-Gov. Edmund G. Brown Jr.

Moriarty’s attorney Jan Lawrence Handzlik said he would not comment on anything that might be involved in an investigation.

Moriarty and seven other people, including Keith and three former members of the Commerce City Council, have either pleaded guilty or been convicted on a variety of federal mail fraud or bank fraud charges. A ninth individual, former Bank of Irvine official Nelson Hallidy, was indicted Thursday in Los Angeles federal court on charges of conspiring to help Moriarty avoid Internal Revenue Service reporting requirements. Moriarty was a director of the now-defunct bank.

Moriarty and Keith both are cooperating with investigators on further aspects of the probe while awaiting sentencing.

Stang said the bankruptcy statute of limitations allows him to collect only money given “directly or indirectly” by Moriarty since November, 1981, but that if any politician wants to return money received before then, “I’d be more than happy to take it from them.”

Stang said the “demand letters” to politicians will cite sections of the bankruptcy code allowing the trustee to seek “any and all money given to them by Moriarty or on his behalf.”

Return of the money can be demanded under the trustee’s obligation to recover “any fraudulent conveyence,” Stang said.

The demand for return of the money in no way indicates that the politicians who received it did anything wrong or knew there was anything wrong, Stang said.

In his April 19 letter to trustee Pachulski, McCarthy said he was refunding the $10,000 he received from Murphy because . . . “disclosures in the L.A. Times have indicated that Mr. Murphy was not the actual donor to Californians for McCarthy, but was reimbursed by W. Patrick Moriarty.

“It is our campaign’s wish that this money be made available to you in fulfillment of your responsibilities as bankruptcy trustee for Mr. Moriarty so that it may be disbursed to his creditors,” the McCarthy letter said.

The first politician to return Moriarty money was Assemblyman Bert Margolin (D-Los Angeles) who was given $7,500 through Murphy in 1982 but returned it immediately when he learned the donation was connected to the fireworks industry. Margolin is an opponent of fireworks.

Since The Times began writing about Moriarty’s business and political dealings nearly two years ago, one other Assemblyman, Richard Katz (D-Sepulveda), reported that he returned money channeled through Murphy.

But other large recipients, like Deukmejian and Brown, have retained their donations. Deukmejian told a news conference in March that he would keep $17,000 in contributions allegedly laundered by Moriarty aides. Deukmejian also received another $2,000 from other Moriarty-related committees or employees.

“Here’s someone who has committed certain crimes,” Deukmejian said of Moriarty. “I don’t think we should reward him.”

Brown, who received $2,500 directly from Moriarty and another $23,000 through Keith, some of it in mid-1981, has asked the state attorney general’s office and the Fair Political Practices Commission for any “raw information they can share” on laundered Moriarty contributions but has not amended his campaign reports, because he said he did not want to embarrass “anybody else in my house.”

In July, 1983, Orange County Supervisor Bruce Nestande returned $18,000 after he said that Moriarty told him he had laundered the money to the supervisor through eight employees or associates.