State to Probe Award of County LDC Pact : Attorney General to Determine Whether Pendleton, Aides Should Be Prosecuted

The state attorney general’s office said Friday that it will investigate whether U.S. Civil Rights Commission Chairman Clarence Pendleton or any of his associates involved with the government-subsidized San Diego County Local Development Corp. (LDC) should be charged with misusing public funds.

Chief Deputy Atty. Gen. Nelson Kempsky said in a telephone interview from Sacramento that the office’s charitable trust unit will determine if civil or criminal charges should be filed concerning the award by the LDC board of directors of a lucrative contract allowing Pendleton’s close business associate Sydney Novell to arrange Small Business Administration loans in San Diego County.

The nonprofit LDC is the sole arranger in San Diego County of low-interest Small Business Administration loans in minority and low-income neighborhoods, which are targeted to spur employment and development.

Kempsky said the investigation was spurred by a letter received Friday in the attorney general’s Los Angeles office from Art Goodman, LDC executive vice president, charging that Pendleton and Novell were attempting to reorganize the nonprofit corporation for their own personal gain.

Pendleton resigned Thursday as chairman of the LDC board after agency staff members criticized the $5,000-a-month contract awarded in June, 1984, to Novell, a partner in the consulting firm of Pendleton & Associates and Pendleton’s confidential assistant on the Civil Rights Commission. Pendleton said he would leave the organization within 45 days.

At the same time, the board terminated Novell’s contract, which was awarded without a competitive bidding process, effective March 31. Pendleton, who was chairman of the LDC board since the corporation’s founding in 1977, refused to comment on the state investigation, but said Goodman and others were “attempting to discredit my position with the Civil Rights Commission.”

“That’s what’s behind all of this,” he said. “If they can’t get me on substance, they stir up ‘Amos ‘n’ Andy’ stories like this because they don’t like what I’m doing in Washington.”

Kempsky said he did not know how long it would take to complete the investigation. “We’re asking the charitable trust unit to review the situation and determine whether any action should be taken,” he said, adding that the division was assigned the case because the LDC is a nonprofit corporation.

“We are going to review the question of whether the money which has been committed for nonprofit purposes has been used properly,” Kempsky said. “We want to determine whether or not Pendleton or any of his associates, including Sydney Novell, are profiting in any way from the personal services contract awarded to Novell by the LDC. And we also want to determine whether the organization has suffered from the letting of that contract.”

LDC’s staff members have claimed that the contract has placed the 9-year-old corporation, which this year received more than $500,000 in federal funds allocated by the city and county, in a tenuous financial situation that threatens its future.

According to an independent audit, Novell had been paid $113,411 in salary and fees since receiving the contract, but loans she had arranged brought in $17,541 in revenue to the organization. Novell’s salary was to be defrayed by a 1.5% commission paid to the LDC for each loan she secured. LDC controller Jeff Sturman said the corporation, which had never operated at a deficit, had lost its $26,283 reserve fund since Novell was awarded the contract, and is now $19,506 in debt.

Until Thursday, Novell had been in line to take over all of LDC’s loan packaging. Pendleton had convinced the board of directors, several of whom have been associated with him since he headed the San Diego Urban League, that the LDC should eliminate its government funding and dissolve its staff. At the same time, the board awarded a second pact to Novell to permanently take control of the LDC. That action also was rescinded Thursday.

The Small Business Administration ordered that action frozen pending completion of an audit of the Novell contract, which is to determine whether the awarding of the pact constituted a conflict of interest for Pendleton or other board members. The audit, which is expected to be released from the SBA’s Washington offices within two weeks, also will determine whether the LDC would continue to be allowed to arrange SBA loans in the county if its government ties are severed.