S.D. County to Recover Losses in Fraud Case

Two corporations at the center of a scandal over San Diego County’s telecommunications systems pleaded no contest Tuesday to federal fraud and racketeering charges. The plea was part of an agreement that reimburses the county for its losses and the costs of investigating the scheme.

Telink Inc., the now-inactive Anaheim firm that in 1982 won a $24.5-million contract to develop a microwave communications network for the county, and its parent company, Burnup & Sims Inc. of Plantation, Fla., agreed to pay $4.8 million to government entities to settle the criminal charges against them.

San Diego County also will keep $2.4 million in communications equipment installed by Telink before the Board of Supervisors tore up its contract with the firm early in 1983--amid allegations of payoffs, kickbacks and corruption.

At a press conference announcing the agreement, Dist. Atty. Edwin Miller described the cash settlement in the case--which has cast a shadow on county government for more than four years--as the largest ever obtained by a local prosecutor in a criminal investigation.

“Through the plea, the county is made whole for the most massive fraud against a governmental entity ever perpetrated in San Diego County history,” Miller said.

Felony charges still are pending in U.S. District Court in San Diego against 11 individuals, including two former county officials, implicated in the joint federal-county investigation. Miller declined Tuesday to predict whether prosecutors might reach plea bargains with the defendants before their scheduled Oct. 28 trial.

Two other defendants have already pleaded guilty to charges in the case.

By pleading no contest, the companies did not acknowledge any guilt in schemes to defraud San Diego and Fresno counties but agreed not to assert their innocence of the allegations. Unlike a guilty plea, the no-contest arrangement gives defendants some protection from having the facts uncovered in the criminal investigation used against them in any civil litigation.

Defending his office’s decision not to press for an admission of guilt, Miller said the multimillion-dollar settlement produced a far better financial result for the county than if prosecutors had obtained a series of convictions and relatively nominal criminal fines.

“If they’d gone to trial, the penalties they could have suffered would have been much less, so there is a punitive aspect,” added Lantz Lewis, the deputy district attorney who negotiated the settlement over the past six months.

In conjunction with the plea bargain in the criminal case, the county agreed to dismiss its $177-million civil lawsuit against Telink and 17 other defendants.

“We have been in litigation on this matter for more than three years, and we have now reached what we feel is an equitable settlement,” said Supervisor Brian Bilbray, waving a $500,000 check from Burnup & Sims at a separate press conference. “The complicated legal entanglements of this lawsuit have been resolved, and we are closing the books on this incident.”

Financial considerations prompted Burnup & Sims to agree to the settlement, according to Richard Cutter, the general counsel for the media and telecommunications firm.

“It had become, quite honestly, no longer worth fighting,” Cutter said in a telephone interview. “It was worth more to us to reach this very good settlement for both us and the county.”

The unknown costs of the pending litigation had forced Burnup’s accountants to issue a qualified opinion on the company’s financial condition for several years, Cutter noted, making borrowing and other transactions more difficult.

The scandal had its roots in a plan proposed in 1980 by Abraham Stein, then the county’s communications chief, to create an elaborate phone system that would link county offices by microwave transmissions and pay for itself in 7 to 10 years.

Unrelated allegations of misconduct forced Stein to resign in 1981. But hints of corruption continued to cloud the $24.5-million contract for the microwave system, which supervisors awarded to Telink in June, 1982.

Business leaders called for a county grand jury investigation of the contract, but the inquiry soon expanded into a joint probe by federal and county investigators and prosecutors.

An informer told investigators that Stein controlled the actions of H. Larry Gonzalez, who later was fired as director of the county’s General Services Department and charged with Stein and 11 others in the federal indictment.

The indictment, issued in October, 1984, said Telink conspired with Telecommunications Design Corp., the consulting firm hired by the county to help it pick a contractor for the new phone system, to obtain the contract through bribes, kickbacks, falsification of documents and even supplying prostitutes for Gonzalez and others while the contract was being bid.

Telink and TDC were accused of covering up the ties that intricately bound them together. A statement filed by prosecutors in federal court Tuesday says that between 1978 and 1982, Telink paid TDC--a supposedly independent consultant--more than $250,000 for recommending that customers select Telink to develop and install telecommunications systems.

Just two months before TDC recommended that San Diego County select Telink for its communications project, the statement says, Telink entered into a $1 million agreement to bail TDC out of a financial crisis that had pushed the consulting firm to the brink of bankruptcy.

According to the statement, at least two Burnup employees were told of the relationship between Telink and TDC in 1979, while Burnup was considering the acquisition of Telink. But the Burnup officials did nothing to investigate the allegations, the statement alleges.

Later, however, Telink officials “went to great lengths to conceal” the details of the $1-million bail-out of TDC from Burnup management, the statement says. Miller said Tuesday that the federal grand jury’s investigation of the scandal had not implicated any Burnup employees in criminal activities.

Cutter, meantime, said Burnup did not concede the veracity of the prosecutors’ statement in agreeing to settle the criminal charges. “We never felt we’d done anything wrong,” he said.

Burnup pleaded no contest Tuesday to four felony counts of fraud and racketeering before U.S. District Judge Earl Gilliam. Telink pleaded no contest to 44 felony charges.

“It just becomes more expeditious to say ‘no contest’ and put everything behind the company,” said Telink’s lawyer, Peter Hughes.

The companies will pay $3.5 million in restitution to San Diego County, along with allowing the county to keep the $2.4 million in installed equipment. The county had paid Telink $2.4 million as part of a settlement negotiated when supervisors withdrew from the contract with the firm in January, 1983.

Fresno County will receive $300,000 as compensation for a similar corruption scheme there. Miller’s office will receive $700,000 above and beyond the $3.5 million restitution to pay for the county’s investigation and the U.S. attorney’s office in San Diego will get $250,000 for its investigative expenses. The companies will pay an additional $50,000 as a federal fine.

Late last year, the county inked a replacement contract with Contel Page Systems Inc. to install a countywide phone system for $12.5 million--about half what Telink planned to charge. Bilbray said Tuesday that a tighter watch on the bidding process, including background checks on bidders by the district attorney’s office, assured that the new system will be sound.

“I think that we have made it clear that the county does not accept this type of activity and that we do come down hard and heavy,” he said. The new system is being installed and will be running by March, 1987.

Miller agreed that the county had cleaned up its bidding processes in the wake of the Telink scandal.

“I think we’ve learned a very important lesson from this case,” he said. “I think steps are being taken to protect against a reoccurence.”

Burnup & Sims learned a lesson from the Telink experience as well, Cutter said.

“It forced Burnup years ago to be certain it had more stringent internal controls on its various subsidiary operations,” Cutter said. But, he added with a sigh, “We thought we had crystal-clear controls to begin with.”

Times staff writer Townsend Davis contributed to this story.