Treasurer Given Gifts, Campaign Donations : Firms Court Unruh for State Business

As the state’s banker, Treasurer Jesse M. Unruh has sway over awarding bond and investment business that means millions to financial brokerage firms, attorneys and investment bankers, many of whom have provided him with gifts, travel expenses and sizable campaign contributions.

A detailed look at disclosure statements filed by Unruh since he was first elected almost 12 years ago shows that again and again the treasurer’s office and various boards that he influences have made decisions financially helpful to his benefactors. For example:

- Unruh received a series of campaign contributions from fireworks manufacturer W. Patrick Moriarty, who is serving a seven-year federal prison term after his conviction on political corruption charges, and two Moriarty business associates. The contributions were made over a period when the California Pollution Control Financing Authority, chaired by Unruh, approved bond issues for two Moriarty-run companies.

- Officials of a Columbus, Ohio-based brokerage and investment banking firm paid more than $5,750 to fly Unruh and a top aide to Washington and Marco Island, Fla., and held a fund-raising reception in his behalf at about the time that the firm became a broker for the Pooled Money Investment Program. The board controlling the program’s investment activity is chaired by the treasurer.

- In addition to large campaign contributions, two investment banking firms, which had been doing bond business with the state, gave Unruh $3,600 in tickets to the 1985 Super Bowl game. In the months that followed, Unruh, as chairman of the California Health Facilities Financing Authority, participated in decisions that increased the share of that authority’s business handled by the two companies. His office also named the two companies to underwriting teams that sold bonds for the state.

Unruh and his staff insist that they have never been influenced by gifts or contributions and that many firms that do business with the treasurer’s office make no contributions at all.

However, an increasing number of investment bankers, even those who count themselves as Unruh enthusiasts, believe that to get a share of state business, they must contribute to the Unruh political kitty.

“Anyone who is an underwriter in California contributes to Unruh,” said an individual with a New York firm that sells a sizable share of public bonds issued by local and state governments in California. Like many in the financial community, he agreed to an interview only on condition that he not be identified.

“All of it is right up front. There’s no ‘please send it to this guy who comes around the back door,’ ” he said. “I have never seen anyone as overt as he is, and I don’t respect his candor on this. He seems to do openly what no one else does. . . . I’m not saying Unruh should be going to jail, but the way his people behave, it is like a parish (county) in the mid-1930s in Louisiana.”

Other financiers, however, say that they consider contributing to Unruh a civic responsibility because of the caliber of his performance as treasurer.

‘On Top of Mt. Olympus’

“When it comes to the public sector (in the sale of bonds), Unruh is on top of Mt. Olympus,” said Joseph M. Giglio, a managing director of Bear, Stearns & Co., an investment banking firm that has contributed heavily to Unruh’s campaign in recent years while winning an increasing share of the state’s bond sale business. “He’s as tough as anyone in the profession, and if you don’t perform, you’re gone.”

“I have seen people who struggled and who made significant contributions and haven’t gotten to first base,” noted Bank of America investment banker Timothy J. Schaefer.

Virtually every Unruh associate interviewed by The Times for this story talked about what several described as his “repugnance” at having to seek campaign contributions to stay in office.

Unruh has championed the idea of public funding of political campaigns as a way of countering the erosive effect of money on politics. Nevertheless, his own campaign reports and economic disclosure statements show that over the years he has accepted larger and larger contributions from firms that do business with the treasurer’s office--and in some cases sizable gifts and speaking fees as well.

Unruh bluntly told the Wall Street Journal what many financiers had long suspected: “Probably as long as all things are equal, and all firms are equally capable, we do tend to go with them if they are friends.”

That 1983 statement echoed through financial districts in New York, San Francisco and Los Angeles. Even today, investment bankers still quote it--some chuckling at the bravado of the remark, others shaking their heads at its implications.

Unruh aide Larry Margolis conceded that the article “absolutely pushed people to contribute that we never talked to.”

Overflowing War Chest

Even after this year’s candidate filing deadline, when it became clear that Unruh had no Democratic or Republican opposition, several of the large investment banking and bond attorney firms delivered sizable contributions to Unruh’s overflowing campaign war chest--most notably E. F. Hutton, which donated $20,000 in late March.

“I have never heard (Unruh) name an amount on a check,” said one investment banker with a large New York-based firm. “If we get a call on a fund-raiser, we will ask: ‘Do we need to buy a table?’ ‘Good idea.’ ‘Two tables?’ ‘Terrific idea.’ If you’re having a drink with him and you ask and you see a smile on his face, then you know that’s enough.”

Former Deputy Treasurer Michael S. Gagan described it in somewhat different terms: “They ask, ‘What is E. F. Hutton doing?’ You say, ‘E. F. Hutton has two tables.’ ”

Among those courting Unruh for a share of state business in 1983 was former state Atty. Gen. Evelle J. Younger, an unsuccessful Republican gubernatorial candidate in 1978. His Los Angeles firm--Buchalter, Nemer, Fields, Christie & Younger--had never done government bond work before, Younger acknowledged in an interview, but was trying to win state and local government bond business.

Younger, according to Unruh’s disclosure reports, spent $246 for the treasurer’s food and drink on March 29, 1983, and an additional $26 on Sept. 16. Although a relatively modest amount by some standards, this total $272 wining-and-dining tab put Unruh over the California Political Reform Act’s $250 gift limit; when it is exceeded, an official must disqualify himself from decisions affecting the donor.

(The law, however, specifically says that penalties for violation of the conflict-of-interest provisions cannot be enforced against elected state officials.)

In October of 1983, with the approval of Unruh’s office, Younger’s firm was added to a legal team that later shared a $90,000 fee on a $100-million Cal Vet mortgage bond sale, according to David Matsler, chief deputy director of the Department of Veteran Affairs.

When asked how it was that Younger’s firm “came out of nowhere” to become one of the leading firms doing business with the state, Unruh said: “I wouldn’t say out of nowhere. I’ve known Evelle Younger for a long time and (to the best of my knowledge) Evelle called me a couple of times somewhere over the years and I’m sure he must have called every other public agency in the state. And I always considered him to be a very decent human being and a very decent attorney general, and it’s a hell of a law firm, incidentally.”

After winning their first Cal Vet contract, attorneys with Younger’s firm began giving to the Unruh campaign--a total of $13,150 between late 1983 and the end of 1985. In addition, one of the lawyers picked up the $2,700 cost of a campaign fund-raiser and reception at the Regency Club in Los Angeles.

When asked whether the contributions were a necessary part of doing business with the treasurer’s office, Younger replied: “I don’t think people hire lawyers who they think are stupid. If we didn’t (contribute), then we would be stupid with a capital S.” Then he added that Unruh “is just a hell of an efficient public servant. . . . We hope (he’ll be in that position) a long time, and we hope we continue to have bond business with the state of California.”

Political Action Committee

Attorney Steven Lewis, who worked in the Los Angeles office of another law firm--Jones, Day, Reavis & Pogue--followed a different pattern, forming a political action committee called the J. D. 333 Committee to raise money for Unruh.

The committee, which uses the Jones, Day downtown address--333 S. Grand--donated $12,500 to the treasurer’s campaign committee in September, and three months later paid $1,329 to throw a political reception for Unruh, according to the treasurer’s campaign reports.

Treasurer’s office records show that in the months following the contribution, the Jones, Day law firm was named counsel on five bond issues approved by financing authorities, which Unruh chaired.

Earlier in his term of office, Unruh on some occasions tried to distance himself from those who contributed to his campaign.

In September, 1979, for example, the California Pollution Control Financing Authority, with only two of three members present and Unruh chairing the meeting, had to decide whether to increase from $3 million to $7 million the amount of tax-exempt bonds that could be issued for Solid Waste Transporters, a group of refuse haulers who had joined together to operate a site for transferring trash. Such bonds, in effect, provide low-interest loans to private companies, which repay them out of income from their operations.

Unruh expressed his reluctance to vote because 11 months beforehand the partnership had donated $2,000 to his campaign committee.

“As far as I’m concerned, it’s not a conflict of interest,” Unruh said at the time. “If it is, every legislator over across the street (in the Capitol) and the governor would be precluded from signing any bills. But we try to be a little bit better than Caesar’s wife, or Caesar’s girlfriend.”

The deputy attorney general assigned to the authority, however, advised Unruh that he could vote because otherwise there could be no majority. So Unruh voted, siding with Solid Waste Transporters. The bonds were issued in 1980. And over the next two years, the transporters partnership donated $12,500 to the Unruh campaign.

The Solid Waste Transporters went into bankruptcy court in 1984, and the company’s bonds became the first state-approved issue to go into default, according to the treasurer’s office.

Doug Chandler, executive secretary of the pollution authority, stressed that Unruh has acted aggressively to protect the bondholders by filing a separate suit against the partners in the transfer station business. And the authority has put in additional safeguards to protect those holding future bonds.

A three-month look at the treasurer’s office has raised other questions about its operations as well.

Employees of the treasurer’s office, including Unruh himself, routinely charge travel expenses connected to state bond sales to the underwriting firms that actually sell the bonds. The expenses are added to the other costs of issuing bonds and paid off as the bonds are retired. It is the taxpayer that ultimately foots the bill.

Reports Not Forwarded

Normally, state employees are required to file detailed travel expenditure reports with their departments, and these documents are forwarded to the state controller for auditing. But because the bond underwriter picks up the treasurer’s office employees’ costs for hotel accommodations and air fare, no reports on these expenses are forwarded to the state controller for auditing, according to officials in the treasurer’s and controller’s offices.

The system bypasses standard checks for extravagant expenses or double billings by state employees.

On a $2.3-billion note sale last year, for example, the underwriters charged the state $720,000 in expenses, including attorney fees, phone bills and travel expenses by underwriters and state workers. But the treasurer’s office has no breakdown of expenses and maintains no detailed records of these costs, said Thomas Aceituno, the treasurer’s general counsel. The treasurer’s staff referred requests for the details to the senior manager on the note sale, Anthony J. Taddey of Merrill Lynch Capital Markets. However, Taddey did not respond to several calls requesting the information.

In contrast to Unruh and his staff, state Finance Director Jesse R. Huff, who each year travels with Unruh to New York to meet with bond-rating agencies and other financial institutions, has treated the payments from investment firms as a gift on his economic disclosure statements. Last year, for example, Huff reported that Merrill Lynch paid $2,300 for his food, travel, lodging and entertainment expenses in connection with the $2.3-billion note sale.

Unruh has repeatedly received significant political contributions from private companies that benefit from tax-exempt bonds issued on their behalf by one of the many authorities that he chairs.

In November, 1980, fireworks manufacturer Moriarty donated $2,500 to Unruh’s political campaign treasury. One year before, the California Pollution Control Financing Authority, with Unruh as chair, approved on a 2-0 vote a $520,000 bond issue for Panamint Marketing Co. of Maricopa, Calif., a cat litter manufacturing plant owned by Moriarty’s Pyrotronics Inc.

Panamint said the money from the relatively low-interest bonds would be used to buy equipment that the company needed to reduce dust emissions.

However, officials with the Kern County Air Pollution Control District contended at the time that poor maintenance at the plant was responsible for the plant’s dust emission problems. And Thomas Paxson, now a supervising air quality engineer for the district, said in a recent interview that replacement of dust control equipment was not considered necessary.

A former Panamint plant manager said the new equipment doubled the plant’s production capacity.

In October, 1982, Unruh provided a crucial vote to support a proposed $20-million bond issue for another Moriarty project--an attempt to build a plant for converting trash and agricultural waste into methanol at a site in the San Francisco Bay Area city of Hercules.

Air Quality Threat Noted

Months before the authority’s action, officials of Bay Area Air Quality Management District complained that Moriarty’s plan might “even lead to a deterioration of air quality in the vicinity.”

Just 12 days after the vote, on Nov. 1, 1982, Unruh’s campaign committee received two $5,000 contributions from Moriarty associates.

One of the payments came from Patrick N. DiCarlo, who headed Parkford Petroleum in Newport Beach. Moriarty owned stock in the company and served on its board of directors. DiCarlo did not respond to numerous calls to his home and office.

The other check came from Posse Police Products Sales Co., a business owned by Marshall Riconosciuto, who once ran the Panamint cat litter operation and became manager for Hercules Properties Ltd., the Moriarty company that requested the pollution authority bonds for the waste-to-methanol plant.

A copy of a canceled check obtained by The Times shows that Moriarty paid $5,000 to Riconosciuto on Nov. 2, 1982, the day after Riconosciuto sent $5,000 to Unruh.

However, Riconosciuto, in a recent interview at the Hercules plant, insisted that the check from Moriarty had no connection to the payment to Unruh and that the campaign contribution “had nothing to do with this operation or the extension for the bond at all.”

The company withdrew its plans before the $20 million in bonds were given final approval because a major backer pulled out of the deal, Riconosciuto said.

Earlier this year, Moriarty began serving a seven-year sentence at the federal prison at Lompoc for mail fraud in connection with bribes paid to City of Commerce officials to help him win approval of a poker parlor and to launder money to state legislators. He did not respond to requests for an interview.

Unruh said in a recent interview that he knew Moriarty “slightly.” But, he asserted, “at that point I didn’t even know they were Moriarty companies. And I don’t know at that point that I even knew Pat Moriarty.”

And he angrily interrupted a reporter asking about a possible link between contributions and authority actions by saying: “I don’t consider that to be a proper question. . . . If you have a charge to make, make it to the district attorney. That’s the kind of question I consider that to be.”

Corporate Generosity

The generosity of some firms goes beyond campaign contributions.

For example, Unruh and top aide Margolis flew to Washington in April of 1985 on a trip that was a mix of state, political and personal business.

Cranston Securities, a hard-charging Columbus, Ohio-based brokerage and bond underwriting firm, picked up a large share of their expenses. (The Cranston company has no connection with U.S. Sen. Alan Cranston of California.)

The company upgraded Unruh’s and Margolis’ airline tickets to first class. The two officials also were provided with limousine service during their stay and flown in a Cranston Securities’ corporate jet to attend a Cranston Securities-sponsored conference on Marco Island, Fla., where the two were given rooms at the Hilton Marco, according to the company’s president, William E. Roberts. Cranston Board Chairman Robert C. Kanuth Jr. also hosted a fund-raising dinner for Unruh.

The total cost to the Ohio firm, according to disclosure statements filed by Unruh and his campaign committee, was $5,750. Unruh reported $2,194 as a gift and $3,556 as a non-cash campaign contribution.

On April 15, just a week before the trip, the Cranston firm applied to become a broker-dealer for the Pooled Money Investment Program, according to a spokeswoman for the treasurer’s office. Unruh chairs the board that sets policy for the investment program; Margolis is its executive secretary. The treasurer also heads an internal committee that reviewed the Cranston application and eventually approved it, but the spokeswoman said the treasurer’s records do not show the final approval date.

Other documents show that the Ohio-based firm handled $200 million worth of transactions for the investment program during the fiscal year ending June 30, 1985.

That year, the state investment fund, with average daily assets of $12 billion and a trading volume of $146 billion, earned $1.3 billion for a return of 10.7%. The program, while limited to short-term and relatively safe investments, is one of Unruh’s proudest achievements, a product of his aggressive management of state money.

It is so effective that many local governments have decided to bank their temporary cash reserves with the treasurer, and the California State Lottery invests in the fund to provide the large payoffs to its “Big Spin” winners.

But like other accomplishments in Unruh’s 12 years as treasurer--and there are many--it has been clouded by political fund-raising efforts and a willingness to accept expensive gifts and income from those who do business with his office.

The 1985 Super Bowl game, pitting the San Francisco 49ers against the Miami Dolphins at Stanford Stadium, gave two other investment banking firms a chance to demonstrate their largess to the treasurer.

60 Super Bowl Tickets

Officials of the two firms--Shearson Lehman Bros. and L. F. Rothschild, Unterberg, Towbin--gave Unruh 60 tickets worth $3,600.

Unruh decided to make it a party, inviting staff members and friends, including Gov. George Deukmejian’s state Finance Director Huff, who serves with Unruh on numerous state authorities and commissions.

Rothschild investment banker Fredric J. Prager said he was able to acquire 40 tickets from Super Bowl host Stanford, for whom Prager has done underwriting work for a number of years. The private university has been one of the biggest beneficiaries of tax-exempt bonds issued by the California Educational Financing Authority, which is chaired by Unruh. Six months before the game, Stanford sold $50 million in bonds through the authority; six months later, it sold an additional $31.5 million, according to treasurer’s office records.

“We tried to get as many tickets as we could get our arms around,” Prager said in an interview.

He denied that there was any connection between the donated tickets and Rothschild’s prominent role in state bond issues. Prager noted that he was unaware at the time that Peter Dawkins of Shearson had given Unruh an additional 20 tickets to the game. Dawkins did not return numerous calls from The Times.

The summer after that Super Bowl game, Shearson was one of several firms appointed by the treasurer’s office to the underwriting syndicate that sold $2.3 billion in revenue anticipation notes for the state--bonds intended to tide the state over in the months when spending outpaces taxes. The 14 members of the team divided $1.6 million in underwriting and management fees, state records show, and received at least a part of an additional $3.4 million in sales incentives.

In December of 1985, Unruh named Rothschild as lead underwriter for a $104.4-million bond issue needed to build a new prison at Tehachapi.

In 1985, in the months following the Super Bowl, the two firms both became full-fledged members of the underwriting team that handles bonds on behalf of the California Health Facilities Financing Authority, which is chaired by Unruh. As finance director, Huff also serves on the health facilities authority and many of the other panels that Unruh chairs.

Membership in the syndicate guarantees the investment banking firm a share of millions of dollars in fees each year.

At the same time, Unruh dropped another Wall Street firm, Goldman, Sachs & Co., from the team. Unruh campaign filings show that in 1984 Goldman officials contributed only $1,000 to the treasurer’s political war chest. The other team members gave much more: L. F. Rothschild officials gave $13,000; Shearson Lehman Bros. Inc. $15,000; Kidder, Peabody & Co. $15,000; E. F. Hutton & Co. $9,000; and Paine Webber Inc., just added in 1984, $20,000.

Goldman officials did not respond to numerous calls from The Times.

However, Unruh aide Margolis contended that the firm had simply not paid as much attention to less-profitable bond issues intended to help rebuild small hospitals and clinics as it did to the more lucrative deals for larger facilities.

‘Pattern of Non-Performance’

In addition, former Deputy Treasurer Gagan said the treasurer’s office was upset with the firm for failing to sell its full quota of bonds on a $1.2-billion state note deal in 1983. “It was a pattern of non-performance,” Gagan said.

Gagan made it clear that Unruh’s power to influence the choice of underwriters goes far beyond picking investment banking firms for bonds issued by the treasurer’s office itself.

Even the state Board of Public Works, which is chaired by Finance Director Huff, has authorized Unruh to name underwriters and attorneys for its bond issues, which totaled $172 million last year, according to the board’s executive secretary, Kirk Stewart.

Again and again, Rothschild has been named by Unruh and his staff to manage important bond deals--for the Board of Public Works and other agencies.

Several of the firm’s competitors--who insisted on anonymity--were quick to point out that another of Unruh’s former chief deputies, Grover McKean, is now a special partner with Rothschild in Los Angeles.

A staunch defender of Unruh’s record in office, McKean, in a series of lengthy phone interviews, insisted that his former connection to the treasurer has meant that he has had to work harder than most of his competitors to avoid even a hint of favoritism.

“I think I’m held to a higher standard than other bankers,” he said. “Jesse would have no hesitancy in kicking me out of a deal or chewing me out.”

McKean first went to work with another investment banking firm, Shearson, when he left the treasurer’s office in 1981. He was hired away by Rothschild three years later. And when McKean moved, his new employer won additional state business.

For example, Rothschild was added to the underwriting team that handles California Health Facilities Financing Authority issues only after McKean moved to the firm in 1984.

When McKean was with Shearson in 1983, that firm was one of two senior managers on the underwriting team that handled a $100-million bond issue for the Department of Veterans Affair’s Cal Vet home loan program. But the following year, after McKean moved to Rothschild, his new firm became the senior manager for Cal Vet.

Gagan, who often sat in for the treasurer at authority and committee meetings, said the director of the veterans department selected underwriters and bond attorneys--but only after consulting with the treasurer’s staff in what Gagan called “a collegial decision.”