Supervisor Now Calls Tract a ‘Bad Project’ : Nestande, Moriarty Aided Developer in Getting Loan

Orange County Supervisor Bruce Nestande in 1982 took the unusual step of writing letters to a bank to help a Newport Beach real estate investor obtain a $2.4-million loan for a controversial project awaiting final approval by the Board of Supervisors.

At the same time, convicted political corrupter W. Patrick Moriarty was working to secure the same loan for the developer.

Yet to Be Built

The developer, W. Grafton Worthington, received the loan from California Canadian Bank in large part because of two letters written to the bank by Nestande indicating that the project would most certainly be approved by the board, according to interviews and bank memoranda.

Nestande said he never discussed the Worthington loan or the project with Moriarty. But Moriarty, who then had extensive banking connections, said Nestande asked him to get involved on the developer’s behalf.

The 232-acre Worthington project, known as Saddleback Meadows, has yet to be built and Worthington, who later contributed to Nestande’s political campaign, never repaid California Canadian Bank. Worthington, whom Nestande described in an interview as a casual acquaintance, has filed for bankruptcy under Chapter 11 of the federal bankruptcy code.

Worthington did not respond to repeated requests for an interview.

Nestande said in a recent interview that Saddleback Meadows was a “bad project.”

No Final Vote

But in early 1982, Nestande, then chairman of the Board of Supervisors, told California Canadian bankers in a letter written on his county stationery that he saw “no obstacle that would interfere in any way with the final tract map. I anticipate approval of the final step by this Board of Supervisors.”

Saddleback Meadows was one of the most controversial projects to go before the Orange County Board of Supervisors, which voted 3 to 2 in 1980--before Nestande was elected to the board--to tentatively approve the development. Earlier, the project had been opposed by county staff members and the grand jury because of grading difficulties, traffic concerns and water and sewer capacity. After the vote, Saddleback Meadows was delayed by a lawsuit filed by neighbors who opposed the project. The Board of Supervisors has not yet taken a final vote on the development.

Never Been Asked

Although Nestande was not on the board when supervisors tentatively approved the project, he did vote in 1984 to rezone the project from a buy-your-own mobile home lot to a site for 705 units of manufactured housing.

Nestande, who in June won the Republican nomination for secretary of state, said he sees nothing wrong with his bank correspondence and that it just showed the status of the proposed development. He said the letters illustrated that the “project was not in jeopardy.”

Other supervisors contacted by The Times said they have never been asked to write letters on behalf of a developer who had a project pending before the board.

A Fair Political Practices Commission spokeswoman in Sacramento said merely writing letters to a bank does not constitute a conflict of interest unless it could be shown that the elected official had an interest in the project and voted on it.

About the same time Nestande wrote the letters, Moriarty, a fireworks manufacturer and then-director of the now defunct Bank of Irvine, used his contacts at California Canadian to help Worthington.

In May, Moriarty began serving a seven-year prison sentence for making illegal campaign contributions, paying kickbacks to a banker and bribing public officials. He has defaulted on $20 million in loans to California Canadian.

Received Cash Payments

Persons interviewed by federal and state investigators in the continuing Moriarty investigation told The Times that they have been questioned about Nestande’s relationship to Moriarty and Moriarty’s former business associates. Investigators contacted by The Times would neither confirm nor deny this.

Bank auditors and investigators first began examining the loan after an officer in the bank’s Orange branch, who was granted immunity from prosecution, told investigators that he had received cash payments and free trips to Hawaii from Moriarty about the time the loan was being considered by California Canadian Bank.

Nestande said he was not sure exactly who approached him first about Saddleback Meadows. But Nestande emphatically denied that he ever talked to Moriarty about Saddleback Meadows or the Worthington loan. The supervisor said he had “never met with Pat Moriarty in my life in my office” and “I did not meet with Pat Moriarty anyplace concerning Saddleback.”

However, Moriarty said Nestande called him into his office and that he asked for help in getting a loan for Worthington. Moriarty said Orange County lobbyist Frank Michelena, who worked for both Worthington and Moriarty, was also present.

Appreciate Help

“They described Grafton (Worthington) as a terrific guy and they would appreciate if I helped out,” Moriarty said when he was questioned by The Times last month. He said he first met Worthington after his meeting with Nestande and Michelena.

Moriarty said he spoke to Nestande on the telephone at least once to remind him to write a letter to California Canadian Bank.

In late 1981, Worthington, a former health food executive who sold his business to become a real estate developer, was seeking a bank loan to support Saddleback Meadows and another project he planned for south Orange County. According to a former California Canadian banker, Moriarty made a telephone call to the bank on Worthington’s behalf. Later, a California Canadian Bank officer toured the proposed construction site in the rural foothills in the southern part of the county.

Loan documents show that the loan application was referred to the bank by “our good customer W. Patrick Moriarty,” according to a former banker.

First Loan Turned Down

According to that banker, in early 1982 Worthington’s first loan application to California Canadian for $10 million was turned down. The rejection was conveyed in a memo to Orange branch officers by Floyd Walden, then a San Francisco-based bank vice president in charge of credit and commercial loans. Walden, who handled millions of dollars in loans to Moriarty and his associates, is now serving a four-year federal prison term in Lompoc for failing to pay taxes on kickbacks Moriarty paid him. Prison officials said Walden refused to be interviewed by The Times.

According to an internal bank memo, the bank’s San Francisco headquarters office did not want to approve a loan on a project that might not get final tract map approval.

In early 1982, Nestande attended a luncheon meeting with Worthington and a bank officer to talk about the Saddleback Meadows project, according to the officer. The official, who agreed to be interviewed on the condition he remain anonymous, said he was not sure who arranged the luncheon. He said he came away from the meeting “satisfied” that final approval of the project would be granted by the supervisors.

Could Not Recall Details

Nestande said he was not sure who asked him to attend that meeting. He said it could have been Worthington, lobbyist Michelena or someone at the bank. He could not recall specific details of the meeting, but said the purpose basically was to update the project’s status.

Michelena said he would not respond to questions from The Times.

Accompanying a Jan. 29, 1982, interoffice bank memo from the Orange branch of California Canadian to the San Francisco headquarters was a letter from Nestande.

That letter, dated Jan. 27 and addressed to the Orange branch of the bank, said, in part:

“As of this date, the developer has satisfactorily completed in excess of 90% of the conditions of approval required for recording the title.” The letter outlined the status of the project and noted that Worthington had until the end of 1982 to meet all county requirements and get the project approved by the supervisors.

Nestande’s letter ended saying:

“In summary, please be advised that all necessary project approvals have been secured by the applicant and I see no reason why the final tract map will not be approved by the Board of Supervisors.”

Letter Didn’t Work

The Nestande letter did not satisfy Walden in the bank’s head office, according to bank memoranda.

In a California Canadian memorandum, Walden responded to the local branch:

“Referring to your interoffice memorandum dated Jan. 29, we are not willing to give any further consideration to the credit application unless it is clearly established that Mr. Worthington can record the final subdivision map. If your discussions in this respect do not lead to a concrete conclusion, your application will be considered withdrawn.”

On Feb. 18, 1982, a bank official wrote Nestande asking for another letter and the supervisor responded more directly with a letter also dated Feb. 18, 1982.

“Saddleback Meadows has been approved by the Orange County Board of Supervisors on several occasions. I see no obstacle that would interfere in any way with the final tract map. I anticipate approval of the final step by this Board of Supervisors.”

‘Knows His Board’

In one of a series of bank memoranda concerning the Worthington loan, a California Canadian banker noted that Nestande “knows his board” when he wrote about the anticipated supervisors’ final approval of the Saddleback Meadows project.

When the Worthington loan was approved by California Canadian, a memo from headquarters to local bankers in Orange said, “You have been assured by the county Board of Supervisors that approval will not be withheld.”

Without a final tract map, the Saddleback Meadows property would most likely revert back to agricultural use, a county Environmental Management Agency official said.

In an interview, Nestande said he thought that it was “stupid” that a bank would approve a multimillion-dollar loan based on his letters. Nestande added that if a developer can meet the “legal loopholes” after a project is tentatively approved, he should be able to develop it. “I’m not in a position here as some kind of dictator . . . to arbitrarily shoot it down. I don’t operate that way.”

‘Never Had Such a Request’

Other supervisors, interviewed by The Times, said they never have been asked to write such letters on behalf of a constituent.

“I have not ever had such a request put to me,” said Supervisor Ralph B. Clark, who originally voted for the project in 1980 along with then-supervisors Edison Miller and Philip Anthony. “Every supervisor has to do his own thing, has to be responsive to (the) electorate. The only thing I can tell you is that it never came to the point where I have had to make a decision like that.”

Supervisor Thomas F. Riley said: “If I am going to be consistent in making recommendations, I can’t be concerned with financial needs or financial concerns. That gets beyond the responsibility of land planning. It is very dangerous to assume a project would be approved.”

Supervisor Harriett Wieder said: “I think that it’s a unique situation, first of all. I don’t give much credibility to the fact that a bank would rely on (the letters). My experience with banks is that that kind of letter is not collateral. When I first heard about it, I kind of chuckled. Since when does a bank accept something like a letter? They usually want something more, real property or assets. It was strange on the part of the bank. Chances are, had they (asked me for such a letter), it would be like a credit rating. I would give them the public information, which is available, that they requested. If banks give money on loans on this kind thing, where there is never a guarantee (of being approved) in this kind of process, I think that it would be stupid.”

Voted Against It

Wieder and Riley voted against the project when it was first approved in 1980.

Nestande said that when other supervisors tentatively voted to grant Saddleback Meadows a tract map, it gave Worthington a legal entitlement to develop the project.

In February, 1982, according to former Moriarty associate Richard Raymond Keith, Moriarty made a trip to San Francisco “and put pressure” on Walden to approve the loan. Keith said he accompanied Moriarty on the trip, where, in a San Francisco restaurant, he was present when Moriarty talked to Walden about the Worthington loan.

Keith is serving a four-year sentence in federal prison for failing to pay income taxes and bankruptcy fraud.

Moriarty denied that he made the trip.

On March 10, 1982, the Worthington loan was approved, not for the original amount of $10 million but for $2.4 million.

Third Trust Deed

The bank note was secured by a third trust deed on the Saddleback land and deeds on other Worthington property in the Palm Springs area.

In announcing approval of the loan, Walden wrote to the bank’s Orange branch that the “essential feature that is yet to be put in place is recordation of the final map. You have been assured by the county Board of Supervisors that approval will not be withheld.”

Shortly after the Worthington loan was approved by California Canadian Bank, Moriarty and lobbyist Michelena became financially involved in the Saddleback Meadows project. Real estate documents show Moriarty lent Worthington $250,000 and Michelena lent him $200,000 for development costs of the project. Moriarty confirmed that he and Michelena lent the money to Worthington.

According to Worthington’s bankruptcy filings, he was lent an additional $200,000 in 1985 by Lena Investments Inc. to help the financially troubled Saddleback Meadows project. Lena Investments’ president is Catherine Clark, according to state corporation records. Clark, who is Michelena’s personal secretary, was subpoenaed by the Orange County Grand Jury in early 1984 in the then-fledgling Moriarty probe, but was never called to testify.

Provided Gifts

Keith, a one-time Moriarty confidant now in federal prison in Boron, Calif., said Michelena provided a Orange branch bank officer who helped handle the loan with a limousine and driver, gifts, and tickets to various sporting events. He said Michelena also arranged for the banker to stay in Worthington’s house in Rancho Mirage just before the loan application was prepared.

Keith said the banker, who has been granted immunity from prosecution in the case, also received cash payments, trips to Hawaii and prostitutes from Moriarty.

In 1983, a year after Nestande wrote the letters to the bank on behalf of Worthington, the developer--who once owned Rolls-Royces and expensive homes in Palm Springs and Lake Tahoe--gave Nestande a $1,250 campaign contribution. The amount was $150 below the county limit that disqualifies supervisors from voting on issues involving the contributor.

At the same time, Nestande received $18,000 in campaign contributions from Moriarty’s employees, relatives and associates. But Nestande returned the money, saying he had determined that the contributions were laundered and really came from Moriarty and not from his friends and associates.

Five-Year Deadline

Under state law, developers have five years from the date they receive a tentative tract map to record a final tract map and begin construction.

Saddleback Meadows has remained on the county books for more than six years because the county granted Worthington three extensions to complete the project. Also, in 1984, when Worthington was running out of extensions, he persuaded the Building Industry Assn. to propose amending a bill by state Sen. John Seymour (R-Anaheim) to extend by 589 days the time to get plans approved and begin construction. The amendment was attached and the bill signed by the governor.

Worthington recently lost the property when Crocker Bank, which held a $4.1-million trust deed on Saddleback Meadows, foreclosed.

Michelena is still listed as a creditor in Worthington’s bankruptcy, but Moriarty is not.

Project Still Alive

Even though the last deadline for Saddleback Meadows was July 24, the project is apparently still alive. County officials have given the project’s new owners another extension of time since the local water district cannot take any new customers because it is at its sewage capacity.

Under state law, if the construction of a project is delayed by a sewer moratorium, the time does not count against the five-year limit. When the moratorium is lifted, the developer is entitled to an additional 120 days to complete plans for a final tract map and begin construction.

Times staff writer Gary Jarlson contributed to this story.