Cox Needed to Tell of Loan, FPPC Says : Chula Vista Mayor’s Possible Violation of Conflict-of-Interest Law Is Also Cited

Chula Vista Mayor Greg Cox has been told that he should have disclosed a $2.2-million real estate loan from Home Federal Savings and Loan Assn. on his 1985 and 1986 statements of financial interest.

In a letter to Cox responding to the mayor’s request for advice, the state Fair Political Practices Commission said that Cox, after receiving the loan in August, 1985, may have violated conflict-of-interest laws when he failed to disqualify himself from numerous City Council votes affecting two multimillion-dollar real estate projects being developed by Home Federal in Chula Vista.

Review Is Continuing

FPPC spokeswoman Sandra Michioku said the purpose of the commission’s letter was to advise Cox about his present and future disclosure obligations regarding the loan, which was to refinance a troubled Texas apartment investment. The commission, however, is continuing to review how Cox handled the loan “to determine whether further action should be taken.”

If the commission determined that Cox violated the state Political Reform Act that requires public officials to report loans exceeding $10,000 from banks that conduct business in local jurisdictions, it could levy fines of up to $2,000 per violation and could seek civil penalties equal to the loan amount.

The panel could also refer the matter to the local district attorney’s office, which has the power to seek a conviction on charges of violating the state Political Reform Act. Penalties could include up to 18 months in jail. A spokesman for the district attorney’s office said Thursday that his office is aware of the Cox matter but that for now it is leaving the investigation up to the state.

Michioku said the ongoing review of the loan, which she said is in response to an “informal complaint” filed with the commission by a citizen she wouldn’t identify, could take months to complete.

Cox Sought Advice

Cox, 38, requested advice from the FPPC after articles published by The Times in April revealed that he had failed to disclose the $2.2-million loan on his financial interest statements and that subsequent to receiving the loan, he cast numerous favorable votes on issues involving two large housing developments in Chula Vista co-developed by Home Federal and home builder Corky McMillin.

The articles also revealed that Cox made a personal appeal to Kim Fletcher, chairman of Home Federal, to get the loan approved after initially having been turned down by Home Federal.

Cox said he amended his 1987 statement of financial interest to include the Home Federal loan after learning in April that The Times was looking into his finances. Since amending his statement, Cox has abstained on about 10 council votes that involved the Home Federal projects, called El Rancho del Rey and Bonita Long Canyon, Chula Vista City Atty. Tom Harron said Thursday.

Cox declined to comment on the commission’s letter Thursday, saying he hadn’t received a copy. The state commission did, however, inform him of the gist of the findings by telephone, he said.

“I’m interested in getting a copy of the letter, reviewing it and getting this behind me,” Cox said. “I’ll withhold any comment until I get a chance to review it.”

Chula Vista City Councilwoman Gayle McCandliss said Thursday that the FPPC’s letter should be reviewed by the city attorney before the council decides what Chula Vista should do.

“Overall, everyone has confidence in Greg’s ethics,” McCandliss said. “He has a very good track record and history in that regard. So we’ve been waiting to see what the ruling would be.”

Official Sees No Conflict

Harron said his review of Cox’s loan leads him to think that it presents no conflict of interest.

“As long as this is a market rate loan, he can participate in (council) decisions,” Harron said.

Cox acknowledges that he may have been mistaken in not listing the loan on his financial disclosure statements, but he said in April that he neither sought nor received preferential treatment from Home Federal in obtaining what he described as a market rate loan. He said his votes on Chula Vista development matters concerning Home Federal were not influenced by the loan.

Cox sought the loan to refinance a troubled 123-unit apartment complex in Austin, Tex., that he and 10 other investors acquired out of foreclosure in 1979. In 1983, Cox and his co-investors sold the apartment building to Green Tree Ltd., a partnership headed by Chula Vista resident and former Cox business associate Patrick Judd, while retaining ownership of the land.

Cox said that, to help finance the sale to Green Tree, he took a promissory note from Green Tree for $117,000 and a third trust deed, while his co-investors took a note for $238,000 and a second trust deed.

Home Federal’s $2.2-million loan in 1985, co-signed by Cox and Judd, helped Judd pay off all but $75,000 of the $238,000 promissory note held by Cox’s original co-investors, a group which included several of Cox’s relatives, in-laws and friends. Cox’s $117,000 note, however, remained outstanding.

Loan Denied 3 Times

Cox and Judd initially approached three San Diego lenders--Great American First Savings Bank, Coast Federal Savings, and Home Federal--about getting the $2.2 million and were turned down by all three, Cox said. He then asked for, and received, a 20-minute private meeting with Home Federal’s Fletcher and he asked that Home Federal reconsider the loan application.

Fletcher agreed to resubmit the loan application to Home Federal’s loan committee, which, three months later in August, 1985, approved the loan.

Although Home Federal said that it applied “conservative” loan underwriting standards in making the loan, Cox and Judd were in default on the loan by November or December last year, Cox said, less than 18 months after the loan was approved.

The apartment complex, called the Gazebos, is scheduled to be sold at foreclosure auction July 7, making it likely that Cox will lose his $117,000 investment as represented by the promissory note. The fact that Home Federal is foreclosing on the loan shows that the lender is treating the loan strictly as a business transaction, Cox said.

The circumstances surrounding the loan approval are important in the commission’s review because the Political Reform Act prohibits Cox or a similar borrower from “participating in any decision which will have a reasonably material financial effect” on the lender “unless the loan was received in the regular course of business, on terms available to the public without regard to official status.”

Although the commission is continuing its investigation into the Home Federal loan, it made no judgment in its letter as to whether Cox received extra consideration.

“We do not have sufficient facts to determine whether the loan was received in the regular course of business on terms available to the public without regard to official status,” according to the commission’s letter.