FBI ‘Wired’ Capitol Aide in 2-Year Corruption Sting

The FBI’s late-night raid of Capitol offices this week was the culmination of a “classic sting operation” that used two phony companies and a legislative staff member armed with a hidden recording device to uncover corruption in the Legislature, sources said Friday.

The sting, which had been under way for more than two years, has led to the collection of “huge amounts of audio and visual tape,” much of it pointing toward at least four legislators targeted in the probe, a source familiar with the investigation said.

“When you hear the tapes, it will be disgraceful,” he said.

Setting up two phony companies, the sting operation sponsored two bills and made payments to legislators under the guise of seeking their help in financing the construction of a shrimp-processing plant near Sacramento.

John Shahabian, a consultant with the Senate Elections Committee, went undercover for the FBI two years ago, wearing a recording device in numerous meetings with lawmakers and staff members, a source said.

About 30 federal agents swept through the Capitol late Wednesday night and searched the offices of four legislators: Assembly Republican Leader Pat Nolan of Glendale, Sen. Joseph B. Montoya (D-Whittier), Assemblywoman Gwen Moore (D-Los Angeles) and Assemblyman Frank Hill (R-Whittier). Nolan, Montoya and Moore confirmed that the searches took place but denied any knowledge of wrongdoing.

In a highly unusual move, Hill shut down his Capitol office Friday and sent his regular staff home, leaving only a temporary secretary to answer the phone. He has not talked publicly since the FBI raid.

Immediately after the search, which lasted into early Thursday morning, staff members of the Assembly Republican Caucus began purging political documents from their computer files and removing boxes from the office, two Republican sources said. Nolan, who as GOP leader has overall responsibility for the caucus, could not be reached for comment Friday.

Donald Heller, a former U.S. attorney who has represented Shahabian since late winter, said the FBI set up fictitious companies that gave legislators campaign contributions, as well as speaking fees for speeches that were never given.

“It wasn’t a speech,” he said. “The whole thing’s a scam. Here is a guise to give money to a legislator for personal use.”

Heller, in a telephone interview from Hawaii, said other types of gifts or services for legislators were not involved.

‘Only Money’

“We’re talking only money,” he said.

Shahabian began cooperating with the FBI after he “got stung” himself in 1986 on unspecified charges, the attorney said.

“He was facing a legal problem and decided to cooperate,” Heller said. “He’s been cooperating fully and honestly.”

Shahabian left for an unscheduled vacation Friday and could not be reached for comment.

The first public indication that Shahabian was involved came when it was discovered that he was listed on a city business license as an owner of Peach State Capitol West, one of the bogus companies set up by the FBI.

On Friday, unconfirmed reports swept through the Capitol that at least two lawmakers had been videotaped accepting money. Federal officials would not comment on the allegation.

“We’re sorting out the information that we have, pulling our investigation together and sometime in the near future we’ll be presenting the case to (U.S. Atty.) David Levi for his interpretation,” said Terry Knowles, agent in charge of the Sacramento FBI office.

Levi said the investigation would take “some weeks” to complete.

Hearing Evidence

However, UPI reported that a federal grand jury has already begun hearing evidence in the case.

Knowles confirmed that Capitol staffers, as well as legislators, were targeted in the investigation, which he said has been under way for more than two years.

The sting operation was based on two obscure bills, one in 1986 and the other in 1988, that purportedly would have benefited the two “companies” by allowing them to sell revenue bonds to finance their expansion.

Both measures, which were authored by Moore, easily passed the Legislature and were vetoed by Gov. George Deukmejian who, according to a spokesman, was not aware of the sting.

Questioned outside a Los Angeles hotel Friday after delivering a speech on transportation issues, Deukmejian said he had “no comment to make about the situation in Sacramento at this time.”

A longtime Senate staffer, Shahabian worked for Senate President Pro Tem David A. Roberti (D-Los Angeles) before joining the staff of then-Sen. Paul Carpenter (D-Cypress).

Successful Campaign

Shahabian began cooperating with the FBI while Carpenter was running a successful campaign in 1986 for the state Board of Equalization. Carpenter received $20,000 in campaign contributions in 1986 from another dummy company, Gulf Shrimp Fisheries Inc., supposedly based in Mobile, Ala.

Carpenter, who has been interviewed by the FBI, also is a target in the investigation, according to one source familiar with the probe.

Asked whether Carpenter knew of Shahabian’s cooperation with the FBI, Heller replied, “He does now.”

Heller, who once prosecuted Lynette (Squeaky) Fromme for the attempted assassination of President Gerald Ford in 1975, said the FBI investigation was “brought about because of rampant corruption in the Legislature and no one doing anything about it.”

“They set up a classic sting operation,” Heller said.

He said Shahabian initially went to work for the Legislature “with the highest ideals” but ultimately came to the conclusion that “what is going on is disgraceful and someone has to do something about it.”

Public Records

The nature of the sting unfolded Friday as public records and federal sources revealed glimpses of the way the operation was set up.

Gulf Shrimp Fisheries Inc., which sponsored the 1986 bill, registered at non-existent addresses and apparently failed to properly report its political activities to the state of California.

Ironically, the bogus company is itself under investigation by the state Fair Political Practices Commission for failing to register as a major political contributor after donating more than $20,000 to state legislators, a spokeswoman for the commission said.

The “company” reported its home base as an address in Mobile, Ala., that does not exist, according to the Mobile Police Department. When incorporating in California, it used the address of a vacant lot in West Sacramento.

Gulf Shrimp Fisheries was supposedly later acquired by Peach State, which sponsored the 1988 legislation.

A federal source, talking about stings generally, said that when one is set up, agents “establish the scenario with appropriate props.”

He added, “When you talk about a sting, you talk about theatrics.”

Campaign Donations

Among its campaign contributions, Gulf Shrimp gave $1,000 to Assembly Speaker Willie Brown (D-San Francisco) and $500 to the Senate Democratic Caucus headed by Sen. Milton Marks (D-San Francisco), who as chairman of the Senate Elections Committee is now Shahabian’s boss.

Assemblywoman Moore took $5,000 from Gulf Shrimp in 1986 but returned the money. She accepted $2,000 this year from Peach State and kept the money, according to records filed with the secretary of state.

Shahabian was one of several current and former legislative staff members whose names have surfaced in the sting.

Darryl O. Freeman, a former aide to Assemblywoman Maxine Waters (D-Los Angeles), lobbied for passage of the 1986 measure that purportedly would have benefited Gulf Shrimp Fisheries, according to Terry Miller, consultant to the Senate Banking and Commerce Committee.

At the time, Freeman was president of Superior Valley Small Business Development Corp., a nonprofit firm that works with the state to guarantee loans for small businesses. He was later fired from his post after a state review disclosed management problems, state officials said.

Former Aide

Under Freeman, the small business development company guaranteed a $100,000 loan in 1986 to Gulf Shrimp Fisheries, said Clarence E. Williams, now head of the company and a former aide to Speaker Brown. Freeman could not be reached for comment.

Karin Watson, a top aide to Assemblyman Nolan, was among those questioned by the FBI until the early hours of Thursday morning. She could not be reached for comment.

Contributing to this story were Times staff writers Mark Gladstone, Carl Ingram, Daniel M. Weintraub, Noel K. Wilson and Tracy Wood.