FBI Tipped Off Deukmejian to Capitol Sting, Sources Say

An FBI representative personally told Gov. George Deukmejian two years ago about a federal sting operation designed to expose corruption in the Legislature, sources familiar with the investigation said Monday.

The action was necessary to avoid the possibility that Deukmejian might have signed into law two special-interest bills by Assemblywoman Gwen Moore--one in 1986 and a second this year--that would have benefited bogus companies set up as a part of the sting, the sources said.

In another development Monday, former Assemblyman Bruce Young, who is appealing a federal mail fraud conviction, told The Times he was asked to join the operation as an informant more than a year ago, but refused. “If I was going to cut a deal I would have cut it with the (federal) government three or four years ago,” he said, referring to his earlier prosecution.

Bills Instigated by FBI

Neither David Levi, U.S. attorney for Eastern California, nor Terry Knowles, the special agent in charge of the Sacramento FBI office, would comment on whether Deukmejian was, in fact, tipped off.

But two sources knowledgeable about the investigation said that the governor personally was tipped off ahead of time to make sure he did not sign legislation that had been instigated by the FBI as part of its elaborate sting operation that lasted more than two years.

Deukmejian--who served one term as state attorney general before becoming governor--apparently kept knowledge of the sting close to his vest. And now he has ordered his staff not to say anything substantive about the investigation, aides said.

“This is a very sensitive investigation and we’re not going to be commenting on any aspect of it,” gubernatorial press secretary Kevin Brett said Monday, declining to confirm or deny that Deukmejian had been informed about the sting of members of the Legislature, where he himself had served 16 years.

The matter is especially touchy for the governor because targets of the probe include two leading Republican legislators--Assembly Republican Leader Pat Nolan of Glendale and Assemblyman Frank Hill of Whittier--whose Capitol offices were searched by the FBI in their overnight raid Wednesday night.

The offices of Assemblywoman Moore (D-Los Angeles) and Sen. Joseph B. Montoya (D-Whittier) were also included in the late night raid by 30 federal investigators. Current Board of Equalization member Paul Carpenter, a former state senator, has also been questioned by investigators.

In their searches, the FBI agents seized files on the two bills by Moore--measures that would have benefited the phony companies, which supposedly wanted to construct a shrimp processing plant in West Sacramento. In each case, the legislation would have permitted banks or savings institutions to make substantial loans to the companies--loans that are not permitted under current state law.

Not only did Deukmejian--with advance knowledge from the FBI about its sting--veto the measures, but in each case he issued strongly worded messages to explain his reasons. He argued that the first bill “would create a contradiction” in state banking law, easing investment restrictions on savings and loans that “are not in the public interest.”

Governor’s Reasons

Last month, the governor vetoed the second of the sting-generated bills, pointing out that “the provisions of this measure are such that it would apply to only a single company.” He added, “I am concerned that this special-interest legislation will benefit one company to the detriment of others that may be similarly situated.”

The Moore bills would have benefited only the phony “companies.”

For example, the 1988 measure would have applied only to companies that were set up in Sacramento or Yolo counties, that would create at least 20 new jobs, that had received a loan of $50,000 to $100,000 from the state of California in 1986, and that manufacturered “low-fat, high-protein foodstuffs.”

The only firms that could possibly have qualified were the bogus ones set up by federal agents--Gulf Shrimp Fisheries Inc., or its successor, Peach State Capitol Investment.

One of the owners of Peach State, according to city licensing records, was John Shahabian, a legislative employee, who works for the Senate Elections Committee. According to Shahabian’s attorney, former U.S. Atty. Donald Heller, the Capitol aide has been cooperating with the FBI for more than two years, ever since he got into some kind of difficulty with federal authorities.

In helping the investigators, Shahabian reportedly often carried a hidden recording device and helped the FBI compile a sizable pile of sound and videotape recordings.

Heller also defended former Assemblyman Young in his federal trial for failing to report outside earnings and for laundering funds to other legislators. Young declined to identify the individual who tried to recruit him for the latest FBI operation.

“I refused to be part of a sting operation,” said Young. “I refused to participate. I just don’t want to be involved in that kind of thing. It is not my style.”

Young denied a report that he had played a key role in setting up the sting operation and that he would be a key witness in any prosecution. “Gwen Moore, Nolan and Hill are dear friends,” he said. “I would not set up my friends.”

Focus on Roberti Aide

Senate President Pro Tem David A. Roberti (D-Los Angeles), who gave Shahabian his first job in politics in 1974 and hired him for a variety of posts over the next 10 years, said he found it distressing that his former aide reportedly had been involved in the FBI sting.

Roberti said he had no advance knowledge of the sting and that it was too early to know whether to be angry about the part Shahabian played.

“I don’t think anybody really fully knows what is involved, or how extensive the taping was, how warranted it was, or how intrusive it was on the personal confidences that had nothing to do with the sting at all,” the Senate leader said.

Meanwhile, in the Assembly, several Republican members who have been seeking Nolan’s ouster as GOP leader used his involvement in the FBI probe to build their case for a coup.

Assemblyman Stan Statham (R-Oak Run) said Nolan should give serious consideration to the prospect of stepping down from his leadership post.

Words of Support

But other Republican assemblymen, such as Ross Johnson of La Habra, angrily defended Nolan and said he is the target of criticism from a handful of malcontents within the 35-member GOP caucus.

Assembly Speaker Willie Brown (D-San Francisco), told reporters that he does not believe he was a subject of the sting despite his prominence as leader of the Assembly.

“Believe me, I’m a better target than all of those people combined,” he said humorously. “You know if they had even looked my way you would have known it long before now.”

Brown took offense at suggestions that members of the Legislature, who are constantly raising campaign contributions from the sponsors of legislation, are ripe for a corruption investigation.

“That is an insult to all of the 120 members of this house to describe this body as more subject to temptation than the members of the Catholic Church,” he said. “I don’t think they are any less or any more.”

Meanwhile, Montoya hired Michael Sands, a prominent Sacramento defense attorney, to represent him. Sands would not discuss the investigation of Montoya.

Contributing to this story were staff writers Jerry Gillam, Mark Gladstone, Carl Ingram, and Richard C. Paddock.