Special Interest Money Was Key : Campaign Contributions Paved Way for FBI Sting

In early 1986, a stocky, gregarious man with a deep Southern drawl arrived in the state Capitol on a mission.

Calling himself Jack Gordon, he told legislators he needed a law passed to help his Alabama company get a special break on state-backed loans to finance a new shrimp-processing plant near Sacramento.

Like many outsiders with a financial stake in legislation, he hired a lobbyist and began passing out thousands of dollars in campaign contributions. Lawmakers and staffers tell of how Gordon roamed the Capitol asking them how much it would “cost” to get his bill through.

“It looked like he was a guy who fell off the turnip truck and didn’t understand the system,” recalled Sen. Leroy Greene (D-Carmichael), who nevertheless carried Gordon’s bill in the Senate.

Now, it turns out, the man described by some as “a country bumpkin” was actually an FBI agent--a leading actor in an elaborate sting that lasted nearly three years.

The undercover operation erupted into the open 10 days ago when 30 FBI agents swept through the Capitol in a late-night raid, searching the offices of four legislators and interrogating at least one staff member.

In the aftermath of the raid, the FBI has said little publicly about its investigation into possible violation of federal extortion laws. And some of those being investigated have refused to talk with reporters.

But a picture of the sting has begun to emerge from public records and interviews with federal officials, Capitol sources, lobbyists and attorneys familiar with the case.

The operation was originally approved in 1985 by a 16-member committee in Washington. The committee, which receives regular progress reports, is chaired by a deputy assistant FBI director and includes other top bureau officials and five members from the Department of Justice.

5 Bogus Companies

FBI agents set up at least five bogus companies, shelled out more than $64,000 to lawmakers and their aides and succeeded in getting the Legislature to approve two bills they drafted.

At times, undercover agents arranged to meet their targets across the street from the Capitol at the new Hyatt Regency Hotel, where some lawmakers now suspect the FBI filmed conversations with a hidden camera.

As a result of the sting, five elected officials from the Los Angeles area are under investigation: Assemblywoman Gwen Moore (D-Los Angeles), who carried both the FBI’s bills; Assembly Republican Leader Pat Nolan of Glendale; Sen. Joseph B. Montoya (D-Whittier); Assemblyman Frank Hill (R-Whittier) and state Board of Equalization member Paul Carpenter, a former Democratic senator from Cypress.

At least three current and former legislative staff members also have become embroiled in the investigation: Tyrone Netters, an assistant to Moore who accepted payments from a dummy FBI company; Karin Watson, a Nolan aide who plays a key role in the GOP leader’s campaign fund raising, and Darryl O. Freeman, a one-time staffer for Assembly Speaker Willie Brown who was hired by Gordon’s “company” to lobby the Legislature.

Moore, Montoya, Nolan, Freeman and Netters through his attorney have denied any wrongdoing, but Carpenter, Hill and Watson have refused to discuss the matter.

The sting’s first known catch was Senate Elections Committee consultant John Shahabian, who began cooperating with the FBI after he was “stung” and realized that he was “facing a legal problem,” said his attorney, Donald Heller. Shahabian, a veteran Senate staff member, helped federal agents collect huge amounts of tape-recorded and videotaped evidence over a two-year period.

The Legislature, whose members regularly solicit campaign contributions from people and businesses seeking passage of bills, has long seemed ripe for an investigation of this sort, some lawmakers concede. But some legislators and attorneys also suggest that the final verdict in the FBI sting may be entrapment by the federal government--not extortion by lawmakers or staff members.

Speaker Brown’s allies contend that the San Francisco Democrat, who received $11,500 in funds from dummy FBI companies, was the intended target of the sting.

As evidence, they point out that two key figures used by the FBI, Netters and Freeman, had indirect links to the Speaker. Both may have been especially vulnerable to the sting because they faced personal financial difficulties.

But federal sources say that Brown was not initially targeted in the sting and that it is unlikely any charges will be brought against the Speaker.

Federal agents began setting up the sting in 1985 and laid considerable groundwork before they ever approached the Legislature--filing documents in the name of the company, setting up offices and phone numbers and opening at least one bank account. But there’s no evidence thus far that anyone in the Capitol ever took time to check out the FBI “firm.”

“To ask for proof that someone is who they say they are is not something I do,” said Will Brown, an Assembly Finance and Insurance Committee consultant who met with Gordon frequently and accepted him at face value. “I don’t even get a business card from most people.”

Posed as President

Gordon represented himself around the Capitol as the president of Gulf Shrimp Fisheries Inc. of Mobile, Ala. In fact, Gulf Shrimp was a bogus company created by the FBI around the beginning of 1986. The FBI also set up a California “subsidiary,” Gulf Shrimp West Inc. of West Sacramento, in nearby Yolo County.

Early on, one source close to the sting says Gordon enlisted the help of Marvin Levin, a West Sacramento developer, to introduce him to people who could help Gordon work his way inside the Capitol. Through Levin, the source said, Gordon met Freeman, who had worked in the Legislature for Assemblywoman Maxine Waters (D-Los Angeles) and Speaker Brown.

Freeman was the director of Superior Valley Small Business Development Corp., a state-funded company that helps small businesses get low-interest financing. Soon after meeting Gordon, Freeman helped Gulf Shrimp by committing Superior Valley to guarantee a $100,000 loan for the California plant.

Bogus Companies

In its loan application, Gulf Shrimp claimed to be a 9-year-old company with $5.9 million in sales in 1985. Sunbelt Diversified of Norcross, Ga., another phony firm, was identified as a company that would supposedly provide collateral for the loan. Another phony firm was identified as the company that would lend the $100,000 to Gulf Shrimp.

Gulf Shrimp’s plan was simple: Shrimp from the Gulf region would sell for $3 a pound more in California than it did in the South. The “company” proposed to transport the shrimp by air to the plant near Sacramento, which was ultimately supposed to employ 22 workers.

“They came up with all the paper work they needed so we guaranteed the loan,” said Freeman, who has insisted that he was unaware of the FBI sting. One problem remained, however. Gulf Shrimp’s officials said they wanted to finance the construction of the plant through low-interest, government-backed industrial development bonds--a move that would require a change in California law because the company was too small to meet the state’s requirements.

Freeman began serving as Gulf Shrimp’s lobbyist and pushed for legislation that would make the necessary change. At about the same time, Freeman was fired by Superior Valley for making a series of bad loans.

In the spring of 1986, Gulf Shrimp presented Speaker Brown with the opportunity to commit a crime--but he did not bite.

Karen Sonoda, an aide to the Speaker, found $1,000 in cash stuffed under her door. The money--in $100 bills--was earmarked as a campaign contribution to Brown from Gulf Shrimp.

Brown said Sonoda promptly returned the money because it would be a violation of state law to accept cash contributions. Gulf Shrimp subsequently replaced the cash donation with a $1,000 cashier’s check.

Quip by Speaker

Brown joked that perhaps he should amend his campaign contribution reports to show that the true source of the money he received from Gulf Shrimp actually was the federal government.

“I’d be proud to include the FBI as contributors to the campaign,” he quipped.

Other lawmakers say they or members of their staffs were approached for help on the Gulf Shrimp bill. Among those whose help was sought but who refused were Assemblyman Sam Farr (D-Carmel) and Sen. John Doolittle (R-Citrus Heights).

Netters, Assemblywoman Moore’s aide, was approached by Freeman and Gordon, according to Capitol sources, who said Moore agreed to carry the bill on Netters’ recommendation.

As the FBI’s bill moved through the Legislature, Gulf Shrimp made a series of other campaign contributions, including $5,000 to Moore. However, the assemblywoman returned the money, associates said, because she was alarmed by the large size of the donation.

Initially, the bill was drawn so narrowly that it could only have applied to the fictitious circumstances of Gulf Shrimp. But after a Senate committee consultant objected to the narrow focus of the bill, it was amended to apply to any company in a similar situation.

At the end of the legislative session, when the bill was up for a vote in the Senate, an aide to Sen. Greene brought Gordon onto the Senate floor--a privilege not extended to most Capitol visitors. The measure was approved 33 to 0.

The senator recalled that on the way out of the chamber, Gordon turned to Greene’s aide and asked: “What is this going to cost?”

The staffer told Gordon he was “way out of line,” Greene said.

Several people, however, accepted money from Gulf Shrimp, including then-Sen. Paul Carpenter, who received $20,000. Several sources familiar with the sting suspect it was this money that helped snare Shahabian, who at the time was working as an aide to Carpenter.

Ironically, in passing out all this money, Gulf Shrimp itself apparently violated a state law requiring contributors who give more than $10,000 to file a “major donor” report with the secretary of state.

Probe Spurs Probe

Several days before the FBI raided legislative offices, investigators from the Fair Political Practices Commission showed up at one of the addresses used by Gulf Shrimp, apparently looking into campaign-law violations.

Funneled $10,000

As a lobbyist for Gulf Shrimp, Freeman received at least $35,000. But he funneled $10,000 of that money in campaign contributions to Brown and Moore through Northern California Research Associates, a legitimate company.

Freeman also funneled more than $9,400 in campaign contributions, loans and consulting fees to Moore’s aide, Netters, through the same company. Netters two years earlier had run for a local office and lost, leaving him in debt.

Both Freeman and Northern California Research Associates may have violated state disclosure laws by not reporting that the true source of the money was Gulf Shrimp.

Gulf Shrimp’s bill easily passed the Legislature. But sources familiar with the sting investigation say there was no danger that Gov. George Deukmejian would sign it because an FBI agent had tipped him off about the sting.

The FBI saved the Republican governor the embarrassment of signing a bogus bill. It also kept alive Gulf Shrimp’s need for legislation so the “company” could reintroduce the bill during the next session.

As one source familiar with the investigation explained it, the FBI needed to make a second run at the Legislature because the probe had not netted sufficient evidence in 1986. In any case, the FBI gave Gordon a lesser role and refined the shrimp company’s lobbying approach.

An FBI agent going by the name of George Miller was installed as president of a new dummy company called Peachstate Capital Investments Inc. of Atlanta.

Peachstate, Miller told legislative staffers, had bought out Gulf Shrimp but wanted to proceed with the Sacramento shrimp-processing plant and the legislation.

Miller was virtually invisible around the Capitol in contrast with the heavy-handed Gordon, staffers said, and did not alarm lawmakers with blatant offers of money.

From the start, Miller also had the assistance of Shahabian, a veteran staff member who could provide insight into the complex workings of the Capitol. He also helped introduce Miller around.

Although Freeman appears to have dropped out of the picture, the undercover agents continued to work with Netters and again got Moore to carry their bill.

This time, the FBI set up a small office in the name of Peachstate a block from the Capitol, although it is unclear what the office was used for.

According to one source close to the investigation, undercover agents offered honorariums to legislators--and in some cases paid speaking fees for speeches that were never given.

Sen. Montoya received a $3,000 honorarium from Peachstate. In June, he cast a crucial vote for the “company’s” bill in a Senate committee.

It could not be determined how many legislators accepted honorariums from Peachstate this year because lawmakers are not required to report any payments received until next year.

Failed to Report

Peachstate contributed $10,000 to the campaign of Assembly GOP Leader Nolan. His office acknowledged last week that he had failed to report half of that amount before an Aug. 1 deadline for reporting campaign donations.

The “company” also gave campaign contributions to Speaker Brown ($4,000), Netters ($3,500) and Moore ($2,000), according to records filed with the Secretary of State.

On June 30, the Peachstate measure easily cleared the Legislature--this time without an amendment to water it down.

Deukmejian, however, alerted by the FBI, vetoed the bill. In his veto message, he criticized it as “special-interest legislation” that would “apply to only a single company.”

Also contributing to this story were Times staff writers Glenn F. Bunting, Ralph Frammolino, Mark Gladstone, Daniel M. Weintraub, Ron Ostrow and Dan Morain. CONTRIBUTIONS FROM ‘STING’ COMPANIES

Campaign contributions and other payments from phony companies set up by the FBI in the Capitol sting:

Assembly Speaker Willie Brown:

$1,000 campaign contribution from Gulf Shrimp Fisheries Inc.

$4,000 contribution from Peachstate Capital Investments Inc.

$6,500 contribution funneled from Gulf Shrimp through its lobbyist, Darryl O. Freeman, and Northern California Reasearch Associates.

Assembly Republican Leader Pat Nolan:

$10,000 campaign contribution from Peachstate Capital Investments Inc.

Assemblywoman Gwen Moore:

$5,000 campaign contribution from Gulf Shrimp Fisheries Inc. Donation returned.

$2,000 contribution from Peachstate Capital Investments Inc.

$3,500 contribution funneled from Gulf Shrimp through its lobbyist, Darryl O. Freeman, and Northern California Research Associates.

Tyrone Netters, aide to Assemblywoman Moore:

$3,500 campaign contribution from Peachstate Capital Investments.

$6,147 campaign loans and contributions funneled from Gulf Shrimp Fisheries Inc. through its lobbyist, Darryl O. Freeman, and Northern California Research Associates.

$3,300 in consulting fees funneled from Gulf Shrimp through lobbyist Freeman and Northern California Research.

Board of Equalization member Paul Carpenter:

$20,000 campaign contribution from Gulf Shrimp Fisheries Inc.

Sen. Joseph B. Montoya:

$3,000 honorarium from Peachstate Capital Investments Inc.

Senate Democratic Caucus fund controlled by Sen. Milton Marks

$500 contribution from Gulf Shrimp Fisheries Inc.