Refusal By Nolan Aide Cut Short FBI Sting

Federal law enforcement officials abruptly ended the sting phase of their undercover investigation into alleged Capitol corruption on Aug. 24 because a top aide to Assembly Republican Leader Pat Nolan of Glendale refused an offer to turn informant, sources familiar with the FBI operation told The Times Monday.

If the aide, Karin Watson, had agreed to cooperate with the FBI, the sting might have continued for months, according to the sources, who agreed to discuss the matter only if they were not identified.

“If one is turned down, there’s a need to act quickly to prevent anything from disappearing and word from getting out,” one of the sources said.

Watson could not be reached for comment Monday.

Even before the FBI began interviewing Watson on Aug. 24, about 30 investigators were already assembled in a conference room at the Hyatt Regency Hotel, across the street from the Capitol. The agents waited until just before the Legislature ended its late-night session to swoop into the Capitol to execute search warrants they had obtained earlier in the day. The search continued through the early morning hours.

$64,000 Paid Out

The FBI had hoped that Watson would cooperate with them in a continuing sting operation involving agents posing as businessmen seeking approval of special-interest bills tailored to benefit only their bogus companies. By the time Watson declined to aid the investigation, the phony firms had paid out more than $64,000 to lawmakers and their staff, much of it in campaign contributions.

The investigators, according to sources, called Watson away from the Capitol during an afternoon break in the Aug. 24 Assembly session. She met with agents at the downtown offices of Peachstate Capital West Ltd., one of at least five bogus companies set up by the FBI as part of the sting.

Despite several hours of discussion lasting into the early evening, Watson refused to cooperate and federal officials believed that they then had no choice but to end the sting and collect evidence from Capitol offices, the sources familiar with the investigation said.

Watson, a special assistant to Nolan on banking, insurance and finance issues, also was actively involved in Nolan’s fund-raising efforts, according to two Republican legislative sources.

Offices Searched

Shortly after Watson’s final refusal, the federal investigators searched the offices of Nolan, Sen. Joseph B. Montoya (D-Whittier), Assemblyman Frank Hill (R-Whittier) and Assemblywoman Gwen Moore (D-Los Angeles).

Moore is the author of two bills--the first in 1986 and the second this year--that would have benefited the phony companies, Peachstate and Gulf Shrimp Fisheries Inc. The measures easily won legislative approval but were vetoed by Gov. George Deukmejian, who was tipped off to the sting by the FBI.

After the raid, the FBI also questioned Board of Equalization member Paul Carpenter, a former state senator, who has been identified as a subject of the sting. Carpenter received $20,000 from Gulf Shrimp Fisheries.

On Monday, Terry Knowles, special agent in charge of the Sacramento FBI office, would neither confirm nor deny that the raid was triggered by Watson’s refusal to cooperate with federal investigators.

The decision to begin the Capitol search was “made in concert with the U.S. attorney based on several factors,” which he said he could not described in detail at this time.

Also contributing to this story were Times staff writers Ralph Frammolino and Mark Gladstone.