Stein Probe Focuses on $30,000 Check to Karl

An FBI investigation into the political activities of Orange County developer David Stein appears to center on a mysterious $30,000 payment Stein allegedly made in May of 1984 to video entrepreneur Stuart Karl, who pleaded guilty last month to conspiring to violate federal campaign contribution laws.

Little is known about the payment or where it went after Karl received it, but informed sources say the FBI and the Federal Election Commission want to know if the money was illegally funneled into the unsuccessful 1984 presidential campaign of Democrat Gary Hart.

Both Stein, 40, and Karl, 36, were strong backers of Hart’s 1984 presidential campaign, helping Hart to raise millions of dollars to run all-out efforts in the primaries in California and New Jersey, among other states. Hart, who eventually won the California primary and lost in New Jersey, needed both states to mount a successful challenge to former Vice President Walter Mondale at the Democratic Convention.

It was disclosed last month in U.S. District Court in Los Angeles, during attempts by Stein to avoid being forced to testify under federal subpoena, that the developer was under investigation by both the FEC and the FBI, but the nature of those inquiries has remained unclear. Last week, a source who was present during some FBI interviews in another investigation said agents were particularly interested in a $30,000 payment from Stein to Karl on May 25, 1984, and where it went after Karl received it.

Stein refused last week to comment specifically on the $30,000 payment, but attorney Edward Medvene issued a short written statement on his behalf that referred to the exchange of money as a loan. “David Stein did make the subject $30,000 loan. However, it was not made by him for the benefit of the Gary Hart campaign or any other political purpose,” the statement said.

Earlier, Stein had said: “I am not aware of any wrongdoing, either ethical or legal, on my part. I therefore look forward to answering any questions related to my political activity.”

He said he would first answer to the Justice Department, then the FEC and then the press.

Others, who asked not to be identified, said the government investigation into possible criminal activities of Stein was winding down, and “David is going to come out of it just fine.” They indicated that the $30,000 payment mighd have been a personal transaction between the two that had nothing to do with the Hart campaign.

The $30,000 payment surfaced in a Federal Election Commission deposition of Stein last spring. A transcript of that deposition has been filed in U.S. District Court in Los Angeles. During the deposition, Stein refused to answer dozens of questions put to him by FEC lawyers, invoking his Fifth Amendment right against self-incrimination.

One of the questions posed by FEC attorney Jonathan Bernstein that Stein refused to answer during the deposition was: “Do you recall making a $30,000 payment to Karl’s business in May, 1984?”

The attorney then showed Stein a piece of paper, according to the transcript.

Declined to Answer

“Mr. Stein, I am handing you Exhibit 3 to the deposition, which is a one-page document, at the top entitled ‘Karl Production--Checking,’ ” the transcript says. “It purports to reflect a deposit of $30,000 from David Stein on May 25, 1984. Is that your understanding of what the document reflects?”

Stein referred to his previous answer: “Even though I would like to be cooperative, on the advice of counsel, I must reluctantly decline to testify under the basic protection offered me by the U.S. Constitution.”

Court records also indicate that the FBI has subpoenaed some of Stein’s business and personal records. Stein attorney Gleam O. Davis said in a court declaration that an FBI agent on July 22 asked Stein to voluntarily produce certain records in “connection with an ongoing investigation into campaign financing.”

Specifically, Davis said, the FBI asked Stein to produce a list of employees at his firm, Stein-Brief Group Inc. of Laguna Niguel; a list of his personal and business bank accounts, and all of the statements and canceled checks from “one particular bank for the period 1984 to present.”

Law enforcement sources said Stein is not being investigated for laundering campaign contributions through employees, as in the Karl probe, but for “unreported expenditures and contributions.” One source said there is only a 25% chance that Stein would be indicted for any violations of the federal political campaign financing laws.

Chris Townsend, a spokesman for Stein, said last week that he was “not at liberty to discuss” the FEC and FBI investigations. As for the $30,000 check, Townsend said, “Again, our statement is still the same. We’re just not commenting on anything until the Justice Department and FEC investigations are completed.”

A member of the 1984 Hart campaign staff said he was told by someone close to Stein that Stein had made a “personal loan to Karl because he was cash-strapped.”

“David would not be so stupid as to give Stuart his own money (for use in the campaign),” the Hart campaign staff person said. “I think this would be in the nature of a personal loan.”

Attorney John Vandevelde, who represented Lorimar Telepictures employees who were questioned by the FEC and the FBI regarding Karl, said the check was among the “pre-acquisition records” Lorimar had retained from the time it purchased Karl Home Video in 1984. Those records, he said, were turned over to the FBI.

“The records were not in the best shape in the world,” Vandevelde said.

The attorney said he did not recall “whether it’s something we found . . . or whether it’s something they (federal investigators) found.” In any case, he said, “neither I nor anybody we interviewed was . . . able to shed any light on the transaction with David Stein that involved $30,000.”

No Explanation

In the deposition of Stein last spring, the FEC attorney tried unsuccessfully to get Stein to explain that transaction.

According to the transcript, Bernstein said: “Please describe the details of this transaction, Mr. Stein. What was the purpose of this transaction?”

Stein declined to answer.

Bernstein then asked about conversations that might have taken place concerning the payment, including who may have attended any meetings concerning it and the dates of such meetings.

Stein also was asked how the deposit was effected, who received the funds at Karl’s business and what connection, if any, this transaction had with the 1984 Hart campaign.

Throughout the questioning, Stein declined to provide any answers.

At one point in the deposition taken in Los Angeles, Stein was asked whether he had any knowledge of anyone who might have disguised political contributions as legitimate business expenses.

Stein was also asked if he was aware of anyone who made direct payments to vendors who supplied services and materials to the Hart campaign or anyone who provided in-kind services to a campaign without compensation.

One of the counts in the indictment against Karl charged that he asked employees of his company, Karl Home Video, to contribute up to $1,000 each--the maximum allowed by an individual in a federal campaign--and then paid them back in cash. Karl also was charged with paying certain expenses for Hart, particularly in the closing days before the June, 1984, California primary and at the 1984 Democratic Convention.

Sources told The Times that Karl is cooperating fully with the FBI.

Karl, of Newport Beach, pleaded guilty last month to conspiring to violate federal campaign contribution laws, publicly pledging his cooperation in an FBI investigation into illegal campaign contributions to the Hart campaign and congressional candidates in six states.

Last week, Karl’s sentencing, which originally had been scheduled for Sept. 19, was delayed until December. Under the terms of an agreement with the Justice Department requiring him to cooperate with investigators, Karl faces a $350,000 fine and probation but no time in prison.