FBI’s Sting Puts Spotlight on Ethics of Capitol Aides

Until last summer, Assembly aide Tyrone Netters was best known around the Capitol for his passionate opposition to South African apartheid and for his unsuccessful campaign for a seat on the local utility board, which operates a controversial nuclear power plant.

But life took a sharp downturn for the 34-year-old Assembly aide on the night of Aug. 24, when 30 FBI agents raided six legislative offices, including Netters’.

Since then, he has become known around the Legislature as one of half a dozen or more aides caught up in Brispec (an acronym for Bribery-Special Interest), the federal investigation of political corruption in the Capitol.

With the help of Netters and other aides, FBI agents posing as businessmen were surprised at what an easy time they had getting their way in the Capitol, according to sources familiar with the probe. The legislative staffers were crucial to opening doors for the federal agents and to steering special-interest bills to benefit the FBI’s bogus companies through the Legislature.

Guides for the Agents

These aides became guides for the FBI agents on the trail of corrupt politicians. At least five current and former legislators have been targeted in the probe.

The FBI’s sting operation demonstrates the clout of aides, many of whom are politically ambitious infighters who control much of the daily flow of legislative business. They are skilled at exerting influence behind the scenes, raising money for their bosses’ election campaigns, running political consulting firms on the side and using their trusted positions to convince lawmakers to carry legislation.

None of the aides have been formally accused of wrongdoing in the sting. And Netters’ attorney, Bob Wilson, asserts that his client is innocent.

But whatever the outcome of the Brispec probe, the conduct of these aides has directed a spotlight on the Legislature’s 2,200 employees and has raised questions about their lack of training on the ethical and legal conflicts they regularly face on the job.

Common Cause and legislative leaders are considering proposals to establish a code of conduct for Capitol staff members. Among the changes being looked at are rules barring aides from campaign consulting, limiting staff roles in fund raising and preventing aides from leaving their jobs in the Capitol to immediately become paid lobbyists.

Assembly Speaker Willie Brown (D-San Francisco) has proposed establishing a joint Senate-Assembly ethics committee that would, among other things, oversee employee behavior. At a recent press conference, Brown said the FBI sting demonstrated “the need for serious review of staff conduct.”

In early 1986, when FBI agents were beginning to implement their sting, they naturally turned to legislative aides to gain entree to the Capitol.

One of the federal agents’ first contacts was Darryl O. Freeman, now 41, who had left a job as an Assembly aide to become president of a nonprofit firm that guaranteed loans to small businesses.

Posing as executives of Gulf Shrimp Fisheries Inc. of Mobile, Ala., the FBI agents asked Freeman to help them secure a $100,000 loan guarantee that would give credibility to their phony company.

The “businessmen” wined and dined Freeman. At one point, they flew him first class to Atlanta to meet with other FBI agents posing as officials of a dummy finance company. He was put up in a deluxe hotel, shown the posh suburban headquarters of the “company” and asked to sign a stack of meaningless papers intended to impress him, according to a source familiar with the investigation.

Later, when Freeman was forced out of his job at the nonprofit firm, the “businessmen” set him up as a lobbyist, funneling $35,000 to him for campaign contributions, consulting fees and expenses. At least $7,700 of the total went to Netters, who then was an aide to Assemblywoman Gwen Moore (D-Los Angeles). Freeman and Netters had gotten to know each other a few years earlier when the two worked for Assembly Democrats.

Politically ambitious, Netters used part of the Gulf Shrimp money in his losing 1986 bid to win a seat on the Sacramento Municipal Utility District board, his campaign reports show. Even though defeated, he has kept his utility board campaign fund alive, collecting $5,500 this year from Peachstate Capital West Ltd., a second “company” set up by the FBI for the sting. Netters used campaign funds last summer to finance his trip to the Democratic National Convention in Atlanta, where he was a Jesse Jackson delegate.

In 1986, as he was launching his own campaign and helping the “businessmen,” Netters encountered mounting personal financial problems. He had filed for bankruptcy and was facing foreclosure on his home, according to court and property records. Yet he and his wife managed to lend $4,000 of their own money to his unsuccessful 1986 campaign. A year later, in 1987, the Internal Revenue Service placed a $23,000 lien on their property for back taxes. The state Franchise Tax Board claimed an additional $2,710.

In the spring of 1986, Netters and Freeman worked with Moore to win relatively swift Assembly passage of a bill to make Gulf Shrimp eligible for low-interest loans, which the “company” supposedly needed to set up a shrimp processing plant in West Sacramento.

With the bill having passed the Assembly, the FBI next sought a sponsor for the measure in the Senate, where one member compared it to “motherhood and apple pie” because it appeared to help a small business promising new jobs in the Sacramento area. With only a few weeks to go before the Legislature’s 1986 adjournment, John Feliz, chief of staff to Republican Sen. John Doolitte of Rocklin, one of the Legislature’s most conservative members, said he was approached by Freeman.

On the surface, it was an unlikely choice for Freeman, who had worked for liberal Democrats. But Freeman and Feliz had met at a conference on minority businesses and once talked about creating a federally funded firm to help minority companies, Feliz said in a recent interview.

The 41-year-old Feliz is a former Los Angeles police officer who operates his own political consulting service. Last year, the state Fair Political Practices Commission concluded that he had violated campaign reporting laws in Doolittle’s 1984 reelection campaign, and he paid a $2,000 fine.

As the 1986 Legislature was approaching adjournment, Freeman introduced Feliz to Jack Gordon, an Alabama-based FBI agent who was posing as president of Gulf Shrimp and seeking support for the sting bill. At the end of a two-hour dinner with Feliz and his wife, Gordon pointed out that he had contributed to the campaigns of Assemblywoman Moore and Speaker Brown. “Is there anything you want?” Feliz recalled Gordon asking.

Initially, Feliz said, he brushed aside the question. He said he urged Gordon to build the proposed processing plant in Doolittle’s district and to get involved in politics after starting the new business. When Gordon again asked what Feliz might want, Feliz said that he responded “in humor” by saying, “when you start selling shrimp, let me see if the big restaurants in Tahoe or Reno” are interested in buying shrimp in exchange for “a commission on the sales” from Gulf Shrimp.

Last month, Feliz was interviewed by the FBI. However, he has not been identified as a subject of the investigation.

For reasons that are not yet clear, Gordon and Freeman lost interest in Feliz. They soon found another ally in the Senate, John Shahabian, a legislative consultant working for Sen. Paul Carpenter, a Norwalk Democrat.

Shahabian, now 41, began work for the Senate in 1974. He was close to the Senate leadership--someone who periodically left the Senate payroll to work on Democratic campaigns through his own political consulting firm.

He was, according to two sources familiar with the investigation, a conduit for at least a part of the $20,000 in campaign contributions that Gulf Shrimp paid to Carpenter, who was then running a successful campaign for a seat on the State Board of Equalization.

The Gulf Shrimp bill passed the Senate 33 to 0, with Carpenter not voting. But Gov. George Deukmejian vetoed the measure after being tipped off about the sting by the FBI.

A year later, after being confronted with the evidence that federal investigators had amassed against him, Shahabian agreed to become an FBI informant and to help them win support for a second special-interest bill sponsored by Peachstate, the bogus company that took over for Gulf Shrimp.

As he had done before, Netters helped maneuver a Moore bill through the Assembly, but this time the phony executives told legislators and aides that they needed Republican support to avoid a repeat of the governor’s veto.

Shahabian called on Terry E. Frost, who had important Republican contacts despite the fact that he was a key Democrat staffer and fund-raiser. Frost, now 39, had gotten a job in the Capitol a decade earlier as a legislative chauffeur and had worked his way up to senior aide to Senate Democratic floor leader Barry Keene of Benicia.

What follows is a version of events Frost has told several friends:

At their first meeting in February of this year, Shahabian told Frost that he was taking money under the table for helping Gulf Shrimp. Shahabian offered to split the illegal payments with Frost, but he turned Shahabian down. Nonetheless, Frost promised his fellow Democrat that he would help with the legislation.

Frost, who has boasted to friends that he has had drinks with everyone working in the Capitol, introduced Shahabian to Karin L. Watson, a special assistant to then-Assembly Republican Leader Pat Nolan of Glendale.

At a meeting with Watson and Frost in the Capitol cafeteria, Shahabian repeatedly brought up campaign contributions from Peach-state as the three discussed the special-interest bill. In subsequent meetings and phone conversations, Shahabian urged Frost to help him win Republican support for the measure.

Frost has told friends that in these conversations, which likely were taped by federal authorities, that he “shined him (Shahabian) on” but, in fact, did nothing to help win support for the Peachstate legislation.

Watson, in her position as a top consultant to Nolan, could help win GOP support for the measure and perhaps influence Deukmejian’s decision on whether or not to sign the second FBI bill, this one designed to help Peachstate.

Agriculture Interests

Watson, 41, began work in Sacramento about a decade ago helping agricultural interests raise money for political campaigns. She joined Nolan’s staff in 1985 as a special assistant on agricultural issues, later shifting to finance and insurance. Several other Assembly aides as well as lobbyists said her duties included raising campaign money from special interests that had bills pending before the Legislature.

She and Frost had worked together on legislation, despite their party differences, and sometimes met with lobbyists and other staff members for drinks at Brannan’s, a popular restaurant half a block from the Capitol. After Frost introduced them, Shahabian and Watson joined in a cross-party alliance to help win passage of the Peach-

state bill.

In conversations with friends, Frost has minimized his role in the bill’s passage. Still, on June 22, Frost, Shahabian and Watson attended a meeting of the Senate Committee on Banking and Commerce, which approved the measure by a 6-0 vote.

On June 29, Watson’s boss, Assemblyman Nolan, reported receiving two $5,000 campaign contributions from Peachstate--although one of the payments was not reported on the required forms until after the FBI’s raid on the Capitol.

The following day, Senate Republican Leader Ken Maddy of Fresno carried the bill on the Senate floor, where it won final passage 37 to 0.

Deukmejian, tipped off a second time by the FBI, vetoed the Peachstate measure.

Few legislators gave the bill a second thought until Aug. 24, when the FBI raided the Capitol offices of Nolan, Moore, Assemblyman Frank Hill (R-Whittier), Sen. Joseph B. Montoya (D-Whittier), and legislative aides Netters and Watson.

Two days after the raid, Watson and Frost had a chance meeting on a sidewalk outside the Capitol in a brief, melancholy encounter. Greeting Watson with a hug, Frost apologized for having introduced her to Shahabian. “Terry, it’s not your fault,” she said, according to Frost.

Usually upbeat, Watson was downcast, admitting that she and Nolan faced serious trouble.

Early the next week, Frost received a letter from U.S. Attorney David F. Levi inviting the aide to appear before the grand jury and advising him that he was “one of the subjects of a federal grand jury investigation . . . concerning possible violation of federal criminal law.”

Frost refused to appear before the grand jury and would only agree to an FBI interview with his attorney present.

He has told acquaintances that the FBI began the interview by asking him to “tell us everything you know about corruption in the Capitol.” Frost protested that the only person who had ever offered him a bribe was Shahabian, who by then had been publicly identified as an FBI informant.

Frost’s boss, Sen. Keene, is one of several legislative leaders considering possible changes in rules of conduct for lawmakers and their aides. In a recent interview, he said he would propose appointing a blue ribbon panel with “some insulation from the political process” to propose changes.

At present, both the Assembly and the Senate leave it up to individual lawmakers to advise their employees on proper behavior. The Assembly Rules Committee has prepared a booklet available in most Assembly offices that includes three pages describing improper conduct and the disciplinary action that could result. The section is buried inside a 133-page document describing health-care benefits, parking policy and travel reimbursement rules.

New employees of the Senate are given the legally required forms for disclosing financial conflicts of interest, without any explanation of the kind of behavior that is prohibited.

Steve C. Barrow, a lobbyist for Common Cause, contends that the Legislature needs to change the rules of conduct for legislative employees as well as their bosses.

Both the lawmakers and their staffs have “lost sight of what they are doing,” Barrow said. “They are in the Capitol working for the public. But they’ve focused in on the business side of politics and the whole issue of acting in an ethical manner has been forgotten.”