Bradley Records Given to SEC; Council Probe Opens

The Los Angeles city attorney disclosed Wednesday that he has turned over to the Securities and Exchange Commission Mayor Tom Bradley’s statements of economic interest, which include stock purchases in companies that later became part of a federal investigation of Michael Milken and Drexel Burnham Lambert.

“We sent the mayor’s conflict of interest statements to the SEC,” said James K. Hahn, using the slang expression for the reports. “We feel they are better qualified to examine them.”

A ranking SEC official in Los Angeles said he had not yet seen the documents but added there “is no doubt we would take a serious look at this material.” The official, who spoke on the condition that his name not be used, added it would be examined chiefly for any evidence of potential insider trading, which involves buying shares illegally on tips before a takeover announcement or other event pushes a stock price up sharply.

Hahn spoke to reporters after testifying at a City Council Governmental Operations Committee hearing where city legislators took up the issue of whether Bradley had violated conflict of interest laws by serving in paid positions for two financial institutions which did business with the city.

With council members and spectators aware that they were witnessing a historic inquiry into the conduct of a mayor, the council chamber was hushed as Chairman Michael Woo opened the one-hour hearing with a warning that Los Angeles faces “a crisis of confidence in the integrity of government itself.”

In recent history, the council has never held hearings on whether a sitting mayor has violated the law. But now, in its role of monitoring Hahn’s probe, it has thrust itself in the middle of one of Los Angeles’ greatest recent political dramas. At some point, the council may decide whether to conduct its own investigation.

Hahn and the other witness, City Treasurer Leonard Rittenberg, faced Woo and two other committee members, Gloria Molina and Joan Milke Flores. Behind them, and at the sides of the ornate council chamber, television cameras formed a large half circle, testimony to the interest generated by the investigation of the 71-year-old mayor, just elected to a fifth term.

Hahn disclosed few details of the investigation. He said he expects to “complete it in a matter of a few months. It won’t be a matter of a few weeks.”

His decision to send the statements of economic interest to the SEC represented a broadening of the inquiry and the involvement of a powerful federal agency.

The trading records filed by the mayor as part of his financial disclosure are sketchy and lack specific dates on most transactions. But the SEC can obtain complete records of any trading by Bradley from the brokerages involved and reconstruct his entire portfolio if indications warrant it.

While the SEC official said he had not yet seen the material, he said, “This could be the sort of ‘message case’ that gets attention from us and the U.S. attorney’s office.” The SEC can bring civil charges, but the U.S. attorney is responsible for criminal inquiries.

If the SEC review turns up indications of a possible link to Milken, who is under federal indictment for securities violations, the official said, the case would be referred to the agency’s Washington office, which is handling the Milken matter.

Up to now, the probe has centered on Bradley’s paid positions with two area financial institutions that do business with the city. One, Far East National Bank, gave him $18,000 for being the only paid member of a board of advisers. The other, Valley Federal Savings & Loan Assn., paid Bradley up to $24,000 a year for serving on its board of directors.

No Violation Indicated

Hahn and other officials in the city attorney’s office gave no indication that they believed that Bradley had violated federal security laws or conflict of interest statutes in building up a personal portfolio of stocks and bonds.

They said their action was prompted by the fact that two of the deals have been the subject of either U.S. Justice Department, Securities and Exchange Commission or congressional investigations.

“Trading was done in stocks that apparently might have been involved in the Drexel Burnham Lambert situation,” said Deputy City Atty. Charles Goldenberg, who is in charge of the Bradley investigation.

“This is something that is not in any way in our expertise,” Goldenberg said in an interview. “We determined that the appropriate thing to do would be to submit it to the SEC,” he said.

Another source said the SEC expressed interest in receiving the material.

The source said city attorney’s investigators, early in their inquiry, noticed “a couple of stocks that the mayor bought and sold. These were stocks (that) . . . were somehow involved in the Drexel Burnham thing.” When the investigators asked an SEC official if the agency was interested in reviewing the investment, the federal official said “yes,” according to the source.

A spokesman for Drexel said late Wednesday that he could not comment on the day’s developments. “We’re really unaware what it is that’s being referred to the SEC,” Steve Anreder said. Asked if Bradley has ever had an account at Drexel, Anreder said, “We don’t comment on individual accounts, nor should we.”

A Bradley aide said the mayor would have no comment.

One of the investments in question is the mayor’s 1986 purchase of between $10,000 and $100,000 worth of stock in Beatrice Foods Inc. The purchase was made the month before the company was acquired by BCI Holding, Inc. in a controversial takeover handled by Drexel Burnham’s high-yield bond department, popularly known as the “junk bond” department.

Congressional investigators who subsequently reviewed the deal reported that they found that Drexel Burnham and its employees had purchased a significant amount of the high-yield bonds used on the takeover transaction. The employees then sold the bonds at a profit, the investigators said.

The other is Bradley’s investment in up to $10,000 worth of Wickes common stock in June, 1985, shortly after the firm made a preferred stock offering to raise cash. Federal officials charged that Milken manipulated the market in April, 1986, to keep up the price of the stock after it started to fall. Bradley sold his shares in March, 1986.

Milken has been indicted on charges of racketeering, insider trading and securities fraud.

Bradley has close connections to Milken. Drexel and Milken’s brother, Lowell, have been major contributors to his political campaigns. The mayor helped organize a congressional lobbying effort to persuade the SEC to allow the junk bond division to remain in Beverly Hills after the Drexel investigation began.

As the investigation into Bradley’s financial affairs heated up, Bradley announced that he was putting all his stocks in a blind trust. He said the move was to demonstrate that he wanted to ensure he would have no conflict of interest between his private holdings and his public powers.

When Hahn testified before the council committee on Wednesday, he indicated that he did not think that criminal prosecution would result from his investigation of the mayor’s ties to the two local financial institutions. Asked specifically about that, he said, “I don’t think that’s necessarily going to be the outcome of this investigation.”

But under questioning by Woo, Hahn said that if an elected official were convicted of a felony, the council could declare the office vacant. And, he said, the council could suspend an official charged with a misdemeanor.

But Hahn said those provisions were enacted into law when the City Charter was approved in 1925 and since then have been modified by many court decisions giving employees rights to public hearings and appeals if they are suspended.

Councilwoman Gloria Molina asked if the public would be suspicious of an investigation conducted by one political leader, Hahn, of another, Bradley. “As city attorney, I am elected by the people, I am elected to do a job, and I’m going to do it,” he said. “I am independent. I am not part of the mayor’s Administration. I am not part of the City Council.”

Woo asked whether the investigation would be compromised because Hahn’s chief deputy, John Emerson, was a former partner in the law firm of Manatt, Phelps, Rothenberg & Phillips, one of two firms representing Bradley in the case. Woo said he did not believe there was a conflict because Emerson had left the firm in 1986 to be a manager of former Sen. Gary Hart’s presidential campaign.

Manatt, Phelps, it was learned, performed some legal work for Hahn’s recent reelection campaign but a spokesman for the city attorney said Hahn severed his connection with the firm when it went to work for Bradley.

Hahn also took note of the threat of action against the mayor developing from another source. Former Los Angeles County Supervisor Baxter Ward has sent him a letter requesting that he file a civil action against the mayor charging that Bradley has violated the California Political Reform Act by dealing with Pacific Far East Bank and taking official actions. Ward, one of several candidates against the mayor in the April primary, said that if Hahn does not act within 80 days, Ward himself would file such a suit against Bradley under the reform act.

The hearing also focused attention on Treasurer Rittenberg and his office.

One of the actions prompting the probe was a telephone call made by Bradley to Rittenberg in March inquiring about city deposits in the Far East bank. After the call, Rittenberg had his aides deposit $2 million in city funds in Far East.

Routine Handling

Rittenberg testified that he handled the deposits just as he does with other small banks that are given city funds because they are minority-owned. Government policies encourage officials to send business to minority owned enterprises.

Committee members expressed unhappiness when Rittenberg explained how minority-owned banks get city deposits even though their rates are not competitive with non-minority-owned banks.

Council Finance Committee Chairman Zev Yaroslavsky said that he will open an inquiry into the operations of the treasurer’s office soon. “I’m very concerned about his policies and the lack thereof,” Yaroslavsky told a reporter.

Rittenberg said deposits in Far East National Bank were “made in good faith, solely at my discretion, without any influence put upon me.”

Later, at a press conference, Rittenberg disclosed his role in a Far East no-interest checking account in which about $1 million in federal funds were kept during August, September and October. The deposit, while drawing no interest for the city, enabled Far East use of the money.

That advantage for the bank raised the possibility that it was benefitting from its connection with Bradley.

But Rittenberg said neither Bradley nor his aides had anything to do with the money remaining in the no-interest account.

He said he was to blame. “It is my bank account, I am the signatory,” he said. “Very frankly, we screwed up.”

Under the City Charter, the treasurer is appointed by the mayor and confirmed by the City Council; he cannot be fired except by a vote of the City Council.

Times staff writers Frederick M. Muir, Rich Connell and Douglas Frantz contributed to this article.