Councilmen Invest in Firms With City Ties

A number of City Council members own significant amounts of stock in banks and other companies that do business with the city or seek rulings from the city, and at least one member of the council is reassessing her personal investments in the wake of conflict-of-interest troubles facing Mayor Tom Bradley.

The issue of council members investing in locally operating companies emerged publicly several days ago when Councilwoman Joan Milke Flores had to excuse herself from voting as a member of the city’s Board of Referred Powers.

The special board makes decisions on behalf of the council or city commissions whenever those groups face conflicts of interest that prevent their voting.

But when the board ruled on an issue involving a lawsuit by the Bank of San Pedro, in which Flores owns $5,000 worth of stock, she bolted from the room to avoid any appearance that her investments might influence the vote.

“I’m not here! I’m not here!” she cried, scooping up her files and disappearing.

Flores, who bought the stock long before being elected to the council, put it up for sale this week to avoid any perception of a problem.

“I feel that in today’s times we have to be free of any potential conflict of interest,” Flores said, adding, “We have an obligation to eliminate any potential conflict.”

Although Flores’ investment in the bank is a relatively modest $5,000, council members Michael Woo, John Ferraro and Marvin Braude reported in official disclosure statements that they each own stock worth tens of thousands of dollars in banks and other firms involved in city matters.

None of the three plan to sell any of the stocks. They argue that they are easily able to steer clear of votes and decisions related to the companies. And they say they cannot personally gain by voting because the companies in which they own stock are so vast that council votes have no measurable effect on the companies’ financial status.

Under the state Political Reform Act, elected officials generally cannot act on issues in which they stand to gain materially from income, investments, directorships or landholdings.

Bradley faces four independent investigations into his income from two local financial institutions and his investments with Drexel Burnham Lambert.

Woo, who heads the Governmental Operations Committee looking into Bradley’s financial affairs, owns significant stock in Cathay Bank, which his father founded in the 1960s. The bank currently holds $1 million in city deposits.

Cathay Bank “has never asked me any special favors,” Woo said. “I don’t see it as a conflict at all.”

Pat Mount, an aide to Ferraro, said Ferraro “has always been very conscientious about that kind of thing and does not vote when a related company is involved. . . . He is not going to make any changes. He told me he’ll only sell stocks when it’s financially prudent.”

Braude, who owns stock in Xerox Corp. and telecommunications firms involved in city business, said: “Those are very large companies and my stock holdings are infinitesimal (compared to total shares in the companies). I don’t have any holdings that present any conflicts.”

Because council members are allowed to report their investments in broadly drawn categories of value--$1,000 to $10,000, $10,001 to $100,000, and more than $100,000--the full extent of the three council members’ holdings are not known. However, their 1988 reports and past disclosures show:

- Woo’s wealth is largely derived from a substantial but undisclosed interest in his parents’ wholesale business, Chungking Produce Co. Woo reported those holdings as “over” $100,000 in 1988. His Cathay Bank stock is worth $10,001 to $100,000 and paid dividends of $1,300 last year.

- Ferraro is a multimillionaire who gained success many years ago partly as a young insurance broker with a well-connected state senator for a father-in-law. Since those days in the 1940s and ‘50s, he has accumulated land and stock. Among his other holdings in 1988, he reported owning stocks in 70 local and Blue Chip companies worth between $367,000 and $3.67 million.

- Braude built his fortune by helping found Scientific Data Systems, now the computer division of Xerox Corp. In 1988 he reported owning 25 stocks worth at least $403,000, but possibly worth more than $2.2 million. His holdings include six telecommunications firms in addition to utilities and chemical companies.

- Another council member, Hal Bernson, reported owning no stocks, land or other investments in 1988. But he faces a potential conflict of interest over a firm that employs his wife and is involved in city business.

Bernson has funneled more than $17,000 in business to his wife’s employer, Emerald Travel in Northridge, which handles Bernson’s unusually heavy travel and hotel bookings, city records show. Bernson, who has been under investigation by the Fair Political Practices Commission since 1988 concerning the issue, did not return a phone call made by The Times seeking his comments.

Bernson spent $78,000 in campaign funds on travel in 1987 and 1988 alone, and has spent more than $10,000 in city funds for travel since 1986, making him one of the most extensive travelers in City Hall, according to city records.

In Woo’s case, although his father Wilbur still sits on Cathay Bank’s board, he said he sees no conflict of interest because his bank shares--gifts from his family--cannot substantially be affected by votes on the council.

“The stock I own is less than one-tenth of 1% of the shares held in that bank, and if I knew of a conflict I would avoid it,” he said. “In the last four years I’ve only known of one case of a development in my district in which the financing came from Cathay Bank, a mini-mall that I have opposed.”

Indeed, Woo said he was comfortable enough with his relationship to Cathay Bank to honor its 25th anniversary a few years ago with a formal commendation during a council meeting. Council members regularly commend schools, individual constituents, companies and groups involved in community activities.

Cathay is one of several banks in Los Angeles that has been sought out by City Treasurer Leonard Rittenberg under his personal policy of encouraging city deposits at minority-owned banks.

Rittenberg has said he does not attempt to determine whether banks such as Cathay, a highly successful venture, demonstrate any need for being included in the special program. His policy is likely to be challenged by several council members who have already questioned it.

According to city records, Cathay became a constant recipient of city deposits in early 1986, several months after Woo was elected to the council. Before that, the treasurer had deposited money with Cathay, but on a more sporadic basis.

However, both Rittenberg and Woo said there is no connection between the councilman and city deposits. Rittenberg said his office established a relationship with Cathay Bank long before Woo’s 1985 election. For instance, Rittenberg said, in 1982, the treasurer’s office deposited $1 million in a six-month interest-bearing account at Cathay Bank, and other deposits were made after that.

Ferraro’s portfolio includes many companies involved in city business, according to his public disclosure report. He owns $10,001 to $100,000 worth of stock in Anheuser-Busch Co., Columbia Savings & Loan, Craig Corp., Exxon and GTE, all of which have been granted city business or have sought zoning decisions or other rulings from the city.

Ferraro, a heavy stock trader who moves tens of thousands of dollars worth of stock nearly every month, also owns between $10,001 and $100,000 in stock at Wells Fargo, which holds city deposits. In 1987 he sold $10,001 to $100,000 worth of stock in Bank of America, one of the biggest recipients of city business both then and now.

He owns $1,000 to $10,000 worth of stock in Wilshire Bankcorporation, which has city deposits, and he owns $10,000 to $100,000 in stock in Hollywood Park, to which he has been granted a free pass as a gift.

Mount, his aide, said that because of these extensive holdings, Ferraro tries to avoid “the appearance of conflict, so when he isn’t sure, he does not vote.”

In addition, she said, the city attorney’s office knows which stocks Ferraro owns “and usually notifies him ahead of any related vote.”

Braude owns an undisclosed amount of stock, worth more than $100,000, in Xerox, which provides service and equipment to the city. He also owns $10,001 to $100,000 worth of stock in Pacific Telesis, Merrill Lynch and Citicorp, all of which do business with the city.

Other council members have small to moderate holdings in locally operated companies that are involved in city matters.

Zev Yaroslavsky in 1988 owned $1,000 to $10,001 worth of stock in Pep Boys, which in recent years received federal grants from the city to help build a new headquarters in the Pico-Union District.

Yaroslavsky also listed in his disclosure statements $1,000 to $10,001 worth of stock in Bank of Los Angeles, which does not hold any city deposits, and he owns $1,000 to $10,000 worth of stock in IBM, which does business with the city.

“I don’t have a problem because whenever an issue comes up, I will disqualify myself,” Yaroslavsky said. “The problem is when you own stock or have an income and go ahead and act and fail to disqualify yourself. But my portfolio doesn’t have much in it, so I don’t really face any decisions.”

Joy Picus owns $1,000 to $10,000 worth of stock in Pacific Telesis Group and in Southern California Edison, two of the city’s largest service providers.

Nate Holden owns a note worth $7,000 in Daniel Freeman Memorial Hospital, which he bought several years ago when the hospital was selling notes to finance a new wing. He said he plans to sell the note because it no longer pays him interest.

Four council members are landlords and they must sometimes weigh citywide rent control issues and a wide range of other matters affecting landowners and land use. The FPPC, in an opinion, ruled that elected officials can vote on rent control if they own fewer than four rental homes, but those owning four or more can vote only if they would not materially gain from the vote.

Only Councilman Gilbert Lindsay owns four residential rental properties, all of them in South-Central Los Angeles, from which he collects between $4,000 and $40,000 in rental payments per year. The properties’ total value is listed at between $40,000 and $400,000.

Ferraro, in addition to his own five-bath, two-fireplace home in Hancock Park, owns a Hollywood townhouse, a 30,000-square-foot office building in Woodland Hills and a garage in Covina, according to DAMAR Corp. Real Estate Information Systems. His properties are worth well over $3 million, according to real estate reports. He receives an undisclosed amount of annual rent, listed only as “over” $30,000, from his townhouse, office building and garage.

Holden reported owning an interest in four homes and one parcel in Los Angeles and neighboring cities in 1988 that are worth more than $410,000. He reported that none generated rental income. Councilwoman Gloria Molina owns a single rental property in El Monte worth more than $100,000 and receives rental income of $1,001 to $10,000 per year.

Council members Richard Alatorre, Ernani Bernardi, Robert Farrell, Ruth Galanter and Joel Wachs reported owning no stock, investments or land of any kind beyond their personal residences in 1988.

Staff writer Dean Murphy contributed to this story.