Rep. Coelho Adviser Is Target of Lawsuits

A key financial adviser to U.S. Rep. Tony Coelho (D-Merced) is enmeshed in a tangle of lawsuits here that accuse him of failing to pay hundreds of thousands of dollars in debts and of breaking promises to business associates.

Merced accountant Donald W. Ozenbaugh Jr. has emerged as a pivotal figure in questions surrounding Coelho’s personal finances.

Coelho, who said through a spokesman on Friday that he was unaware of the lawsuits against Ozenbaugh, has identified him as the man who prepared financial disclosure forms that failed to list an unusual $50,000 loan Coelho received from Columbia Savings & Loan in 1986 to finance part of the purchase of a $100,000 high-yield “junk bond.” Ozenbaugh also prepared Coelho’s 1986 tax return, which, according to an attorney for the congressman, incorrectly reported the $6,882 profit from the sale of the bond, forcing a probable liability for back taxes.

Despite the problems caused by Ozenbaugh, Coelho continued to express confidence in him and his handling of the junk bond investment.

“I hired Don to do this,” he said in an interview last week. “He’d done all my financial disclosures. It was up to Don to tell me if it was a good investment. If he said, ‘Yes,’ I believe him. I pay for professional advice.”

But a more skeptical portrait of Ozenbaugh emerges in lawsuits on file at the Superior Court here and in other courthouses around California. Some 32 lawsuits ascribe a pattern of broken promises and bad debts to the 42-year-old accountant.

Additionally, some of the accountant’s clients had to pay thousands of dollars in back taxes after the Internal Revenue Service made adverse rulings on investments they made on Ozenbaugh’s advice, according to one investor who said he had to pay $40,000.

On Monday, Ozenbaugh is scheduled to testify in Superior Court in Merced in a case involving an alleged debt of $142,000--at the same time he is supposed to appear in Municipal Court in Contra Costa County on an unrelated claim of $40,000.

Ozenbaugh denied any wrongdoing, but declined to talk about his legal problems or investment advice, referring specific queries to his attorney, Steven Clair, who also would not answer detailed questions.

The attorney said that many of the lawsuits involving his client have been resolved and that Ozenbaugh has filed papers denying others.

‘Not Terribly Unusual’

“Litigation is not terribly unusual,” Clair said in an interview in his Stockton office. “It happens when people have disagreements.”

Ozenbaugh has had his share:

- In the case now on trial in Merced Superior Court, G. R. Clark, a grading contractor, accused Ozenbaugh of owing $141,954 for work on the Hillcrest subdivision in Merced. Ozenbaugh has filed a cross-complaint alleging that he lost $150,000 because Clark did not complete the grading on time.

- Security Pacific National Bank said Ozenbaugh owes $322,465 plus interest on a loan that has been in default since Nov. 11, 1987.

- A group of seven local investors, some of them former accounting clients, accuse Ozenbaugh of violating his fiduciary duty as their financial adviser by allegedly failing to inform them when rental units that he built and sold to them in 1982 developed “significant structural problems” several years later.

- Richwood Meat Co. Inc. Profit Sharing Plan Trust--whose owners, former Ozenbaugh clients, are suing in connection with the structural defects--said in a lawsuit filed Sept. 11 that the accountant had guaranteed a $35,000 note and then failed to pay when the borrower defaulted.

- Cal Valley Orchard Services said in a suit filed July 19, 1985, that it had harvested a 1984 almond crop on a 622-acre farm operated by an Ozenbaugh investment group and that Ozenbaugh and the group still owed $53,068 for the harvesting.

- Bank of America said in a suit filed July 5, 1988, that Ozenbaugh failed to repay a $75,000 loan.

- In March, Texas Commerce Bank, which had obtained an $80,000 judgment against Caltex and Ozenbaugh in Texas, filed suit in Merced County to collect the award.

- Wells Fargo Bank said in a suit filed April 28 that Ozenbaugh owed $75,000 on two checking accounts.

- In the case set for trial in Contra Costa on Monday, Ozenbaugh is accused of failing to pay the Owens Financial Group a $40,000 commission for a real estate transaction.

- The California Teachers Assn. successfully sued Ozenbaugh in October, 1987, alleging that he owed more than $10,000 in rent and county taxes on a 1.6-acre parcel and had failed to develop the land as agreed.

Focus of Legal Actions

The focus of this legal animosity is a bearded, burly 42-year-old 6-footer who lives in a sprawling house on almost two acres in Atwater. In nearby Merced, a well-appointed suite of offices houses Ozenbaugh’s accounting firm and also Caltex Land and Development Co. Inc., a Texas and California corporation of which he is president.

On the wall next to the office door, framed photographs show Ozenbaugh with Coelho, House Speaker Jim Wright (D-Tex.), former House Speaker Tip O’Neill and Rep. Richard A. Gephardt (D-Mo.), a former candidate for the Democratic presidential nomination.

In 1983, the congressman invested between $5,001 and $15,000 in Dairy Management Associates, a partnership organized by Ozenbaugh that markets computer software for dairy farmers.

Ozenbaugh also persuaded two of the congressman’s acquaintances who live in Washington to invest in the partnership--Fred Hatfield, Coelho’s chief of staff, and John P. Mack, former aide to House Speaker Wright. Mack resigned last week after reports that he been convicted of brutally beating a woman, stabbing her with a knife and leaving her for dead 16 years ago.

Called Good Investment

In 1986, when Thomas Spiegel, president of Columbia Savings & Loan, offered Coelho the chance to purchase the $100,000 junk bond, the congressman turned to Ozenbaugh, who said it was a good investment.

Ozenbaugh said he was aware of the $50,000 loan that helped pay for the bond but simply forgot to put it on the congressman’s disclosure statements. Ozenbaugh also prepared Coelho’s income tax returns for 1986 and listed the congressman’s $6,882 profit from selling the bond as a long-term capital gain.

Coelho attorney Robert Bauer said Coelho probably owed back taxes because the congressman had not held the bond for the six-month period that was required to take advantage of the lower tax rate at the time on long-term capital gains.

Coelho spokesman David Dreyer said that Coelho is contemplating no legal action against his accountant as a result of the alleged mistake he made on the congressman’s tax return and financial disclosure report.

Some other people who relied on Ozenbaugh in Merced and other Central Valley cities and who do not share Coelho’s reluctance about legal actions against Ozenbaugh, are biting in their opinions.

Tied Up Property

Attorney Ronald H. Marks, who represented the California Teachers Assn. in its successful suit against Ozenbaugh, said the accountant’s late payments of rent--some with bad checks--and failure to pay county taxes allowed Ozenbaugh to tie up a valuable piece of property for very little money.

“A great deal for Ozenbaugh; a terribly inequitable deal for the California Teachers Assn.,” Marks wrote in a legal motion.

Arguing that Ozenbaugh should not be allowed to reinstate the lease, Marks said he had been a “quarrelsome, troublesome tenant” and that his failure to pay county taxes, “suggest either that Mr. Ozenbaugh is playing games with CTA and the court or, more likely, Mr. Ozenbaugh is in serious financial trouble scrambling to keep his creditors happy.”

Former accounting partner Michael Smith severed his years-long relationship with Ozenbaugh in 1986, taking many of the firm’s clients with him. Smith acknowledged in an interview that he is helping in the suit lodged by the former clients of Ozenbaugh in the structural defects case.

One of these clients is John Schneidmiller, a retired Air Force officer who lives in Merced.

Had Been a Friend

Schneidmiller said in an interview that he once was a good friend of Ozenbaugh and used him as his accountant, but broke with him after following his investment advice to buy into a series of limited partnerships that offered significant tax write-offs. Eventually, he said, the IRS ruled that he had to pay $40,000 in back taxes, interest and penalties.

“I had to mortgage my house. . . . Uncle Sam says it is nothing but a tax dodge,” said Schneidmiller, noting that Dairy Management Associates in which he had invested was given a clean bill of health by the IRS.

Schneidmiller and Ozenbaugh’s former secretary, who asked not to be named, said a number of Merced’s most affluent people had made similar investments on Ozenbaugh’s advice and also had to pay back taxes.

“There are so many people chasing Don,” Schneidmiller said.