‘Discrepancies’ Cited in Bradley Bank Dealings : Report Suggests Illegal Document Tampering, Finds ‘Major Weaknesses’ in Treasurer’s Office

Mayor Tom Bradley and Far East National Bank Chairman Henry Hwang, in sworn statements to city auditors, delivered conflicting recollections of a telephone call that has become central to the conflict-of-interest allegations against the mayor, a city controller’s audit disclosed Monday.

The “discrepancies” reported by City Controller Rick Tuttle further cloud the pivotal question of what prompted the mayor to make inquiries to the treasurer’s office that preceded a controversial, $2-million deposit in Far East, which paid the mayor $18,000 as a consultant last year.

No Recollection

In his first sworn account, Hwang told investigators that he called the mayor March 21 to ask his help because he had learned that the city was removing a $1-million deposit from Far East. He said he had no recollection of discussing other banks, or broader city policy with the mayor.

Bradley testified, however, that Hwang had asked him whether it was true that the city was withdrawing funds from “all banks.” The mayor said he then called City Treasurer Leonard Rittenberg because of concerns that the city was “in serious, desperate financial straits.”

Tuttle said there was “a major breakdown in internal control” within the treasurer’s office on March 22 of this year, the day after the controversial telephone call between Bradley and Hwang.

That day, the treasurer’s office reversed itself. It reinstated a $1-million time deposit with Far East, and added another $1 million. Someone within the treasurer’s office covered over the words “per the mayor” that had been written on a bid sheet, and documents were falsified to show that the treasurer had sought bids from other banks before making the Far East deposits.

The controller’s report concluded that the city treasurer’s office may have illegally altered important bidding documents related to city investments with other financial institutions besides Far East.

Tuttle said it was not clear that the use of correction fluid on documents pertaining to other lending institutions constituted wrongdoing, but he said such obliterations are improper accounting procedures.

The institutions, besides Far East, that had transactions covered over were Gibraltar Savings & Loan, Mitsubishi Bank, California Overseas Bank, Great Western Savings and Glendale Federal Savings.

Tuttle said he asked the Police Department to investigate the alterations because “falsification and tampering with public records” is a felony.

‘Major Weaknesses’

Tuttle’s report also found “major weaknesses” in the treasurer’s office, including violations of competitive bid policies for awarding city deposits and sloppy record-keeping.

Rittenberg was not in his office Monday, and he has called in sick for the last few days. Reached at home, he said, “I have no comment.” He said he will soon address the criticisms of his department and himself.

Three city agencies--the controller’s office, the city attorney’s office and the city administrative office--have found major weaknesses in the treasurer’s office since the controversy involving Bradley erupted last March.

The city personnel office is investigating the activities of the treasurer, and Rittenberg could face disciplinary action. While it does not yet appear likely, a recommendation that Rittenberg be fired “is not out of the question,” said Ray Allen, the city’s assistant general manager of personnel.

Decide on Action

A report and recommendations to the mayor should be completed in a few weeks, Allen said. Bradley then would have to decide what, if any, disciplinary actions he would recommend be taken by the City Council.

Bradley told reporters Monday that he had not seen the controller’s audit and could not comment on it. He also declined to comment on recent polls that showed the mayor’s standing among voters had slumped badly and his credibility had been weakened by months of disclosures about his business dealings.

“I would hope that the media would report the bottom line, that the city attorney found after six months of study, after interviewing over 100 witnesses, the bottom line was that he found no conflict of interest activity on the part of Mayor Tom Bradley,” the mayor said.

“What a poll may say has no meaning whatsoever. Public opinion based on some incorrect reporting by you, the folks in the media--no.”

Tuttle’s report pointed to “discrepancies” in the sworn testimony given his investigators by several key witnesses, including Bradley, Rittenberg, Hwang and city employees.

Both Bradley and Hwang denied that the banker specifically sought city funds during the March 16, 1988, meeting in the mayor’s office. However, Hwang did say their conversation concerned a letter he wrote to Bradley in January, 1988. That letter cited the bank’s desire for local corporate and city business.

“The substance of the conversation was that I tried to remind him to be helpful to us in the role that he was playing with us,” Hwang told investigators, referring to the job duties he had spelled out for Bradley to earn his $18,000 consulting fee.

No Record

Bradley has said he does not remember ever seeing the letter, and there is no record of it being received by his office.

A report by City Atty. James K. Hahn last week quoted Bradley as saying the only time that he met with Hwang in the mayor’s City Hall office, the two discussed Hwang’s ambition to run for secretary of state. Bradley said he advised the Republican banker not to challenge Democratic incumbent March Fong Eu.

In Controller Tuttle’s report, Hwang disputed Bradley’s account of what transpired this year during the March 21 telephone conversation. According to Hwang, he told Bradley that the bank needed to keep the $1-million deposit that treasurer’s employees had decided to withdraw.

Bradley said that it was during that conversation that he learned, from Hwang, for the first time that the city had money on deposit with Far East. But he said his telephone call to Rittenberg the next day was not to benefit Hwang. Instead, Bradley said, he wanted to verify Hwang’s statement that the city was removing deposits from all banks.

‘Sounded Strange’

“He (Hwang) said that his bank had just been notified by the treasurer’s office that the city treasurer was withdrawing all deposits in banks, including a deposit which the city had with Far East National Bank,” Bradley told investigators.

“I simply told him that that sounded strange to me and that I would check on it,” Bradley said. “That, to me, would have indicated that we were in serious, desperate financial straits, and I could not believe that so I needed to have it checked out.”

In his testimony, Hwang said that, since he knew nothing about the city’s deposits with other banks, he doubted he ever made such a comment to Bradley.

But it was Bradley’s telephone conversation with Rittenberg on March 22 that set in motion the events that later led to allegations of a “cover-up” within the treasurer’s office.

Hwang’s testimony about the March 16 meeting and his version of the March 21 phone call were not part of the city attorney’s report released last week.

Assistant City Atty. Charles Goldenberg, who headed that office’s investigation of Bradley, said that the newly disclosed conflicts in testimony between Bradley and Hwang do not alter the conclusions of the city attorney’s report.

“The report had raised the issue of the inconsistencies and the contradictions,” Goldenberg said. “This is another one of those issues.”

Meanwhile, it was revealed for the first time that a crucial treasurer’s office document that reported the deposit of city funds with Far East National Bank was doctored after it was reviewed by Senior Auditor Adelaida Villanueva of the controller’s office.

In July, during a City Council hearing into the treasurer’s office, it was disclosed that white correction fluid was used to obscure a notation on the so-called bid sheet that the deposit had been made “per the mayor.” It also was disclosed that someone had used a black marker on the back of the document to further hide the mayoral reference.

Auditor Villanueva said Monday that when she first inspected the bid sheet on June 16 she saw the white-out, but no black marking on the back.

“If I had seen it, I would have made a notation of it. That’s how we work as auditors,” she said, adding that she was surprised to learn of the mark’s existence during the council’s hearings.

This means that the black mark was placed on the document roughly three months after it was first tampered with--and just before a second wave of auditors from the city administrative office began examining treasurer’s office records.

When Villanueva asked about the belated doctoring in an interview with the controller’s office in late July, City Treasurer Rittenberg said the black marking was not on the document when he had seen it.

‘They Tampered With It’

“I’m sure they tampered with it more than once,” Rittenberg said of his subordinates.

The controller’s audit also deals at length with the relationship between the treasurer’s office and Gibraltar Savings & Loan, which was in financial trouble when it received some substantial city deposits. It since has been taken over by federal regulators.

The controller’s office reviewed 14 deposits made with Gibraltar from July, 1986, through March, 1988. In each case, Gibraltar offered the city a better interest rate on its funds than competing banks.

But the city administrative office, in its July report, said a Gibraltar official told the Los Angeles Police Department that he had negotiated the interest rate that the bank would pay on some city deposits. That is a violation of city policy.

No Favored Treatment

The same Gibraltar official denied negotiating bids when interviewed by the controller’s investigators.

Another Gibraltar official, Chief Operating Officer James Boyle, told The Times on Monday that his firm received no favored treatment in its dealings with the city and denied that Gibraltar negotiated rates.

Boyle said that Gibraltar considers the rates it pays customers to be confidential.

Tuttle said Gibraltar was the only financial institution that failed to provide the rates. Auditors wanted to review the information to ensure Gibraltar was not negotiating special rates with the treasurer’s office.

Depositing Practices Probed

Police are continuing to investigate the depositing practices of the treasurer’s office.

The controller also reported that in 11 instances--six involving Gibraltar--correction fluid was used to cover over information on the sheets used to record bids from banks.

Boyle said any irregularities in the records are purely a city problem and are “not an issue for Gibraltar.”

Times staff writers Joel Sappell and Frederick M. Muir contributed to this story.

CITY FINDINGS REGARDING TREASURER’S OFFICE

CITY CONTROLLER’S AUDIT RELEASED MONDAY

No bid sheets were used on 22% of the transactions reviewed by the treasurer’s office.

Competitive bid sheets were not reviewed by anyone other than the person placing bids on 47% of the time deposits made with city funds--a violation of the treasurer’s competitive bid policy.

In the 53 bid sheets examined between December, 1979, and March, 1989, they found 11 cases where correction fluid was used.

Two of the 11 banks contacted said that in certain instances the treasurer’s office gave their banks a bid to match or beat to receive a time deposit--another violation of competitive bid policy.

City Treasurer Leonard Rittenberg was found to have engaged in a management override of established bid policy on March 22, 1989, when he instructed his staff to deposit $2 million in Far East National Bank.

Rittenberg also instructed his staff to acquire bids from other banks and record them on the bid sheet after the deposit had been made with Far East. This gave the false impression that the competitive bid policy was followed.

Gibraltar Savings & Loan received 14 deposits from July, 1986, to March, 1988. Nine banks that did not bid for those deposits were contacted and their posted rate was compared to Gibraltar’s bid rate. Gibraltar’s winning bids were higher than the other nine banks contacted. However, Gibraltar refused to disclose its posted rates for the days they received the city’s deposits. Gibraltar also was the only bank to refuse to provide such information.

The only investment that did not go to the highest bidder was a $1-million deposit to Far East National Bank on March 21, 1988.

CITY ATTORNEY’S REPORT SEPT. 13

The operations of the treasurer’s office are in some respects in “poor working order.” Some officials who hate each other work in close proximity while performing inter-related functions.

The treasurer’s office in many instances disregarded its own competitive bid procedures and policies against negotiating deposit rates. He also noted that one or more treasurer’s office officials placed funds without competitive bids.

The bid sheet involving Far East was doctored by adding “competitive bids” after the fact.

Someone used white correction fluid to obscure a notation that funds had been deposited with Far East “per the mayor.”

Some treasurer’s office employees made false and evasive statements to investigators for unknown reasons. There is no evidence to show that the mayor directed or authorized their conduct.

Rittenberg failed to disclose the existence of two documents, including a January, 1988, letter from Far East Chairman Henry Hwang to Bradley asking for help obtaining city deposits. The letter had been forwarded to Rittenberg.

CITY ADMINISTRATIVE OFFICE’S REPORT JULY 20

Two $1-million time deposits were placed with Far East National Bank without competitive bids as required by written policy. Bids from other banks contacted after-the-fact create a false impression that Far East won as a result of competitive bidding.

Despite knowing this had occurred, the treasurer later certified to the City Council that all investment activities for that month were “in accordance with the competitive bid process.”

Contrary to written policy, bids were negotiated for multimillion-dollar time deposits with Gibraltar Savings & Loan and some other banking institutions during 1986-1988. Other banks were not given this opportunity.

APPARENT DISCREPANCIES IN SWORN TESTIMONY

City Controller Rick Tuttle said he found a series of “discrepancies” in the testimony of key witnesses during his audit of the treasurer’s office. Here are some apparent contradictions in sworn testimony:

Regarding a Jan. 19, 1988, letter from Far East National Bank Chairman Henry Hwang to Mayor Tom Bradley seeking deposits:

Question: Did the mayor ask you to write this letter?

Hwang: Yes.

Q: Did you ask him (Hwang) to write this letter?

Bradley: No.

Regarding a March 21, 1989, phone call from Hwang to Bradley:

Q: What was discussed at the time?

Bradley: He said he had just been notified by the treasurer’s office that the city treasurer was withdrawing all deposits in banks, including a deposit which the city had with Far East National Bank.

Q: They were withdrawing all deposits?

Bradley: All deposits in banks.

Q: Do you recall telling the mayor that you learned that the city was withdrawing money from all the banks?

Hwang: That I don’t know.

Q: You don’t recall?

Hwang: No. I don’t believe I would ever ask him that question because I wouldn’t know.

Q: Or raise the issue?

Hwang: No.

Regarding a March 22 phone conversation between Mayor Bradley and City Treasurer Leonard Rittenberg, after which the treasurer reinstated a $1-million city deposit and added another $1 million in city funds:

Q: Would you please give us the substance of your conversation with Mr. Rittenberg . . .

Bradley: I told him the reason I called . . . was that I had a call from Henry Hwang of Far East National Bank who said that the treasurer’s office . . . was withdrawing all deposits in banks, including Far East National Bank. . . . That to me would have indicated that we were in serious, desperate financial straits. And I could not believe that, so I needed to have it checked out. Q: What was your conversation with the mayor?

Rittenberg: It was barely brief. He told me that he had just talked to the chairman of Far East National Bank, and he wanted to know whether we had a relationship in time deposits with Far East National Bank. I told him we did and we will continue.