Treasurer’s Banking Policy Called Illegal

The city attorney’s office said Tuesday that City Treasurer Leonard Rittenberg’s policy of placing some deposits in minority banks without competitive bids violates state law.

The city attorney’s opinion, set out in a letter to Rittenberg, was prompted by a controversy over Rittenberg’s placement of $3 million of city funds in the Far East National Bank, which had employed Mayor Tom Bradley as a consultant. The deposits, made in 1988 and 1989, were placed in Far East without competitive bids.

The letter, dated Oct. 30, was made public Tuesday at a meeting of the City Council’s Budget and Finance Committee, which has been pushing for greater accountability by the treasurer’s office since conflict-of-interest allegations about Bradley first surfaced last spring.

“I assume you’ve seen this letter,” said Councilman Zev Yaroslavsky, chairman of the committee, as Rittenberg took a seat before the panel. “It basically says your whole minority banking system is a crock, legally speaking, of course.”

The letter said that California law calls for “some form of competitive bidding and requires placement of funds with the highest bidder.” The law makes no exceptions for deposits of $1 million or less, the letter said.

Earlier this year, Rittenberg explained the non-bid deposits in Far East, which is owned by Henry Hwang, as part of a program to support minority enterprises. Under that program, deposits of $1 million or less were required to be only “reasonably competitive.”

At the committee meeting Tuesday, Rittenberg said he was “quite surprised” by the opinion from the office of James K. Hahn, which was written by Assistant City Atty. Ronald Tuller.

Rittenberg also told the committee Tuesday that the unusual scrutiny his office has been under in recent months, as well as a subpoena from a federal grand jury, has so distracted his staff that the earnings on city money were down $400,000 below projections for September. Later he corrected that figure to $250,000 to $275,000.

“What we did not do was make our normal, long-term investments,” he said. Lacking the time to research the markets, the staff rolled over investments that had matured during the month. The treasurer’s office manages a $2-billion city investment portfolio.

Rittenberg said he based his banking practices on a city attorney’s opinion from 1970, which cited state law that contained language that allowed the city treasurer to make financial decisions that are “to the public advantage.”

Questioned by reporters after the meeting, Yaroslavsky refused to say whether he believes that Rittenberg violated state law in regard to the Far East deposits.

“I’m not going to accuse him of violating anything,” Yaroslavsky said. “I’m not even going to mention Far East.”

The treasurer deposited $1 million in 1988, shortly after the mayor went on the bank’s payroll. Last March 22, Rittenberg made two $1-million deposits in the bank after receiving a telephone call about the matter from Bradley. Both men have said that there was no attempt by Bradley to influence Rittenberg’s decision. Bradley was paid $18,000 by the bank in 1988 but later returned the money.

Rittenberg said the deposits were made according to his then-unwritten policy of giving minority banks preferential treatment.

Last month, the Budget and Finance Committee requested that Rittenberg put his policy in writing and consult with the city attorney’s office about its legality.

On Tuesday, the committee directed Rittenberg to meet again with the city attorney’s office to develop a policy that will encourage deposits in minority banks without violating state law.