Suspect in Embezzlement Acted Quickly, Charges Say

It took Louis Fowler less than five months to figure out how to get rich, authorities said Tuesday.

Fowler had barely begun his job as an accountant for the State Water Resources Control Board when he set up a dummy water district and then transfered $4,400 to himself, an affidavit filed by investigators asserts.

Ultimately, he embezzled $5.1 million, investigators charged, in a simple scheme to siphon off state funds meant for the construction of sewage treatment plants.

The thefts, which took place from 1983 to 1985, might have gone unnoticed if not for a confidential tip to law enforcement officials last January that led to the arrests last weekend of Fowler, 35, and his former wife, Jill Baume, 26.

Until his arrest, Fowler was best remembered by his former co-workers as a bodybuilder and “ladies’ man” who liked to come to work in shorts and muscle shirts. They described him as low key and pleasant.

But investigators say that Fowler was also a crook. They say he forged a wide variety of documents to create a fictitious agency known as the Sacramento Community Services District. He then doled out money to the “district” every few months in a pattern that resembled routine contract expenditures, authorities said.

In his largest single transfer, investigators for the State Justice Department said Fowler shifted $1.3 million to the phony agency in October, 1983. After allegedly making a final transfer of $861,800 in March, 1985, Fowler quit his state job, telling one co-worker he was going into the video rental business.

“As I look back, it does seem a little surprising that he would be quite so peacock-like in his demeanor,” said Randy Kanouse, a water board employee who knew Fowler casually. “I guess he felt very confident in what was going on.”

The case has left many state officials red-faced and baffled as to why the theft went undetected for so many years.

The official explanation offered by the water agency is that Fowler knew the state’s accounting system so well that he was able to cover his tracks.

Officials at the water agency said the former accountant forged the signatures of his supervisors and set up legal-looking claims with the state controller’s office, which eventually wrote out 15 checks totaling $5.1 million to Fowler’s bogus operation over a period of more than two years.

On Tuesday, state Treasurer Thomas A. Hayes said he is so concerned by the breakdown in the state’s system of checks and balances that he has asked Acting Auditor General Kurt R. Sjoberg to audit all of the state’s bond funds over the last five years.

“Obviously, there was a breakdown in internal control at the water board,” said Hayes, the official responsible for state bond sales. “I’d like the auditor general to make sure we don’t have a bigger problem. I don’t think we do, but I want to make sure.”

And Sjoberg said his auditors have already begun investigating why the water board’s internal auditing system did not turn up the bogus payments.

Fowler was picked up Saturday in Mesa, Ariz., where he had been living under the name of William David Rice, a dead man. Both Fowler and his former wife had access to the accounts where the money was transferred, Department of Justice investigators said.

Since Fowler allegedly walked away with the money, he has been living quietly in Mesa, where he operated a video rental store called Club Video.

A search of Fowler’s home after his arrest uncovered a sock filled with a dozen South African gold krugerrands, some Mexican and Canadian gold coins and $3,500 in cash, police said. Authorities also found mounds of documents, military smoke flares, large firecrackers and unsophisticated plastic explosives.

Where Did It Go?

Investigators are uncertain what has happened to most of the money Fowler is accused of taking--but they are eager to find out.

Allan Schmidt, a spokesman for the Arizona Department of Public Safety, said a cursory reading of the documents found in the house indicated that Fowler had placed more than $5.1 million into a series of dummy corporations. Investigators are now focusing their attention in that direction.

“There is certainly no $5 million cash in the house,” said Schmidt.

Fowler, who is being held on $6.85-million bail, has been charged with 17 felony counts of grand theft and tax evasion. He is fighting extradition to California.

At a Sacramento Municipal Court arraignment on Tuesday, Baume pleaded innocent to three charges of filing a false tax return and receiving stolen property.

Deputy Dist. Atty. Ana Bravo charged that Baume received at least $140,000 in embezzled funds, including $40,000 in a 1986 divorce settlement and $80,000 from Fowler to open a shop in Sacramento called Yogurt Obsession.

Baume, who was married to Fowler for about a year and a half, told investigators when she was arrested that her ex-husband provided her with that money, according to Bravo. Baume also told investigators that Fowler gave her about six payments of $3,000 to $4,000 during the last two years when the yogurt shop needed cash, the prosecutor said.

“She knew all along that the money was stolen,” the prosecutor said of Baume. “We will offer no (plea bargain) deals in this case. We have enough evidence to convict both of them. We don’t need her testimony against him.”

Baume, a blonde dressed in a gray sweat shirt and dark slacks, watched Judge Jane Ure closely throughout the hearing but showed no emotion. At one point in the arraignment, her mother, Susan Baume, shouted from the audience in defense of her daughter, but was told by the judge to sit down.

In divorce papers filed by Fowler and Baume in 1986, they declared that they had “no community assets or liabilities.”

Fowler had worked for the state on and off since he was 21--including a 10-month stint at the Department of Justice, which is now spearheading the investigation into his activities.

From 1975 to 1978, Fowler worked as an accounting clerk at the Public Employees Retirement System, according to his personnel records at the water board. From there, he moved to the Department of Justice, where he was an accounting technician in the accounts payable section until early 1979. Between 1980 and 1982, he was employed as an accounting specialist in the Employment Development Department.

Kati Corsaut, a spokeswoman for the Department of Justice, said investigators would begin reviewing his past jobs to see if there is evidence of embezzlement earlier in his career.

The money investigators say was paid to Fowler was part of a $375-million sewer bond issue approved by voters in 1978.

James Baetge, executive director of the water board, said the agency has undertaken 10 major audits since the money was stolen and none of them turned up the missing funds. The former accountant was helped by the length of time it takes for sewer and water projects to be built, normally a period of years, Baetge said. Usually, he added, there is not a final accounting until all the money has been spent from a particular bond issue.

“This fellow found a way through the process of checks and balances that existed in 1983 and 1984. He was in just the right position to get it through,” Baetge said.

Sandra A. Salazar, a spokeswoman for the board, said Fowler’s accounting job put him in a position to both review contracts and handle payments.

‘Knew the Format’

“He apparently was able to pull this off because he knew the system so well. He knew the format required for contracts, the proper format for invoices under the contracts, and the appropriate signatures required for payment under the contracts. So he dummied up the contract, and submitted the invoices and authorization for payment,” Salazar said.

Edd Fong, a spokesman for state Controller Gray Davis, said the controller’s office paid the claims submitted by Fowler because they appeared to be valid. He said responsibility for checking out the contracts rested with the water board. Fong said, “You have to operate on the premise, at least we do, that when you receive a claim signed and reviewed by three different people that one or more of those people took a look at it carefully and determined that they signed a valid claim.”

Davis said there currently are 55,000 contracts on file with his office. Hundreds of thousands of checks are written each year. In the case of the water board, Davis said the controller’s office was presented with documents, signed under penalty of perjury, that the claim was valid.

In Mesa, Fowler was living with Denise J. Petrovich, who owned the home where he was arrested, police said. Petrovich was cooperative with officers and, after Fowler’s arrest, voluntarily agreed to open some of her safe deposit boxes for them, police spokesman Schmidt said.

The one-story house with a back yard pool and spa was decorated with expensive furniture and featured an elaborate video system, a tanning bed and a large safe. Behind the house was an 18-foot Bayliner ski boat believed to be Fowler’s.

But about a mile away from the house, a video shop Fowler had operated since early 1986 was closed and barren of everything except a stool, four large filled plastic bags and some plastic fixtures.

Residents of the quiet cul-de-sac where Fowler lived said Tuesday the house was visited by a variety of different women but he was a good neighbor. “I figured he had inherited money or made money,” said Len Horn. “Girls came and went. He had a lot of girlfriends.”

Christy Strauch, another neighbor, said she also noticed a large number of cars at the house. “We all suspected he was a drug dealer,” she said.

Also contributing to this story were Times staff writers Kenneth Reich in Mesa, Ariz., and Carl Ingram and Jerry Gillam in Sacramento.