Hollywood Chamber May Lose Rights to Landmarks : Finances: The state alleges the agency mismanaged funds involving the hillside sign and Walk of Fame.

The Hollywood Chamber of Commerce is expected to soon surrender control of two lucrative symbols that have helped shape Los Angeles’ image worldwide--the Hollywood sign and Walk of Fame--because of allegations of financial mismanagement by the chamber, The Times has learned.

The city of Los Angeles and a nonprofit agency will probably take control of the two landmarks, and their potentially valuable licensing and marketing rights, as part of a settlement resulting from a two-year investigation of the chamber’s financial practices by the state attorney general’s office, authorities and sources familiar with the negotiations said.

The attorney general’s office has alleged that the chamber improperly borrowed funds set aside for upkeep of the Hollywood sign, then didn’t repay the loan for years. The chamber has returned some money, but a state audit shows the chamber still owes more than $90,000 in interest.

The attorney general’s office also alleges, in confidential documents obtained by The Times, that the chamber improperly commingled with its own accounts at least $595,055 in royalty money and usage fees generated by the sign and walkway.

In order to avert a civil suit for recovery of the money, the chamber would have to repay as much as $220,000 in mishandled funds, and give up an additional $295,000 held in trust funds set up for each of the landmarks, according to the documents and interviews.

Chamber officials said the organization is entitled to profit from marketing the Walk of Fame and the logo of the Hollywood sign because chamber officials had thought up the idea in the early 1980s of registering them with the state as “service marks.” Both the sign and walkway are on public property, however, and the state maintains that money generated by the two landmarks should go into the trust funds earmarked for their upkeep, not directly to the chamber.

Chamber board Chairman Christopher Baumgart said giving up control of the sign and walkway may be in the group’s best interest. “The chamber understands and appreciates the merits of such a transition,” he said, “but there is no deal at this time.”

Some Hollywood observers said that losing control of the sign, the walkway and their merchandising rights would be a serious setback for the chamber, which already is experiencing considerable financial and organizational problems.

“If the chamber loses the Walk of Fame and the sign, it really loses a huge chunk of its public identity,” said former chamber President Larry Kaplan, who was ousted late last year in a power struggle. “It would definitely separate the chamber from programs that have given it recognition around the world.”

Chamber officials have long considered the royalty and usage fees among their biggest money-making ventures, and have said they are critical in funding their annual budget of more than $1 million. Kaplan said a “silver lining” of such a loss would be that the chamber would return to its task of providing basic services for its 1,400 members.

Some community activists in Hollywood, who have long been harsh critics of the chamber and its control over the two landmarks, said such a transfer is long overdue.

“It has taken a long time for control of these public items to get turned over to people who won’t abuse the monies that can be made from them, and for the monies to go back to the public,” said Edward M. Cohan, a lawyer who belongs to the Hollywoodland Homeowners Assn., a neighborhood group. “How the chamber ever went in and copyrighted the Hollywood sign and made money from it seemed to me to be an extreme abuse of their fiduciary duty.”

Under the proposed settlement, the attorney general’s office would create a nonprofit corporation to take control the Walk of Fame and market its likeness to commercial buyers around the world. Makeup of the group has not been determined, but some chamber members and community activists would probably be appointed, sources said.

Money raised through merchandising--such as the selling of T-shirts, posters and key chains--would be used to maintain the 1,935 stars that already have been dedicated along Hollywood Boulevard and other Hollywood streets. Any surplus might go toward Hollywood-area nonprofit agencies.

Control of the Hollywood sign and the right to market the sign logo would be turned over to the city’s Recreation and Parks Department, sources said. The famous sign atop Mt. Lee in Griffith Park belongs to the city, but the chamber has been responsible for its upkeep since 1978, after it raised the money to save it from demolition.

Sheldon Jensen, assistant general manager of the Recreation and Parks Department, said his department “is willing to do whatever is necessary” to take over management of the sign, but that some legal details remain to be worked out.

Deputy Atty. Gen. Patricia Barbosa, who has directed the investigation, refused to comment on details of the negotiations, but said, “We have specific trustees in mind, yes, and specific plans on how those successor trustees would come into place.”

Barbosa said the chamber “clearly was not meeting all its fiduciary duties.”

Barbosa said the main issue still to be settled is the amount of money the chamber would have to repay.

At one point recently, Barbosa said, she and Marshall Caskey, a lawyer for the chamber, agreed in principle to a settlement, including how much money the chamber owed.

Chamber leaders, however, rejected that settlement and appealed their case to Daniel E. Lungren, the newly elected attorney general.

Lungren met in Sacramento several weeks ago with Baumgart, newly elected chamber President Brooke Knapp and Johnny Grant, a chamber board member and “honorary mayor of Hollywood.”

Grant is a celebrity announcer who frequently serves as emcee of Republican fund-raisers and gatherings in the state, including events benefiting Republican Lungren, according to Dan Beck, spokesman for the California Republican Party.

After the Sacramento meeting, Barbosa confirmed, she consented to a lower settlement offer. Barbosa would not comment on whether there was any political pressure for her to lower the price of the settlement, but said, “I thought (the original settlement) was eminently reasonable. Mr. Caskey did too.”

Caskey would not comment on the meeting or the settlement talks. Lungren spokesman Dave Puglia said that Lungren knows Grant “quite well,” and that the meeting was “pretty standard stuff” in which both sides got together to introduce each other.

Cohan, the Hollywoodland Homeowners Assn. member, said the meeting between Lungren and chamber officials “says to me that politics are being played. . . . It seems to me that through friendship, political pressure has been put on the Los Angeles office to settle for less than what would be obtained through a court judgment.”

Hollywood Landmarks

The Sign

* Hollywood’s most famous landmark began as an advertisement for Hollywoodland, a 1923 subdivision built by Engineering Service Corp. The sign, created by John D. Roche, originally read HOLLYWOODLAND and was adorned with 4,000 low-wattage bulbs. The development company deeded the sign to the Recreation and Parks Department in 1945.

* The sign, located on city property, is 50 feet high and stretches 450 feet along the lower slope of Mt. Lee above Beachwood Canyon.

* Over the years, pranksters have temporarily reconfigured the sign to read “HOLLYWEED,” “CALTECH” and “GO NAVY.”

The Walk of Fame

* In 1955, Hollywood Chamber of Commerce member Harry Sugarman proposed a Walk of Fame as part of the chamber’s redevelopment project. By immortalizing Hollywood’s icons with sidewalk stars, Sugarman sought to duplicate the popularity of the celebrity hand prints at Grauman’s Chinese Theater.

* The first dedication ceremony was held in 1958, honoring eight film stars including Burt Lancaster and Joanne Woodward.

* A total of 1,935 stars have been dedicated; more than 260 blanks remain to be filled. Those eligible to receive a star along the walkways of Hollywood Boulevard and Vine Street include television, film, radio, recording and theater personalities, as well as writers, producers, directors, inventors, composers, stunt artists and newscasters.

* Los Angeles made the walkway a cultural and historic landmark in 1978.

SOURCE: The Hollywood Walk of Fame by Marianne Morino, L.A. Times

Compiled by Times researcher Michael Meyers