Feinstein Sued by FPPC Over Fund Reports : Campaign: Agency says she improperly reported more than $8 million in donations and spending for gubernatorial race. It is called the biggest case in commission’s history.

Calling it the largest case of misreported campaign finances in its history, the state’s Fair Political Practices Commission brought a civil lawsuit Wednesday accusing U.S. Senate candidate Dianne Feinstein of improperly reporting more than $8 million in campaign donations and expenditures during her 1990 race for governor.

The nine-part lawsuit, filed in Sacramento County Superior Court, said Feinstein’s gubernatorial campaign had failed to itemize more than $3.6 million in expenses, had improperly reported nearly $1 million in campaign contributions and had neglected to disclose that her husband, Richard Blum, was the co-signer on six loans totaling $2.9 million.

It also accused the former San Francisco mayor of failing to disclose the Bank of America as the true source of $2.4 million of the loans.

“I think it is the biggest case involving misreporting or improperly reporting in the history of this agency,” FPPC Chairman Ben Davidian said. “By failing to report such a huge amount of money, Feinstein kept the voters from knowing the true sources and uses of her campaign funds. This was no simple act of forgetfulness.”

Yet Davidian emphasized that the FPPC was not alleging any intentional misconduct by Feinstein. “We’re alleging this was an outrageous case of gross negligence that permeated the campaign,” he said.

Kam Kuwata, a spokesman for Feinstein, acknowledged that there were numerous errors and omissions in Feinstein’s 1990 campaign reports that he said were the result of sloppy bookkeeping. He said Feinstein, who never intended to hide anything, has since filed supplemental reports correcting many of the mistakes.

But others in the 1990 gubernatorial campaigns accused Feinstein of deliberately masking her husband’s financial involvement in her campaign in an attempt to circumvent Proposition 73, an initiative which had put a $1,000 limit on individual contributions or loans.

“They were knowingly and intentionally violating Proposition 73 and attempting to cover it up,” said Dan Stanford, a Republican and former FPPC chairman who alleged the same thing in a 1990 lawsuit against Feinstein and her husband.

The lawsuit filed Wednesday by the FPPC has immediate implications for Feinstein’s campaign for a U.S. Senate seat. Feinstein has been considered the front-runner in the Democratic primary for the two-year seat held by Sen. John Seymour, but several political consultants said the FPPC accusations coming two months before the June primary would be a serious setback to her efforts.

“Being accused of mishandling $8 million is not good,” said Richard Ross, a Sacramento political consultant who ran the campaign of then-Atty. Gen. John K. Van de Kamp, Feinstein’s opponent in the 1990 Democratic primary.

Ross said the failure to disclose could have affected the outcome of the 1990 primary election. He said Van de Kamp would have made an issue of Blum’s financial involvement in the campaign and the Bank of America loans.

He said he also believed Blum could not legally co-sign the loans under Proposition 73, and that without Blum’s backing Feinstein would never have been able to secure loans of such magnitude. He said the loans enabled Feinstein to make early purchases of TV air time, which were later credited with helping defeat Van de Kamp, widely considered the early favorite.

But Kuwata said the contribution limitations did not apply to the candidate or to any money that would be considered community property. He said the campaign later got an opinion from the FPPC staff saying that Blum was not governed by the limitations.

Stanford, however, said Feinstein and her husband had said repeatedly during the campaign that much of their financial assets were held separately and were not considered community property. He said the FPPC opinion was based on information provided by Feinstein, which he said may have been inaccurate.

The limitation provisions of Proposition 73 were overturned by the courts in September, 1990, but they were in effect during the Democratic primary. Stanford said his lawsuit became moot after the court decision.

Davidian said Wednesday that it would be up to a civil jury to determine what penalty, if any, should be assessed against the campaign but that it could be “very, very large--hundreds of thousands of dollars.”

Kuwata characterized the lawsuit as an orchestrated attempt by the former San Franciso mayor’s political enemies to influence the outcome of Feinstein’s campaign for the U.S. Senate seat vacated by Gov. Pete Wilson when he defeated her in the 1990 gubernatorial race.

Kuwata singled out Controller Gray Davis, who is opposing Feinstein in the Democratic primary, and Wilson, who appointed Republican Davidian as FPPC chairman. Davis serves as chairman of the Franchise Tax Board, the agency that released audit findings Tuesday showing gross violations of state reporting laws by Feinstein’s 1990 gubernatorial campaign.

“It is all orchestrated to try to go after somebody who is challenging the existing order, the political Establishment. It stinks of politics. It is unprecedented,” Kuwata said.

California Democratic Party Chairman Phil Angelides issued a similar statement accusing the FPPC of being Wilson’s “political tool,” although he did not make any accusations against Davis.

Kuwata said Feinstein’s attorneys had asked the FPPC to delay any action against her until after the November elections. “In less than 24 hours (after the release of the Franchise Tax Board audit) this action is taken,” he said. “It must raise a question of why.”

Davidian said the FPPC, which had been conducting an investigation of its own after receiving a complaint in November, 1990, decided in January that it had enough evidence to file a lawsuit. He said the commission voted however, to delay filing the lawsuit until the FTB audit was completed.

He said the FPPC believed it would be a dereliction of duty to wait until November to take action.