Feinstein Not Hurt by Ethics Suit : Politics: Case filed over reporting of $8.3 million in campaign funds for gubernatorial bid has had little effect on her Senate race, polls show.

When the state Fair Political Practices Commission filed a record lawsuit against Democrat Dianne Feinstein in April for allegedly misreporting campaign contributions in her 1990 race for governor, the legal action seemed to have the potential to do serious damage to her campaign for the U.S. Senate this year.

But so far the suit, which accuses Feinstein of improperly reporting $8.3 million in contributions, loans and expenditures, appears to be little more than an irritant in her campaign to win the seat held by appointed Republican Sen. John Seymour.

Even though battered by a Seymour television ad based on the suit, Feinstein continues to hold a comfortable lead over her opponent in public opinion polls.

Some of Seymour’s comments about the legal action also are being undermined by FPPC officials.

Carol Thorpe, spokeswoman for the FPPC, said of Seymour: “He says she’s deliberately delayed the lawsuit. That’s not true. It’s also being described as an $8-million lawsuit. It’s not an $8-million lawsuit.”

Thorpe and FPPC Chairman Ben Davidian said that while Seymour cites the potential for $8.3 million in fines, any penalty would be substantially less than that. Thorpe estimated that the suit could be settled for 3 cents, or at the most 10 cents, on the dollar.

The case is in its pretrial discovery phase, and is not scheduled to go to trial for more than a year.

Thorpe said recently that the FPPC is ready to negotiate a settlement with Feinstein. “If they want to settle, we are here,” she said.

Despite the conciliatory tone of comments from FPPC officials, Feinstein said she is in no mood to settle. She takes “full responsibility” for her campaign reports, and blames the problems on bookkeeping and accounting errors.

Feinstein says the FPPC lawsuit was motivated by politics. She said that an audit by the Franchise Tax Board turned up a comparable number of campaign reporting errors committed by Gov. Pete Wilson in his 1990 race against Feinstein, but that a suit has yet to be filed against him.

“I’m very curious to see if Gov. Wilson is going to have a suit filed against him,” Feinstein said.

The most serious charge against Feinstein is that she did not disclose the role of her husband, wealthy investor Richard Blum, in obtaining a $2.4-million loan from the Bank of America, part of $2.9 million in loans that the FPPC said the candidate did not properly report. In addition, the FPPC said Feinstein did not properly report up to $3.6 million in expenditures, and about $900,000 in contributions.

When it was filed, the action was considered good news for state Controller Gray Davis, who was running against Feinstein in the Democratic primary, and Seymour, who would face the Democratic candidate in the general election if she defeated Davis.

Feinstein defeated Davis handily, despite his use of a biting TV ad based on the suit that questioned Feinstein’s honesty. Seymour is also running an ad based on the suit. In campaign appearances, he frequently says his opponent’s FPPC problems raise questions about her character and integrity.

In responding to the campaign charges, Feinstein claims she has been the victim of political underhandedness by agencies linked politically to Davis and Seymour.

Among her points: The Franchise Tax Board, which conducted the initial audit of her campaign records, is chaired by Davis, her primary election opponent. The FPPC, which tax agency officials said asked for the priority audit, is headed by Davidian, a Republican appointee of Wilson. Feinstein says Wilson has a big stake in the Senate election because he appointed Seymour to replace him and is campaigning for him.

Davis has denied knowing details about the audit, a stance supported by tax board officials. Davidian says he has been impartial. “If there is a problem, I don’t care whether it’s Feinstein or Wilson, I will handle it the same.”

A spokesman for the tax board confirms that the agency made Feinstein a “top priority” and broke with its usual practices by auditing her months before getting to Wilson.

“Historically, we do campaign audits simultaneously. In this case, we were asked by the FPPC to expedite the audit of Feinstein because they had received complaints about campaign violations,” said Jim Reber, spokesman for the tax agency.

The subsequent tax board audit of Wilson’s campaign expenditures and contributions found that Wilson’s reports were basically in compliance with legal requirements--in contrast to Feinstein’s, which had been judged to be out of compliance--even though in many cases the dollar amounts of Wilson’s errors exceeded Feinstein’s.

Reber said the difference was not “a matter of dollars . . . it was the numerous non-disclosures (in Feinstein’s report).” A key factor was the non-disclosure of the role Blum played in helping obtain the loans for his wife’s campaign, Reber said.

“Everyone knows that in a large campaign it is impossible to account for every nickel and every dime. Late contributions are not uncommon. It is not unusual in any campaign to have monetary discrepancies and dollar problems. But in Feinstein’s audit we found about $3.5 million in non-itemized expenditures, the source of the $2.4 million loan was not disclosed, and the committee failed to respond to the secretary of state’s requirements to file amendments,” Reber said.

Davidian said the FPPC’s suit against Feinstein was prepared independently of the Franchise Tax Board. He says the FPPC waited for the tax board to conclude its audit, however, filing the lawsuit a day after release of the tax agency audit.

The FPPC audit of Wilson’s campaign records is under way. Davidian said the FPPC investigated Feinstein’s campaign reports before Wilson’s because the agency received a complaint about Feinstein’s records soon after the election. He said no one complained about Wilson.

Since then, the neutral watchdog group Common Cause requested that the FPPC investigate Wilson’s reports.

Ruth Holton, acting executive director of Common Cause, has been strongly critical of Feinstein’s campaign reports. But she is equally critical of Wilson’s, and the fact that the FPPC did not investigate the two in the same manner.

“Although there are certainly differences, there are many similarities in the Franchise Tax Board audits of both Wilson and Feinstein,” Holton said. “If the FPPC is going to file suit against Feinstein, they should be consistent and also investigate Wilson.”