Residents Ask D.A. to Investigate $1.5-Million Loan by City : Government: Officials gave money to nonprofit business training group. At least $220,000 is unaccounted for.

A small but vocal group of residents have told city leaders that they recently asked the Los Angeles County district attorney to investigate how a $1.5-million city loan to a business development program was spent.

Also, several residents at last week’s City Council meeting angrily denounced the city’s involvement with the nonprofit Entrepreneurial Development Academy of California, which was set up to provide free business training to area residents.

City officials, using public funds, gave $2 million--including the $1.5-million interest-free loan--to the academy.

A Los Angeles Times investigation recently disclosed that several thousand dollars lent to academy officials was apparently spent on personal bills and charitable donations and that at least $220,000 cannot be accounted for.

In addition, the businessman who received part of the loan was on probation for income tax evasion and mail fraud. Businessman Richard Calhoun received $694,800 from the city in July, 1991. The money, which was part of the academy’s $1.5-million loan, was earmarked for purchasing manufacturing equipment for a machine shop.

The machine shop never opened, and records show that only half of the $694,800 was spent on machinery. In several interviews with The Times, Calhoun refused to account for how he spent the rest.

Calhoun, who left the academy last spring, has not been charged with any crime and says he has done nothing wrong.

Several residents said they have started a letter-writing campaign to the district attorney demanding an investigation. Sandi Gibbons, spokeswoman for the office, said she could neither confirm nor deny whether an inquiry has begun.

At Tuesday night’s meeting, several residents, including a former City Council member and a council candidate, accused city leaders of acting irresponsibly because they did not ask for invoices, receipts or other documents to ensure that the money was being spent as intended.

Several residents singled out Mayor Paul Richards, who, documents show, knew that Calhoun had a criminal record. Richards wrote a letter on behalf of Calhoun before Calhoun was sentenced in 1990. Documents also show that Richards had been warned in a confidential letter last fall from a former academy attorney that public funds might have been misspent at the academy.

At Tuesday’s meeting, Richards told the audience that he had written many letters of recommendation. He said that at the time the city signed its agreements with the academy, Calhoun said he already had lined up contracts with Rockwell International Corp.--a contention Rockwell officials deny.

The evening’s sharpest exchange was between Richards and Robert Henning, who was mayor when Calhoun received the check from the city. Henning said that at the time the loan was approved he had no idea what was going on at the academy or that Richards had written a letter on the businessman’s behalf. Calhoun received the loan about a year and a half after Richards wrote the letter.

“It was crazy as hell that we gave up that money,” Henning said.

Richards called his former colleague’s protests outrageous.

“No one had a greater opportunity to scrutinize the program than you did because you were mayor at the time,” Richards told Henning. “Not only were you aware of (the funding for the academy) but you were the actual signature on the check.”

Henning denied signing any check, but a copy of the $694,800 check issued to Calhoun is signed R. Henning.

City officials acknowledged late last year that they lent money to academy officials without adequate safeguards.

In December, shortly after he was hired, City Manager Laurence H. Adams Sr. ordered changes in the city’s relationship with the academy. The changes included the appointment of new leadership for the academy, the creation of an advisory board for it and monthly status reports. Adams also ordered an audit, which is under way.

The city manager also announced that the academy will be replaced by a new nonprofit corporation controlled by the city and renamed the Lynwood Entrepreneurial Development Academy. The City Council recently voted to allocate $225,000 in federal grants to the new academy.

Adams said that a new business plan is being drafted but that the purpose of the new academy is essentially the same as the old. Located in two warehouses, the academy provides entrepreneurs free business classes, free office or “incubator” space, and free clerical support. In exchange, graduates of the academy agree to locate their fledgling businesses in the city and hire local residents. About 30 entrepreneurs recently graduated from the program’s business classes and are now incubating in the warehouses.

City leaders said the changes will ensure that past mistakes are not repeated because proper checks and balances are in place. Richards said the city’s main concern is that the loan will be paid back. At Tuesday night’s meeting, several City Council members restated their support for the program and had no response to residents’ requests that the district attorney be contacted. A clearly exasperated Councilman Louis Byrd blasted the critics.

“I see without exception the same old people and the same old rhetoric every council night,” Byrd said. “If there are some concerns, if they have a legitimate gripe . . . why don’t they just go to the district attorney? Why the hell come here and be distracting people?”

Mayor Richards said the Times report was misleading and accused the press of “creating a story for itself.” He said Calhoun used some of the $694,800 to renovate the warehouses.

“When I get over there I can clearly see some of the things that have been done,” Richards said. “I know that I am going upstairs and downstairs, into lobbies and classrooms and conference rooms that never existed before. So it seems to me that some of the resources had to be expended for that, yet there is no mention (in the Times article) of any of these improvements.”

Documents show that while Calhoun did spend about $70,000 of the $694,800 on such items as cement, paint, lumber and labor, academy officials gave him an additional $146,000 for building improvements. In all, Calhoun received nearly $850,000, and in repeated interviews refused to account for how all of it was spent.