FBI Opens Water District Inquiry : Contracting: Agents question whether officials broke federal law in accepting gifts from firms that did work for Santa Margarita District.

The FBI revealed Tuesday that agents are conducting an inquiry into possible criminal wrongdoing at the Santa Margarita Water District, where the top two managers have received more than $46,000 in gifts from companies that have been awarded lucrative contracts.

Federal agents said Tuesday that they will examine whether General Manager Walter W. (Bill) Knitz and his deputy, Michael P. Lord, may have violated federal law by recommending that the district hire bankers, developers, contractors and other firms that had given them gifts.

The law, called the Hobbs Act, prohibits state and local officials from accepting gifts in exchange for public business. Violation of the Hobbs Act can result in a 20-year prison sentence and a $250,000 fine.

Knitz and Lord have said their acceptance of gifts--which ranged from a $1,400 fishing trip in Cabo San Lucas to $300 worth of theater tickets--has no bearing on the contracts awarded. Lawyers for both men said Tuesday that they were not surprised or worried about the FBI inquiry.

“As far as the feds are concerned, they can open up any investigation they want, but whether they find anything is a matter of conjecture and speculation,” said Knitz’s lawyer, Marshall M. Schulman.

“It doesn’t surprise me,” said Thomas M. Goethals, one of Lord’s attorneys. “Mr. Lord’s actions have been mischaracterized to hurt him tremendously. When the truth comes out, he’ll be all right.”

Before the FBI’s inquiry can become a full-scale investigation, agents must obtain approval from the U.S. Department of Justice in Washington. FBI Special Agent Gary Morley said federal prosecutors in Santa Ana have been consulted.

“We are in contact with the Orange County office of the U.S. attorney’s office, and the facts of the case as we know them are currently being discussed with them,” said Morley, who specializes in political corruption and also acts as the agency’s official spokesman.

The Orange County district attorney’s office launched a similar investigation last week. Officials there are investigating the possibility that Knitz and Lord violated state conflict-of-interest laws by accepting gifts from contractors.

Investigators picked up four years’ worth of expense reports for Lord and Knitz on Tuesday. Earlier reports cannot be used against Knitz and Lord because they fall under a statute of limitations, prosecutors said.

Under the state Political Reform Act, public officials may not use their “official positions to influence the making of any governmental decision” that has a financial impact on a company that has given the officials $250 or more in gifts during the previous year.

The Hobbs Act makes it a felony for a public official to extort anything of value, such as money or gifts, in exchange for a vote or official act. In such cases, prosecutors must prove that a quid pro quo--the promise by the official to perform or withhold performing an official act in exchange for a benefit--has taken place.

Violations of the act are often difficult to prove, legal experts say.

The Times has reported that Knitz has accepted gifts in excess of state-mandated limits for the years 1989 through 1992, while recommending millions of dollars worth of contracts for companies that have provided him meals, trips and other gifts.

Before 1989, Knitz had reported receiving no gifts. He has been the district’s general manager since November, 1975.

Lord, who joined the district in August, 1977, has accepted gifts above state limits for the years 1987, 1988, 1989 and 1991, while also recommending contracts worth millions. He reported receiving no gifts before 1987.

In 1992, he was advised that he may have violated state law and filed a return for 1992 showing that he had accepted no gift of more than $250 from a single donor. He said he reimbursed every donor for amounts over $250--about $11,000 in all--but has refused to provide canceled checks or any other evidence showing the reimbursements.

After filing an economic disclosure report in 1991 stating that he received no gifts in 1990, Lord amended his form last week after questioning by The Times. He filed a new form stating that he received $930 in 1990, but no gifts from a single donor over $250.

The Times has also revealed that two consultants who have received substantial district business have worked on Lord’s house in San Diego County. Lord’s attorney said Lord paid all but $100 of landscaping design work worth $3,350 and performed by Robert Bein, William Frost & Associates. But Lord has provided canceled checks totaling only $450.

For soils work performed by the Irvine Consulting Group, Lord has paid nothing. His attorney said the work was not paid for because of a dispute over the quality of the job. But three former ICG engineers who worked on the project have told The Times that they thought that the work had been done free as a favor to Lord.

Attorneys for both Lord and Knitz criticized the press Tuesday for articles written over the last week.

Schulman, a former deputy district attorney for Los Angeles County, said his client has nothing to worry about.

“It is my opinion that there’s no case and these guys are being crucified by the press . . . at Easter time,” he said.