O.C. Water District Account Subject of SEC Investigation

The U.S. Securities and Exchange Commission has opened an investigation into the Santa Margarita Water District’s $150-million investment account managed by suspended Assistant General Manager Michael P. Lord, The Times learned Wednesday.

SEC investigators asked water district officials last week to supply them with all documents pertaining to the account, according to sources within the joint law enforcement task force that since last month has been investigating the actions of both Lord and the district’s general manager, Walter W. (Bill) Knitz.

The two water district officials were suspended by the water district’s board of directors last month following reports in The Times that they had accepted nearly $60,000 in gifts from bankers, contractors and engineering firms, which the two men had recommended for multimillion-dollar, no-bid contracts with the district.

They were also under fire for their lavish expense accounts, which showed that they routinely stayed in luxury hotels, ran up room service tabs exceeding $1,000, and that Knitz once took a $245 sightseeing tour of Manhattan in a stretch limousine just “to kill time” before catching a plane home to California.

The investment account that has come under SEC scrutiny had already attracted the attention of the joint task force formed by the FBI and the Orange County district attorney’s office looking into possible violations of the state’s conflict-of-interest laws.

The Times disclosed earlier this month that the task force had obtained copies of notes, written by an outside auditor in September, 1992, suggesting the water district’s investment account was highly susceptible to “theft or fraud” and that there were “possible broker kickbacks” going to unnamed individuals.

The auditor’s notes did not mention any names, and did not point to any specific transactions. Moreover, the final audit he submitted to the district’s board for 1992 made no reference to any of the possible irregularities described on his “risk assessment form.”

Questions have also been raised concerning $160,000 in commissions paid from the investment account, even though it is not the type of account that pays commissions. The commissions appeared on a statement covering transactions handled for the district by Titan Value Equities Group in Tustin.

Santa Margarita’s investment account consists largely of proceeds from the sale of bonds, which are sold periodically to raise money for expanding water and sewer facilities needed for developing sections of south Orange County.

Overseen by Lord, the district’s investments in U.S. Treasury notes, prime corporate paper and other government securities were routed through Merrill Lynch Government Securities in San Francisco and Vann Thomas Wesson, a San Diego County stockbroker.

Wesson, a friend of Lord’s, is a registered representative for Titan Value Equities, and a sizable chunk of the district’s investment account has been handled by him since the late 1980s, even though Wesson has changed brokerage firms three times.

Titan Value President Frank King acknowledged Wednesday that the SEC has requested records from his firm.

“I don’t believe they are going to find anything wrong,” King said. “There is no doubt in my mind that everything is as aboveboard as it can possibly be.”

Lori Richards, the SEC’s associate administrator for enforcement in Los Angeles, declined comment.

“We can neither confirm nor deny the existence of any ongoing investigation,” Richards said.

Gary Pohlson, Lord’s attorney, could not be reached for comment Wednesday but he said in an interview earlier this month that his client “has never done anything illegal with these accounts nor has he participated with anyone else in doing anything illegal.”

Wesson similarly has denied any wrongdoing.

SEC investigators, according to law enforcement officials, are particularly intrigued by the two-page “risk assessment” of the water agency’s account that was written by Carl Schoonover, a certified public accountant with offices in San Juan Capistrano.

The water district’s books, according to Schoonover’s memo, contained “difficult-to-audit transactions” and theft might be occurring through “wire transfers.”

Schoonover has repeatedly declined comment on his “risk assessment form” but said in a letter to The Times last month that a newspaper article about them would lack “all the facts” and “lead to inaccurate and unfair conclusions.”

Besides that assessment, Schoonover also discovered the statement from Titan Value that indicated the district was charged $160,000 in commissions on the commission-free account.

District officials say they are still seeking an explanation for that charge, which suddenly appeared in fiscal 1991.

* $9.5-MILLION BREAK: Water board excused three builders from assessments. A24