Firm’s Funds Misused in Campaign by Rep. Kim : Government: Candidate received free office space and supplies, records show. He denies intentional wrongdoing.

Rep. Jay C. Kim (R-Diamond Bar), an outspoken advocate of campaign finance reform, improperly used hundreds of thousands of dollars from his engineering corporation to pay campaign expenses last year, according to records and interviews.

JayKim Engineers Inc. provided the freshman legislator with free space for his campaign headquarters in Diamond Bar, plus staff and office supplies, company documents show. The firm also paid Kim’s salary and expenses during the 1992 election, as well as campaign bills ranging from airline tickets to telephone service.

Federal law prohibits corporations from providing funds or free services to federal election campaigns. And candidates are required to report all contributions.

Kim--who represents portions of Los Angeles, Orange and San Bernardino counties--did not disclose any contributions from his corporation.

But hundreds of pages of company records obtained by The Times during a two-month investigation show that JayKim Engineers paid more than $400,000 in campaign-related expenses. Most of this was Kim’s salary and other costs of carrying Kim on the payroll during the campaign.

Kim initially denied in an interview that he used corporate money for his 1992 election campaign. “No, that’s not true,” he said. “Absolutely nonsense.”

After a short pause, Kim reversed himself and acknowledged that he had asked his staff to set up a special JayKim Engineers account to track the corporation’s spending on the campaign. He estimated that the expenses amounted to no more than $1,000. His staff was supposed to send the campaign a bill, he said, but never did.

“Whatever I owe, I’m going to pay right away with interest,” Kim said.

A spokesman for the Federal Election Commission, which enforces campaign laws, declined comment on Kim’s expenditures. But he said that it is a fundamental doctrine of election law that corporations cannot contribute money or services to federal campaigns and that violations are punishable by civil or criminal penalties.

“If you’re using corporate money to pay bills owed . . . by the campaign . . . that’s a no-no,” said Fred Eiland, press officer for the FEC.

Since 1907, federal election law has barred corporations, national banks and labor unions from making contributions. Congress strengthened the law in 1971 to prohibit corporations from spending any money to influence elections. They can participate in federal elections only by forming political action committees to collect donations from employees.

Corporate ledgers, checks, invoices, memoranda and other internal documents from JayKim Engineers show:

* The firm paid about $30,000 for mailing, printing, telephone, photocopying, entertainment and travel costs of Kim’s campaign. Typically, bills carried a handwritten notation designating them as “campaign” expenses and checks were signed by Kim.

* The campaign received free office space in the company’s headquarters in Diamond Bar. Company officials estimated that use of the space was worth about $17,000.

* The three employees in the marketing division of JayKim Engineers spent about half their time on Kim’s campaign, costing the corporation an estimated $78,000 in salaries, expenses and overhead through 1992.

* The company spent about $300,000 to pay Kim his full-time salary and his other expenses during the campaign and since his election.

Kim, the first Korean-American to serve in Congress, said he had the right to set his own salary. He said he was entitled to full-time compensation because he estimated he worked 40 hours a week at the company. “I came in every morning and worked on the company,” he said. “I spent a lot of time on the campaign, but I thought I gave equal time to the business, including Saturdays and Sundays.”

Kim, 54, said he recently sold his business to Sung Woo Min, a real estate entrepreneur. Min said in a sworn statement that Kim’s absences during campaign activities “kept him away from the day-to-day management of the company,” causing severe financial problems.

Kim’s former chief financial officer, Fred Schultz, said the cost of carrying Kim on the payroll was designated on the company’s books as a campaign expense because it could not be determined how much time Kim spent on the business. “It was obvious he was running for office,” said Schultz. “(Auditors would ask) why is his salary part of (company) overhead?”

FEC spokesman Eiland said a candidate who works part time for a corporation but is paid his full-time salary while campaigning may have, in effect, received an illegal political contribution.

As a rule, even an officer of a corporation is barred from campaigning on corporate time, Eiland said. When asked if the regulations apply to the owner of a corporation, he said that only the six members of the FEC can apply the law to the facts of a case and determine whether a violation has occurred.

Kim said his marketing employees did work on the campaign but only on their own time. He blamed any improper campaign expenditures on his financial chief, Schultz, who also served briefly as Kim’s campaign treasurer.

“If I’ve done anything wrong, I believe it’s his fault,” Kim said. “It’s his job to make sure I don’t make a mistake.”

Kim said he knew that accepting a political contribution from the corporation would be illegal but saw nothing wrong with having the corporation pay political expenses as long as he repaid the firm.

“What’s prohibited is campaign contributions by the corporation,” he said. “Just borrowing and paying it back is not a permanent contribution.”

FEC officials said candidates can buy services from their corporations at fair market value, but any bill of more than $500 must be paid within 30 days. Otherwise, it must be disclosed as a debt.

Early in his campaign, Kim said, he discovered that the corporation had paid some of his political expenses, such as copying and mailing costs. He said he told Schultz:

“ ‘I want to set up a special account number for this. . . . Any expenses that our campaign office uses . . . keep track of it and then bill it to us (promptly) so we can pay.’

“Well, he hasn’t done it,” Kim said, adding that he had asked company officials for a bill within the past two weeks.

Schultz could not be reached for comment on Kim’s statement. He earlier said that he left JayKim Engineers last spring when the company laid off staff and closed offices to stem severe financial problems that have intensified over the last year.

Born in Korea, Kim came to the United States on a student visa about 30 years ago. He earned advanced degrees in engineering and public administration. In 1978, he incorporated the firm of JayKim Engineering Inc., wholly owned by himself and his wife. He built it into one of the top 500 engineering firms in the country, employing as many as 170 workers in five offices between Sacramento and Phoenix.

The firm specializes in providing consulting services to government agencies, including the Navy, the federal Resolution Trust Corp. and various local municipalities. The company participated in a partnership that recently was paid $13.4 million to manage post-riot cleanup work in Los Angeles.

Kim’s political career was launched in 1990, when he won election to the Diamond Bar City Council and was appointed mayor by his council colleagues.

In February, 1992, he jumped into a wide-open race for the 41st Congressional District seat, created in the reapportionment that followed the 1990 census. After heavily outspending four opponents in the June primary, he narrowly won the Republican nomination, then glided to a 59% victory in November’s general election over the Democratic nominee, aerospace employee Bob Baker.

Running on a pro-business platform, Kim criticized inefficient government bureaucracy and called for higher ethical standards in politics. A newsletter he recently sent to constituents is headlined: “Kim leads charge to reform Congress.” It reports that he has pushed for, among other things, campaign finance reform.

Kim’s publicly filed campaign disclosure reports show that he raised $621,000 from contributors and personally loaned his campaign $169,000. The 1,000 pages of filings do not report any contributions or loans from JayKim Engineers.

Nor do they show any payment by the campaign to JayKim Engineers for services, such as use of the company’s offices and marketing staff.

Kim said the campaign occupied surplus space in his building and it did not occur to him that the campaign should pay rent. “If that’s a legitimate (cost), I’m willing to pay right now,” he said.

But Kim denied that his marketing department employees spent half their time working on his campaign. “Nobody ever worked on my campaign (on company time),” he said. “I swear to God.” Kim said some employees were active in his campaign but only after hours.

Company ledgers show that accountants allocated “half of marketing expenses to (the) campaign project,” a cost of $78,000 during 1992. Kim said he never authorized this.

Sharon Dahlen, a secretary who was laid off last week, said marketing director Carmen Suarez frequently asked her to do typing and office work related to the campaign. “I refused to do it,” Dahlen said.

But Suarez, who now also serves as Kim’s campaign finance committee chairwoman, said she never asked Dahlen to do campaign work. She said that her own fund-raising for the campaign was conducted on weekends and that the accounting department should not have designated half her salary and overhead as campaign costs.

The expenses for staff and rent are among hundreds of entries on a six-page computer printout listing campaign expenses paid by the corporation, including payments to telephone companies, office supply companies, janitorial services, credit card companies, Federal Express and $2,500 in cash withdrawals by Kim.

All are listed in a special company account numbered 1030.01 and called “1992 Election Campaign,” naming Jay C. Kim as the client. Records show that $481,000 in campaign and post-election expenses were charged to the account. Among them was a $5,000 bill that included charges for a trip to Washington for Kim and his family so they could attend his swearing-in ceremony. Schultz said Kim repaid the company the $5,000.

Kim expressed shock when The Times showed him a printout detailing the expenses and he questioned its accuracy. “This is ridiculous, absolutely ridiculous,” he said.

The account was set up by Schultz, who screened invoices and flagged expenses that should be allocated to it.

Schultz said he urged Kim to establish the account because he feared campaign expenses might be commingled with corporate expenses and charged off as overhead to government contracts the company has. Under federal regulations, it is illegal to bill political expenditures to government contracts.

Schultz said he used the election account for expenditures that he thought government auditors might challenge, even though they were not necessarily campaign expenses. In fact, he said, perhaps only “one or two” items in the account were campaign-related.

Throughout the invoices spot-checked by The Times, there are notations indicating that the charges were campaign expenses.

Several campaign staff members and employees at JayKim Engineers said they were advised to use the special account number when charging campaign expenses to the corporation.

Jane Chong, the campaign office manager, said when she used the engineering firm’s copying machine, she punched in the special account number.

The idea was “to reimburse the corporation for ink and pages,” said Dennis Bustamante, in the corporate marketing department. But he said he never asked if the campaign reimbursed the corporation.

Records show that 43,250 copies were charged to the corporation’s 1030.01 campaign account, at a cost of $2,595.

During a state audit of the company’s books after the election, the auditor observed Chong photocopying campaign literature at the engineering firm and expressed concerns.

“I was questioned as to what account was charged for campaign documents,” Schultz wrote in a memo to Kim this April. “Reluctantly, I informed the auditor that we charged a specific account to track campaign expenditures.”

Kim said that when he got the memo, he “raised hell” and asked Schultz to tally the campaign expenses so he could pay the bill.

The bill, records show, includes $1,500 that the company paid GTE in February, 1992, to set up a phone system for the “Jay Kim Campaign Committee.” Kim said GTE would not accept a check from the campaign committee, so the corporation paid it. He said he would reimburse the company if he had not already.

The company also paid for about $800 in Federal Express charges that included letters and packages that Kim’s campaign staff sent to the Republican National Committee, Voter Contract Services--and the Federal Election Commission, which receives campaign disclosure reports.

About $12,000 in company credit card charges for meals, airline tickets and gasoline were charged to the election account, records show.

A $240 dinner charged to a corporate credit card by Suarez, the company marketing director, was flagged as a campaign expense. Suarez’s dinner companion was one of Kim’s campaign contributors, banker Gerald Morita, who was recently appointed to serve on Kim’s congressional finance committee.

But Suarez said the dinner had “nothing to do with politics.” She said they had talked about unspecified business. Morita did not return telephone calls.

About $1,000 in restaurant charges on Kim’s company credit card were paid as election expenses one month last summer. During another month, the company paid $2,392, including those related to an East Coast trip last September.

Presented with the invoice documenting these expenses, Kim initially denied they were campaign related. After he was reminded that he had attended a fund-raiser in Washington on Sept. 10 and 11, he said he did not deliberately use company funds to pay for the travel expenses.

“I know better than that,” he said.

When he signed checks, Kim explained, he did not know whether or not the expenses had been identified by his staff as campaign related. He said he was presented with checks to sign but was not given supporting documentation.

“When you sign a hundred checks, you don’t nit-pick,” he said. “(If) it looks good, I sign.”

Funding Kim’s Campaign

Rep. Jay C. Kim (R-Diamond Bar) used corporate funds from his engineering firm, JayKim Engineers Inc., to pay hundreds of thousands of dollars in campaign expenses, records show. Federal election laws prohibit corporations from contributing any money or services to candidates for federal office. Kim, who represents the 41st District, says that he intended to promptly repay the corporation for campaign expenses but was not billed.

A special corporate account, “1030.01: 1992 Election Campaign,” below, was set up at JayKim Engineers to track expenditures made by the corporation for Kim’s campaign.

Among the expenses was $1,500 that JayKim Engineers paid on Feb. 24, 1992, to a telephone company to set up service in the Kim campaign office.

The former chief financial officer, Fred Schultz, signed a form a authorizing the corporation to pay the bill for the Jay Kim Campaign Committee.

A corporate check for $1,500 was signed by Kim. The front of the check is marked with the campaign headquarters phone number and the back says “Jay Kim Campaign Committee.”

Questionable Political Donation

Shortly after Kim took office, the marketing director of his engineering corporation, Carmen Suarez, wrote a $500 personal check, right, to Sen. Phil Gramm (R-Tex.). That day she sought reimbursement from the company. The company immediately issued a check, above, describing it as a “political contribution.” Kim said the payment resulted from miscommunication. Federal law prohibits direct or indirect political contributions by corporations.