Suit Challenges Accounting on Political Funds : Finances: Trial opens in case kept from public view since 1990. Accountant says Newport Beach consultants violated Political Reform Act through anti-tax group.

Two Newport Beach political consultants used an anti-tax group they helped start to dodge a required public accounting of approximately $19 million donated by Californians to political action committees and causes, an attorney contended Monday during opening statements in a lawsuit mysteriously kept from public view since 1990.

“What the California Tax Reduction Movement became in practice is a most prolific goose who laid golden eggs,” said Gary Phillips, the attorney for a Sherman Oaks man suing the consultants. “This (lawsuit) is about accountability.”

On the opening day of a non-jury trial, Orange County Superior Court Judge Donald E. Smallwood asked attorneys in the case if they knew how and why more than 42 thick volumes of pleadings and other documents taken in the politically sensitive suit had been sealed from the public for more than four years. None of the attorneys professed to know.

“Frankly I don’t understand why we’ve got anything under seal in this case,” said Smallwood, at least the fifth judge to preside over the case, which pits a shy, 45-year-old Sherman Oaks accountant against powerful direct mail gurus William Butcher and Arnold Forde.

Smallwood said it seemed “incongruous” to have a case under seal that was based entirely on alleged violations of the Political Reform Act of 1974. The law is “designed to illuminate” political fund-raising and other issues for the public, he said.

Although he declined to unseal the six filing cabinet drawers filled with documents already filed in connection with the suit, Smallwood said that all 1,300 exhibits and the testimony to be offered during the scheduled five-week trial would be public.

“Everything that transpires in this courtroom is going to be open to the public,” he said.

Monday, attorneys from both sides laid the groundwork for their cases. Phillips, representing accountant Paul McCauley, delivered an opening statement about the case. David Elson, an attorney for Butcher-Forde and their consulting firm, and Lawrence Straw, a lawyer for the tax reduction movement, now known as the Howard Jarvis Taxpayer Assn., offered comments on the case in written trial briefs presented to Smallwood.

At issue is whether the movement was a political action committee that should have been making regular public disclosure of where it got its money, and how it was spent. Also contested is whether Butcher-Forde Consulting or BFC Direct Marketing, as their firm is known, was the “de facto” tax reduction movement treasurer, and therefore financially liable for what McCauley maintains are violations of the Political Reform Act.

If the tax reduction movement is determined to be a political action committee subject to the Political Refrom Act, and Butcher-Forde is found to be financially liable, the defendants could be ordered to pay fines equaling the money that was spent and that should have been accounted for publicly.

McCauley contends that Butcher-Forde used the tax reduction movement to set up various political action committees that traded on the well-respected Howard Jarvis name. According to court documents filed by the plaintiff, the committees would raise money through mass mailings and then transfer much of the proceeds back to the movement, which never publicly reported how the money was spent.

As their fees, Butcher and Forde arranged to be paid nearly half the money collected from Californians statewide to support such causes as the campaign to dump former Supreme Court Chief Justice Rose Elizabeth Bird, and another to Save Proposition 13, McCauley contends in court documents.

“Most of the money not reported would end up in one place: Butcher-Forde Consulting’s pocket,” Phillips charged in his opening statement.

Under the Political Reform Act, the “receipts and expenditures in election campaigns should be fully and truthfully disclosed in order that the voters may be fully informed and improper practices may be inhibited.”

Outside the courtroom, Elson did not deny that his clients made a lot of money under their contract with the California Tax Reform Movement. In fact, he said that large amounts of the group’s expenditures “presumably got paid to Butcher-Forde Consulting.”

According to federal income tax returns included in court documents, nearly half of the millions paid in two different years went to Butcher-Forde.

The records show that in 1985, half of the $6.9 million the group spent went to fund-raising, and another nearly $2.5 million was paid to Butcher-Forde as fees. In 1986, Butcher-Forde’s fees totaled $1.8 million or 47% of the group’s expenditures, court records state.

But, Elson stressed, the issue is not whether his clients got rich, but whether they had control of the California Tax Reform Movement’s checkbook and, therefore, may be financially liable if the organization made reporting violations under the Political Reform Act.

“One of the plaintiff’s overblown--and, for that matter, legally irrelevant--claims is that CTRM was formed and operated as no more than a mere instrument for the BFC defendants’ . . . own profit,” Elson argued in the brief he submitted in lieu of an opening oral statement.