U.S. Drops Charges in El Monte Fraud Case : Investigation: Surprise action follows two-year probe of alleged misuse of $400,000 by job-training agency’s former chief. Decision leaves members of consortium shaken.

A two-year investigation into the alleged misspending of $400,000 in federal money has ended with the U.S. attorney’s office unexpectedly dropping all criminal charges against Douglas Shaw, former head of an El Monte job-training agency.

“I think I can say that we’re all extremely disappointed, and our confidence in the criminal justice system is extremely shaken,” Michael Colantuono, an attorney for the Mid-San Gabriel Valley Consortium, said Tuesday.

Shaw, 51, former executive director of the agency, previously known as the Mid-Valley Manpower Consortium, was indicted in July by a federal grand jury. He was accused of 38 felony criminal charges, including embezzlement of federal funds, conspiracy, witness tampering and obstructing a federal audit.

The charges stemmed from accusations that Shaw misused federal money as head of the consortium. A county audit alleged that he illegally paid the salaries of two Bradbury city employees and used consortium credit cards for such non-business items as personal gifts, Las Vegas hotel stays and gambling at the Santa Anita race track in Arcadia.

But on Dec. 6, when Shaw was scheduled to go to trial, the U.S. attorney’s office reduced the criminal charges to one and the amount of alleged misspending to $7,000, said Shaw’s attorney, Deputy Public Defender Olivia Karlin.

The case was rescheduled for trial Jan. 3, but on Dec. 22, the single remaining count was dismissed, Karlin said. The attorney said she had no idea why the charge was dropped.

“We all along intended to go to trial and fight the case,” she said. “We’re obviously very pleased.”

Shaw could not be reached for comment.

Carol Levitsky, a spokeswoman for the U.S. attorney’s office, would only say that further developments in the case resulted in the decision to dismiss.

When the accusations surfaced in 1993, the consortium board ordered an audit. The nonprofit agency on Peck Road in El Monte provides training and summer jobs to low-income youths and adults.

The initial investigation resulted in additional audits by officials from Los Angeles County and the federal government. Shaw was dismissed as the consortium’s executive director in 1993, and last July his former second-in-command, Dan Garcia, resigned after admitting to minor misspending, Colantuono said.

“The consortium has cooperated with many, many employees and agents of the federal government for almost two years in an effort to resolve the consequences of Douglas Shaw’s actions when he was executive director of the agency,” Colantuono said. “We are extremely disappointed that the efforts have reached this conclusion.”

The consortium is still pursuing a lawsuit against Shaw to recover money, the attorney said. Meanwhile, the agency has been required to repay the county $128,000, he said.