Court Papers Allege Baugh Credit Fraud

Assemblyman Scott Baugh charged $15,010 on his credit cards last year in an allegedly fraudulent scheme with a close friend who owns a convenience market near Baugh’s home, according to court papers filed by the Orange County district attorney’s office Tuesday.

Prosecutors allege in a search warrant affidavit that Baugh charged the sum in at least six transactions on his credit cards on June 15, 1995, without receiving any goods or services from Huntington Beach store owner Adel Zeidan, who later became a major donor to Baugh’s campaign last year.

The transactions were made to help Zeidan falsely obtain cash advances, according to the court papers. Zeidan repaid Baugh’s credit card accounts before any interest charges accrued, according to court papers. Baugh (R-Huntington Beach), who has not been charged in connection with the alleged scheme, denied any wrongdoing, saying the district attorney’s latest investigation is a “systematic and insidious effort” to harass him and his supporters.

In successfully seeking permission June 3 to search Baugh’s and Zeidan’s bank records and Zeidan’s market, district attorney’s investigator Randy Sorley concluded that the pair committed felony conspiracy and misdemeanor credit card fraud in each of at least six transactions, the affidavit contends.

Assistant Dist. Atty. John D. Conley declined to comment on whether indictments would be sought against the freshman legislator or Zeidan, who owns the Ocean Pacific Market in the 300 block of 17th Street in Huntington Beach, less than a block from Baugh’s home.

Baugh already faces trial Aug. 26 on four felony and 18 misdemeanor counts for allegedly concealing or misreporting tens of thousands of dollars in campaign contributions and loans, and persuading his campaign treasurer to lie under oath about the source of some campaign funds. One of the misdemeanor counts involves a cash contribution from Zeidan.

The indictment, issued in March, stems from alleged wrongdoing in last year’s special election in the 67th Assembly District, which Baugh won. Conley said the alleged credit card scam was discovered during the investigation that began last October and led to those indictments. As a result of that investigation, three GOP aides have pleaded guilty to misdemeanor charges for their roles in placing a decoy Democrat on the election ballot to siphon votes from a popular Democrat, and two others face felony indictments.

Conley called the activity, in which Baugh allegedly used his credit card to obtain cash that went into Zeidan’s business account, “strange conduct. We are trying to determine if it is somehow involved with the campaign. Or is it a totally separate issue? I am not prepared to answer that question today.”

Baugh, who was in Sacramento, said the district attorney is trying to strong-arm Zeidan in hopes of persuading him to testify against the assemblyman in the campaign finance case. Zeidan has admitted in previous grand jury testimony that Baugh accepted $8,800 in cash for his campaign, a violation of state law barring the use of cash in political campaigns.

“It is quite apparent that the district attorney is engaged in a systematic and insidious effort to harass, threaten and intimidate anybody who dares to testify on my behalf,” Baugh said. “The bottom line for the Orange County D.A. is you have two options if you’re a witness: You manufacture testimony according to what they want to hear, irrespective of the truth, or you tell the truth and face harassment.”

The credit card fraud charge is based on a rarely used state law, according to industry experts, who added that they would like to see it employed more often.

The law prohibits any person from processing or obtaining payment of a credit card charge if the retailer involved did not agree to furnish the goods and services that are the subject of the charge. As a misdemeanor it carries a penalty of six months in jail and a fine.

Credit card industry experts, who spoke on condition of anonymity, said it appeared that Zeidan was creating a cash flow for himself and doing it more cheaply than he could have by obtaining money through the cash advance mechanism on Baugh’s credit cards.

The interest rate for a cash advance on a credit card is usually higher than for a purchase, and interest charges accrue from the date of the advance. In addition to interest charges, there is often a cash advance fee.

By faking a purchase, sources said, a person could avoid paying interest and have only to pay the 2% merchant fee on the transaction. Typically, the cash advance limit on a credit card is half the card’s purchase limit.

“This would be criminal fraud if it happened,” said a top fraud investigator for a credit card network. “The system is really based on honesty and it is fragile in its best form.”

Zeidan told the Orange County Grand Jury in February that he had borrowed about $28,000 during the preceding two years from Baugh by repeatedly running Baugh’s credit cards through the electronic transaction device at the convenience market.

The money was borrowed on at least two and perhaps as many as four separate occasions, Zeidan testified. Zeidan would process the card as if Baugh had bought, for example, $2,000 in merchandise. “When he put it through, I took the money and I owe it to him. I pay it back to him,” Zeidan testified, according to grand jury transcripts.

No record was kept of the loans, Zeidan said. “Between me and Scott there’s no paperwork. We didn’t have to fill out paperwork,” he said.

According to the affidavit, which seeks additional records going back to 1994, Zeidan borrowed $15,010 by using three of Baugh’s credit cards--a Visa, a MasterCard and an American Express--on June 15, 1995. Zeidan ran at least six transactions, ranging from $1,000 to $4,500, against the cards’ various credit lines.

Zeidan repaid the loans by sending checks drawn on his business account directly to Baugh’s credit card accounts. The money typically was repaid just before the printing of the next statement, according to the search warrant affidavit.

Besides the records they found while searching Zeidan’s market, investigators reported in the affidavit that they seized “blank and embossed credit cards with magnetic strip.”

In addition to the $15,010 they allege Baugh charged on June 15, 1995, investigators claimed that on Dec. 2, 1995, Baugh charged another $1,550 at the market. But that transaction is not part of the criminal charges investigators believe they could prove because “American Express was unable to provide further details of this transaction,” the court papers said.

Allan H. Stokke, Baugh’s attorney, criticized prosecutors for alleging that Baugh and Zeidan committed felony conspiracy, saying the charges were inflated to justify a search. In California, searches involving misdemeanors are generally prohibited except in extremely limited circumstances that don’t apply to this case, he said.

“This is just very strange,” he said. “I can’t see the purpose in it unless they are trying to get publicity to dirty Scott up before the trial begins.”

Stokke said there was no loss to anyone because Zeidan repaid Baugh’s credit card accounts.

“This was a person Scott had a good relationship with. He had done legal work for him in the past,” he said. “The two of them were friends and Adel wanted to borrow some money and he trusted him and let him do it.”

Zeidan was out of town Tuesday, said his cousin, Abdul Aduen, who was running the store.

Democrats were quick to condemn the freshman legislator, whose election in November allowed Republicans to take control of the Assembly and elect as speaker Curt Pringle of Garden Grove.

“It’s very bizarre and it seems that he plays by his own set of rules that apply to no one but him,” said Richard Katz, Assembly Democratic Leader.

Republicans reserved comment. County Republican Chairman Thomas A. Fuentes said he was unaware of the details of the allegations.

Also contributing to this report were Times staff writers Eric Bailey and Davan Maharaj.