Longtime Trash Hauler Target of Orange Probe

The city and law enforcement officials have launched an investigation into alleged misappropriation of public funds by owners of Orange Disposal Services Inc., the private contractor that has hauled the city’s trash for more than 40 years, according to Orange County Superior Court records and city officials.

The city suspects that members of the Hambarian family, which owns Orange Disposal, borrowed from a public fund to finance private investments, according to the court records.

The alleged financial wrongdoing resulted “in higher trash rates to the residents and businesses in the city and profits for the Hambarians,” according to the court records.

The city also suspects that some money was taken directly out of a second account that contains revenue from the sale of recycled material, the court records show.

“It appears at this stage of the investigation that salvage [recycling] revenues belonging to the city may have been misappropriated for personal use by one or more members of the Hambarian family,” according to the civil action filed by the city.

One official estimated that the city’s revenue losses could exceed $1 million.

Mike Hambarian, one of the family members named in the court action filed by the city late Wednesday, said in a brief telephone interview that “I really just don’t know what to say. It’s still an investigation and we’re not sure of all the facts ourselves. It’s awfully hard to comment on it.” Other family members did not return numerous telephone calls seeking comment.

Orange officials said they could not determine whether any city funds were unaccounted for, a claim that rang hollow with Councilman Dan Slater.

“I think it’s obvious we lost the proceeds from that investment,” said Slater, referring to the Hambarians’ alleged use of city money. “It appears that there have been losses, but nothing has been proven. . . . It also appears that some of the revenues from recycling may not have all been credited to the city.”

Slater said he wanted a full investigation.

“I want to know everything about the contract and what its financial implications are for the city,” Slater said.

A city news release said the Orange County district attorney’s office was investigating, but the D.A.’s office did not return repeated calls for comment. Orange Police Chief John R. Robertson said his department was also involved in the probe, adding that some search warrants have already been executed.

The court records are part of a request for an injunction by the city against Sam and Alyce Hambarian and their sons, Mike and Jeff Hambarian. It sought to bar them from withdrawing money from accounts they control that hold some public funds, and to remove control of the account from the family.

The accounts contain monthly garbage collection fees paid by city residents and businesses to cover expenses incurred by Orange Disposal when it dumps trash in county landfills. Not all of the money in that account belongs to the firm, because it is entitled only to its costs plus a 10% profit margin. The account generally contains a surplus that belongs to the city and, ultimately, its residents, officials said.

At the end of April, the accounts contained $1.1 million, according to the court records. The injunction was granted Wednesday but dismissed Thursday when control of the accounts was turned over to the city.

According to the court records, city officials believe members of the Hambarian family took money from that account and invested it privately, eventually returning the money to the account but keeping earnings to which they were not entitled.

In 1994, the city added a contract for recycling with Orange Resource Recovery Services, a subsidiary of Orange Disposal, to deal with state goals to reduce the volume of trash dumped in landfills.

Under that 10-year agreement, Orange Recovery sells the city’s recyclable materials at the best price it can get, crediting at least 90% of the recycling revenue to the city.

Suspicions of problems arose when the Hambarians’ auditor tipped off city officials, the court records show. The city then ordered an independent audit by Arthur Andersen LLP. Preliminary results from that audit led to the current investigation.

The Hambarians’ auditor, who has been working for the company since the early 1980s, said Thursday night that the problems were discovered in audits for the years 1995 and 1996.

The Hambarian family has held an exclusive contract to collect trash throughout the city of Orange for more than 40 years, and continues working under the contract despite the investigation, City Manager David L. Rudat said.

“Fraud is sometimes a difficult thing to uncover,” Rudat said. “I was very patiently waiting for auditors to get through so we weren’t accused of overreacting. . . . There has never been an attempt to hide or cover this up.”

City Atty. David A. De Berry refused to make public copies of the preliminary audit findings.

The city of Orange has had its share of financial troubles in recent years, including the loss of $7 million in 1991 after it invested in a Ponzi scheme run by municipal-fund manager Steven D. Wymer. Wymer pleaded guilty in 1992 to nine counts of racketeering, securities fraud, mail fraud, bank fraud and obstruction of justice, and is serving a federal sentence of 14 years and 7 months.

Orange also lost $28 million when the county investment pool collapsed in 1994. Three county officials were convicted or have pleaded guilty or no contest to fraud-related charges in the bankruptcy fallout.

“I am so outraged that we’re having to go through this after already having to go through the Wymer scandal and the bankruptcy,” Slater said. “I was assured that all of the city’s investments were secure and obviously they weren’t. I cannot believe there was not oversight of this recycling fund.”