Official Suspected Recycling Trouble a Year Ago

A key public works official suspected more than a year ago that revenue from the city’s trash recycling company might have been misappropriated, but police were not asked until recently to conduct a criminal investigation, according to a police memorandum given to City Council members Tuesday.

Instead, police were asked to investigate how a rumor got started involving Michael Hambarian, head of Orange Disposal Service Inc., which has hauled the city’s garbage since 1955.

The three-page memo, written by Police Capt. E.J. Hernandez in July 1996, reveals that top city officials had reason to believe funds belonging to the city might have been diverted 11 months before police were asked to open a formal criminal investigation.

According to the memo, Hambarian had heard in May 1996 at a meeting of trash industry executives that the recycling company owned and operated by his family was under investigation by Orange police “for fraud.”

An apparently angry Hambarian confronted City Manager David L. Rudat “quite upset,” according to the memo.

Hambarian asked “that the rumor be investigated and if unfounded, be stopped, and if the source was determined to be a city official, that appropriate action be taken,” the memo said.

Rudat then asked Police Chief John R. Robertson “to investigate the origins of the rumor,” Hernandez wrote.

Hernandez, who conducted the inquiry, said he was unable to locate the exact source of the rumor. But he said that Philip R. Pierce, manager of the street division in the city’s Public Works Department, told him that an auditor had discovered a “discrepancy” with the books of the Orange Resource Recovery Systems Inc.

Pierce, however, told the captain that the matter might be nothing more serious than an accounting error involving some “$50,000 to $400,000,” according to Hernandez.

Pierce said he had decided to wait until the auditor had completed a “fraud audit” before taking any action.

Pierce first learned of a possible revenue discrepancy in October 1995 when the auditor reported he did not have sufficient records. Seven months later, the auditor began performing the fraud audit to see where the revenue had gone.

Hernandez wrote, “At no time were the Orange Police notified of this audit nor did Mr. Pierce feel it was appropriate to do so at this time.”

Robertson declined to comment on Hernandez’s memo Tuesday. Hernandez did not return phone calls.

Hernandez noted in his memo that as long ago as May 1996, Pierce had his suspicions about the recycling company and shared his feelings more candidly with two co-workers.

One co-worker was John Loertscher, who worked in the city’s Sanitation Department. Loertscher told the captain what Pierce privately suspected.

If recycling company money was missing, Loertscher quoted Pierce as saying, “It’s either in [a Hambarian employee’s] pocket or Jeff’s”--referring to Jeffery Hambarian, the company’s chief operating officer, according to Hernandez’s report.

“Loertscher thought the statement [was] unprofessional and inappropriate,” Hernandez wrote. Loertscher told Hernandez that there appeared to be “some type of friction” between Pierce and the Hambarians.

Jeffery Hambarian could not be reached for comment. He was fired from his position last March by the directors of the trash and recycling companies--his parents, Sam and Alyce Hambarian, and his brothers Michael and Donald.

Loertscher declined to comment and Pierce did not return phone calls.

After completing his inquiry, Hernandez apparently contacted Michael Hambarian and shared his results, according to the memo.

“Mike Hambarian is satisfied with the fact that the investigation was initiated and feels confident that further problems have been stymied,” Hernandez wrote.

“He feels confident that the audit will vindicate his company of any . . . fraud or deception. He admits that the inadvertent placing of funds in incorrect accounts may have occurred and steps are being taken to resolve the issue.”

Last February, Steven V. Nakada resigned as the auditor for the Hambarians, saying he was unable to obtain sufficient documentation to verify the recycling company’s books.

His resignation prompted Rudat to hire the national accounting firm of Arthur Andersen to conduct a fraud audit. The firm’s findings were turned over to Orange police, and a criminal investigation was opened in April.

In the time since, two informants have come forward to tell police that as much as $6 million might have been misappropriated and laundered through two restaurant-bars in Signal Hill and Inglewood.