Recycling Executive Said Brother Was Skimming

While police eavesdropped from a room nearby, the head of this city’s multimillion-dollar garbage-collection and recycling enterprise accused his own brother--Jeffery Hambarian--of skimming money from city revenue, according to a search warrant reviewed by The Times.

The conversation took place between Michael Hambarian and City Manager David L. Rudat at a meeting in early May, about three weeks after the Orange Police Department had opened a criminal investigation in the suspected misappropriation of funds from Orange Resource Recovery Systems Inc., the city’s recycling contractor. “Was he stealing money?” asked Rudat, who attended high school with the 43-year-old Jeffery Hambarian.

“Between you and me, yeah, he’s stealing from us,” Michael Hambarian alleged, disclosing to Rudat what the company’s accountant had suspected since October 1995, according to the search warrant.

What transpired during their meeting was detailed in an affidavit police prepared in obtaining warrants to search the Hambarian companies as well as two Los Angeles County restaurant-bars in Signal Hill and Inglewood where, informants recently told investigators, up to $6 million might have been laundered.

Since mid-April, three Orange police detectives and the Orange County district attorney’s office have been investigating the suspected misappropriation from Orange Resource Recovery Systems Inc. of money belonging to the city. The investigation began after a fraud audit by a national accounting firm confirmed that money could not be located.

Rudat and other top city officials who dealt with the recycling company at the center of a 2 1/2-month-old criminal investigation won’t comment about the probe. Through their attorney, the Hambarians have repeatedly declined to comment.

Jeffery Hambarian, who lives in a $1.9-million house in the exclusive Peralta Hills section of Anaheim, could not be reached for comment Sunday. He is represented by Century City criminal defense attorney Robert L. Shapiro, who has not returned calls since he contacted the district attorney’s office on Hambarian’s behalf two weeks ago.

But 1,500 pages of city records obtained by The Times, as well as allegations included in the search warrant, provide the clearest picture yet of how this central Orange County city of shade trees and historic architecture came to be embroiled in the unfolding investigation.

City officials say they had the best of intentions when they signed a deal in 1993 with Sam and Alyce Hambarian, whose company, Orange Disposal Service Inc., had reliably removed the city’s garbage since 1955, to build what was hailed as a state-of-the-art material recovery facility.

As the city’s exclusive contractor, 78-year-old Sam Hambarian and his 75-year-old wife erected a virtual trash hauling dynasty in Orange, amassing a personal fortune officials estimate at between $75 million and $100 million.

Through their attorney, Z. Harry Astor, Sam and Alyce Hambarian have said they will repay any money that belongs to the city. According to documents, they say they have already returned $396,000 in recycling funds. In March, according to the search warrant, they fired Jeffery Hambarian as head of the recycling company, as well as his operations manager, Rodney Agajanian.

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Like most cities, Orange was looking for ways to comply with California’s Integrated Waste Management Act, a law aimed at eventually recycling half of all the garbage rapidly filling the state’s dumps.

In 1993, without competitive bidding, the Hambarians, who had the needed land, the experience and good relations at City Hall, signed an agreement to operate a recycling center. The next year, the City Council gave them a 10-year contract and guaranteed the repayment of a $6.5-million construction loan with a $2.25 monthly surcharge on every household and business in Orange.

From all appearances, it was a risk-free proposition for the Hambarians. They would receive an automatic 10% pretax profit and own the facility outright. If the city decided to recycle its trash elsewhere, the family would be paid fair market value for the recycling center, now about $9.5 million.

In July 1994, after being equipped with $25,000 worth of video-phones, a $14,000 table and nearly $7,000 in fitness equipment paid for by taxpayers, the recycling center opened its doors. Jeffery Hambarian was put in charge.

But the search warrant alleges that Michael Hambarian told Rudat his brother “had his own agenda.”

Why did Jeffery Hambarian, who received an annual salary of more than $150,000, become involved in the alleged diversion of funds?

Michael Hambarian told Rudat: “One reason was basic greed. The second reason was Jeff had been poisoned by the thought that those at the [recycling company] did all the work,” according to the search warrant, “but all their money went back to the city.”

The contract called for the city to receive money from the sale of material salvaged from the city’s trash until the Hambarians were recycling half of the garbage in Orange by 2000.

Before the recycling center opened, Jeffery Hambarian operated a family business called SAH Inc.--for Sam A. Hambarian--which started out renting large storage containers, then later branched into recycling.

In 1995, the family’s longtime certified public accountant, Steven V. Nakada of Laguna Niguel, tried to prepare the recycling company’s first annual report.

Nakada’s findings were important to Orange residents. Money received from the sale of salvaged material, as well as cash collected from residents dropping off their garbage or paid out to those who brought in aluminum cans or soda bottles, would determine how much everybody would be charged on monthly trash bills.

Nakada couldn’t accurately determine how much money had been made selling recycled material, according to the search warrant and letters and financial reports he gave city officials, much less what happened to the cash collected every day. And Jeffery Hambarian and operations manager Agajanian refused to let him see files or key financial records, according to records and the search warrant.

They made Nakada and his staff vacate their normal working space and squeeze into the room where trucks were dispatched.

Nakada refused to certify the company’s annual report and, suspecting that funds were missing, later commenced a fraud audit to identify how much salvage revenue was involved.

Citing the criminal investigation, Nakada has repeatedly declined to comment.

He asked salvage processors for copies of checks they had written to the recycling company, but only a handful of them responded, according to the search warrant.

When he took over the recycling operation after Jeffery Hambarian was fired in March, Michael Hambarian allegedly told Rudat that salvage processors asked “whether the checks should be mailed to SAH or [the recycling company].”

Even from such a small response to his request, according to the search warrant, Nakada noticed from the checks he did obtain that salvage money had been deposited into the accounts of SAH Inc. as well as unidentified accounts.

Nakada also noticed that in addition to Agajanian, five other people had endorsed and cashed the checks, according to the search warrant. He waited until Jeffery Hambarian went on vacation, then looked through the personnel files. None of the five worked at the center, according to the search warrant.

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The accountant took his findings to the board of directors in October 1995--a meeting attended by all five Hambarians and Astor, their attorney.

“This is the most serious thing that has ever happened to the company,” Nakada quoted Astor as saying, according to the search warrant. He also quoted Astor as saying later, “It was unbelievable how much fraud had been committed.”

Astor did not return calls on Sunday.

According to the warrant, Nakada said that as he passed out the canceled checks at the board meeting and Sam Hambarian recognized Agajanian’s endorsement on one, Jeffery Hambarian snapped, “If you’re accusing him [Agajanian] then I guess you’re accusing me.”

“You prove it,” Michael Hambarian allegedly said Jeffery Hambarian stated when the directors confronted him about the suspected theft.

In notes Nakada took and later shared with investigators, Alyce Hambarian told the accountant, “I knew [Jeffery Hambarian and Agajanian] were stealing,” according to the search warrant.

The revelation was distressing to Michael Hambarian, he allegedly told Rudat, because both men were “family.” Agajanian is the godfather of Michael Hambarian’s eldest son.

Agajanian did not return calls on Sunday. Neighbors said he had left town for a few days.

The search warrant says Michael Hambarian told Rudat that when the directors tried to install better controls for salvage revenue and cash, Jeffery Hambarian challenged his father, saying, “Why are you taking Mike’s side?”

The need for extra control was plainly evident to Nakada. While at the recycling company one day, according to the search warrant, “he saw Jeff in possession of a large stack of cash . . . [a] wad of bills [and he was] handing out portions of it to various members of his immediate staff.”

The money had come from residents who brought truckloads of waste to the center and had paid cash to drop them off. Nakada learned that the employee who ran this operation kept no records and simply put a rubber band around the cash, which was then “delivered to Jeff who maintained it,” according to the search warrant.

In company records, there was no accounting by Jeffery Hambarian for this money, according to the search warrant. Nakada tried to estimate how much was involved by scouring shipping invoices of waste later taken to a landfill, but didn’t complete that work.

Nakada also told investigators about transactions at Orange Disposal Service Inc., the trash company. During an audit, he noticed that $700,000 had been transferred out of an “overage” account that held money from the city to pay for dumping garbage at the county landfill.

The money represented an overpayment by the city and was supposed to be used to offset future landfill charges, according to an earlier written opinion by City Atty. David A. De Berry. “It is clear that the [trash company] has no right to these funds,” De Berry wrote.

When Lynn Nguyen, one of Nakada’s assistants, opened a file drawer apparently containing records regarding money that had been transferred out of the overage account, “Alyce [Hambarian] became very upset and told Nguyen to stay away from that particular filing cabinet,” according to the search warrant.

A few months after the incident, Nakada noted that another $400,000 had apparently been transferred from the overage account at the disposal company. He also told investigators that a $500,000 treasury bill also had apparently been purchased earlier and that only the principal had been repaid.

Frustrated because the recycling company wouldn’t provide access to the records he needed to complete his financial reports, Nakada quit in February, prompting the city to hire Arthur Andersen & Co. to conduct the fraud audit that led to the criminal investigation.