Orange Trash Firm Ex-Chief Faces Felony Fraud Counts

The one-time head of a powerful Orange recycling company faces 65 felony counts for allegedly bilking the city out of $4 million in a 13-year fraud and embezzlement scheme that prosecutors said Thursday continued undetected because of lax municipal oversight.

Jeffrey Hambarian, whose family has been Orange’s exclusive trash hauler for 43 years, was arrested and booked into Orange County Central Jail. He faces charges ranging from grand theft and commercial bribery to perjury and money laundering at his arraignment today.

Prosecutors allege that Hambarian falsified more than $2.5 million in expenses that were later reimbursed by the city and embezzled revenue generated from recycling materials.

When investigators searched Hambarian’s Anaheim Hills home in July, they recovered more than $1 million in cashier’s checks as well as $250,000 in jewelry from his wife’s purse, according to court papers released Thursday.

His attorney, Marshall Schulman, said Hambarian would plead not guilty at his arraignment. But he declined to comment on the charges, saying he had not had time to review the complaint. Schulman criticized prosecutors, however, for requesting an “absolutely unconscionable” bail of $5 million.

Prosecutors have seized Hambarian’s assets as part of an effort to recover the lost funds. Among the assets seized were his 8,500-square-foot estate in Anaheim Hills that is for sale at $3 million and two Mercedes Benz automobiles.

The complaint caps a 16-month investigation that exposed what prosecutors described as rampant corruption on the part of Hambarian that took city officials more than a decade to detect--far longer than originally believed.

Dist. Atty. Mike Capizzi said Thursday that no city officials or other members of the Hambarian family will be charged. But he took the city to task for not properly reviewing the activities of its trash contractor.

“Obviously, there was not adequate oversight and review or it wouldn’t have gone on for 13 years,” he said. “The citizens of Orange were the ultimate victims because with every dollar stolen it affected their trash rates.”

City Officials Deny Mishandling Contract

The scandal has already rocked city politics, resulting in the ouster of the police chief who originally probed the allegations and an unsuccessful recall against three council members. On Thursday, most city officials continued to deny that they mishandled the trash contract.

But others expressed shock at the latest allegations, especially that the embezzlement had been going for so long.

“I’m just disgusted,” said Councilman Dan Slater. “I can’t believe he’s been ripping us off for 13 years.”

Carole Walters, a community activist and president of the Orange Taxpayers Assn., said city leaders should be ashamed of their inaction. “If our officials were there watching the books, we wouldn’t have lost that money,” she said.

The investigation, launched in August 1997, followed a paper trail of evidence linking Hambarian to more than 50 bank accounts, several “front” companies, and outside businesses he allegedly used to launder money or submit phony invoices, prosecutors said in a 52-page affidavit released Thursday. Many of those business owners cooperated with investigators in exchange for immunity.

According to court papers, Hambarian used an assortment of means to bilk the city:

* From 1985 to 1997, Hambarian allegedly billed the city more than $2.5 million for nonexistent or personal expenses. Some of the false invoices were for trucks and automobile equipment. Hambarian also billed the city $2,400 for landscaping services at his home, investigators said.

* From 1990 to 1997, he allegedly diverted about $900,000 in revenue from the sale of recycled materials to accounts controlled by his company. That money should have gone to the Orange’s municipal coffers, prosecutors said.

* Hambarian allegedly skimmed $628,000 from the city by including a “brokerage fee” to the amount Orange paid to dump its trash at the BKK Landfill in Covina. City officials later said they were unaware of the fee, which increased its dumping cost by a third. Investigators said they later traced the funds to several purchases of expensive jewelry as well as more than $300,000 in checks deposited to his son’s trust account.

The city first examined problems with the recycling operation in April 1997, when Orange Resource Recovery Systems Inc., which is owned by the Hambarian family, failed to submit proper financial information for a third year in a row. It hired a fraud auditor to look at the company, while the police department began a criminal investigation. The case was handed over to the district attorney’s office that August.

City Atty. David A. De Berry conceded Thursday that the alleged fraud might have been avoided with stronger oversight: “It would have been a case where we should have been alerted to take a look.”

But others at City Hall maintained that they did all they could.

“I don’t think there’s a system existing that can’t be defeated if someone is skillful and knowledgeable of how to do it,” said Harry Thomas, the city’s public works director. “And that’s what we had here. If someone wants to beat the system, they can.”

Longtime Mayor Joanne Coontz, who survived a recall attempt launched in the wake of the trash scandal, said the city has recently become more aggressive in monitoring contractors.

“You can’t compare 1984 to today,” she said. “It was a different time, and things were a lot slower then, and people had different attitudes. Things were not so complicated. . . . How much can you do to protect yourself against this kind of crime?”

The investigation continues to produce repercussions. In February, the City Council fired its police chief, John R. Robertson, after he investigated council members and other city officials for possibly leaking confidential information about the case to the media.

Robinson, who now heads the Newark, Calif., Police Department and is suing Orange, expressed disappointment that no city officials were implicated in the case.

“I think the district attorney’s office eventually needs to bring out the gross misfeasance by certain city officials,” he said. “I do believe the public has a right to know if their actions or inactions contributed to the loss of public funds.”

Councilman Slater said the scandal has its roots in the close relationship between the Hambarians, a socially prominent Orange family, and the city officials overseeing them.

“I think the personal relationships got way too comfortable and as evidenced too by extensive campaign contributions over the years,” he said.

* THE MONEY TRAIL: How Hambarian allegedly diverted funds. A46, A48

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Trash Trail

Some important dates in the case of former recycling executive Jeffrey Hambarian:

1997

* June 5: City of Orange and law enforcement officials launch investigation into alleged misappropriation of public funds by the Hambarian family, owners of Orange Disposal Services Inc., the contractor that has hauled city garbage for more than 40 years.

* June 18: An Orange County paving contractor tells police he helped cash up to $1 million in third-party checks for Jeffrey Hambarian, one of the sons of Sam and Alyce Hambarian, founders of Orange Disposal.

* June 20: Second informant tells police investigating suspected theft of city recycling revenue that $6 million in checks from resource recovery firms was laundered during the previous nine years through two Los Angeles County restaurant-bars.

* June 24: Orange officials release letters showing that despite two warnings that there was something wrong with their recycling company’s books, no complete audit of the company’s 1995 revenue was completed. The recycler, Orange Resource Recovery Systems Inc.--a subsidiary of Orange Disposal Services--also missed three deadlines for 1996 financial results.

* June 30: Jeffrey Hambarian, who until March had headed Orange Resource Recovery Systems, hires Los Angeles criminal attorney Robert Shapiro.

* July 3: Documents reveal that an auditor told Orange Public Works Director Harry W. Thomas in early 1996 that he could not locate money from the sale of recycled material belonging to the city, yet city officials failed to take any action for more than a year.

* July 6: Search warrant reviewed by The Times shows that while police eavesdropped from a nearby room, Michael Hambarian accused his brother, Jeffrey, of skimming money from city revenues.

* July 7: City sends letter to owners of Orange Disposal Service and Orange Resource Recovery Systems stating they are in default of city contracts--the first step in breaking city contract with the Hambarians.

* Sept. 3: According to an Aug. 13 memo by Orange City Atty. David E. Berry obtained by The Times, City Manager David L. Rudat violated state conflict-of-interest laws when he handled contract issues with Orange Resource Recovery Systems after his wife sold Jeffrey Hambarian’s house in September 1985. Carol Rudat earned a $13,735 commission. According to the Political Reform Act, David Rudat should have waited a year before taking part in city actions involving Orange Resource.

1998

* Feb. 25: City Council votes to fire Police Chief John R. Robertson. Robertson had fingerprint checks run on David Rudat and council members while investigating the leak of a sensitive affidavit outlining police department findings about the suspected theft of city revenue from recycled trash.

* Dec. 17: Jeffrey Hambarian faces 65 felony counts in bilking Orange out of $4 million over a 13-year period. The counts include grand theft, commercial bribery, perjury, and money laundering.

Source: Times reports

Investigating the Orange Trash Scandal

A 65-count criminal complaint filed Thursday charges Jeffrey Hambarian stole $4.2 million from the city of Orange and his family’s company, Orange Disposal Services. A look at the primary ways Hambarian allegedly under-reported company revenues and over-inflated company expenses, according to the complaint:

1. False billing

The city reimbursed Hambarian for truck parts Orange Disposal paid for but never received.

Total amount: $2,013,492

2. Commercial bribery

Hambarian negotiated a landfill “commission,” demanding $7.55 per ton from the gate fee.

Total amount: $628,892

3. Cost inflation

Hambarian misrepresented the cost of converting a standard truck into a trash truck, pocketing the difference.

Total amount: $334,570

4. Cash Embezzlement

Orange Disposal drivers made deliveries to a recycler, returning with cash for Hambarian instead of a check for Orange Disposal.

Total amount: $228,562

*

Following the money

Money laundering

Hambarian and couriers laundered 342 checks amounting to $816,590 at four check-cashing establishments.

Tax Evasion

Hambarian failed to report $2.3 million in stolen funds as income on his California Income Tax Returns for 1992-97.

Source: Orange County District Attorney’s office

Graphics reporting by BRADY MacDONALD / Los Angeles Times