Grand Jury Probing Alatorre’s Finances

Federal authorities have escalated a corruption investigation of Los Angeles City Councilman Richard Alatorre, summoning witnesses before a grand jury to testify about the Eastside lawmaker’s financial dealings.

The use of the grand jury to obtain sworn testimony signals that the investigation has reached a new and potentially crucial stage in determining whether criminal charges will be brought against the councilman and others connected to his activities.

“When they start calling witnesses, that’s when they’re getting down to crunch time,” said one former Los Angeles federal prosecutor who is familiar with public corruption cases.

For months, investigators have been collecting financial records through subpoenas and interviewing cooperative witnesses. The grand jury is being used to sort through that complex evidence, compelling some key participants to testify under the penalty of perjury.

On Wednesday, neither Alatorre nor his attorney had any comment on the investigation, which involves the FBI and the Internal Revenue Service. In the past, the councilman has issued general denials of any wrongdoing in his private or public conduct.

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Although grand jury proceedings are secret, it is clear from some of the witnesses who are being called that prosecutors are delving into Alatorre’s real estate transactions. Those include the sale of a money-losing condominium as well as the purchase and remodeling of a new home in Eagle Rock.

Late last year, The Times reported that associates of a developer with city business helped Alatorre sell his condo and obtain a loan for a new home by allegedly falsifying financial documents. The newspaper has also reported that yet another contractor with extensive government business interests, TELACU, financed a $12,000 tile roof on the house.

The grand jury has begun taking testimony from some key participants in those transactions.

Officials from at least two construction firms have appeared before the grand jury to discuss the home renovations, including the roof, which TELACU financed at a time when Alatorre was helping the firm win government business.

TELACU officials have declined to publicly discuss the matter. Alatorre and his wife have refused to provide detailed comments to The Times other than to say they are paying their renovation bills. They have not said when they began making those payments.

Another witness summoned before the grand jury purchased Alatorre’s money-losing condominium as part of a series of suspect transactions by individuals connected to real estate developer Samuel S. Mevorach, whose interests the councilman was promoting at City Hall.

The purchase of the condo by real estate appraiser William Chu relieved Alatorre of thousands of dollars in mortgage debt. Interviews and records show that the real estate slump of the early 1990s had taken a heavy toll, and the property was worth about $20,000 less than Alatorre owed.

Chu recently told The Times that the FBI subpoenaed documents from him and that he appeared before the grand jury to answer questions about the transaction. Chu said he told the panel that he was steered to the condo by either Mevorach or one of his associates.

“I’m just a little potato,” Chu said in an interview, insisting that he has done nothing wrong.

Federal investigators are also interested in whether any laws were broken when Alatorre obtained a mortgage to purchase his new home in 1996.

Another Mevorach associate has said he participated in a scheme to enhance the councilman’s financial stature with the bank so he could get a loan. Han Huskey said that at Mevorach’s urging, he signed a phony lease on Alatorre’s condo before its eventual sale to make the bank believe the property was generating income.

To cement the charade, Huskey has said, he wrote a fake lease check to Alatorre for $2,800, which the councilman cashed, according financial records. Huskey said he was reimbursed on the spot--in $100 bills--by another Mevorach associate.

The lease and canceled check were submitted by Alatorre to the bank and were key to the institution’s decision to provide the loan, according to a source familiar with the transaction. Without the lease agreement on the condo, the Alatorres’ income “wasn’t supportive” of the new home loan, the source said.

Although Huskey received a federal subpoena for his records, he declined Wednesday to say whether he has been summoned or has appeared before the grand jury.

Mevorach, who in the past has said all his actions have been “above board,” had no further comment Wednesday, his attorney said.

Besides the FBI and IRS probes, Alatorre also is being investigated by the Metropolitan Transportation Authority inspector general’s office, working with the U.S. attorney.

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The investigators are examining whether Alatorre, who is a member of the MTA’s governing board, improperly used his influence to solicit special interest money to charities he championed that exclusively hired his wife’s event planning firm.

The councilman has also been buffeted recently by allegations that he has used cocaine in recent years, including use with a waste hauler whose interests he aggressively advocated with local government agencies. The councilman, denouncing the allegations, said he has been clean and sober for 10 years, since treatment for alcoholism.