Firms With State Pacts Are Fertile Donors to Fong

By ERIC BAILEY

May 25, 1998 12 AM PT

TIMES STAFF WRITER

SACRAMENTO —

In the hunt for a U.S. Senate seat, Matt Fong faces a formidable political obstacle: A multimillionaire campaign foe with a seemingly bottomless bank account.

Though far outspent heading into the June 2 primary, Fong is hardly unarmed. As state treasurer, he commands an office that has historically been a prime perch for raising campaign funds.

Like his predecessors, Fong has received, sometimes after direct solicitations, a bumper crop of campaign money from private interests--law firms, financial consultants, accountants, investment companies and developers--who have a stake in decisions at the treasurer’s office.

Campaign records show that law firms and others vying to profit from the state’s bond deals have donated more than $325,000 to Fong, even as federal securities officials have pushed to ban what they consider a “pay-to-play” system of campaign patronage.

An additional $160,000 has come from developers and others who deal with the treasurer’s committee that helps finance affordable housing. Companies that have benefited from low-interest financing doled out by another panel Fong shepherds have chipped in at least $25,000. And he received $150,000 more from firms tied to the state’s two big employee pension funds, which the treasurer helps oversee as a board member.

Fong rejects any suggestion of a nexus between campaign contributions and his decisions as steward of California’s financial empire, which dwarfs the investment portfolios of most foreign governments.

“There’s no ethical problems, there is no pay-to-play,” Fong said. “There’s no connection between contributions and work. Many of the firms we’ve retained have never given me anything.”

Following Big Footsteps

Campaign watchdogs say Fong’s approach to fund-raising harks to the days of the Jesse “Big Daddy” Unruh, the political power broker who swept into the treasurer’s post a generation ago and began tapping the private sector for campaign cash.

“Jesse Unruh was really the one who made the treasurer’s office a fund-raising machine,” said Robert M. Stern, co-director of the Center for Governmental Studies, a Los Angeles research organization. “It’s the way it always has been done and, until we have an alternative form of fund-raising, it’ll remain the way it’s done. Where else would the money come from?”

Companies that do business with the treasurer’s office, Stern said, “believe they get an extra edge by giving. They get access to Matt Fong, know what he’s thinking. It’s a business decision.”

The irony, he added, is that formidable fund-raisers from the government sector such as Fong and Lt. Gov. Gray Davis now face candidates from big business who can bury them with cash.

In the Senate race, car alarm millionaire Darrell Issa has already outspent Fong by more than 3 to 1 in seeking the Republican nomination. Fong has an added disadvantage: Under federal campaign law, the most he can accept from any donor is $1,000 an election, while Issa is free to deploy as much of his own personal wealth as he wants.

Such constraints have hurt Fong’s access to a pair of wealthy contributors who helped bankroll his past political battles.

His biggest donor has been developer Alex Spanos, the San Diego Chargers owner, who with family and associates has poured more than $340,000 into Fong campaigns.

Capitol sources say Spanos, a generous giver to numerous GOP politicians, backed Fong’s 1994 treasurer’s campaign in part because of antipathy toward the Democrat candidate, fellow Greek-American Phil Angelides.

Spanos would not comment, but a spokeswoman dismissed the Angelides angle. “If it did play a role, it played very little,” said Natalia Orfanos, a Spanos aide. “Mostly he really likes Matt.”

Fong has also collected more than $265,000 from Andrew Cherng, owner of the Panda Express Chinese restaurant chain.

Cherng did not return phone calls seeking comment. But Fong said he met the restaurateur and many of his other Asian American contributors through family and friends. And some, he said, were once supporters of his mother, former Secretary of State March Fong Eu.

An analysis performed for The Times by the private Campaign Study Group of Virginia found that Fong has raised $9.4 million since his first run for statewide office in 1990. His biggest contributor has been the real estate development industry, with $1.4 million in donations. Financial firms including banks and investment companies have given $792,000. Law and accounting firms have added $668,000.

Fong’s fund-raising put him in a politically awkward position last year when he was brushed by the Asian fund-raising scandal. He quickly gave back $100,000 in contributions after disclosures that the money was linked to an Indonesian businessman with ties to China.

When interviewed last September by Senate investigators, Fong made a telling statement about the demands of fund-raising. “I’m always fund-raising,” Fong told the investigators, adding that “anybody I see anywhere, I ask them for help. It is endless.”

In this political year, the contributions from firms with a direct stake in decisions at the treasurer’s office raise perception problems for Fong, who sits on 40 different boards and authorities that handle financial matters. As the state’s top investment official, he has a measure of discretion to sway the selection of bond underwriters, legal counsel, financial advisors and others.

Many firms end up paying homage by doling out donations, said campaign watchdog Stern. “A big motivation for these firms is fear another company is getting an advantage by giving,” he said. “It’s probably a clean process, but we’re talking so many dollars [in business] here, that the campaign money seems insignificant in contrast.”

In some ways, fund-raising has not been as easy for Fong as for his predecessors. Bond underwriting firms, long among the most prolific givers, have been hampered since 1994 by a securities industry restriction on campaign donations. Kathleen Brown, who preceded Fong, received more than $450,000 from underwriters with a stake in state bond deals. Fong gleaned less than $50,000.

Fong’s biggest contributors among those doing business at his office are law firms involved in bond deals, records show. They donated more than $275,000.

In recent years, the Securities and Exchange Commission has pushed for restrictions on such donations from bond counsels. “We see it as an ethical concern,” said Paul Maco, the SEC’s municipal securities director.

Last year, the American Bar Assn. condemned the practice and urged state bar associations to craft rules eliminating any perception of a pay-to-play system. So far, none have taken that step, and the contributions continue.

Nearly half of Fong’s bond counsel cash came from his former firm, Sheppard, Mullin, Richter & Hampton, and its employees. While the firm has worked on four state bond deals since Fong came to office, the donations were motivated by collegiality, said Richard Brunett, the firm’s managing partner. “People gave him money,” Brunett said, “well before he was in a position to give us a good reference.”

The law firm that for years has done the most business at the treasurer’s office--Orrick, Herrington & Sutcliffe of San Francisco--has given Fong more than $45,000 since 1994. Last year, the law firm made more than $450,000 on work for Fong’s office.

Law Firm Official Defends Contributions

Roger L. Davis, Orrick’s public finance chairman, chafes at the debate over pay to play. “I’m infuriated by the whole topic,” he said. “I’m tremendously insulted personally and on behalf of the bond counsel community and the elected officials that this kind of pejorative slander is cast about.”

The firm’s donations are targeted at politicians who shape policy affecting the bond market, Davis said, and not to help drum up business. “If you want to engage in the political dialogue, you’ve got to be part of it,” he said. “You have to finance campaigns, circulate in political circles and communicate in a regular manner.”

William Donovan served as a campaign advisor to Fong in 1994 while between jobs. Now Donovan, as an Orrick attorney, maintains a daily presence at the treasurer’s office--and even has his own in-box.

Davis and Fong said that such a close relationship between a private law firm and a big government client is not unusual. “They’re my lawyers,” Fong said, adding that he has taken pains to spread legal work among a variety of firms.

Contributions also have flowed to the treasurer’s campaigns from others who are seeking or doing business with the state.

Among Fong’s donors are developers who want to finance affordable housing through a program overseen by the treasurer.

The program is highly competitive, with only one of five applicants selected. And records show that Fong has received campaign contributions from at least a quarter of the successful applicants.

But even critics acknowledge that the process appears to be well insulated from political favoritism.

Several contributors said they gave simply because they like Fong. “I’ve been impressed by the man and the interest he’s taken in the housing program,” said Geoff Brown, president of USA Properties, a Sacramento area firm that has donated $7,800 to Fong and gotten more than $20 million in tax credits since 1994.

Art Ortero and his Los Angeles-based American Housing Construction Inc. have given $27,500 to Fong since 1995.

Ortero said he has received calls from Fong’s inner circle and even the treasurer’s wife about fund-raising events. “All sorts of people would call,” he said. “They’d say, ‘We’re having a party. Come on down.’ Or a dinner. There was no pressure at all.”

Fong, he said, would help boost affordable housing programs as a senator. “In our business we want to back winners, and we think Matt’s a winner.”

Fong’s fund-raising efforts have been aided in part by members of a housing advisory committee he created after entering office. The panel members, who meet quarterly with Fong to discuss broad policy questions, not only give campaign cash but help raise it by soliciting developers with business before Fong’s panel.

Panel member Michael Novogradac, a San Francisco accountant who specializes in affordable housing deals, has given Fong more than $26,000 since 1994. Officials say he also has served as a financial advisor for many of the applicants for affordable housing financing. He did not return calls for comment.

Fong said there’s “never any pay to play” with his office. He noted, for example, that in 1996 he instituted a lottery system to randomly select the winning developers.

Some who have contributed have never been selected, while others who have done well have never given, Fong added.

Political contributions, he said, are “a necessary evil. . . . But I would hope those who work with me and know my sole interest is helping the people of California would support me.”

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The Contributors

Between 1990 and 1998, state Treasurer Matt Fong collected more than $9.4 million to fund campaigns for statewide office. Here are some of his top contributors:

Contributor

A.G. Spanos Construction: $340,137

Headed by Alex Spanos, big donor to Republican causes and San Diego Charger owner.

Panda Management Co. Inc.: $265,500

Andrew Cherng runs Panda Express restaurant chain, met Fong through ties in Los Angeles Asian community.

Sheppard, Mullin, Richter & Hampton: $126,668

Lawyers in Fong’s former firm have given loyally and generously. Firm has been selected to serve on four state bond deals.

Fidelity National Title Insurance: $121,185

Firm is run by Fong friend who is chairing his Senate campaign.

Orrick, Herrington & Sutcliffe :$45,798

Dominant law firm for bond deals in the state for decades. Has close ties to Fong and last year got more than $450,000 from business with treasury’s office.

Lombard Investments: $32,000

Firm does business with state’s two major employee pension funds, which Fong helps shepherd as a board member.

American Housing: $27,500

Los Angeles-based developer of affordable housing has gotten $900,000 in tax-credit aid from Fong committee.

O’Melveny & Myers: $27,349

The law firm has participated in seven state bond deals during Fong’s tenure as treasurer.

Cox, Castle & Nicholson: $26,925

Another law firm that has provided legal advice on seven bond deals.

Novogradac, Fortenbach & Co.: $26,000

Accounting firm led by Michael Novogradac, who has donated and helped raise money for Fong and was appointed by treasurer to an advisory panel.

Where the Money Comes From

The following is a breakdown of all contributions.