IRS in Simonian Case

IRS officials met with a Yorba Linda special counsel last week to discuss allegations that former City Manager Arthur Simonian awarded himself tens of thousands of dollars’ worth of secret bonuses and other compensation, Mayor John M. Gullixson said.

The meeting occurred just weeks after the City Council asked the Internal Revenue Service, state tax regulators and Orange County prosecutors to investigate Simonian for possible criminal wrongdoing.

“All of our reports, legal conclusions and conclusions of our investigation were handed over,” Gullixson said.

City records show that some of Simonian’s benefits were not reported as income on recent federal W-2 forms, including a $1-million life insurance policy that cost the city $10,700 a year in premiums.

Last week, Simonian and another top Yorba Linda administrator asked the city to amend their W-2 statements for the last four years, requesting that unreported life insurance policies be added to their total earnings.

Yorba Linda officials said Simonian’s leased BMW, which was paid for by the city, also was not declared. The payment on the BMW, first leased in 1997, was $776 a month.

The tax forms were prepared by the city finance department, which operated under Simonian’s direction, according to Gullixson and other sources familiar with the case.

The city’s special counsel, Tustin attorney Henry Kraft, declined to comment on the meeting with the IRS. Kraft did say the city’s investigation of Simonian, which began in August, is still active.

“We’re pursuing new leads,” Kraft said. “We have not finished our investigation.”

The IRS declined to comment on the case: “We can’t confirm or deny any involvement,” said agency spokeswoman Rosalind Kochmanski of the Laguna Niguel regional office.

A sharply divided Yorba Linda City Council voted 3-2 to fire Simonian on Sept. 7 amid allegations of financial malfeasance. Simonian has denied any wrongdoing, and said the city council approved all of the bonuses and other perks he received. He is suing the city for wrongful dismissal.

Still, Simonian on Sept. 15 asked the city to amend his W-2s for the last four years, requesting that his undeclared life insurance benefit be included, said city Finance Director Susan Hartman. The value of Simonian’s leased cars also will be added, although Simonian did not request it, Hartman said.

Under the terms of his 1995 employment contract, Simonian was entitled to a $535 monthly car allowance or an “automobile provided by the city.” Simonian leased the BMW in 1997, and arranged to have the city pay the lease directly. Before the BMW, Simonian leased a 1994 Cadillac that cost $732 a month, city financial records show. Since at least 1989, he also billed the city for his car insurance and some maintenance costs and DMV registration fees, records show.

The same day Simonian’s request for the amended W-2 arrived at City Hall, Yorba Linda City Engineer Roy Stephenson also asked for his W-2s to be amended. Both written requests were identical, “word for word,” Hartman said.

In August, the City Council was surprised to learn that Simonian had increased Stephenson’s salary to $132,000 a year, $3,000 more than the amount approved by the council.

Stephenson also received $6,000 a year in deferred compensation and a $1-million life insurance policy that cost the city $13,000 in annual premiums, both without council approval, Gullixson said.

The council voted to reduce Stephenson’s salary and strip him of the extra benefits, but took no other action against Stephenson.

“Mr. Simonian authorized the payments, and did so without council sanction,” Gullixson said. “Just because Mr. Stephenson was the recipient of the benefits doesn’t make him a bad guy.”

Stephenson could not be reached for comment Tuesday. He has announced plans to retire within the next year or two, said Daniel Miller, whom the council appointed as Yorba Linda’s acting city manager after Simonian was fired.

“I have no indication that he’s not doing his utmost and being a productive city employee,” Miller said.

The city is preparing to take legal action against Simonian to recover the compensation he collected without council approval. There are no plans, at this point, to take legal action against Stephenson.

Neither Simonian nor his attorney could be reached for comment.