Quackenbush Deputy Quits Amid Allegations

A senior aide to Insurance Commissioner Chuck Quackenbush resigned Thursday amid allegations that he managed a foundation set up with Northridge earthquake penalties directly from the commissioner’s state office.

George Grays, who ran Quackenbush’s 1998 reelection campaign, resigned as deputy insurance commissioner Thursday afternoon. His move followed reports from several earthquake-related organizations in Los Angeles that their requests for funds from the California Research and Assistance Fund were routed through Grays.

In a written statement, Grays said his resignation from the $93,500-a-year job was immediate. “My continued service may only serve as a distraction from the critically important consumer protection work Commissioner Quackenbush is doing on behalf of underserved communities and earthquake and Holocaust victims.”

The foundation was set up as part of an $11.5-million settlement with major California insurance companies that Quackenbush negotiated in 1998 after Insurance Department investigators found a pattern of mishandled claims in hundreds of cases related to the Northridge earthquake.

None of the foundation money has reached earthquake victims. But $3 million was used in television earthquake information spots featuring Quackenbush. On Thursday, Quackenbush disclosed that a portion of that sum--$175,000--went to Joe Shumate and Associates, the commissioner’s political consultant, who was involved in writing and placing the ads.

Grays was the key figure in arranging a $500,000 grant from the California Research and Assistance Fund to the Sacramento Urban League, of which Quackenbush is a board member. The grant was to help build a job-training center.

In an interview this week, Quackenbush said he was unaware of any direct involvement by Grays in disbursing foundation funds.

“George has no authority to approve something like that. I wouldn’t know that anyone made application to him,” Quackenbush said. “I would assume that people who made applications would do it directly to the foundation itself.”

However, representatives of four Los Angeles organizations, including Caltech, said that after their initial calls to the Insurance Department, Grays directly handled their requests for foundation money. They were never advised to deal with anybody at the foundation, they said.

As probes of the foundation by the Legislature and the state attorney general’s office widen, Quackenbush has said he set up the nonprofit fund as an independent, arm’s-length instrument to avoid the impression that it was being operated as a political slush fund.

But state Senate Insurance Committee Chairwoman Jackie Speier (D-Daly City) said evidence is mounting that it was actually operated out of the insurance commissioner’s department.

“It would appear that the line that separates the insurance commissioner and this nonprofit foundation is very nebulous,” said Speier. “It suggests to me that it was created to be the insurance commissioner’s little sand lot in which he could play. What’s unclear is whether anyone else got to play.”

Officials from the four organizations said they saw an August 1999 announcement from Quackenbush about the establishment of an earthquake research foundation and immediately inquired about possible grants. They said they were directed to Grays.

Jill Andrews, director for outreach at the Southern California Earthquake Center, said she contacted the California Earthquake Authority in search of partial financing for a video to help people understand the threat of earthquakes. Officials at the authority directed her to Grays. In a conference telephone call with about eight people, including Grays, she said, he “agreed it was a good thing” and promised that the foundation would provide $75,000.

“Everyone witnessed him saying that it was $75,000 guaranteed,” she recalled. “He promised verbally. He said there was no need to make a written application; we will definitely get the money.”

Two months later, when she sent an invoice that he had requested, there was no payment, Andrews said. She said she was told the money had run out.

Andrews said she was involved in a similar attempt by the California Universities for Research in Earthquake Engineering to obtain a $1-million grant from the foundation to help pay for research into the effect earthquakes have on wooden structures, particularly those with exterior coatings such as stucco or metal siding.

She said representatives from the group had a series of meetings in Sacramento with Grays, who promised that the foundation would put $1 million into the effort and make the payment by March 1. That payment, she said, was never made either.

“We’re being told the money isn’t there,” she said. “It’s all spent.”

Chris Reinhardt, a member of the Riverside County Youth Museum Board of Trustees, said that when he saw the announcement of the creation of the foundation, he called the Department of Insurance. “They gave me George Grays’ name as the person in charge of that resource,” he said.

Reinhardt said he was seeking funds to help pay for an earthquake exhibit for children.

He talked to Grays, who he said explained that “he was handling the funds and that I should submit my request to him.”

At first Grays seemed interested in the project, Reinhardt said, but as the weeks went by he found it harder and harder to get Grays to return phone calls. At one point, Reinhardt said, he reached another deputy in the Insurance Department who referred him back to Grays as the man in charge of the foundation.

Kevin Doody, director of corporate relations at Caltech, said he inquired about the possibility of getting a $250,000 grant to help pay for the TriNet project, an effort to modernize the network that provides information about location, magnitude and ground shaking during and after earthquakes. He said he was told to address all correspondence and applications to Grays.

He said that although he was never able to talk to Grays directly, no one in the Insurance Department ever instructed him to correspond with or make application to anyone else. His request, first submitted in September 1999, has never been approved, and Doody said he still considers it pending.

In a development unrelated to the foundation, the California secretary of state’s office disclosed a recent campaign contribution report showing that on Feb. 9, Quackenbush funneled $75,000 into his wife’s failed state Senate campaign.

Earlier campaign finance reports showed the commissioner had collected thousands of dollars in campaign cash from insurance companies he regulates and in 1999 transferred $175,000 to his wife’s campaign to pay off personal loans she made to her campaign. He said the money for the loans came from a mortgage she took out on the family home.

“I think Chris Quackenbush was the best candidate for the job,” the commissioner said of his wife in this week’s interview. “I wanted to support her and I actually made contributions during her campaign and I continued to make them afterward.”

His latest report, covering the period from Jan. 1 to Feb. 19, brings to $250,000 the total he has transferred to her campaign. It also showed that in this period he collected $160,000, nearly all of it from insurance interests. Since January 1999, Quackenbush has collected nearly $400,000 from insurance interests even though he is barred by term limits from seeking reelection.

The contributions included $50,000 from Mercury General Corp., $25,000 from TransAmerica Corp. and $25,000 from California Casualty Management Co.