U.S. Joins State Investigation of Insurance Dept.

Federal law enforcement authorities are joining the state’s probe of corruption in the Department of Insurance under former Commissioner Chuck Quackenbush--a move that expands the investigation and increases the potential for criminal charges against state officials.

Federal involvement gives prosecutors more latitude in filing criminal charges that could arise from violations of U.S. interstate commerce laws involving banks, the postal system and various communications networks such as telephones.

“It is sometimes the case that federal laws are more well-suited to the prosecution of public corruption [than state laws],” one government lawyer said Tuesday. “It broadens the range of options for prosecutors.”

It also makes the vast resources and experience of the FBI in political corruption cases available to the state. A decade ago, the Sacramento office of the FBI took the lead in the investigation of corruption in the Legislature; four legislators and a number of other officials went to prison.

The agreement to conduct a joint investigation was reached in negotiations between California Atty. Gen. Bill Lockyer and U.S. Attorney Paul Seave and the FBI over the past several days, sources close to the discussions said, adding that details of the collaboration have not been determined.

Nathan Barankin, a spokesman for Lockyer, confirmed the agreement. “It is really a partnership,” Barankin said.

Seave would not comment on discussions with Lockyer over the joint probe of the scandal that caused Quackenbush to leave office Monday.

Quackenbush was forced out when it was revealed that after threatening $3 billion in fines against insurance companies accused of mishandling Northridge earthquake claims, he reached secret settlements that required the companies to pay $12.8 million to nonprofit foundations he created.

Foundation funds were then used to finance advertisements featuring the commissioner, political polls and grants to charities, some of which had ties to Quackenbush.

Quackenbush, a Republican who wanted to run for governor or U. S. senator, announced June 28 that he would resign, after an insurance department lawyer testified that the commissioner had directed his staff to reach additional settlements with title insurance companies that would produce $4 million for more advertising.

The involvement of the FBI and the U.S. attorney in the investigation will allow the use of the federal Hobbs Act, which defines extortion as the receipt of money or other property for the performance of an official duty.

The law has been used in the past against corrupt police officers who demand “protection money” and against other public officials who accepted payment for official acts such as approving projects or zoning changes.

One of the settlements that is expected to be a central focus of the probe was a May 13, 1999, agreement Quackenbush reached with Fireman’s Fund not to investigate its handling of Northridge claims. In return, the company paid $500,000 to a foundation. The day after the agreement was signed, Fireman’s made a $20,000 contribution to the commissioner’s campaign fund.

Company officials have said there was no connection between their decision to give a contribution and the settlement agreement.

Lockyer began an investigation of the foundations in February. Federal authorities became involved in June, when George Grays, a former deputy commissioner and political advisor to Quackenbush, voluntarily went to the FBI.

Grays’ attorney, William Portanova, said his client was prepared to testify that Quackenbush personally directed the collection of funds to pay for advertising that would benefit him politically.

Quackenbush’s attorney, Donald Heller, dismissed the claim as a desperate attempt by Grays to keep himself from going to prison.

Lockyer, in court documents, has described one of the foundations, the California Research and Assistance Fund, as a “sham” operation controlled by Grays. The attorney for one of the charities that got $163,000 from the fund said nearly $90,000 of that money was paid back to Grays.

Quackenbush’s actions came to public attention in late March, after campaign finance statements he had filed with the state showed that in 1999 he transferred $250,000 in political donations from insurance companies to his wife’s campaign accounts.

Chris Quackenbush, who had run unsuccessfully for the state Senate in 1998, spent the funds to pay off a mortgage on the family home that had been used to help finance her campaign.