Kickback Probe of Quackenbush Aide Launched

State Atty. Gen. Bill Lockyer has launched a criminal investigation into allegations that a former top aide to Insurance Commissioner Chuck Quackenbush took thousands of dollars in kickbacks from a football camp that received public money from a foundation Quackenbush created.

Lockyer began the investigation, sources said, after he obtained financial records from the Skillz Athletic Foundation, which operates the camp, showing that monthly payments of up to $10,000 had been made to former Deputy Commissioner George Grays.

The football camp, according to evidence compiled by lawmakers who investigated Quackenbush, had received a $263,000 grant from the California Research and Assistance Fund, a foundation set up by the commissioner with public money from insurance company settlements after the Northridge earthquake.

A lawyer for Skillz said that $90,000 of the grant was paid back to Grays in 11 checks at Grays’ request, and that Grays said he was owed the money for buying equipment and running some of the group’s programs.

Timothy Charshaf, a Sacramento-area attorney representing Skillz, said the organization’s board of directors thought the payments were a reasonable request then, but now views them “as something that shouldn’t have happened and they wished that it didn’t happen.”

He said none of the directors personally profited from the relationship with Grays and the foundation, and now “the directors feel betrayed by Mr. Grays. Their motivation through all of this was to continue the programs they were providing for at-risk kids.”

A lawyer for Grays said, “We are . . . evaluating all the evidence, and have not completed our initial review.

“There has been quite a bit of smoke presented in the political arena,” said attorney William J. Portanova, “and now it’s the attorney general’s job to find out in the courtroom arena if there’s any fire.”

Portanova said he had expected the investigation.

Quackenbush resigned Wednesday, the day before he was scheduled to testify under oath about his knowledge of Grays’ activities with the foundation and his use of its funds for political purposes that benefited the commissioner.

A spokesman for Lockyer would confirm only that the attorney general is conducting a criminal investigation of the foundation “that involved check payments to Mr. Grays.”

As the attorney general disclosed the new course of his investigation, Quackenbush broke his silence for the first time since notifying the secretary of state that he will leave office July 10.

Asked about the possibility of criminal charges against him and members of his senior staff, the commissioner insisted that he is not worried.

“I don’t think we did anything wrong here at the Department of Insurance,” Quackenbush told Los Angeles television station KNBC-TV Channel 4 and Sacramento CTNS news service in an interview in his office. “I’m not concerned about that at all.”

Smiling frequently, he said he felt that he had no choice but to resign because his department had become immobilized by the scandal swirling around it.

“The department’s been distracted for several weeks now because of the controversies surrounding the Northridge settlements,” he said. “ I think it was best that we get back to the business of regulating the insurance industry, and I think if I remove myself from the scene, we’ll be able to do that.”

Quackenbush has been the target of investigations by the Legislature that examined settlements he made with insurance companies for their treatment of Northridge earthquake claims.

Although confidential examinations by his department found that several companies had mishandled claims, Quackenbush declined to fine them, instead requiring them to contribute to his foundations.

Funds from the foundations, the lawmakers found, were used to finance a television advertising campaign that featured the commissioner, to pay for political polling and to provide grants to several nonprofit organizations, including Skillz.

Quackenbush was directly linked to the political activity when a Department of Insurance lawyer testified Monday that the commissioner ordered his staff to raise $4 million in settlements with title insurance companies for television commercials.

By Wednesday, Quackenbush was facing almost certain impeachment.

In other developments Thursday, court documents filed by Lockyer showed that the attorney general is conducting a wide-ranging investigation into the activities of current and former Insurance Department staff, and of several prominent political consultants who received public money to conduct political polls and produce TV spots featuring the commissioner.

Emerging as a key figure in the investigation is former Quackenbush chief of staff William Palmer, an attorney who was involved in the creation of the foundations and resigned last summer.

Lockyer asked the court to force the department to fully comply with a subpoena for 71 categories of documents spanning six years beginning Jan. 1, 1994, when Quackenbush took office.

The documents sought by the attorney general include time sheets and billing records that show how much time Palmer and Grays spent on foundation activities.

Lockyer told the court that the documents will help him evaluate whether any Insurance Department officials besides Grays “have inappropriately and unlawfully wielded control over the four nonprofits and usurped the legally mandated powers of the actual board of directors.”

Department officials said they have already provided Lockyer with 700 pages of documents and are trying to cooperate with the request as quickly as possible.

In recent weeks, they said they had discovered seven boxes of documents belonging to Palmer and are still sorting through them.

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Times staff writers Nancy Vogel and Carl Ingram contributed to this story.