Computer Probe Is Widening

California Highway Patrol officers moved in Thursday to halt shredding at the state’s information technology department, and Gov. Gray Davis suspended the agency’s chief amid a widening investigation of the state’s multimillion-dollar computer contract with Oracle Corp.

As those developments were unfolding in the Capitol, Davis’ director of e-government, Arun Baheti, quit.

His resignation came one day after he acknowledged to Davis aides that he had personally accepted a $25,000 Oracle check for the governor’s reelection committee, which reported receiving the money two weeks after the state signed the $95-million computer software deal.

Late Thursday, Davis issued a statement saying that he would give “immediate and careful attention” to an offer Oracle has said it made in the past to rescind the entire deal. Oracle said earlier in the day that its offer to undo the contract still stood.

That contract has become the object of scrutiny and criticism. A state audit concluded that the deal, designed to save money, could cost the government $41 million more than if there had been no agreement.

Baheti was the second department head in a week to lose his job as a result of the controversy, and a third, Information Technology Director Elias Cortez, was suspended by Davis on Thursday pending the outcome of the state investigation.

In addition, the Oracle deal has become a political issue for the governor, who is seeking reelection. Republican gubernatorial nominee Bill Simon Jr. suggested that Davis aides engaged in a cover-up, and other Republican leaders called on federal authorities to become involved in the probe.

Davis offered no comment on either Baheti’s resignation or his suspension of Cortez, who will continue to receive his $123,255 annual salary during his indefinite leave.

“There was shredding, but we have no idea what it was,” Davis Press Secretary Steven Maviglio said, adding that Cortez was not in the building Wednesday when the shredding occurred. “Was there shredding related to the Oracle contract? We have no idea. That’s what we want to find out.”

While department officials said any shredding was routine, Atty. Gen. Bill Lockyer said in a statement: “Any destruction of documents, e-mail and other materials that may be associated with the Oracle contract could pose the potential for obstruction of justice.”

Davis’ legal advisor, Barry Goode, said his office received an unsubstantiated report of document shredding at the Department of Information Technology.After calling the department to check on the report, he said, he informed Lockyer’s office. Highway Patrol officers were then dispatched to the department headquarters.

Simon issued a statement suggesting that Davis or his staff shared responsibility for the shredding. “I’m deeply disturbed that it appears the governor’s legal affairs advisor called the Department of Information Technology while documents were being shredded and let DOIT officials know that the attorney general’s office was en route. If this is true, it’s essentially letting them know they have an hour to shred.”

Republican Assembly Leader Dave Cox of Fair Oaks called on the U.S. attorney in Sacramento to enter the investigation, alleging that the Davis administration has tried to derail the Legislature’s probe.

“The terms of the Oracle contract and any attempts on behalf [of] the Davis administration to silence state-level inquiries into this matter are most troubling,” Cox said in a letter to acting U.S. Atty. John K. Vincent.

Cortez had a lead role in pushing for the deal in which Oracle proposed to license software for as many as 277,000 state employees and contended that it would save the state as much as $111 million, according to the state audit.

The audit said officials improperly relied on claims by Oracle and its partner in the venture, Logicon, that their software would save the state money. Further, the audit said, the state evidently was unaware Logicon stood to make more than $28 million on the deal.

A department spokesman said accusations of improper shredding were untrue and unfair to an agency that already has been demoralized by “negative” news reports of its role in the Oracle debacle. “I have been aware of no illicit shredding of any kind,” said Communications Director Kevin Terpstra. “In terms of shredding contracts or official records, I do not believe that has occurred and I have no knowledge of that occurring.”

The document shredding occurred as Department of Information Technology officials were preparing to testify before a legislative oversight committee Monday. Terpstra said department employees were preparing documents for the committee and “making sure everything was correct.”

Terpstra said the department owns 24 shredders that are used to destroy “nonessential” confidential documents it gets from other state agencies that are embarking on computer technology contracts. He said the department has an understanding with those agencies that after reviewing confidential drafts and reports it will shred them.

A department worker, speaking on the condition that she not be identified, said about 10 plainclothes officers with the Justice Department filed into the office on the 21st floor of the downtown high-rise at about noon. Others, including two Sacramento Police Department officers and two state police officers, arrived shortly thereafter. About 1 p.m., the worker said, bosses sent an e-mail telling employees to shut down their computer systems.

She said the contracts office had been working to prepare documents requested by the governor’s office and legislative committees. The contracts office was locked at 5 p.m. Wednesday, as it normally is, and the large shredder that sits in the hallway outside the contracts office was not used at all Thursday, she said.

Justice Department investigators took away some documents, she said, but even if anything was shredded Wednesday night, nothing would be lost because the contracts at the Information Technology office are all copies and the originals are kept at the Department of General Services.

“I’m a bureaucrat by profession,” said the Information Technology worker. “I understand policy. But this was totally unfounded.”

The Davis campaign committee reported receiving the Oracle check in June, two weeks after Oracle won the lucrative state software contract, which was awarded without competitive bidding. A source close to Davis’ campaign committee said the check was dated in March, but could not explain why it was received in June.

In his resignation letter to Davis, Baheti made no mention of the campaign donation. Rather, he said, “It is apparent in retrospect that I should have more vociferously raised questions about the details” of the deal with Oracle and Logicon, a subsidiary of Northrop Grumman.

“Today,” the letter continued, “there are people who would use me as a tool to attack you and the important work of the administration. I refuse to allow my service to you to become a distraction from the real work of government or to detract from your accomplishments. I cannot stay if my effectiveness for you has been compromised; the faith you placed in me deserves nothing less.”

Baheti, a lawyer, had been state director of e-government since September 2000.

He also had worked for Davis when the governor was lieutenant governor, and worked on Davis’ 1998 election campaign.

Baheti has told aides to Davis that when he took the check, he was not on government property, but was having dinner with a friend who is a lobbyist.

It is illegal to conduct such campaign activity in the Capitol.

Aides to Davis informed Lockyer about the transaction. Lockyer’s office is investigating circumstances involving the state contract with Oracle.

“The governor has had a policy of not allowing his state employees to be involved in our fund-raising in any way,” said Davis campaign strategist Garry South.

“It is not illegal for them to do, but it is his preference that they not do so,” South said.

South said that although the governor’s political aides were aware in June that Baheti had violated Davis’ policy by taking the check, the campaign decided against returning it.

“I have no way of knowing what Oracle’s motivation was,” South said of the timing. “The check came from a well-known California company and it didn’t violate any law.”

Oracle spokesman Jim Finn said he did not know why the check was dated in March. He said the person who gave the $25,000 check to Baheti was Ravi Mehta, a lobbyist hired by Oracle and also a former chairman of the Fair Political Practices Commission.

“Political contributions are entirely separate from any sale activities and always have been,” Finn said. “California is our home state and we have more than 10,000 employees in the state, so it is natural that we would want to contribute to the governor.”

Baheti is the second official to resign as a result of the Oracle deal. On Friday, Barry Keene quit as director of the state Department of General Services.

Times staff writer Virginia Ellis contributed to this report.