Novel Cooperation Used in Ethics Inquiry

When Los Angeles County Dist. Atty. Steve Cooley accused 14 people of conspiring to violate Los Angeles’ campaign finance laws, he launched a rare criminal prosecution in a city that usually tackles fundraising violations by imposing a fine.

Enforcing campaign laws is generally left to the Los Angeles Ethics Commission, a reform agency created by voters in 1990 following a political scandal. In its 13 years, the panel has assessed about $1.37 million in penalties. During the same period, the district attorney’s office has prosecuted only one money laundering case involving Los Angeles City Hall.

But in the current investigation, the two agencies worked together closely to collect evidence against an executive of Casden Properties, a major Southern California real estate developer, and a number of the company’s subcontractors. The investigation began about a year ago, when the district attorney’s office received a complaint about the developer and passed the tip on to the Ethics Commission.

“We’d never done a money laundering case before, so we referred it to them because they had the expertise,” said Dave Demerjian, the prosecutor in charge of the district attorney’s public integrity division. “They got the ball rolling.”

Last week, the Los Angeles County Grand Jury returned indictments in the case, charging John Archibald, vice president of Casden Properties, and 13 of the firm’s subcontractors with conspiring to illegally funnel more than $200,000 in campaign contributions to four candidates for city offices. All have pleaded not guilty.

The commission lacks the authority to file criminal charges and rarely refers cases to prosecutors. Cooley said in an interview that most cases are best handled as administrative matters, but that the Casden case differed from ordinary ethics investigations because of “the way it was executed, the sophistication and the attitude.”

“It rose to the level, we felt, where criminal prosecution was warranted,” Cooley said.

Several defendants in the case have told The Times that they did not understand that their actions had constituted a crime.

“In the back of my mind, I knew I was doing something wrong,” said Gerald Lundgren, a painting contractor indicted in the case. “But I thought it was like spitting on the sidewalk.”

At worst, termite-control contractor Larry J. Higgins told the grand jury, he thought the Ethics Commission might impose a fine. Grand jury transcripts and interviews with several of those indicted suggest that the panel is viewed as a feeble body unlikely to do more than “slap your hand,” as Higgins said Archibald told him.

A Times review of the Ethics Commission’s fines shows that most have been small penalties levied against donors who contributed more money than allowed to various political campaigns. Over the last decade, the commission has imposed fines in 10 money laundering cases, compared with 86 cases against donors who gave excess contributions. It has occasionally levied other fines for misuse of officeholder accounts, failure to report independent expenditures and other infractions.

“The Ethics Commission in Los Angeles has been a relatively toothless tiger,” said Assemblyman Keith Richman (R-Northridge), a leading advocate for ethics reforms. “The district attorney has stepped in to fill a void and send the message to the city of Los Angeles that business and politics as usual is not OK.”

Other observers say the panel has worked as intended, using public rebukes and fines to deter campaign law violations. But even its executive director says the agency is increasingly ill-equipped to police elections in which candidates raise and spend record amounts of money.

The panel was created as part of a 1990 reform package touted as the strictest, most comprehensive ethics law in the country. Voters approved the measure after a scandal involving Mayor Tom Bradley’s personal finances and charges of rampant cronyism at City Hall.

The ethics package banned gifts, outside income and speaking fees for public officials and strengthened public disclosure rules for lobbyists, candidates and officeholders. It also set up a system of public financing for elections, meant to limit the influence of big-money special interests.

In recent years, the Ethics Commission has grown more aggressive in punishing the elected officials who accept excess contributions. The city’s campaign finance laws limit contributions to $1,000 per person for citywide contests and $500 per person for council races.

Last year, the commission hit Council President Alex Padilla with a record $79,321 fine for taking two contributions that topped the $500 cap and breaking city spending limits in his 1999 campaign. And in September, the commission fined Mayor James K. Hahn $53,523 for accepting excess contributions and other ethics violations in his 2001 race.

Both men paid the fines with fresh donations from lobbyists, contractors and others, raising doubts about the sting of the penalties.

The Casden investigation, by contrast, deals with money laundering, which hides the true source of large campaign contributions from the public. The contractors are accused of collecting contributions from employees and relatives and then paying them back to conceal the money’s origin.

Taken individually, such conduct is a misdemeanor offense. What makes it a felony is the alleged conspiracy with Archibald to launder the political cash.

The Ethics Commission tends to impose harsher penalties for money laundering than for other violations; its 10 cases yielded $915,300 in fines -- more than two-thirds of all the penalties ever levied by the commission.

Among those punished were Evergreen America Corp., a large shipping firm, which paid the city $447,500 in 1993. Last year, the Ethics Commission fined toy maker Mattel Inc. and two company representatives a combined $236,000 in another money laundering case.

The Mattel case has also been referred to the district attorney’s office, which could file criminal charges, Demerjian said.

In the city’s last criminal money laundering case, in 1996, former Councilman Arthur Snyder pleaded guilty to misdemeanor conspiracy and money laundering charges in a case similar to the Casden investigation. The district attorney’s office -- then led by Gil Garcetti, who now heads the Ethics Commission -- negotiated a plea agreement just days before Snyder’s felony conspiracy trial was to start.

As one of five ethics commissioners, Garcetti has complained that the panel’s staff takes too long to conduct mandatory audits of campaigns, a vital tool in exposing illegal fundraising schemes. He said he is so concerned about the agency’s effectiveness that he has launched a review that could lead to a restructuring plan.

“What is the purpose of the Ethics Commission?” Garcetti said. “Is its purpose to slap people on the wrist and embarrass people for legitimate mistakes, unintentional mistakes, or are there larger issues?”

The public might be better served, he suggested, by a panel that focused on rooting out corruption and educating people on how to avoid breaking the law.

Others say the commission simply does not have enough workers for the job. In the city’s 1993 election, the commission assigned seven auditors to review 75 campaign committees that raised $23.3 million in contributions.

But as candidates collected ever higher amounts of cash, the number of auditors monitoring their spending shrank. The Ethics Commission now has only five auditors reviewing 81 campaign committees that raised $41 million in contributions for the 2001 election, or 76% more than was raised in 1993, according to a recent report by the commission staff. Less than half the audits have been completed.

“We have a large mandate and a very small staff,” said LeeAnn Pelham, the commission’s executive director. The money spent on campaigns “has grown exponentially and the work we do has grown with it. But our staffing levels have not kept pace.”

Padilla, the City Council president, said he would consider requests for more resources for the Ethics Commission. “If that’s part of achieving a shorter timeline for completion of audits,” he said, “that would be very appropriate.”