State Probes Donations to Shelley

The California attorney general’s office is investigating allegations that a San Francisco nonprofit organization illegally channeled more than $100,000 in contributions to the 2002 campaign of Secretary of State Kevin Shelley, officials said Monday.

The investigation was launched at Shelley’s request after the San Francisco Chronicle reported Sunday that the nonprofit had received a $500,000 grant with his assistance to build a community center. But the nonprofit appears to have channeled $108,000 of the grant to people and companies that contributed identical amounts to Shelley’s campaign shortly thereafter.

The community center has not been built, and an audit launched in late June by the state controller’s office has so far failed to identify any legitimate use of the money. The group -- the San Francisco Neighbors Resource Center -- is headed by Julie Lee, a prominent Chinese community fundraiser whose son, Andrew, was hired by Shelley after he won his bid for office.

Julie Lee said Monday that she had been advised not to comment. She referred calls to her lawyer, who was unavailable.

Shelley said in a statement Sunday that until the Chronicle contacted his office, he “had no knowledge of any impropriety about the contributions in question to my campaign. I hold myself to a very high standard and I hold my contributors to that same high standard. I will not accept contributions that are illegal, inappropriate or tainted.... Never have, never will.”

Shelley also faxed a written request to Atty. Gen. Bill Lockyer asking that an investigation begin “immediately” and notifying Lockyer that the questionable funds would be placed in a separate account pending the outcome. He sent a similar request to the California Fair Political Practices Commission, which was reviewing it Monday, a spokesman there said.

Julie Lee is a Hong Kong native who grabbed the attention of politicians seven years ago when her neighborhood group gathered 30,000 signatures in three weeks to press for reconstruction of an earthquake-damaged freeway. While the group soon fractured, Lee became a powerful Chinese community fundraiser for local and state officials, including most recently Mayor Gavin Newsom. Former Mayor Willie Brown appointed her to the Housing Authority Commission, where she is now president.

As Assembly majority leader, Shelley helped secure a line item in the 2000-01 state budget authorizing the state Parks and Recreation Department to provide Lee’s group with the grant. The group received the money in May 2001. Between September 2001 and October 2002, it cut $108,000 in checks to two individuals and two companies, listing the purpose as “project management,” “consultant services” and “development fees,” according to the Chronicle investigation.

Within weeks, each recipient made contributions of identical amounts to Shelley’s campaign.

Rick Chivaro, general counsel for State Controller Steve Westly, said his office began an audit of the grant in late June in response to Chronicle inquiries. Auditors have confirmed that Lee’s group received the money and cut the checks, but Lee has so far failed to produce requested invoices documenting how that money was spent, Chivaro said.

“Some of those individuals were listed as project managers but there doesn’t seem to be a project,” Chivaro said, adding that if Lee’s group does not produce documentation by week’s end, “we are required by law to take that money back.” About $300,000 remains in the account.

Shelley spokeswoman Lauren Hersh said Monday that the project was one of 12 Shelley had proposed that year and that it “went through the proper vetting” by legislators.

“It looked like a worthwhile project,” she said. “The secretary of state is very disappointed that the oversight was not provided by the state Department of Parks and [Recreation].... Does Mr. Shelley wish he had checked in on the project? You betcha. But was he responsible to do so? No.”