Inquiries Shaping Mayoral Campaign

Times Staff Writers

More than a year after federal and county officials launched a wide-ranging criminal investigation of contracts and campaign fundraising in Los Angeles, it remains to be seen whether any city official will be charged with wrongdoing.

But that hasn’t stopped the four main challengers trying to unseat Mayor James K. Hahn from making corruption allegations a centerpiece of their campaigns, accusing top mayoral fundraisers of creating a “pay-to-play” atmosphere in which those doing business with the city felt compelled to make campaign donations or risk losing their contracts.

The attacks, coupled with the investigation’s ongoing reverberations in City Hall, have taken a toll on the mayor, with more than a third of those likely to vote on March 8 saying they believe Hahn lacks the integrity and honesty to merit a second term, according to a recent Los Angeles Times poll.

Sources familiar with the investigations say that if indictments of Hahn appointees are to come, they are not likely to be issued before election day.


But since prosecutors made the investigation public a year ago by subpoenaing city government contracts and e-mail, they have called at least 16 current and former Hahn appointees and city employees before two grand juries, one county and one federal.

Numerous other subpoenas have also been issued, including one in August that took the probe deeper into Hahn’s office, with prosecutors asking for a wide array of e-mail sent to or from his office during his current term by the mayor and several top aides.

Hahn has said he knows of no wrongdoing but says that anyone who has broken the law should be punished. “So far, we have heard very few facts but lots of rumor and innuendo. It is my hope that this investigation comes to a speedy conclusion,” the mayor said in a written statement Friday.

Sources familiar with the probe say it is likely to be months, if not years, before the investigation is completed. But the ripple effect of the investigations -- which include a joint county-federal criminal probe along with fundraising inquiries by both the district attorney and the city’s Ethics Commission -- have guaranteed that the issue will remain central in the election.


Key developments during the last 18 months:

* Department of Water and Power Commissioner and former Airport Commissioner Leland Wong resigned from his position in January 2004 after a lobbyist for a major airport concessionaire told The Times that Wong had tried to pressure his client to steer business to the daughter of a Hahn fundraiser. Questions were also raised about Wong’s alleged use of the funds of his employer, Kaiser Permanente, for political purposes. Wong denies any wrongdoing.

* Deputy Mayor Troy Edwards resigned last March after testifying before a county grand jury. Prosecutors have subpoenaed contracts from the airport, the port and the city’s Department of Water and Power, agencies that were overseen by Edwards and that together administer more than $1 billion a year in city contracts. Edwards, who served as finance chairman of Hahn’s 2001 campaign before joining the mayor’s staff, said he resigned as deputy to pursue other interests. He has not been charged with a crime.

* A month after Edwards’ departure, Airport Commission President Ted Stein resigned. Days earlier, The Times had reported that, according to its sources, a firm doing business at the airport told federal prosecutors that Stein threatened to deny the firm future contracts after company officials declined to contribute $100,000 to a Hahn political committee. Stein denies having made such a statement.


* In June 2004, the district attorney charged attorney Pierce O’Donnell with having laundered $25,500 in donations to Hahn’s campaign by soliciting contributions from others and then reimbursing them, thereby masking the size of his donation and evading contribution limits. Hahn has denied knowledge of any illegal contributions. O’Donnell has not yet entered a plea, and his attorneys have challenged the legality of the case.

* Last month, federal prosecutors indicted John Stodder Jr., a former executive at the public relations firm of Fleishman-Hillard. The indictment accused Stodder of involvement in submitting at least $250,000 in phony bills to the city. Sources familiar with the ongoing investigation say it is now focusing on others in the firm, including Douglas R. Dowie, the former head of Fleishman’s Los Angeles office, who was a member of Hahn’s elite “executive committee” of fundraisers. Stodder pleaded not guilty to the charges, and Dowie’s attorney said Friday that his client has done nothing wrong and is looking forward to resolving the investigation.

* This month, the Ethics Commission imposed a record $270,000 fine against Westside developer Mark Alan Abrams for 48 violations of campaign law, including the arranging of illegal contributions to Hahn’s 2001 mayoral campaign. Abrams, who also was a member of Hahn’s executive committee of fundraisers, is under federal investigation of possible mortgage fraud, and the district attorney is reviewing the developer’s fundraising for possible criminal violations. Hahn denied knowledge of any illegal contributions. A Hahn campaign spokeswoman said Monday that the 2001 campaign account is closed and that the mayor does not plan to return the money raised by Abrams.

Airport Contracts


The probes first gathered momentum when alleged contracting irregularities at the airport caught the attention of City Controller Laura Chick in the summer of 2003.

An executive with URS Corp., an engineering and consulting firm with a major airport contract, told Chick’s auditors that Stein suggested to the firm that unless it made contributions to Hahn, it would lose its airport business, according to confidential reports reviewed by The Times.

In addition, the former executive director of the airport told Chick’s auditors that she believed a “pay-for-play” environment existed at LAX and that Stein was leading the effort, according to the records.

Stein’s resignation last April followed a Times report that URS executives told federal prosecutors they had lost their contract because they did not contribute $100,000 to Hahn’s campaign to quash secession efforts in the San Fernando Valley and Hollywood. Stein denied the allegations.


Stein wasn’t the only public official to resign in the wake of LAX contracting allegations.

Wong left the Water and Power Commission shortly before Clark Davis, a lobbyist who represented airport concessionaire W.H. Smith, was summoned before a county grand jury. Davis had earlier told The Times that Wong, then on the Airport Commission, tried to pressure him in 2002 to convince concessionaire W.H. Smith to award a lucrative contract to the daughter of another Hahn fundraiser, City Hall lobbyist Art M. Gastelum.

Wong has denied any wrongdoing, acknowledging only that he made a suggestion about a possible airport concession for Gastelum’s daughter without exerting any pressure. Gastelum raised money for both the 2002 anti-secession campaign and Hahn’s current reelection effort, records show.

Gastelum’s attorney, Don Steier, said that his client has done nothing wrong and is cooperating with authorities.


DWP Contracts

One central focus of the City Hall investigations has been the public relations firm of Fleishman-Hillard, which did work for several city agencies and had a $3-million-a-year contract with the DWP. Prosecutors allege that executives at the firm billed the city at least $250,000 for work it didn’t perform.

The contract, which was canceled last April, dates to the administration of former mayor Richard Riordan, when it appeared briefly that the monopoly water and power agency would have to compete for customers. It was renewed during Hahn’s tenure -- after the threat of competition subsided -- and appears to have benefited the mayor.

In 2002 and 2003, more than $400,000 of DWP money was spent under the contract on public relations that seemed to be primarily aimed at boosting the mayor’s image.


In addition to the firm’s $35,000 in contributions to Hahn’s anti-secession campaign, Dowie, then Fleishman senior vice president, hosted a luncheon attended by Fleishman-Hillard executives and their clients. The 90-minute event netted Hahn nearly $10,000 from Fleishman employees for his current mayoral campaign, records and interviews show.

Among the donors was Stodder, the former Fleishman partner and senior vice president who has since been indicted on wire fraud charges for his alleged participation in the false billing scheme.

Both Dowie and Stodder were ousted by the firm.

Port of L.A. Contracts


Some of the most intense investigative activity since the probe began more than a year ago has been at the city’s sprawling port.

High-ranking officials, including the port’s executive director and at least three members of the harbor commission, have been called before grand juries.

From the mayor’s office, Hahn’s port policy analyst also has been called to testify.

As with the airport and the DWP, the probe at the port appears to be focused in part on whether Hahn appointees improperly interfered in the awarding of contracts. For example, in April the city was ordered to turn over notes of three closed-door contract meetings in 2003, one of which involved Hahn’s chief of staff, Tim McOsker.


McOsker had joined the meeting with port commissioners without a city legal advisor, who would normally be present. The discussions involved a lease transaction in which the mayor’s office had taken an interest, according to a Hahn spokesman. Deputy Mayor Doane Liu, who also appeared before a grand jury, said that nothing improper occurred, that the mayor’s office simply had an interest in building a relationship with Evergreen Marine Corp., part of a conglomerate that had agreed to move some cargo operations to the city-owned Ontario International Airport.

At the time, the port department was leaning toward another firm, which remains the leading candidate for the waterfront lease sought by Evergreen.

In 2001, Evergreen had hired Wong as a consultant. Before he served on Hahn’s airport and DWP commissions, Wong was a commissioner under Riordan.

As the investigations were gathering momentum, federal authorities subpoenaed nearly three years of City Hall e-mail for Hahn, McOsker and several other deputy mayors and aides. To comply with the order, the city has reconstructed hundreds of megabytes of internal and external e-mail, calendar entries and items discarded in computer trash bins, records show.


Even if illegal conduct by Hahn appointees occurred, federal and county prosecutors may face a formidable task proving it.

The last federal corruption probe at City Hall lasted more than three years before a deal was struck with former Councilman Richard Alatorre, who pleaded guilty to failing to declare tens of thousands of dollars in income from people seeking his influence.

Like the Alatorre probe, the current investigation -- a little more than a year old -- appears largely to be a “historic case,” meaning prosecutors must reconstruct actions by officials. To do that, authorities need to develop inside witnesses and corroborate their stories by poring over voluminous records gathered from the mayor’s office, city agencies and other sources, such as banks and phone companies.

“Without a smoking gun that lays out in clear terms a quid pro quo, building a historical case is extremely difficult,” said Jonathan Shapiro, a former federal prosecutor. That is why authorities usually prefer to rely on evidence from tape recorded conversations of targets, he said, “so there can be no doubts what their motivations were.”


Times staff writer Deborah Schoch contributed to this article.