Settlement Clamps the Lid on South Gate Waste Hauler
By all outside appearances, waste hauler Klistoff & Sons Inc. benefited from a fair and open bidding process four years ago when it was awarded a contract from the city of South Gate that could pay more than $90 million over 15 years.
And the city’s decision seemed to have been justified last year when a survey of residents ranked waste collection as South Gate’s top-rated service -- above public safety, street maintenance and parks.
Then a federal indictment was leveled against former city Treasurer Albert Robles, New Jersey consultant Edward T. Espinoza and Michael Klistoff Jr., the company’s vice president. Prosecutors alleged a web of bribery and political rigging in the awarding of the contract.
Klistoff pleaded guilty in late March to paying tens of thousands of dollars to Robles through campaign contributions and other gifts in exchange for his help in winning the right to pick up trash and recyclables for the city in southeast Los Angeles County.
This week, Klistoff & Sons agreed to pay South Gate $8.5 million. But the settlement spells the end for the company.
The hauler will sell its assets to Waste Management, the company the city said should have won the bid four years ago.
“This is a substantial penalty that is being paid by a company that was caught up in the previous administration’s shenanigans,” said City Manager Gary Milliman. “This is a 50-year-old company that is going out of business as a result of this.”
Klistoff is the only company official to be accused of wrongdoing. Klistoff’s father, company founder Mike Klistoff Sr., said in a statement that it’s hard to give up the business he helped build.
“While we obviously feel a lot of pain over the sale of our family business after more than 50 trouble-free and prosperous years,” he said, “we take comfort in knowing that the great service we’ve given to the deserving people of South Gate will continue to be provided by
The settlement marks the latest victory for South Gate in its effort to recoup losses officials said the city endured during the administration of Robles and his allies. Federal prosecutors allege that corruption connected to Robles cost the city $12 million -- a large amount for a relatively small municipality with an annual operating budget of $28 million.
Over the last few months, the city has received more than $3.5 million from several prominent law firms that did work for South Gate during Robles’ years as treasurer. The city accused some of those firms of overbilling. The federal charges accuse Robles of enriching himself, friends and family through a series of questionable city contracts and money skimming. He has pleaded not guilty.
City leaders hope the settlements will help ease South Gate’s financial problems, which include a $6-million operating deficit.
The problems with the waste hauling contract first surfaced in November after Robles, the younger Klistoff and Espinoza were indicted on federal charges that included bribery, mail fraud and money laundering.
According to federal prosecutors, the scheme took shape in 2000, when a friend of Robles’, George Garrido, introduced Klistoff to the treasurer.
The indictment alleges that Klistoff made several payouts to Robles in anticipation of receiving the waste contract, including $10,000 in February 2001 to Citizens for Good Government, a committee created by Robles to collect campaign contributions for himself and his political allies.
Klistoff also paid $2,878 to reimburse Robles for the purchase of a computer and software from Fry’s Electronics and $6,768 to SunDial Technologies to help the former treasurer pay for a telephone switching system, according to federal records.
Robles and Garrido in turn helped Klistoff get his company an edge during the bidding process, prosecutors claim.
Robles allegedly “showed defendant ... bids that other companies had submitted for the South Gate refuse collection and recycling contract,” according to the indictment.
Authorities said that two months after the bidding process began, Robles installed an unnamed consultant with the initials “L.M.” to be in charge of the committee evaluating bids.
“Robles told L.M. that he wanted the city to award the refuse collection and recycling contract to Klistoff & Sons,” according to the indictment.
Robles allegedly told L.M. to “find a consultant that Klistoff & Sons could hire to assist” in “preparing for Klistoff & Sons’ oral presentation to the search committee.”
Robles allegedly had another person provide Klistoff with a list of confidential questions the search committee would ask during the oral presentation, officials said.
On Aug. 20, 2001 -- the day of the oral presentation -- the search committee recommended the City Council give the contract to Klistoff & Sons. A month later, the council voted to award the pact to the company.
Klistoff subsequently gave Garrido five checks totaling $437,500 between April 11, 2002, and May 2003, according to a copy of the plea agreement between Klistoff and federal prosecutors.
Garrido was indicted in March on charges that he illegally received a large consulting contract from Klistoff in exchange for the awarding of the waste contract. He has pleaded not guilty.
After the indictment was issued in November, city officials threatened to sue Klistoff & Sons Inc. unless its contract was terminated and it paid South Gate for damages.
City Attorney Raul Salinas said the city could have filed a lawsuit seeking more money, but weighed that against a potentially costly and protracted trial.
Meanwhile, the federal trial against Robles and Garrido is scheduled for July 12. Espinoza, the New Jersey consultant, and Klistoff have agreed to testify against Robles as part of plea agreements.
Klistoff is scheduled to be sentenced Oct. 31, said U.S. attorney spokesman Thom Mrozek.
Officials from Waste Management, which served the city from 1992 to 2001, said they were glad to be finally getting a contract they thought they had won. They expect the acquisition to be completed by June.
“We were the lowest-priced option for the city when they initially went out to bid in 2001,” said Susan Moulton, a company official.