Ex-Huntington Beach Mayor Pleads Guilty

Former Huntington Beach Mayor Pam Julien Houchen and two others pleaded guilty to federal fraud charges Thursday, admitting that they profited from selling illegally converted condominiums in the city.

Appearing calm and politely answering “guilty” to each charge, Houchen formally entered her plea in the Santa Ana courtroom of U.S. District Judge David O. Carter. She is the second Surf City mayor in the last four years to admit guilt in a criminal case.

Huntington Beach Councilman Dave Sullivan, once one of Houchen’s colleagues, called it a “sad day” for the city and the former mayor.

“Unfortunately, she’s reaping what she sowed,” he said

Although Houchen could face up to 40 years in prison and a $2-million fine, federal prosecutors have suggested a more likely sentence of four to five years in prison if she testifies against the defendants who have not entered guilty pleas. The judge will have the discretion to sentence Houchen -- the mother of 3-year-old triplets -- to anything from probation to the maximum.

Some of the defrauded condominium owners say she and the others deserve years behind bars.

“They’ve put us all through so much stress without thinking about what they were doing to us,” said Jason Austin, 35, a family therapist who bought a converted three-bedroom condo in 2003. “It’s sad that because of her greed she’s going to be taken away from her kids.”

Houchen, 48, notary Tom Bagshaw and investor Michael Cherney had been scheduled to stand trial in October on charges of wire and mail fraud.

They will be sentenced Feb. 6.

Alleged mastermind Phil Benson of Pier Realty and Harvey DuBose of Stewart Title, who also signed plea agreements, will probably enter their formal pleas next Thursday.

“She’s very sorry she was ever involved in this,” John Barnett, Houchen’s attorney, said outside court. “Today she accepted responsibility for her conduct.”

Houchen, along with Bagshaw, Cherney and their attorneys, declined to comment.

The remaining defendants, investors Howard Richey and Jeffrey Crandall and alleged straw-buyer Michael McDonnell, have pleaded not guilty and are scheduled for trial Oct. 4. According to the other defendants’ plea agreements, they will have to testify if called in the trial.

According to the agreement:

* Houchen admitted to eight counts of mail and wire fraud in connection with converting two apartment complexes into eight condominiums that she sold for a total of $1.74 million.

* Bagshaw admitted to two counts of wire fraud. He could face up to 10 years in prison, restitution and a $500,000 fine.

* Cherney admitted making a false statement to federal investigators, which carries a maximum sentence of five years in prison and a $250,000 fine.

* Benson admitted to 24 counts of mail and wire fraud. He could face 240 years in prison and $6 million in fines.

* DuBose, charged with forging documents to ensure the transactions, admitted to 20 counts of mail and wire fraud. He could face 220 years in prison, $5 million in fines and restitution.

Prosecutors will probably recommend reduced sentences for the defendants who signed plea agreements.

Benson devised the scheme to convert as many as 15 apartment buildings in Huntington Beach into condos by falsifying documents, according to the agreement. He sold more than 40 units for $11 million while working with Houchen, a real estate agent, at Pier Realty.

The conversions violated a 1984 city law that required apartment owners to modify the properties and pay a $7,000 conversion fee before the units could be individually sold. Scores of owners faced $20,000 in city fees, although title companies that insured the sales later agreed to pay those bills as part of a settlement with the city.

A federal grand jury indicted the eight defendants in December, after an investigation that started when city inspectors discovered electrical and plumbing code violations in one couple’s condo and condemned their home. The couple, Scott and Renee Tarnow, then discovered their home wasn’t legally a condo. Another owner filed a similar complaint six months later, and Huntington Beach police started an investigation.

The Tarnows won a $450,000 judgment in civil court last November after they sued Benson, their broker.

Houchen resigned from the City Council soon after the investigation was launched.

The news of Houchen’s role in the scheme touched nerves still raw from past City Hall scandals.

In January 2002, former Mayor Dave Garofalo pleaded guilty to a felony and 15 misdemeanors for voting on matters benefiting companies that bought advertising from his publishing business. He was sentenced to community service and probation.

Keith Bohr resigned from the Planning Commission in 2003 after city workers complained that he had asked them to assist some of his real estate clients and a contributor to his unsuccessful bid for a council seat. He insisted he violated no laws.

In 2003, Houchen denied engaging in favoritism after her husband, a contractor, was hired to do remodeling work for the promoter of a paintball event that Houchen voted to allow to be held on the beach.

One Huntington Beach official said she didn’t think Houchen’s actions reflected badly on the entire city.

Councilwoman Debbie Cook said she was “deeply saddened” for Houchen and her family. “It’s a reflection on human nature, not a reflection on the city,” she said. “It’s a tragedy no matter how you slice it.”

Cook and other council members said they felt sorry for Houchen and her family, particularly her young children.

For Austin, the buyer of the converted three-bedroom unit, the episode left a bad taste in his mouth. He sold the condo last spring after it became legal and moved to Fountain Valley.

“I didn’t want to live in that city anymore,” he said. “This whole thing is just sickening. Even with her guilty plea, she’s just greedy, greedy, greedy to the end, always trying to make things easier on her.”

Times staff writer David Haldane contributed to this report.