Federal probe focuses on Delgadillo’s wife

Federal authorities investigating Los Angeles City Atty. Rocky Delgadillo and his wife are seeking information about her consulting business and taxes, according to sources familiar with the inquiry.

Federal prosecutors and FBI agents have expressed interest in at least two firms that hired Michelle Delgadillo -- California Litho-Arts, a printing company based in Los Angeles, and Diane Castano-Sallee & Associates, according to sources familiar with the case who spoke on condition of anonymity because they were not authorized to discuss the ongoing investigation.

A separate source, who also spoke on condition of anonymity, said one area of federal interest is whether Delgadillo’s wife paid taxes on the income earned from her business.

The president of California Litho-Arts, Helen Mars, recently told The Times that her firm had received a subpoena.

California Litho-Arts had city contracts totaling $36,945 between 1993 and 2002, with the vast majority of those contracts expiring before Rocky Delgadillo became city attorney in 2001.

Castano-Sallee’s business has received more than $350,000 in contracts with the city attorney from 2001 to 2004. Two weeks ago, her husband told The Times that Castano-Sallee had not received a federal subpoena. Asked Tuesday whether his quote was still accurate, he said: “Don’t use that.”

Agents and prosecutors met with City Controller Laura Chick, who audits city departments and agencies, two weeks ago to talk about Delgadillo, Chick said Tuesday.

Delgadillo said that neither he nor his wife had been contacted by authorities or knew anything about an investigation, according to his spokesman, Nick Velasquez. Delgadillo knows of no allegation of wrongdoing and said he would cooperate with any inquiry, Velasquez said.

Last year, The Times reported Michelle Delgadillo’s home-based consulting business, C.R.D. Inc., had failed to file state tax returns and operated for years without a required city tax registration certificate. The state Franchise Tax Board suspended the business in 2005 for not filing returns.

Michelle Delgadillo also made headlines when The Times revealed that she had dented her husband’s city car while driving with a suspended license.

Velasquez says a “political agenda” lies behind any allegations made against Delgadillo, who is said to be interested in seeking statewide office when his term expires next year.

“Any allegation of wrongdoing is nothing more than garbage being shoveled by the city attorney’s political opponents hiding behind the cloak of anonymity,” Velasquez said in one such comment. “This is a classic political smear.”

For months, rumors had circulated at City Hall that Delgadillo was under investigation, that his e-mails had been seized and that he had hired a defense lawyer.

Speculation began percolating after FBI agents met with representatives of the Information Technology Agency, the city department that retains e-mails and other electronic records.

The Jan. 15 meeting focused on the city’s protocol for retaining electronic messages, said the department’s general manager, Randi Levin. As of Tuesday evening, a spokesman for Levin said her agency had received no written or oral requests from law enforcement for e-mails from Delgadillo or any other employee of the city attorney’s office.

In recent days, harder evidence began to surface.

Mars, who has been active in city politics for more than a decade, told The Times two weeks ago that her printing company had received a subpoena. Mars said she had not personally seen the legal writ, but she was told by a company official that it related to Delgadillo’s wife.

Then late Monday, the San Francisco Chronicle published a story reporting that FBI agents based in San Francisco had interviewed an unknown number of people about Delgadillo -- the first public emergence of the rumors.

During remarks at an unrelated news conference Tuesday, Chick became the first person to publicly say that she had been interviewed by agents and prosecutors who had questions about the city’s chief prosecutor. Chick refused to go into what had been asked two weeks ago. The meeting lasted 30 to 40 minutes and dealt with her attempt to conduct a performance audit of Delgadillo’s office, Chick said.

The proposed audit triggered the latest political feud between the two citywide elected officials. The controller said she did not initiate the meeting with the federal authorities.

Spokesmen for the FBI and the U.S. attorneys in San Francisco and Los Angeles have repeatedly declined to comment.

Although it is not publicly known why the case is being handled in San Francisco rather than Los Angeles, the mechanics of any Delgadillo probe would immediately be complicated by the fact that the city attorney has run, or has considered running, for other elected law enforcement posts in the city and beyond. Delgadillo seriously weighed a run against Los Angeles County Dist. Atty. Steve Cooley and lost a bid for state attorney general in 2006.

Because of those races, Cooley and Atty. Gen. Jerry Brown probably would stay away from a Delgadillo investigation to avoid the appearance of a political conflict of interest.

So would the U.S. attorney in Los Angeles, whose office works closely with Delgadillo on such issues as gang prosecutions.

The city attorney, like all elected city officials, is required by law to declare his wife’s income in annual financial disclosure statements.

Michelle Delgadillo’s business dealings came to light after her husband acknowledged last year that she had been involved in a parking garage accident that damaged a city car. Delgadillo also confirmed that office employees ran personal errands for him and served as baby-sitters for his two sons. But he said those services were provided on the employees’ own time.

“Everything was completely aboveboard,” Velasquez said.

C.R.D. applied for a city tax registration certificate last year, after Delgadillo was questioned by The Times, and a Franchise Tax Board spokesman said the state tax matters had been resolved although the business remains “suspended” from operating.

C.R.D. Inc. generated between $10,000 and $100,000 a year from 2002 to 2005, according to the financial disclosure forms that the city attorney is required to file under state law.

On such forms, an elected official must report only a general range of his spouse’s income. C.R.D. Inc.’s income in 2007 was listed as “0” on Delgadillo’s most recent filing.

In addition to California Litho-Arts and Diane Castano-Sallee & Associates, C.R.D.’s clients included Bali Construction, Crossroads Services Inc. and Luster National, according to disclosure documents and information provided by the city attorney’s aides.

Representatives for Bali Construction and Luster National said they had no knowledge of any federal inquiry. The owner of Crossroads Services Inc. indicated that she had been contacted by other media representatives and said: “Call my lawyer.”

Then she declined to provide her attorney’s name.

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phil.willon@latimes.com

david.zahniser@latimes.com

Contributing to this report were Times staff writers Scott Glover, Matt Lait, Jack Leonard and Robert Lopez.