California launches probe into Bell’s handling of bond issues

The state Department of Corporations has launched an investigation into the way Bell handled bond issues over the last decade, marking the sixth outside probe into the troubled city’s finances.

The agency’s investigation comes two weeks after the SEC announced that it was looking into allegations that bond money was misused by former City Administrator Robert Rizzo and others. But unlike the SEC, the Department of Corporations could turn over its findings to Los Angeles County prosecutors if it finds evidence of criminal activity.

The department issued the city a subpoena Monday, asking for documents pertaining to its bond sales, Mark Leyes, a spokesman for the agency, confirmed Thursday.

The investigation marks the first time in memory that the department has opened an investigation into municipal bond sales without having first received a complaint, Leyes said.

The small city southeast of downtown Los Angeles has been battered by scandal since The Times in July reported the outsized salaries of city administrators and part-time council members.

Los Angeles County Dist. Atty. Steve Cooley filed a sweeping public corruption case that alleges that city leaders misappropriated more than $5 million from the city treasury — “corruption on steroids,” Cooley said then.

Eight officials, including Rizzo, Mayor Oscar Hernandez and five current or former council members have been charged with felony corruption-related charges. The City Council has not met since all but one member was jailed.

In addition to the criminal charges, state Atty. Gen. Jerry Brown has filed suit against former Police Chief Randy Adams, Rizzo, Hernandez and five others alleging that they schemed to enrich themselves by inflating their salaries and pensions and attempted to conceal their compensation. The suit asks for hundreds of thousands of dollars in refunds from the city leaders.

The city, which also has been ordered to refund property taxes that the state alleges it illegally collected from residents, is in precarious financial shape and Brown’s office has asked the courts to appoint a monitor to oversee the city and its treasury.

The U.S. attorney’s office is investigating possible civil rights violations and the state controller’s office is examining the city’s lack of fiscal oversight.

The latest probe is aimed at determining whether the city misused the money from the bond sales, some of which was supposed to help build a sports complex. The sports facility has never been built.

Leyes said the agency also wants to determine whether the city made “material misrepresentations or omissions” regarding the city’s financial health because of the inflated salaries and the “improper business and property taxes levied on residents of the city,” Leyes said.

In another sign of the growing distress in Bell, members of the city’s police union Thursday demanded a deeper investigation into their own department.

Officers said they want the district attorney to investigate whether their former chief quashed an investigation into wrongdoing at City Hall. Police officers also asked for the suspension of Lt. Ty Henshaw and a probe of his role in possible voter fraud.

The police union and the city have shared a shaky relationship since Rizzo last year began exploring dismantling the police force and forming a regional police department to patrol several southeast county cities. Pushed by Rizzo and Adams, who began working for the city in July 2009, the plan would have required police officers to reapply for their jobs.

Henshaw backed the proposal and used it to threaten colleagues whom he accused of leaking information to the media, Bell police officers said.

The police union said it was calling for Henshaw’s suspension after learning of a 2009 e-mail in which Rizzo asked that the lieutenant’s salary be boosted to $10,500 a month and that the city pay his deferred compensation.

“I know this is going way over the line, but Ty has been the only one in the PD who has fully worked with us and I completely trust,” Rizzo wrote.

Richard Shinee, an attorney for the police managers’ association, said Henshaw’s salary was not out of the ordinary for a lieutenant in Los Angeles County and that the raise came when the 39-year-old had not received a pay increase in several years.

Thomas O’Brien, Adams’ attorney, said that the union complaints are unfounded and that Adams “had no say over what the FBI or the D.A. chose to investigate in Bell.”

Although Adams left the department shortly after his $457,000 salary was revealed, his attorney said the former chief never resigned and was essentially locked out.

corina.knoll@latimes.com

jeff.gottlieb@latimes.com

Times staff writer Richard Winton contributed to this report