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Lawsuit prompts Vernon to open secret report on former administrator

Nearly a decade ago, Vernon's city attorney launched a secret internal investigation into the small city's powerful administrator, Bruce V. Malkenhorst.

His 85-page report alleged that Malkenhorst used hundreds of thousands of dollars in public funds for expenses including massages and Christmas gifts for family and friends.

Within weeks of presenting his investigation to the City Council, the attorney was fired. And the city began a long legal battle to keep the report private, even refusing to give it to Los Angeles County prosecutors during a corruption investigation into Malkenhorst.

Now, Vernon and Malkenhorst find themselves as adversaries, and the city is dusting off the report.

Malkenhorst, 78, left the city in 2005 after prosecutors charged him with corruption. He was later convicted, but he walked away with California's largest pension: more than $500,000 a year. The state found that Malkenhorst obtained the pension improperly and slashed it. That prompted Malkenhorst to sue the city this summer, demanding that it make up the difference.

Since the suit was filed, Vernon officials have taken a new look at the secret report and begun a larger forensic accounting of Malkenhorst's compensation over the years.

"Malkenhorst's lawsuit has revived the issue of his contract and his pay, and we intend to take a hard look at all of it," said the current city attorney, Nicholas Rodriguez. "Malkenhorst should have no lasting legacy in Vernon and should become only an unpleasant footnote."

The new openness has intrigued prosecutors. They complained bitterly that Vernon withheld key information during the district attorney's investigation into Malkenhorst, who at the height of his power rode around in a limousine and regularly played 18 holes of golf on the city's dime.

Max Huntsman, a member of the district attorney's public corruption unit, said his staff was not allowed to call the author of the report, former City Atty. Eduardo Olivo, to testify because a judge ruled Olivo was bound by attorney-client privilege.

"They took all copies of that report and housed it off-site so there would be zero copies at City Hall," Huntsman said. "They wanted to bury it so no one could access it."

Not anymore.

The city is now fairly open about its investigation of Malkenhorst, providing The Times with a copy of the report as well as detailed records of his compensation.

One of the things the city noticed, Rodriguez said, was that Malkenhorst received additional payments on top of his base salary that significantly increased his total compensation. The extra payments added hundreds of thousands of dollars to his base annual pay. Rodriguez said the city has hired a forensic accountant, but so far officials say they can't find an explanation for the cash-outs.

Part of the reason is that there are no account codes that explain what the cash-outs are supposed to represent for at least three years. Records obtained by The Times show cash-outs were the equivalent of 940 hours of salary in 2004, 920 in 2003 and 880 in 2002. His hourly salary was about $250.

Malkenhorst could not be reached for comment. His attorney did not respond to several calls, messages and emailed questions. A reporter was rebuffed by a woman who answered the door at Malkenhorst's Spanish-style home in Huntington Beach.

Malkenhorst ultimately pleaded guilty to illegally using public money for golf outings, political contributions and other expenses in 2011. He got three years of probation and a fine of just under $100,000.

At the time, Malkenhorst's attorney said city leaders were well aware of his client's compensation and perks.

"The people who are running the city say, 'We like Bruce Malkenhorst. We want him to be able to get around in a limousine. We want him to use it for personal or business uses,'" the attorney, Bart H. Williams, said. "'We want to pay him a lot of money.'"

Indeed, Malkenhorst was famous for being California's highest paid public official. In 1989, The Times profiled him when he was earning $162,000, at the time a record.

"I always thought if I made this much money I'd be rich," he quipped.

John Kruissink, a consultant who became a Vernon historian, said Malkenhorst was the undisputed leader of Vernon, an industrial city with fewer than 100 residents.

"Bruce ran the city in the truest sense of the word," he said. "And everybody knew it."

But by 2002, Malkenhorst was coming under scrutiny. Reporters and a photographer from The Times followed him for more than half a dozen days chosen randomly. Although time sheets routinely showed Malkenhorst working between 40 and 52 hours a week, he sometimes kept a far more abbreviated schedule at City Hall.

Olivo said in an interview that questions and records requests by The Times in 2002 caused him to delve into his boss' expenses.

In the report, Olivo wrote that the city reimbursed Malkenhorst for golfing, including participation in the Bob Hope Classic. The report also alleged that the city reimbursed him for $21,000 in property taxes he paid on land he owned in Riverside, Orange and Los Angeles counties.

Olivo completed the report in early September 2004 and delivered it to the five council members. The second line of the report read: "The misappropriations analyzed in this report are large, but may only be the proverbial 'tip of the iceberg.'"

Mayor Leonis Malburg, the grandson of one of Vernon's founders, criticized the attorney, saying the report was "the work of a disgruntled employee." Malburg was convicted a few years later of voter fraud for lying about living in Vernon. He actually lived in a Hancock Park mansion.

The city fired Olivo and sued him for breach of contract.

Olivo was replaced as city attorney by Eric T. Fresch. In court transcripts from Malkenhorst's eventual prosecution, Olivo and other former Vernon employees allege that Fresch had records destroyed during this time.

Greg Tsujiuchi, a former assistant to the city administrator, told a district attorney's investigator about a particularly bizarre instance in which Fresch insisted that he burn magnetic tapes that were an important backup for original hard copies of city records.

Tsujiuchi said he took the tapes to one of Vernon's fire stations and had baffled firefighters set them ablaze. He regretted doing so and told Olivo, who told Tsujiuchi about the report. Not long afterward, Tsujiuchi resigned.

When Malkenhorst retired, Fresch replaced him as city administrator and as Vernon's highest public money-maker in one year, getting $1.65 million in 2008. Fresch died in an accident last year.

Rodriguez, the current city attorney, now finds himself covering some of the same ground Olivo investigated a decade ago.

But Rodriguez said some records are missing.

hector.becerra@latimes.com

ruben.vives@latimes.com

Times staff writers Robert Lopez and Rich Connell contributed to this report.

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