Friday, October 21, 2011

The California Attorney General’s Office’s filing of charges against Third District San Bernardino County supervisor Neil Derry six months ago has opened up a can of legal and political worms that is likely to complicate the future political landscape for not only Attorney General Kamala Harris, but San Bernardino County District Attorney Mike Ramos and at least two of Derry’s colleagues on the board of supervisors.

At issue is the discrepancy in the standard applied toward Derry and supervisors Brad Mitzelfelt and Janice Rutherford, who, like Derry, solicited political campaign contributions from individuals or companies reluctant to be identified as donors who then provided money through a third party to launder the political money. While Derry was prosecuted for having gotten caught up in this circumstance, Mitzelfelt and Rutherford so far have avoided being criminally charged. Nevertheless, the apparent double standard being applied to them by state and local prosecutors and the publicity attending this disparity has come to be widely perceived as a matter of political favoritism and selective prosecution that implicates all involved in the corruption that in recent years has become synonymous with San Bernardino County governance.

This spring, San Bernardino County District Attorney Mike Ramos detailed one of his office’s investigators, Hollis Randles, to look into the circumstances pertaining to a $5,000 donation to Derry’s successful 2008 election campaign for supervisor that originated with Arnold Stubblefield, the owner and developer of the Highland Town Shop. Randles interviewed Derry, Stubblefield and several others involved in or knowledgeable about Derry’s receipt of that money. The district attorney’s office did not file a case against Derry and instead turned the matter over to the California attorney general’s office.

According to a report Randles passed along to Shannon Williams, a special agent with the California Department of Justice’s bureau of investigation and intelligence who doubles as an investigator for the California attorney general’s office, Stubblefield told investigators that on May 31, 2007, he wrote a check on a business account of Highland Town Shops for $5,000 payable to the Inland Empire Political Action Committee, a political action committee (PAC) controlled by then-county assessor and former chairman of the board of supervisors, Bill Postmus. Stubblefield indicated it was his actual intent to make a contribution to Derry’s campaign but that he was reluctant to do so directly because at that time the incumbent Third District supervisor was Dennis Hansberger, whom Derry was challenging. Stubblefield said he understood that by providing the check to Postmus’ PAC, the money would be passed along to Derry. According to Randles, Stubblefield did not recall who told him to make the check payable to the Inland Empire PAC and he did not know that it was Postmus who controlled the Inland Empire PAC, but he remembered either mailing or handing the check to Derry.

The Sentinel has learned that at least some of the communication between Derry and Stubblefield did not occur directly but was relayed though Tom Parrish, the business manager at Highland Town Shop.

According to an affidavit by Williams completed at the behest of the state attorney general’s office, when Derry was interviewed about the matter, he told Randles “that he contacted Stubblefield during the campaign seeking a contribution. Derry related that Stubblefield told him that for ‘political reasons’ he did not want to show up on campaign reports as supporting Derry, and asked if there was a PAC he could donate to (which was supporting Derry). Derry said he told Stubblefield it was his understanding the Inland Empire PAC was ‘probably’ going to support his campaign. Derry did not remember how he received the Stubblefield check. However, Derry admitted he gave the check to Postmus, who he knew controlled the Inland Empire PAC. Derry admitted his campaign later received contributions from the Inland Empire PAC. Derry admitted that it was ‘understood’ that the Stubblefield funds were to support his campaign.”

Further, according to Williams’ affidavit, “In June, 2007, Derry was at a lunch meeting at a San Bernardino Coco’s restaurant, with Jim Erwin, Mike Richman, Bill Postmus, and Postmus’ associates Dino DeFazio and Adam Aleman.” Erwin was a former sheriff’s deputy union president who had worked with Postmus on his political campaigns and had been hired by him as one of two assistant assessors and was also managing Derry’s campaign and would subsequently be hired as his chief of staff upon Derry’s election as supervisor. Richman was a political consultant. DeFazio was one of Postmus’ business partners on real estate ventures. Aleman had been a member of Postmus’ staff when he was supervisor, his campaign manager when he ran for assessor and was, like Erwin, hired by Postmus as one of his assistant assessors. According to Williams, “Richman, Aleman and Postmus told investigators that on that occasion Derry gave Postmus a number of checks made out to the Inland Empire PAC, including the Stubblefield-Highland Town Shop check for $5,000.

Postmus indicated he believed Derry provided checks totaling $10,000. Postmus did not recall the names of the donors for the additional $5,000. Postmus told investigators that at the behest of Jim Erwin, who was working on Derry’s campaign, he agreed with Erwin and Derry to ‘launder’ $5,000 of contributions intended for Derry’s campaign through the Inland Empire PAC. Postmus understood that Derry did not want to receive (and be required to report) these contributions directly to his campaign, and so Postmus agreed with Derry to accept the contributions into the Inland Empire PAC and then to pay out that amount to Derry’s campaign. Political Reform Act (PRA) reports and bank records of the Inland Empire PAC reflect that on June 25, 2007, the PAC deposited into its account the May 31, 2007, $5,000 Stubblefield-Highland Town Shops check. E-mails reflect that Postmus directed the Inland Empire PAC treasurer to draft a check in the amount of $10,000 to Derry’s campaign on June 28, 2007. Bank records and the Inland Empire PAC PRA reports reflect that the PAC issued a check (#1011) in that amount to Derry’s campaign on June 29, 2007. Bank records reflect that the check (#1011) was deposited into the Derry campaign account on July 11, 2007.”

According to Williams, Derry completed and compounded the crime of political money laundering by completing and filing a campaign finance disclosure statement that omitted that Stubblefield was the origin of the money brought into his campaign through Postmus’s political action committee.

“On July 25, 2007, Derry signed a recipient committee campaign statement (Gov, Code, §§ 84200-84216.5) Fair Political Practices Commission (“FPPC”) Form 460 under penalty of perjury,” Williams wrote. “On July 31, 2007, the report was filed with the San Bernardino County registrar of voters. The report reflected that the campaign received $10,000 from the Inland Empire PAC on June 30, 2007. The report failed to reflect that the campaign received any amount from Stubblefield-Highland Town Shops.”

In April of this year, the California Attorney General’s office filed three charges against Derry, which consisted of one felony count of perjury, a second felony count of filing a false report and a misdemeanor violation of failure to report a campaign contribution. Conviction of either or both felony counts would have resulted in Derry’s removal from office.

In July, Derry, under an agreement with prosecutors accepted by the court, entered a single guilty plea to one misdemeanor count of failing to report a campaign contribution. The two felony charges were dismissed. Derry was ordered to pay a total of $10,000 in fines and fees to the Fair Political Practices Commission and the court. He was given three years probation and permitted to remain in elected office with no restriction on his ability to run for reelection.

Derry’s very public ordeal instigated wider and critical scrutiny of the fundraising efforts of other local politicians, in particular, other members of the board of supervisors. Looming into focus of a sudden was Brad Mitzelfelt’s receipt of money from Young Homes, a major developer in San Bernardino County.

In the run up to the 2008 election, Young Homes would provide Mitzelfelt with a whopping $110,000, of which $50,000 was laundered.

Campaign finance disclosure documents show that Young Homes provided Mitzelfelt with $60,000 used toward his 2008 reelection campaign. But the company also provided him with another $50,000 through entities that were set up by Young Homes vice president Reggie King. Those entities appear to have existed for no other purpose but to obscure the true source of the money given to Mitzelfelt.

Mitzelfelt held the power of incumbency in that he had been appointed to fill out the two years remaining on the supervisorial term of Postmus, who had resigned the First District post in January 2007 to become assessor. On December 17, 2007, Mitzelfelt received $60,000 from Young Homes for his electioneering effort in 2008.

On December 31, 2007, Rancho Cucamonga-based Neoteric Entertainment, Inc. cut a $40,000 check to Mitzelfelt’s campaign. On the same day, Avenal Finance, LLC, also based in Rancho Cucamonga, gave him $10,000.

Neoteric Entertainment was not transacting business in Rancho Cucamonga and did not have a business license. Avenal Finance, which ostensibly existed to arrange loans for the purchasers of housing sold by Young Homes, did obtain a Rancho Cucamonga business license.

The California Secretary of State’s business portal shows that Neoteric was incorporated in Nevada. Listed as agent for service of process for the company was Laurie Larue of Fontana, who functions out of a single family residence in that city. Neoteric has no business license in Fontana, either. Two addresses are given for Neoteric Entertainment, 7083 Hollywood Blvd. Suite 180 Los Angeles, Ca 90028 and 10407 Trademark Street in Rancho Cucamonga. The 7083 Hollywood Blvd. location is the address for Legalzoom.com, which apparently handled Neoteric’s corporation filings. The 10407 Trademark address in Rancho Cucamonga is actually the corporate headquarters for Young Homes. Nevada Secretary of State business records shows that Neoteric Entertainment Inc filed for corporate status on November 28, 2007 in Las Vegas, with $100 claimed as the company’s total stock holdings. All corporate officers in Neoteric Entertainment are listed as Reggie King who is an executive vice president with Young Homes LLC.

In May 2008, Sharon Gilbert, whose blog, iepolitics.com, operates as a local political watchdog, filed a complaint with the California Fair Political Practices Commission in Sacramento, citing the contributions to Mitzelfelt from Neoteric Entertainment and Avenal Finance as having originated with Young Homes.

“It appears that Young Homes has set up phony corporations to make campaign contributions so that it does not appear that those contributions are coming from a developer,” Gilbert told the FPPC in her complaint.

In July 2008, the FPPC, which does have the authority to lodge criminal charges, sent Mitzelfelt an advisory letter, informing him that under the requirements of the Political Reform Act he needed to amend his campaign statements to show the actual source of the money represented as coming from Neoteric and Avenal.

David Zook, Mitzelfelt’s chief-of-staff, told the Sentinel “I do not handle political affairs for the supervisor, but as to the donations Brad received, I think Neil’s situation is different. I think the difference is that the practice is to report whichever name is on the check. The supervisor does not write the check. What is put on the reports is the information available. The supervisor just reports whoever it was that gave it to him. It sounds to me like a completely different situation from Mr. Derry’s.”

In 2010, Rutherford, who was then a member of the Fontana city council, was challenging incumbent Second District supervisor Paul Biane. In the course of her campaign, she approached Upland-based developer Raul Madrid, who had completed a handful of residential home projects in Fontana during her tenure there. Rutherford asked Madrid for a contribution to her campaign. Madrid, who had projects elsewhere in the county and the Second District, was reluctant to show up on Rutherford’s campaign finance forms, given that Biane was still in office and as such carried influence over projects in the county.

To avoid being publicly identified as supporting Rutherford, Madrid provided a $1,000 cashier’s check to Hank Beffre, a Rancho Cucamonga-based hair stylist, whose salon had both Madrid and Rutherford as clients. Madrid told Beffre to give the check to Rutherford so that it would officially come to her from the hair stylist, but to do so in such a way that Rutherford would know that the money originated with Madrid. In reporting the $1,000 donation, Rutherford indicated in her campaign finance disclosure filing, in documents known as California Form 460s signed under the penalty of perjury, that Beffre had provided her with $1,000 on July 29, 2010.

That contribution was illegal on two grounds. Such donation pass-throughs are considered campaign money laundering. And political donations over $100 cannot be done by cashier’s check.

Rutherford had not responded to a request for an interview by press time.

Supervising deputy attorney general James Dutton, who oversaw the prosecution of Derry, told the Sentinel this week that it did not appear that the San Bernardino County district attorney’s office had referred the Mitzelfelt or Rutherford matters to his office.

“I am not aware of either of those matters,” Dutton said. “That doesn’t mean our office has not been contacted or involved, but I have not heard about that.”

He added, “Generally speaking, we handle prosecutions where there is a conflict within the district attorney’s office.” Dutton was not specific as to what conflict had materialized in the Derry case and did not say how it would have been differentiated from possible prosecutions of Mitzelfelt or Rutherford. “In the vast majority of cases we handle, there is a conflict where the DA would have to hand it over. Unless there is a conflict identified, we are not going to see the case. I’m not aware if there is a conflict in those cases. Just because we prosecuted the Derry case, it doesn’t mean we would be the first in line to prosecute the other supervisors. You shouldn’t make the assumption that just because we prosecuted one case we would be first to prosecute a case of a similar nature.”

Dutton said there were similarities between Derry’s, Mitzelfelt’s and Rutherford’s actions, but that he did “not necessarily agree that there are political ramifications to our prosecution of Mr. Derry. In this case the person we prosecuted is a politician, but we look at each case, no matter who it is, to see if a crime happened and if it is a prosecutable case.”

Dutton did acknowledge that a different standard had perhaps been applied to Mitzelfelt and Rutherford than was applied to Derry in that the state attorney general’s office might have been more aggressive in pursuing campaign finance reporting violations and related misrepresentations by public officials than the district attorney’s office. He said his office is open to examining whether Mitzelfelt and Rutherford were able to fly under the legal radar by virtue of their having a more cordial relationship with district attorney Mike Ramos than Derry, who as supervisor had opposed providing Ramos with a paying post on the county ethics commission and refused to spare the prosecutor’s office from budget cuts being applied to all county departments in general.

“If there are people in the community who think there is inappropriate conduct in the DA’s office, they have the option of sending a letter to our office to look into it. They can write to the attorney general herself or to the San Diego office and include whatever documents they want us to look at.”

Attorney general Kamala Harris’ predecessor, current governor Jerry Brown, appeared with Ramos in San Bernardino in February 2010 to announce the filing of criminal charges pertaining to bribery, conspiracy and extortion against former supervisor/assessor Postmus and his one-time assistant assessor, Jim Erwin. Since Harris took office, the state attorney general’s office has obtained a superseding indictment in that case, in which another former supervisor, Paul Biane, was charged, as well as Mark Kirk, the former chief of staff to another supervisor, along with Rancho Cucamonga businessman Jeff Burum, who was charged with bribing his co-defendants. Brown characterized the case, which involved a $102 million payout to Burum’s company to settle a lawsuit it had brought against the county, as one of the most extensive corruptions of local government in California history. The state attorney general’s office’s reluctance to involve itself in prosecuting Mitzelfelt and Rutherford has provoked charges of bias vectored at both Harris and Ramos in political blogs. Ramos and Harris will not need to stand for reelection until 2014, but opponents have already publicly declared that the juggling of the cases to the detriment of Derry, who remains on the outs with Ramos, and the benefit of Mitzelfelt and Rutherford, who maintain a tenuous alliance with the district attorney, amounts to selective prosecution.

In a statement to the Sentinel, Derry maintained that he had neither violated the Political Reform Act nor falsified his campaign reports, insisting he had agreed to the plea “because it relieved the hardship on my family, especially my wife” and because “mounting a defense to the charges would have cost close to $100,000.” He said he had never been interviewed by Shannon Williams, the investigator with the state attorney general’s office who completed the affidavit upon which the original charges against him were based. That affidavit was “unfounded and untrue hearsay,” Derry asserted, and said that he had tape recorded his interview with Randles and that recording demonstrated, “I did not make the statements they said I made.” He had not spoken directly with Stubblefield, he said. “I actually spoke with his manager, Tom Parrish, and I told him the Inland Empire PAC might be supporting me. I did not arrange for Mr. Stubblefield, who I had not met, to make that contribution.” Stubblefield provided the money to the Inland Empire PAC without any coaching from him, Derry said. Furthermore, there was no meeting at Coco’s as described in Williams’ affidavit. “No such meeting ever took place,” he said. The prosecution’s reliance on Postmus, who has since pleaded guilty to 14 felonies, and Aleman, who has pleaded guilty to three felonies, to establish the meeting took place undercuts the prosecution, he said. “They [Postmus and Aleman] are admitted criminals and perjurers who are willing to testify to anything to get lighter sentences,” he said. Stubblefield’s $5,000 contribution was properly reported by the Inland Empire PAC, Derry said, “and Inland Empire’s payment to my campaign was reported.”

The case brought against him has set a standard that needs to be applied across the board, he said.

“The attorney general’s filing against me set a precedent,” he said. “If this was not politically motivated, if it was not some kind of selective prosecution, then they need to file charges against everyone like me who received a donation after money exchanged hands.”

The spokesman for the San Bernardino County district attorney’s office, Christopher Lee, declined comment on whether an investigation into Mitzelfelt or Rutherford was being undertaken or whether his office would contemplate filing charges against them. “We just don’t have any comment for you at this time,” Lee said.