Utility group transaction under scrutiny

Mike Aguirre's clients expose problematic transactions at UCAN.

Utility group transaction under scrutiny
FEDERAL PROBE INQUIRED ABOUT $1 MILLION INVESTMENT OF RENT-A-CENTER CASE AWARD
Nov. 2, 2012
Jeff McDonald
UT-SD

Back in 2005, the Utility Consumers’ Action Network collected $2 million from a class-action lawsuit against Rent-A-Center, a furniture and accessories retailer based in Plano, Texas.

Terms of the award to the San Diego-based consumer protection group required UCAN to keep the money in California. The funds were to be set aside for nonprofit efforts to educate people about their legal rights.

The agreement was signed by former UCAN Executive Director Michael Shames seven years ago last month.

Shames invested $1 million of the award in a money-market account and later in an out-of-state hedge fund called Red Rock Capital Fund LP.

The manager “isn’t promising, or even seeking, big returns,” Shames told UCAN board members three weeks before making the investment. “His is a very controlled form of risk-avoidance through 2-5 day investments in a diverse set of sectors.”

The $1 million investment sank in value by $287,000 within a year. The rest was withdrawn in a series of transactions, leaving a zero balance by the close of 2006, according to documents obtained by The Watchdog.

Shames has denied doing anything illegal or improper at the nonprofit group. He says allegations against him were independently investigated and found to be unwarranted.

UCAN Chairman Kendall Squires said he does not remember approving the investment in the fund, even though he was copied on an email regarding the buy-in.

“Recognizing that I was unaware of it at the time, as my memory serves now, yes, I’d be troubled by it,” Squires said. “I think it is a pool to be examined.”

Documents related to the Red Rock fund were specifically cited in a grand jury subpoena issued earlier this year as part of a federal investigation of the nonprofit.

Agents also sought records on Death by China Productions, an Orange County firm cofounded by Peter Navarro, the University of California Irvine economics professor and former San Diego mayoral candidate who consulted Shames on investment strategies.

Having Navarro involved in the decision to invest in Red Rock “was a huge advantage and kept the analysts’ pitches very exciting,” Shames told UCAN directors in that same December 2005 email.

North Carolina steelmaker Nucor Inc. made a $1 million donation in 2011 to UCAN, which later agreed to turn over the same amount of money to Death by China. Documents of that transaction were also sought in the federal subpoena.

Earlier this year, UCAN filed for dissolution in state court after two employees raised questions about Shames’ management of the organization.

Among other things, they alleged Shames kept secret bank accounts, practiced law without an active state bar membership and accepted bonuses without telling the board or reporting the payments on UCAN tax filings. Shames says the allegations were all investigated and found to be without merit.

Shames declined to respond to questions about why he invested UCAN revenue in an out-of-state hedge fund.

In a statement he said: “The money market account to which (you) refer was a UCAN account, not a personal one. It is reflected in all of UCAN’s books and records and authorized by the board.”

The U.S. Attorney’s Office would not discuss the status of the federal investigation into UCAN business practices.

San Diego attorney Frank Fox was the lead lawyer in the Rent-A-Center case. He was responsible for filing periodic reports with the court detailing how settlement funds were spent.

Fox told The Watchdog that he only recently became informed about the UCAN investment in an Oregon hedge fund.

“I just learned of these allegations last week, and we are looking into them,” he said.

Michael Aguirre, the former San Diego city attorney who now represents two UCAN employees who came forward with allegations against Shames, suggested federal investigators should pay close attention to the transaction.

“Misdirecting consumer education trust money to an out-of-state hedge fund is a storm warning that regulators cannot prudently ignore,” Aguirre said.

Other records obtained by The Watchdog raise questions about the depth of the independent review commissioned by UCAN in response to the 2011 allegations by the two employees, David Peffer and Charles Langley.

According to attorney Paul Dostart, who billed UCAN more than $360,000 between April 2011 and July 2012, his review found no merit to the charges lodged by Peffer and Langley.

In an April 2011 email to Squires, Shames said Dostart “specifically instructed the auditors NOT to investigate any embezzlement or misuse of UCAN monies by me.”



Dostart last week said that assertion was untrue. “At no time have I ever instructed an auditor to not investigate and report any fraud, embezzlement, or misuse of UCAN funds,” he said.

Shames stood by his 2011 email.

“Mr. Dostart can explain why he made the decision he made,” Shames wrote in an email.

UCAN has not released an independent audit in years, even though state law requires charities with more than $2 million in annual revenue to do so. A draft audit for the year ending June 2011 cites numerous problems.

“In 2011, there was a discovery of three investment accounts held by the organization that were not included in the statement of financial position at June 30, 2010,” the draft states.

A separate letter to UCAN board members recommends sweeping reforms, including stricter controls and improved record-keeping. It also notes the charity still owes Death by China $350,000 and states, “We recommend that in the future transactions of this natured be discouraged.”

Squires said issues raised in the draft audit are being addressed and a completed review will be released this month.

UCAN also is seeking a new executive director to succeed Kim Malcolm and Pat Zaharopoulos, each of whom sought to succeed Shames this year but resigned in the face of ongoing challenges...

Environmental Review Suffers Setbacks, Divides Officials

Environmental Review Suffers Setbacks, Divides Officials
By EVAN McLAUGHLIN
Voice of San Diego
May 4, 2007

Local environmentalists have made strides in several recent lawsuits against the city of San Diego over its supervision of local development, with the city's top two elected officials consistently at odds over a key environmental safeguard.

Recent legal setbacks have drawn scrutiny to an issue that has already proved divisive at City Hall. In the last two months, the city has lost or settled four cases, forcing it to more thoroughly study the impacts of growth and development on surrounding communities.

The lawsuits contend the city did not properly measure the impacts of certain development plans: a blueprint to triple downtown's residential population over the next two decades; the planned Regents Road Bridge in University City; a Jewish student center in La Jolla; and thousands of condo conversions that have been proposed citywide.

At the heart of the lawsuits is the city's alleged inability to accurately and thoroughly gauge the effect those projects would have on the nearby environment, such as water resources, animal life, air quality, traffic or the displacement of residents.

"It's a continuation of 'let's get away with the bare minimum, and if the public doesn't like it, just sue us,'" Councilwoman Donna Frye said.

In each of the four instances, the lawsuits prompted concessions by the city, ranging from paying the environmentalists' attorney fees to taking on further work that will delay the building plans at the center of the complaints.

Beyond their cost to the city, the legal setbacks are demonstrative of the very extraordinary dynamics that sprout from these land-use decisions. The city's process for studying the impacts development projects have on traffic, air quality and other facets of the environment has driven an ideological wedge between Mayor Jerry Sanders and City Attorney Mike Aguirre.

"It's a very awkward situation as sometimes the city attorney's advice comes very late in the process or it comes as political advice, not legal," Sanders said. The reviews are initiated by the development staff of Sanders, an ally of local real estate developers, and are regularly approved by the City Council. But the city's analyses are also subject to the scrutiny by Aguirre, who often sides with environmentalists.

Also, the environmental reviews seem to have blurred the line between policy and law, as both Sanders' staff and Aguirre have tried to make the case for more control over the reviews.

With both of those conflicts at work, the city's efforts to comply with the California Environmental Quality Act, or CEQA, have produced some of the more contentious instances of infighting within the city camp. As a result, the city has sent mixed messages about its interpretation of the law, as well as who's to fault over its related blunders.

The recent legal developments could foreshadow the impending challenge to the environmental study on the controversial Navy Broadway Complex, which was crafted in 1990. The setbacks may also prompt the city to step up its forthcoming environmental report on the city's general plan update, which will outline San Diego's growth citywide.

Aguirre said the city's inability to wholly defend the lawsuits indicates the weakness of its environmental policies.

"There's been a real policy in the past of looking at compliance with the law as a policy choice, and that has been so thoroughly discredited now," said Aguirre, referring to the recent courtroom outcomes.

A Thin Line Between Policy and Law

Every development project reviewed by the city undergoes a CEQA review so the public and policy makers know its impacts. The Mayor's Office supervises the staff that initially decides the scope and scale of an environmental review.

In his role as the city's lawyer, Aguirre is tasked with advising the city on CEQA issues when they reach the courtroom. But he has also made efforts to influence the city to back off the courses of action suggested by Sanders' development staff by publicly issuing legal opinions that counter the mayor.

In November 2005, Aguirre issued an opinion backing up the claims by one environmental group that the city needed to conduct a comprehensive study of the impacts condo conversions had on traffic, parking and the displacement of former renters on the San Diego landscape. The opinion marked a drastic change from the city's policy of not spending time or money on a study.

Jim Waring, the top development aide for Sanders, partially attributed the settlement of the condo-conversion case to Aguirre's proclamation, claiming it fueled Citizens for Responsible Equitable Environmental Development's challenge.

"The plaintiffs in that case cited the city attorney letter in their complaint," Waring said. "It was highly unusual, and it clearly put the city in a difficult position in defending the case."

The city concluded its fight against the condo conversion challenge March 27, when the City Council preliminarily agreed to settle. In the settlement, which has not gained final approval, the city agreed to limit the conversion of housing units to 1,000 per year, issue an annual report on the developments, and pay C.R.E.E.D. $75,000.

Waring criticized Aguirre's handling of the environmental lawsuits, saying his legal advice "reflects his political bent."

"The city attorney doesn't like being an attorney. He wants to make policy," he added.

On the contrary, environmental advocates are skeptical of the Sanders administration, saying they believe his political alliance with the building industry now plays a larger role under the new strong-mayor form of government. All city departments, including the Development Services Department, now report to the mayor, hypothetically putting the influence over the CEQA decisions at his disposal.

Before, the mayor represented just one of the nine City Council votes.

"It seems to me that decisions are being made upon politics and the environmental review is being skewed to align with a predetermined outcome," said Coast Law Group attorney Marco Gonzalez, who represented the plaintiffs in the cases involving the downtown, Regents Road Bridge and La Jolla student center.

Gonzalez said the city is missing warning signs along the way, an indication that they could be bowing to political influence. He pointed to the Regents Road Bridge lawsuit, which challenged the environmental study of spanning Rose Canyon with a street that would connect the two ends of University City. Gonzalez said red flags were raised by Aguirre, members of the public, planning commissioners and the local planning group.

"And for whatever reason, both the mayor and the council approved this project," he said.

Frye, who has regularly voted against the mayor's determinations, said the she didn't think the city's environmental review process is any worse than before strong-mayor. She attributed the recent success of CEQA challenges to a more active opposition. "I think where the changes are coming is that the communities are becoming more organized and are better able to raise money to challenge projects," Frye said.

Whistleblowers, Aguirre Sue Utility Watchdog

Whistleblowers, Aguirre Sue Utility Watchdog
Utility Watchdog Hounded by FBI, Whistleblowers
March 9, 2012
By Rob Davis
VOSD

When the Utility Consumers' Action Network began the process of dissolving, its executive director described the effort as a ruse to elicit a lawsuit from former city attorney Mike Aguirre.

If so, it worked. Aguirre, who represents two UCAN whistleblowers, filed suit Friday, alleging that the organization's board and top leaders had breached their fiduciary duty by failing to take internal complaints about UCAN's financial management seriously. (Read the lawsuit here.)

We broke down the bulk of the complaints against UCAN when the organization filed to dissolve:

UCAN filed its intent to dissolve in San Diego Superior Court, saying in papers that it faced an "imminent threat to its ability to carry on," due in part to legal threats by members of its own staff. Still, it insisted the organization would remain viable, despite the major crisis it clearly faces.

The move comes a week after an FBI agent subpoenaed UCAN's internal records and nearly a year after two employees alleged that UCAN had embezzled money, awarded illegal bonuses, set up suspicious bank accounts and failed to properly audit its books. The organization says it has investigated those complaints and found them unsubstantiated.

What The Plaintiffs Seek: Audits of UCAN's books and all of executive director Michael Shames' payments and bonuses. Damages, restitution and attorneys fees. (No amounts were specified.) And they want declarations that UCAN's members can elect the organization's board and decide whether the group should dissolve.

Why They Sued: Aguirre explained it this way in a press release: "Every red flag for financial mismanagement and fraud has been raised as the result of internal inquiries by UCAN’s employees. But instead of investigating with a public audit as required by the organization’s charter, UCAN’s Board has met secretly with Michael Shames to conduct an orchestrated cover-up.”

What Shames Says: He said he hadn't seen the suit yet but believed it was likely rehashing allegations that UCAN had already investigated and found unsubstantiated. "I will be looking for tangible evidence, documents, something, to support their allegations and not a continuation of the insinuations we've seen thus far," he said.
One Substantiated Issue The Suit Alleges: That UCAN didn't properly audit its books in 2006 as required by state law. Shames acknowledged today that the organization should've conducted an audit that year by a certified public accountant. He said an accounting firm was in the process now of auditing its books for last year and 2006.

San Diego police are sorry they sued the city

San Diego police are sorry they sued the city
Lorie Hearn
Watchdog Institute
December 16, 2010
By Kelly Thornton

The San Diego Police Officers Association has sued the city several times in recent years, and the city has spent $8.6 million to fight them so far. That makes the city’s own cops its most expensive legal adversary.

Now, the officers are sorry.

The police union has a new lawyer who called two of three lawsuits “frivolous” and has filed two malpractice lawsuits against the attorneys who sued in the first place.

“The San Diego Police Officers Association knows this was expensive litigation for the city and has apologized profusely and we’ve done what we can to make it right,” said the POA’s new attorney, Michael Conger, an employment, business and personal injury lawyer from San Diego. “We’ve gotten rid of any litigation to the city related to this nonsense.”

In total, there are 23 lawsuits filed against the city between 2003 and 2010 in which the city has spent more than $1 million. The POA cases are three of those. For all 23 cases, the city has spent $55.3 million, according to an analysis by the Watchdog Institute, a nonprofit investigative reporting center based at San Diego State University.

One of the three cases brought by the POA was to force the city to pay officers for time spent putting on uniforms and protective gear and answering work-related emails. Another case accused then-City Attorney Michael Aguirre of bribery and extortion related to contract negotiations, and sought his removal from office. A third suit was a spinoff of the second; both alleged that the city’s underfunding of the pension violated police officers’ constitutional rights.

The POA lost all three cases – two at summary judgment, meaning a judge didn’t even think the case was worth going to trial. In the overtime case, a federal jury decided in favor of the city after a six-week trial.

More than 1,000 officers opted to drop any appeals based on advice from Conger. The previous lawyer, Gregory Petersen, an Orange County civil rights and employment attorney, is appealing one of the cases on behalf of about 100 clients who’ve stuck with him.

As the cases dragged on, POA members’ credit cards were charged $20 to 40 a month. To cover legal fees, the organization had to mortgage its headquarters.

“I think they were hurt dramatically,” Conger said of the officers. “They paid Petersen over $2.8 million for the privilege of bringing frivolous lawsuits, and he didn’t win one single motion. He doesn’t think he did anything wrong and doesn’t want to pay a dollar.”

At the same time, the financially crippled city hired an outside legal firm, Latham & Watkins, at up to $750 an hour, because the city had a conflict defending against its own employees...

Does San Diego need two city attorneys? Aguirre to represent the people, and Goldsmith to represent officials?

I suggest that cities need two city attorneys--one to give honest, accurate legal advice, and the other to defend officials.

Voters want the city attorney to look out for them, and not just for elected officials. Shamefully, most elected officials want to keep the system in which the city attorney's job has been to help officials do whatever they want, and get away with it. Alternatively, the attorney tells the council what to do, and acts as a de facto city council without being elected.

Apparently San Diego needs both Mike Aguirre and Jan Goldsmith.

Wall Street Journal Endorses Mike Aguirre

'The Garden at This Skunk Party'


September 8, 2008
San Diego's political scene was buzzing this weekend over this Wall Street Journal editorial praising City Attorney Mike Aguirre for his battle against public employee pensions.

The paper describes all of the troubles that have befallen San Diego city government, from run-ins with the IRS and SEC to the $1.2 billion pension deficit.

Then it says:



The garden at this skunk party is City Attorney Mike Aguirre, who has made himself very unpopular with the political establishment by suing to rescind the 1996 and 2002 pension promises. Though a liberal Democrat normally sympathetic to unions, he says the benefits were granted as part of "the largest municipal securities fraud in American history," and so taxpayers shouldn't have to honor them.


It goes on to talk about similar pension problems in New York and New Jersey, and closes like this:


Taxpayers in those states need a rabble-rouser like Mr. Aguirre willing to stand up to union interests. The San Diego attorney faces a tough re-election battle in November, but he's setting off an alarm that voters across America need to hear.


-- ANDREW DONOHUE

Mike Aguirre wins regarding police retirement payments

A court has dismissed a lawsuit by police against San Diego City Attorney Mike Aguirre. Aguirre has been trying to reduce pension benefits given away in 2002 by Mayor Dick Murphy, with support from Ann Smith of the MEA. The purpose of the giveaway was to keep unions quiet about a billion-dollar underfunding of the city pension system.Voice of San Diego
by WILL CARLESS
September 4, 2008
Court Loss for City Cops

In another legal loss for city cops, a federal court judge has dismissed a lawsuit brought by more than 1,500 city police officers against City Attorney Mike Aguirre and the city's retirement system.

The police officers had argued that their federal constitutional rights were violated when, in 2005, the city reduced or eliminated their employment benefits by mandating that police officers pay higher payments into their retirement plans, thus reducing the take-home pay of many officers.

In her decision yesterday, Judge Marilyn Huff dismissed the case, referring in her decision to an earlier decision she made in a related case brought by the Police Officers Association, the union that represents city police officers.

Huff ruled in that case that there was insufficient proof that the employment benefits that were reduced in 2005 were vested constitutional rights, and that the under-funding of the pension system doesn't implicate federal constitutional rights.

This was the second court loss for city police officers in two weeks. On Aug. 21, another federal court judge dismissed a lawsuit brought against the city by more than 700 officers for breach of contract and unpaid overtime.

"So much for Aguirre never winning a lawsuit," said Executive Assistant City Attorney Don McGrath, who represented Aguirre in the lawsuit. McGrath said that, by his count, the POA has lost six of the seven lawsuits it brought against the city and Aguirre.

Mike Aguirre continues to win against firms involved in pension mess

Voice of San Diego
by DAVID WASHBURN
July 29, 2008

San Diego City Attorney Michael Aguirre has settled another of his lawsuits against firms retained by the city before and during the pension meltdown.

Orrick, Herrington & Sutcliffe, the city's former bond counsel, has agreed to pay $2.88 million to settle a case filed by Aguirre in 2005, which alleged that the San Francisco-based firm failed the city by not discovering problems with the pension fund sooner.

The city will net $1.88 million from the settlement after paying expenses and a contingency fee to outside lawyers Bryan Vess and Dan Stanford, who assisted in the case, Aguirre said...

To date, Aguirre said he has recovered a net of more than $9 million from outside lawyers, accountants and consultants somehow involved in the pension crisis.

SD City unions prefer secret pension deals; Mike Aguirre opposes them

San Diego City Attorney Mike Aguirre

Metropolitan Employees Association duo Ann Smith-Judie Italiano continue their odd alliances with Republican judges. The alliance began with the billion-dollar pension deal supported by the MEA bosses and former San Diego mayor Dick Murphy. And it continues with Judie/Ann's newly-forged alliance with Jan Goldsmith.

The bizarre alliance is apparently built on the expectation that San Diegans will continue to sacrifice their own well-being and that of their city, and will go back to using the City Attorney's office to cover-up wrongdoing in city government, in order to keep Judie/Ann in power.

And it involves a major flip-flop on the party of candidate Goldsmith. Scott Lewis explains:


The Union Pawns
By Scott Lewis
July 9, 2008

Voice of San Diego

It was rather amusing to see Judge Jan Goldsmith tout his endorsement from the San Diego Municipal Employees Association...

The best radio ad of the campaign season was Mr. Goldsmith's very own takedown of his rivals. Remember, he used a circus theme to paint City Hall as a mess...

[Quote from Jan Goldsmith's radio ad:]
In ring two, see Scott "the wonder pony" Peters jump through hoops, straddle fences and juggle important city issues all to please his labor union handlers.

Now that Goldsmith is the preferred choice of the firefighters union, the police union, and the white-collar City Hall workers, is it no longer so bad to be associated with unions?

Judie Italiano announces that she's MEA's executive-for-life

The San Diego Union Tribune quotes Metropolitan Employees Association general manager Judie Italiano as saying:

"MEA is never, ever, as long as I can draw a breath, endorsing Mike Aguirre."

Well, that's pretty clear. But MEA's lawyer Ann Smith has made it clear that she and former president Judie Italiano are a package deal. Ann Smith "threatened" to resign if Judie were not named general manager.

Judie and Ann are perfect duplicates of California Teachers Association's controlling couple, Carolyn Doggett and Beverly Tucker, the CTA executive director and her lawyer, who also seem to be a package deal.

Well, San Diego, it seems we're in for a long ride with JudieAnn Italismith. We'll have their billion-dollar budget-busting noses in faces, making demands for some time.

Shut up, Scott Peters

Voice of San Diego

Goldsmith Scolds Peters

Judge Jan Goldsmith today took Council President Scott Peters to task for calling on the district attorney and the Attorney General's Office to investigate alleged "criminal extortion" by incumbent City Attorney Mike Aguirre.

"I want to put a stop to this. This is wrong, it's wrong if it's against Aguirre, it's wrong if it's against anyone else," Goldsmith said.

Peters called on District Attorney Bonnie Dumanis to investigate the claims against Aguirre, which first surfaced in a report released Tuesday by the Attorney General's Office...

Dumanis has since said she won't conduct an investigation because she has endorsed Goldsmith for city attorney. It's also doubtful that what Aguirre is accused to have done would constitute criminal extortion anyway, as I explained in this post earlier this week.

Goldsmith said that Peters needs to stay out of it. He said the Attorney General's Office has all the evidence it needs to come to its own conclusions about whether to investigate the "extortion."

"They're professionals, if they believe there's probable cause, they can pursue it," he said.


-- WILL CARLESS

Friday, May 23, 2008

Jan Goldsmith, conspiracy theorist and City Attorney candidate

Deferring to the Conspiracy
By Scott Lewis
Voice of San Diego
Jan. 31, 2008

Click HERE for original article.

Of the complaints that San Diego City Attorney Mike Aguirre must parry or absorb in coming months if he is to keep his job, the most damaging is clearly that the man has no motor control of his accusation muscle...

So it was with a bit of surprise last week that I learned that Aguirre's most prominent declared rival to his seat might have a similar proclivity toward the unsubstantiated accusation.

Former Poway Mayor Jan Goldsmith, the chosen one of the local Republican Party, got himself all fired up about the surprising news that City Councilman Brian Maienschein, a fellow Republican with much the same base of support, was entering the race...

It was really Maienschein's money that so upset Goldsmith.

The city councilman had the good fortune to run for re-election to his post in 2004 against no one in particular. People like giving money to politicians and so, like most incumbents, he was able to raise a ton of money for the non-existent race. That money -- $250,000 -- sits now waiting for Maienschein's call.

The city had, in 2004, passed a law that prohibited people from raising money to run for office more than a year before the election for the office they aspired to occupy.

...the director of the Ethics Commission responded to my inquiry about it with a statement that the law seemed pretty clear that money from previous campaigns could be transferred into new ones.

That Maienschein could use that money in the race for city attorney infuriated Goldsmith. And with that came the conspiracy theory and the accusation.

"I would request that the Ethics Commission be fair and impartial in addressing this issue. The appearance is that the Commission is stretching to find ways to allow an incumbent Councilman to do something that is unavailable to other candidates," Goldsmith wrote to Fulhorst and then sent to me.

I had a chance to ask Goldsmith about this.

He was accusing the Ethics Commission of working in collusion with Maienschein to further his political goals. Is this a window into the future? Would he, as city attorney, also defer to the conspiracy theory to make his points?

He said he never wrote that it was an actual conspiracy.

It just looked that way...

And then he got to the other angle about this that bothered him. How had this potential wrinkle in the election law not been ironed out before? This offered Goldsmith another justification for his candidacy -- he could spot things like this.

The City Council didn't know what it was doing passing the law... about the 12-month limit for raising funds.

"Why didn't anyone, in 2004 when this was passed, not ask the question that this doesn't provide an exception or clarity about transfers for money from previous campaigns? There were three lawyers on the council and they couldn't see this?" Goldsmith asked.

He said had he been city attorney, he would have made sure to tie that loose end.

What he didn't realize is that the issue had in fact been brought up. Not by a lawyer on the council, but by the only person who at times seems to be able to ask questions like one: City Councilwoman Donna Frye.

Former City Attorney Casey Gwinn actually issued an opinion about the matter.

Could the city keep people like Maienschein from transferring money from a previous campaign to a new one?

Nope, Gwinn's deputy determined...