APPROVED

Minutes

THE REGULAR MEETING OF THE
LOS ANGELES CITY ETHICS COMMISSION

Tuesday, December 17, 2002
3:00 P.M.

CITY HALL, ROOM 1050
200 N. Spring Street

MEMBERS
Miriam Krinsky, President
Pam Emerson, Vice President
Dale Bonner
Gil Garcetti
Dr. Uri Herscher

EXECUTIVE DIRECTOR
LeeAnn M. Pelham

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President Krinsky convened the meeting. She noted that the first three agenda items were related and suggested that they be considered at the same time.

Agenda Item No. 1 - Consideration of and Action on Proposed Stipulated Settlement In the Matter of Fermin Cuza, CEC Case No. 2001-18-B

Agenda Item No. 2 - Consideration of and Action on Proposed Stipulated Settlement In the Matter of Alan M. Schwartz, CEC Case No. 2001-18-C

Agenda Item No. 3 - Consideration of and Action on Proposed Stipulated Settlement In the Matter of Mattel, Inc., CEC Case No. 2001-18-A

Kirsten Pickenpaugh, Senior Investigator, gave an overview of all three stipulations regarding the following respondents: Mattel, a toy corporation headquartered in El Segundo; Fermin Cuza, a former Mattel executive, and Alan Schwartz, a former political consultant to Mattel. She stated that the stipulations are the result of an investigation into the use of Mattel funds to launder political contributions made at the direction of Mr. Cuza with the assistance of Mr. Schwartz.

Pickenpaugh stated that from 1997 to 2000, Cuza, with the help of Schwartz, bypassed internal control mecha nisms at Mattel and obtained corporate funds for reimbursement of political contributions made by Cuza, Schwartz, and others acting at their direction, to various Federal, state and local candidates. This was achieved by utilizing an automatic payment process Cuza had previously established to streamline the customs clearance process for Mattel products. Under the system, certain Mattel vendors were pre-approved for direct payment by a brokerage service company, without the need for any additional approva l from Mattel’s accounting department or other Mattel Employees.

Pickenpaugh stated that in late 2000, a Mattel employee reported to Mattel management that Cuza appeared to be using Mattel funds to reimburse third-party political contributions and Mattel began an internal investigation. In March 2001, Mattel shared its findings with three agencies -- the Federal Election Commission (FEC), Fair Political Practices Commission (FPPC), and City Ethics Commission. A subsequent joint investigation by the CEC and the FPPC determined that Cuza and Schwartz were likely responsible for reimbursing 26 contributions, totaling $20,250 to four Los Angeles City candidates with Mattel funds. Additional potentially laundered state and federal contributions were also discovered during this investigation.

Pickenpaugh noted that Cuza & Schwartz admit to 66 City Charter violations, including 6 counts of money laundering and 40 counts of exceeding the aggregate contribution limits. Schwartz had agreed to pay $66,000 and Cuza, $110,000 for these violations. She noted that there was no evidence of overt activity by Mattel to participate in this scheme, but they do acknowledge 40 counts of exceeding the aggregate contribution limit and agree to pay $60,000. Pickenpaugh recommended approval of the three stipulated settlements being presented to the Commission with a combined penalty totaling $236,000. She stated that the penalties are consistent with past penalties assessed for similar violations and reflect an attempt to balance policy interests in promoting self-disclosure of violations against the need to create a deterrent to future violation. She reviewed the penalty amounts being paid by the three respondents to the FEC and FPPC and noted that the combined total paid to all three agencies was just under $1,000,000.

President Krinsky recognized Mattel’s legal representative, David Shindler (Latham and Watkins), and Mr. Cuza’s legal representative, Mark Beck (Beck, De Corso, Daly & Kreindler), and asked if they wished to make any statements related to these cases. Both declined but agreed to answer any questions.

Krinsky asked about steps being taken at Mattel to ensure this type of behavior doesn’t happen again and also about the number of incidences and the amount of laundered contributions at the Federal and state level. She also questioned if there was a known reason why this had occurred. Deena Ghaly, Director of Enforcement responded that there were 56 state contributions, including the 26 that occurred in the City of Los Angeles, totaling $52,000. At the Federal level, $120,714 in contributions was laundered. She also noted that in the course of the CEC’s investigation, no known reason or “quid pro quo” was discovered.

Schindler responded that a reason this occurred was because the automatic payment system allowed these contributions (relatively small amounts of money) to be buried in million dollar vendor payments. He noted that the system had been revamped to include more checks and balances and also stated that none of the candidates who received contributions were aware that the contributions were from Mattel and that no evidence suggested any attempts to influence legislation were involved.

Garcetti asked if there was a reason why, with regard to the FEC settlement, Schwartz’s fine was higher than Cuza’s. Ghaly noted that there were additional issues involved at the Federal level other than the laundered Mattel funds, but she was not aware of the details since it was beyond the CEC’s jurisdiction. Schindler clarified that Schwartz was a campaign treasurer for some Federal candidate committees.

Emerson asked if there were reasons for the contributions other than legislative, such as access issues and whether Mattel had facilities within the City. Schindler stated that he didn’t think it was within Cuza’s responsibilities to represent Mattel before administrative bodies and he was not aware of any facilities within the City.

Herscher commented that he appreciated Mattel’s efforts in coming forward and correcting the situation.

Krinsky asked if the recipients of the contributions returned the laundered money or had attempted to return the money. Pelham stated that advice requests had been received from two officials who received contributions and staff is looking into it. Garcetti asked if the contributions returned by elected officials goes back to Mattel. Pelham responded that the City Charter requires that the funds go back to the City’s General Fund.

Krinsky asked what happened to the intermediary participants who may or may not have known that they were a party to the scheme. Ghaly replied that many times the intermediaries are subordinates and/or family members who are unaware that they are breaking the law and that warning letters would be is sued to these intermediary parties informing them of the law. Krinsky stated her interest in sending out a message to these parties that this behavior would not be tolerated and that next time, consideration be given to seeking accountability from those who allow themselves to be used as intermediaries.

Krinsky acknowledged the cooperative work done by the three government agencies and noted that had it not been for the combined fines of the three agencies (almost $1 million), she would have pushed for higher CEC fines. She moved for approval of all three stipulations. Emerson seconded the motion. Krinsky asked for further discussion or public comment.

Herscher commented that he was disturbed that others were asked knowingly or unknowingly to participate in such a scheme.

Krinsky moved for approval of all three stipulations. The motion was unanimously approved. Krinsky expressed her appreciation to Mr. Schindler and Mr. Beck.

Agenda Item No. 4 - Consideration of and Action on Proposed Stipulated Settlement In the Matter of Filmakers for New City Leadership; Denis LaBonge, Treasurer; Lloyd Ahern; Christopher LaBonge; Lilly LaBonge; Mark LaBonge; Matthew LaBonge; Robert LaBonge; Robin LaBonge; Doris Ollestad; and Lata Ryan, CEC Case No. 2002-24.

Vice President Emerson disclosed and described a possible conflict of interest she may have regarding Mr. Ahern and Ms. Ollestad. Anthony Alperin, Assistant City Attorney, did not think there was a conflict considering the facts disclosed by Commissioner Emerson.

Krinsky asked if there were any representatives to the respondents here at the meeting that wished to express any objections to Emerson’s participation. There were none.

Dominic Berbeo, Senior Investigator, stated that the respondents, Filmakers for New City Leadership (Filmakers), was a recipient committee to support Fourth Council District candidate Tom LaBonge in the October 23, 2001 Special Election. The Committee paid for a $10,000 radio advertisement advocating Tom LaBonge’s election. In doing this, Filmakers admit violating several City campaign finance laws, including: accepting 10 contributions of $1,000 each, exceeding the contribution limit set by the Los Angeles Charter and Los Angeles Municipal Code; failing to file a Pre-Election Campaign Disclosure Statement; and failing to file a copy of the radio advertisement script.

Berbeo stated that all named respondents admitted violating the law, signed the proposed stipulation, and submitted payment of the administrative penalty. Berbeo stated that staff believes the assessment of the penalty was fair given the circumstances of the case and recommended that the Commission approve the settlement.

Garcetti questioned how the penalty was determined. Ghaly responded that the respondents were genuinely ignorant of their wrong doings and were first time offenders. The fines were based on 10% of the maximum, which is $1 for each $1,000.

Commissioner Herscher inquired about the leader of Filmakers. Berbeo responded that Denis LaBonge was the treasurer and issued the check.

Krinsky asked if there was a motion for approval. Garcetti moved for approval and Krinsky seconded. There was no further discussion or public comment. The motion was unanimously approved.

Agenda Item No. 5 - December Legislative Update: Lobbying and Contractor Disclosure and Recusal Proposal (Council File 01-1928), Campaign Finance Enhancements (Council File 02-2595), Legislative Advocate Fee Ordinance (Council File 02-2620), Providing Filing Officer Services for the Los Angeles Unified School District's Lobbying Disclosure Program (Council File 02-2071), and Election Programming on Channel 35 (Council File 97-0455-S1).

Ian Filep, Director of Policy, provided the Commission with the December update on the status of the CEC’s legislative items. He noted that the Lobbying and Contractor Disclosure and Recusal Proposal did not get scheduled on the Rules & Elections Committee’s meeting agenda for December 11, and the Committee’s December 18 meeting was canceled. Filep stated that the Chief Legislative Analyst indicated that he would not be able to meet with CEC staff until January 14, 2003 to discuss the changes made to the proposal. Therefore, this issue will not be heard by the Committee until after this January meeting.

Filep noted that the CEC Executive Director and staff had met with three councilmembers in December to discuss the Commission’s proposals to strengthen the City’s campaign finance system. All three councilmembers expressed interest in scheduling the item as early as possible before the Rules and Elections Committee for discussion. Doing so would allow for Council action to be taken prior to the opening of the 24-month fundraising window (March 2003) for the 2005 City-wide campaigns. On December 27, staff of the Chair of the Rules and Elections Committee is scheduled to meet and discuss the proposals and select a date when the campaign finance package can be presented to the Committee.

Filep reported that the ordinance increasing lobbyist registration fees to $450 and client registration fees to $75 was approved by the Rules and Elections Committee at its December 11 meeting. He noted that it would be going to the City Council for consideration on December 18 and that staff anticipates the ordinance going into effect in mid-January.

Filep concluded stating that on December 11, 2002 the Rules Committee approved the initiation of negotiations between the City and Los Angeles Unified School District (LAUSD) for providing filing officer services for the school district’s lobbying disclosure program. This has not been scheduled yet before the full City Council. Also approved at that meeting was the drafting of an ordinance to provide a pilot project that would air the campaign debates and City and LAUSD candidates’ thoughts on Channel 35. This issue has been re-referred to the Information Technology and General Services Committee.

Krinsky asked if there was anything further to report regarding the automatic implementation of an ordinance if the Council or Mayor didn’t act upon something in a timely manner. Pelham responded that by the Commission’s February meeting, staff would have additional information.

Agenda Item No. 6 - Staff Update on Conflict of Interest Code Revisions for Los Angeles City Agencies per California Government Code Section 87306.5.

Chelsea Cochrane, Policy Analyst, provided the Commission with an update of the previous month’s status report on City department’s progress regarding Conflict of Interest Code revisions. She provided the Commission with the status of City department’s progress as follows:

Four department Code reviews had been completed and no revisions were required.
Eight department Code reviews were near completion and public hearings and transmissio n to the City Council was expected by January 2003.
Twenty-nine department Code revisions were still in process.
Three departments (Dept. of Transportation, L.A. Housing Dept. and El Pueblo de Los Angeles Historical Monument Authority) were non-responsive to CEC correspondence and reminders regarding the Code review requirement.

Krinsky asked if the three non-responsive departments had responded to any correspondence sent by the CEC staff. Cochrane replied no.

Agenda Item No. 7 - Consideration of and Action on Revised Conflict of Interest Code for the City Ethics Commission.

Chlesea Cochrane stated that at its July 2002 meeting, the Commission approved a revised Conflict of Interest Code for the CEC. Subsequent to that meeting, the City Attorney made suggestions regarding further changes to the Commission’s Code. Based on these suggestions, a new Code was being submitted for the Commission’s approval. She noted the changes in this revised code as follows:

Senior Investigator and Policy Analyst were reassigned to Category 1 requiring full disclosure, and
Disclosure Categories 2 and 3 incorporated clarifying language which would broaden their disclosure requirements, but also focus more directly on the types of entities with which they interact.

President Krinsky asked if there was a motion for approval. Garcetti moved for approval and Emerson seconded. There was no further discussion or public comment. The motion was unanimously approved.

Agenda Item No. 8 - Review of and Action on Statements of Economic Interests for Commission Nominees.

Rebecca Ronquillo, Policy Analyst, presented staff’s recommendations for Commission nominees as follows:

Statement of appointee receiving STANDARD letter indicating that there is no apparent conflict of interests:

West Los Angeles Area Planning Commission – Steven E. Belhumeur

Statements of the following appointees receiving CAUTIONARY letters that highlight areas in which a potential conflict of interest could arise:

Board of Fire and Police Pension Commissioners – Elliot Broidy;
Board of Animal Services Commission – Rodolfo F. Ruiz;
and El Pueblo de Los Angeles Historical Monument – Estanislao “Stan” Sosa

Krinsky asked if there was a motion for approval. Emerson moved for approval. Garcetti seconded. There was no further discussion or public comment. The motion was unanimously approved.

Agenda Item No. 9 - Approval of the Minutes of the Commission’s Special Meeting of November 26, 2002.

Krinsky moved for approval of the minutes. Garcetti seconded the motion. There was no further discussion or public comment. The motion was unanimously approved.

Agenda Item No. 10 – Public Comment.

Mr. Peter Baxter thanked President Krinsky, LeeAnn Pelham, the Commission and its staff for their graciousness extended toward him throughout the year. Baxter also thanked Commissioner Garcetti for answering his questions at a presentation at the Public Library where Garcetti’s book was being reviewed. He concluded by wishing everyone happy holidays.

President Krinsky extended holiday greetings and adjourned the meeting.