Bombshell in L.A. mayor’s race: Kevin James files complaint with SEC to expose alleged municipal fraud

Kevin James says fraud occured under the 'guidance of the City Controller' Wendy Greuel, an opponent in the race for L.A. mayor
Tweet

(PR NewsChannel) / March 4, 2013 / LOS ANGELES  

Kevin James Wendy Greuel SEC investigationIt’s one thing to hurl accusations in a debate or at a news conference. It’s another to file a 42-page complaint with a governmental agency like the SEC (Security and Exchange Commission) to allege that the city of Los Angeles is engaged in municipal fraud and to name your opponent in the Los Angeles mayor’s race (Wendy Greuel) as being a part of it. But L.A. mayor candidate and former prosecutor Kevin James did just that–and the revelation is coming just hours before election day.

Is this a March surprise in the L.A. mayor’s race? 

The news first broke late Friday on KFI radio on the “John and Ken Show.”

The story was then picked up by the Los Cerritos Community Newspaper, which obtained the SEC complaint also made available for Kevin James.

The complaint alleges that the city moved hundreds of millions of dollars of restricted funds into the general fund to cover union salary raises and pensions that the city otherwise could not have afforded.

Kevin James minces no words when he ties Wendy Greuel, the City Controller and also a candidate for mayor, into the mess.

(See supporting document provided by Kevin James on Wendy Greuel http://goo.gl/r7Wjw)

“The raiding of the special revenue funds by the City Council, under the guidance of the City Controller, may be in direct violation of federal and state regulations,” James tells the Los Cerritos Community Newspaper.

“It has been proven throughout California that in order to create an illusion of fiscal solvency and financial stability, city government officials have consistently and improperly moved millions of taxpayer dollars from various restricted funds into their general funds,” Kevin James writes on his website. “These actions are meant to hide the true fiscal mismanagement of city accounts by those very same officials. These accounting games have recently resulted in federal investigations – most notably in cities that were forced to seek bankruptcy protection.”

Kevin James goes on: “In an apparent attempt to cover up the complete extent of the city’s financial problems, Los Angeles officials have concocted elaborate schemes to: (1) move hundreds of millions of dollars of taxpayer money from restricted and special revenue accounts into unrestricted accounts including the city’s general fund; (2) postpone significant liabilities, and (3) create the false impression for the financial markets, rating agencies and the public, that the city’s finances are in order. The primary tools used by L.A. officials include (1) the abuse of the common law doctrine “escheat” to transfer millions in restricted funds into the city’s reserve fund, (2) the transfer of funds through improper ordinance manipulation, postponing over $100 million in personnel costs until years in the future, and (3) the transfer of over 1,000 city employees from the general fund budget to proprietary department budgets while the city was undergoing layoffs.”

Election day is March 5.

Here is complete text of the full statement from Kevin James, candidate for L.A. on the filing of the SEC complaint:

It has been proven throughout California that in order to create an illusion of fiscal solvency and financial stability, city government officials have consistently and improperly moved millions of taxpayer dollars from various restricted funds into their general funds. These actions are meant to hide the true fiscal mismanagement of city accounts by those very same officials. These accounting games have recently resulted in federal investigations – most notably in cities that were forced to seek bankruptcy protection.

In an apparent attempt to cover up the complete extent of the city’s financial problems, Los Angeles officials have concocted elaborate schemes to: (1) move hundreds of millions of dollars of taxpayer money from restricted and special revenue accounts into unrestricted accounts including the city’s general fund; (2) postpone significant liabilities, and (3) create the false impression for the financial markets, rating agencies and the public, that the city’s finances are in order. The primary tools used by L.A. officials include (1) the abuse of the common law doctrine “escheat” to transfer millions in restricted funds into the city’s reserve fund, (2) the transfer of funds through improper ordinance manipulation, postponing over $100 million in personnel costs until years in the future, and (3) the transfer of over 1,000 city employees from the general fund budget to proprietary department budgets while the city was undergoing layoffs.

Former Los Angeles Mayor Richard Riordan and former First Deputy Mayor Austin Beutner, have called out current city officials for “play[ing] accounting games”, (Riordan, Wall Street Journal, May 5, 2010) for using “Enron”-like tactics and for committing “fraud” (Beutner, Los Angeles Times, January 3, 2012).

Because an investigation into these unlawfaul actions is urgent, in October 2012, I submitted a complaint to the Securities and Exchange Commission’s Enforcement Division – Municipal Securities and Public Pensions Unit.

My complaint focused on five primary actions by city officials. First, the transfer of $29 million from a restricted fund used for fire hydrant installation and water main replacement into the city’s reserve fund. This action intended to create a temporary and imaginary balance in the reserve fund for the bond rating agencies (the City Council President confirmed that the money would be used to pay city salaries and raises rather than used for an emergency). Evidence of city officials’ intent to mislead the bond rating agencies into believing that Los Angeles maintained a healthy reserve fund balance exists in written communications from the Mayor to the Council President stating that “with rating agency downgrades looming” the Mayor made an “urgent request to strengthen the Reserve Fund by infusing it with Council controlled special fund cash balances.” Video evidence shows that in order to avoid an embarrassing reprimand the multi-million dollar transfer was made by the Council and that after a better grade was received by the rating agency the money would be used to pay city salaries and raises. The funds would not be left in the reserve fund for use in case of a natural disaster or emergency matter.

Second, the transfer of over $119 million from a parking revenue fund intended to relieve parking and traffic pressures into the general fund to pay city salaries and raises. Third, the postponement of over $100 million in personnel costs including police overtime and unused sick time until the current Mayor leaves office to which the Times stated “even some of Villaraigosa’s allies are questioning whether the public has been misled about the health of the city’s finances.”

Fourth, the transfer of over 1,000 general fund employees to the Department of Water and Power (which is a proprietary department with a separate budget) even though there is no evidence the DWP needed over 1,000 new employees. Fifth, the creation of an early retirement incentive program represented as savings to the city when it was later revealed that the program cost the city hundreds of millions of dollars.

On August 30, 2012, the Los Angeles Times reported that San Bernardino made the decision to “raid restricted funds to pay its employees.” The Times stated that “borrow[ing] from funds not intended for day-to-day expenses, [is] a practice that has drawn federal scrutiny of the city’s books. In October 2012, the Times reported that the SEC had opened a probe into San Bernardino’s accounting practices and city officials had “acknowledged that the general fund had borrowed repeatedly from restricted funds and eventually failed to pay back the debt.”

L.A.’s accounting practices are questionable at best. There are simply too many similarities between L.A.’s practices and the conduct of officials in other cities that have already come under federal scrutiny. For these reasons, and because the financial future of Los Angeles is at risk, I am calling on the SEC’s Enforcement Division to take action on the complaint I filed in October 2012.

Direct link:  https://prnewschannel.com/2013/03/04/bombshell-in-l-a-mayors-race-kevin-james-files-complaint-to-sec-to-expose-alleged-municipal-fraud/

SOURCE:  Concerned Citizens for Los Angeles

Print FriendlyPrint Friendly


This press release is distributed by PR NewsChannel. Your News. Everywhere.