Last March, CitiReport offered an inside account by Oliver Luby on the City College money laundering scandal as an example of the San Francisco Ethics Commission failures to protect city honest government laws and the integrity of city officials.
As Luby wrote, Ethics Commission Executive Director John St. Croix had information on potentially criminal activity but failed to alert any officials for two years. His only response: “I don’t know who actually dropped the ball.”
The scandal involved a cast of influential political powers, from City College Chancellor Day to the Sutton Law Firm, since involved in efforts to sue to overturn various San Francisco clean government provisions.
Just over a week ago, former Chancellor Philip Day and Stephen Herman, the former chief administrative officer, entered guilty pleas to felonies as part of a plea bargain in the case. They will pay fines but not serve jail time. The charge was misuse of public funds.
Because of the significance of the issue beyond the College bond and the light it sheds on the Ethics Commission as the guardian of the city’s political integrity, CitiReport is reposting this important story.
In November of 2005, San Francisco voters approved a ballot measure authorizing $246 million in bond funding for San Francisco City College. Little did the voters know on election day that spending of the bond money would not be limited to the approved uses detailed in the measure.
Nor could voters have known that funding of the measure’s election campaign was mired in financial improprieties and crimes, the details of which would be revealed in subsequent years. Even today, questions remain unanswered, or unasked, about who in the campaign knew about or were involved in its illegal activities.
Such are the results when politicized government watchdog agencies, such as the San Francisco Ethics Commission run by Director John St. Croix, turn blind eyes or intentionally bury their duty.
The bond players Following voter passage in 2001 of a $195 million bond for San Francisco City College, officials at the college began planning a second bond campaign. In April 2005 Chancellor Philip Day directed his management team to set up a campaign committee and bank account – the 2005 Committee to Support Our City College was born. Top staff of Day became the formal agents of the committee – Vice Chancellor Peter Goldstein was the committee’s Treasurer and Chief Administrative Services Officer Stephen Herman was the Assistant Treasurer.
Amongst the first funds deposited into the campaign account was a $20,000 check from Bean Scene, who had been awarded a coffee shop lease by the College. The Bean Scene payment would be the first of several curious deposits into the election campaign.
Numerous officials were involved in the campaign. Around July 1, 2005, Rodel Rodis, President of the College Board of Trustees, appointed fellow Trustees Natalie Berg, Johnnie Carter, and Lawrence Wong to the Steering Committee for the bond campaign. This Committee also included Chancellor Day and his top staff Goldstein and Herman.
Originally intended for the 2006 ballot, Rodis, Berg, and Day met with Mayor Gavin Newsom around August 3, 2005 to discuss placing the bond measure on the November 2005 ballot. At an August 10, 2005 meeting, the College Board voted to approve the measure for the 2005 ballot; only Trustees Milton Marks and Julio Ramos voted against this resolution.
Different lawyers were also involved in the campaign. The college originally retained Steve Ngo in April 2005 to set up the campaign committee. Years later, in fall of 2008, Ngo would later run for and be elected to the Board of Trustees himself, becoming an ally of Trustees such Marks and John Rizzo who have pushed for greater transparency and accountability regarding City College’s finances and management. While an attorney for the committee, Ngo advised the committee personnel that City College funds could not be used for general political activity.
By August 2008, Ngo had disengaged his representation of the committee and the committee had switched its attorney for the Sutton Law Firm. Sutton Law attorney Kevin Heneghan became the Assistant Treasurer of the committee. The Firm’s principal, Jim Sutton, is known as the go-to election attorney for San Francisco’s well-heeled, as well as having influence over San Francisco’s Ethics Commission. His past clients include numerous ballot campaigns, former SF District Attorney and now California Attorney General Kamala Harris and Lieutenant Governor Gavin Newsom.
The college bond campaign committee met regularly in the offices of Forest City Development. Trustee Berg, a former Chair of the San Francisco Democratic County Central Committee, is a Regional Vice President of Forest City Development.
The campaign obtained lists of City College contractors and vendors, who were targeted for donations. Ultimately, the committee spent over $467,000 on promoting passage of the measure.
Loose lips sink ship The paths of history sometimes turn on seemingly small events. The City College fundraising story might never have become public knowledge had one such event not occurred.
On November 4, 2005, four days before the election, the Sutton Law Firm filed a pre-election contribution report on behalf of the bond committee with the Ethics Commission, disclosing a $10,000 payment received from Bay Motorcycle Training, Inc., a motorcycle school. The firm had also written to the motorcycle school to inform its president, Samuel Lepore, that the school qualified as Major Donor (a campaign contributor of $10,000 or more) and therefore was obligated to submit campaign reports of its own.
Lepore received the Sutton Firm’s letter after the election on November 22, 2005. Shortly thereafter, the motorcycle school submitted a Major Donor report to the Ethics Commission. Ethics Commission staffers processing the filing realized that it was incomplete because the school should also have filed a pre-election contribution report matching the bond committee’s $10,000 report. Under state law, filing agencies such as the Ethics Commission are required to notify Major Donor filers when they are delinquent in disclosing reports of their campaign contributions.
An Ethics staff person called Lepore and informed him of the past-due pre-election report and the mandated $10/day late filing fee. Had Lepore filed the report and paid the fee, that might have been the end of this story.
Instead, Lepore informed the Ethics staff person that the $10,000 amount was due to City College as a payment for a lease. The motorcycle school operated out of a parking lot of the College. Assistant Vice Chancellor Jim Blomquist, a former project manager for Forest City, had negotiated the lease with the motorcycle school.
Lepore informed Ethics that Blomquist had directed him to make the $10,000 payment to the campaign committee, not the College. Therefore, the $10,000 belonged to the College and it was the College, not the motorcycle school, that made a political donation to the bond measure campaign. Such use of public funds for election advocacy purposes is criminal under California law; in fact, it is a felony.
At the conclusion of his conversation with the Ethics staffer, Lepore was asked to write a letter explaining the circumstances of his payment, in order to substantiate his claim that he was not a campaign contributor. Lepore was told that, based on the information he provided, he likely was not required to file any Major Donor reports.
These circumstances exemplify the auto-audit benefit of the Major Donor reporting requirement – making a determination of whether contributions reported by recipient committees are correctly disclosed. On December 5, 2005, the Ethics Commission received Lepore’s letter, which included a copy of its agreement with City College.
Lepore letter’s revealed that, upon receiving the Sutton Law Firm’s Major Donor notice letter on November 22, Lepore had called the firm about his contract payment, that discussion was “inconclusive,” and that he was advised to file as Major Donor with Ethics Commission “just in case.”
How could the Ethics Commission and Sutton Law Firm reach such different takes on whether Lepore’s school qualified as a campaign contributor? Did an attorney at the Sutton Law Firm, election law experts par excellence, not know how to distinguish campaign donations from contract payments? Or did the Sutton Law Firm know exactly what it was doing on behalf of its campaign client when it directed Lepore to file as a Major Donor.
Sutton has been fined in the past for failure to fully and timely disclose campaign contributions for the committees that hired him. It appears that the Ethics Commission never responded to Lepore’s letter or contacted City College about its funds triggering Major Donor-level reporting requirements.
However, in December 2005, a copy of the Lepore letter to Ethics was placed by a staffer in its public records viewing room, where copies of the reports filed by ballot measure campaigns, Major Donors, and others can also be viewed.
The San Francisco Ethics Commission – the place scandals go to die. Amongst the dusty records, Lepore’s letter sat. And sat. It’s still there. Maybe this would have been the end of the story, another turn where the public could have remained in the dark, but someone noticed.
April 6, 2007, over a year Lepore’s letter was received by the Ethics Commission, San Francisco Chronicle reporter Lance Williams broke the story of college funds being illegally diverted to the bond measure campaign committee .
The exposé revealed for the first time that not only had City College personnel diverted the $10,000 motorcycle school payment but other funds as well. A $20,000 payment from Bean Scene, contractually due to the college, was paid to the bond committee.
City College’s Mr. Herman had directed Bean Scene to pay the committee instead of the college. The committee also received $30,000 from individuals connected to SuperCrown Catering, Inc., shortly after Chancellor Day recommended a 5-year contract for SuperCrown to operate vending trucks on the College’s main campus. Prominently featured in the graphic for the article was Lepore’s December 2005 letter to the Ethics Commission.
Reactions from the article were immediate and have continued to ripple. On April 10, 2007, three College Trustees, Marks, Ramos, and John Rizzo, issued a statement expressing concern about the bond committee fundraising and calling for an investigation.
City College officials involved in the committee fundraising, Day and Blomquist, denied acting improperly. The College Board of Trustees first publically discussed the discovery of the problem the next day, at their April 11, 2007 meeting. During the meeting, Trustee Rodis downplayed the problems with the committee he had overseen, stating that most of the transactions at issue with the scandal were acceptable and that one illegal transaction was only a technical violation.
On April 17, 2007, the Trustees voted to spend up to $75,000 on an independent investigation of the fundraising abuses. Day promised that any improper payments would be refunded. On May 10, 2007, the Trustees voted to hire law firm DLA Piper to conduct the independent investigation into the fundraising abuses in the bond campaign. Rodis voted against the resolution, saying it cost too much. Despite Rodis’s opposition, DLA Piper was retained around May 22, 2007 and an investigation headed by attorney Steven Churchwell was commenced.
The Trustees weren’t the only ones to investigate. On June 26, 2007, the Chronicle further revealed that the SF District Attorney’s office (then headed by Kamala Harris) was investigating suspected fundraising abuses associated with the 2005 bond campaign.
After the June 26 San Francisco Chronicle article, former Ethics Campaign Finance Officer Joe Lynn noted in Fog City Journal that the Ethics Commission had failed in its duties regarding the bond committee campaign finance reporting. When Ethics learned that the bond committee had incorrectly reported payments received from College funds as contributions from the contractors, Ethics had an obligation to request corrected reporting from the bond committee.
Lynn described other problems with Ethics’ handling of facts about the bond committee. When the Board of Trustees had discussed the San Francisco Chronicle’s revelations, Chancellor Day complained that Ethics had not given them a heads up. Lynn further reported that, after the Ethics Commission had next met, Commissioners had raised questions about Ethics’ role in the matter and not gotten answers.
Following Lynn’s piece, at the July 9, 2007 Ethics Commission meeting, Ethics Executive Director John St. Croix admitted in open session that he had learned of the City College fundraising issue in 2005 but did not refer the matter to another enforcement agency, the California Fair Political Practices Commission (FPPC), until May 2007 (see Minutes).
In a July 17, 2007 article, the SF Bay Guardian reported that Director St. Croix had known of the alleged laundering of public money into the bond measure campaign and done nothing until after the scandal was reported in the press. In addition to reporting on damage control of the scandal by Day (who blamed the problems on the assistant vice chancellor) and Rodis (who complained that the Chronicle articles were an attack on the College), the Guardian article described St. Croix’s response to how the ball got dropped: “I’ll take responsibility for that. … I don’t know who actually dropped the ball. But at the time we had less staff and there were a lot of things we were supposed to do and we weren’t doing.”
Another Fog City Journal article by Lynn noted that St. Croix’s response of lack of resources was curious, given the years of investigation of one ballot measure campaign, San Franciscans for Affordable Energy, which resulted in a mere $267 fine.
Pointing out that an illegal payment had been received by the bond committee while its financial reporting was handled by the Sutton Law Firm, Lynn wrote: “No explanation has been advanced as to why the resources were available for [Affordable Energy], but not for two five minute calls regarding the involvement of the Mayor’s attorney in what is now the subject of criminal investigation.”
The July 17 Guardian article also revealed that Ethics’ lax approach to the bond campaign applied to Trustee Rodis’ own 2004 re-election campaign. Rodis failed to disclose his election financing in 2004, only partially complying with his reporting obligations in late 2005. Rodis was therefore delinquent in his candidate/officeholder disclosure obligations while heading the Steering Committee for the bond campaign. By the time the Guardian reported about this, Rodis’s disclosures were still incomplete and he had not been assessed any penalties by the Ethics Commission. Not until February 15, 2008 would Rodis finally complete his 2004 disclosure obligations regarding over $40,000 in campaign contributions and spending. Of the $34,370 in assessable late filing fees, Ethics reduced the amount due to just $6,180, as shown by its deposit records. In establishing the amount due, Ethics diverged from its own standards on determination of applicable reduction in late fees. Under the Commission’s own waiver standards applicable to the 2004 election, the $34,370 in fees incurred by Rodis should have been reduced to no less than $29,143. By treating the Rodis matter as if it were a confidential enforcement investigation but omitting public disclosure of any settlement agreement (disclosure is required every time Ethics settlements end in fines due), Ethics failed to provide any public record disclosing the final deal received by Rodis or explaining the basis of the partial waiver of late filing fees.
Chillingly, what St. Croix had done was create a method for assessing secret penalties.
The ripples continue
Another July 2007 Guardian article revealed that the City College bond money that voters approved for specific projects was often spent on entirely different College items.
The article reported that Chancellor Day had known of some of the inaccuracies in the projects described to voters but never corrected the ballot handbook or informed the media. The Churchwell report commissioned by the College Board of Trustees was finally completed in January 2008. A majority of the Trustees initially balked at making the report public, but the report was eventually released later the same week.
The report confirmed that using College contractors to transfer College funds to a political campaign was improper, reporting that there was “a glaring lack of oversight of the College’s involvement in fundraising from College contractors.”
The Churchwell report faulted only College officials Blomquist, Herman, and Goldstein, though noted that Day was deeply involved in the campaign’s fundraising. The Churchwell report states that at least one administrator who diverted payments due to the College claimed ignorance regarding the law on misuse of public funds.
If administrators did not know diverting public funds was wrong, we might presume that their naiveté would result in openness about their actions. This raises a question: were these repeated funding diversions discussed during the regular meetings at Forest City and was College Trustee and Forest City VP Berg aware of them?
Also in January 2008, Chancellor Day announced that he was resigning. Day’s term as Chancellor ended in March and he went on to accept a job as President of the National Association of Student Financial Aid Administrators (NASFAA).
A March 5, 2008 Guardian article revealed that the 2005 financial improprieties were not isolated but part of an emerging pattern. The article reported on an audit revealing that, in November 2006, College administrators had transferred over $38,000 to Foundation of City College of San Francisco, a private non-profit, and also made a $35,000 contribution to a political committee promoting statewide bonds that benefits colleges such as SF City College.
On September 28, 2008, the Chronicle reported that a criminal grand jury was investigating College officials for diverting public funds into the 2005 bond measure campaign.
Following the revelation of the grand jury investigation, I, while still a staffer at the Ethics Commission, penned a November commentary in the San Francisco Chronicle, revealing new details to the story.
My piece identified me as the Ethics staff person who, in November 2005, discovered that Blomquist had directed a contractor (the motorcycle school) to divert College funds to the bond campaign. The open editorial was also the first public disclosure regarding Ethics Director St. Croix’s reaction to discovery of the diversion of public funds.
First, I had written a November 2005 memo to St. Croix describing the diversion of public funds and stating “there may be serious impropriety present in this case necessitating an investigation as well as perhaps even a referral to the District Attorney’s office due to the possibility of criminal conduct.”
St. Croix ordered me not to speak about my report.
Second, my commentary reported that, following the Chronicle’s exposé of the scandal, St. Croix ceased enforcement of the Major Donor filing requirement, the state disclosure law that allowed me to uncover the money laundering in the first place.
While the Ethics Commission’s acting on Major Donor delinquencies for filing periods from 2000-2004 netted $200,000 in collected penalties and enhanced public disclosure, none of the delinquencies identified by Ethics staff in 2005 or subsequent years were acted upon by Ethics, in violation of state law.
Delinquent Major Donors who voluntarily complied with the law received automatic waivers of late filing fees. When an Ethics Commissioner asked St. Croix to comment on my published commentary during the November 10, 2008 Ethics meeting, St. Croix dismissed the utility of Major Donor reporting and criticized me as acting out of pique.
I am not surprised he failed to appreciate my whistleblowing. Nevertheless, when his own staff were recommending referral to the DA’s office regarding a matter for which the DA ultimately initiated a grand jury investigation, St. Croix’s ordering silence from his staff and taking no action until after the press broke the story strikes one as strange.
St. Croix’s response to the Guardian (“I don’t know who actually dropped the ball”) suggests that incompetence is to blame, but the question lingers, did St. Croix intentionally bury the matter? Perhaps St. Croix’s dismantling of Major Donor enforcement and its potential to uncover new scandals is a clue to the answer.
My piece noted that the Sutton Law Firm had repeatedly complained about Major Donor enforcement, including after I publicly alerted the Ethics Commissioners in 2007 that Major Donor enforcement had been dropped. With Sutton representing the bond measure campaign and Major Donor filers, St. Croix’s behavior may be another example of the influence of the Sutton firm over Ethics.
Where they are now
Three City College Trustees were incumbents during the November 2008 election: Rodis, Berg, and Marks. Marks and Berg were re-elected, but Rodis was edged out by newcomers Ngo and Chris Jackson. The political balance on the Board shifted in favor of greater accountability and oversight.
Months later, in July 2009, College officials Herman and Blomquist went on paid leave.
In September 2009, former Chancellor Day was charged with 8 felonies in connection with the diversion of $150,000 in public funds for political donations and other banned expenditures. Others were also charged in connection with the improper use of public funds. Herman was charged with 7 felonies and Blomquist was charged with 1.
The indictment went even further than the previous scandals reported in the press, uncovering diversion of public funds into a Day-controlled “discretionary Chancellor’s fund” set up at the college Foundation in 1999.
Following the indictment, Day resigned from his post at the NASFAA. Day, Herman, and Blomquist pleaded not guilty. By October 2009, both Herman and Blomquist resignedfrom City College. The preliminary hearing of their trial was scheduled for March 2011.
To date, there has been no public investigation into the roles of the Sutton firm or Ethics Director St. Croix in obstructing discovery of the College administrator crimes.
Sutton happens to be the campaign attorney for former DA Kamala Harris, as well as for the new DA, George Gascόn. No public action has been taken against SF Ethics by the FPPC or another oversight agency regarding Ethics’ continued failure to notify delinquent Major Donors of their past-due reporting obligations.
After continuing to blow the whistle about various problems, I was finally forced out of the Ethics Commission in June 2010.