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*** Digging for Gold in L.A.'s Courts

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    (Note: This is a lengthy news article, but a well-documented insight to the corruption still going on in the Los Angeles Superior Courts slush funds scandal.
    Message 1 of 1 , Aug 13, 2000
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      (Note: This is a lengthy news article, but a well-documented insight to the corruption still going on in the Los Angeles Superior Courts slush funds scandal. The courts are always accusing litigants of "impugning the integrity of the court," but what is this ongoing saga doing for our judicial system?
      -Ron Branson, J.A.I.L.)
       
      Digging for Gold in L.A.'s Courts
      August 2000 Washington Post Insight Magazine
      09/04/2000
      By Kelly Patricia O'Meara
      omeara@...
          Millions of dollars are hidden in a trust fund overseen by Los Angeles County's Superior Court, which a pair of insiders have plundered in a major bribery scandal. 
          It was the gold in them thar hills that brought on the California rush of 1849. Although it may not be the mother lode, for those willing to do a little digging there still are millions to be found there today. For instance, huge sums of money have been hidden by government deception in the care of the Los Angeles County Superior Court. 
          Like John Sutter, who tried in vain to keep secret the gold that
      had been discovered at his mill, Gregory Pentoney, an auditor in the Los Angeles County Superior Court Finance Office, and attorney and partner in crime Robert Fenton, hoped to secretly enjoy the benefits of their discovery of tens of millions of dollars that seemed to have been forgotten in the court's Condemnation and Interpleader, or C&I, trust account. These are unclaimed sums deposited in trust by municipalities as compensation for property condemned under eminent domain. The two men
      hauled in millions before authorities got wise to their scheme which, according to Assistant District Attorney Nicholas Koumjian involved the "largest bribe in the memory of the members of the Los Angeles County District Attorney's Office." 
          Many have argued that more important than the bribery scheme put in motion by Pentoney and Fenton is the revelation that for decades the County of Los Angeles, through the superior court, has failed to make public the individuals, businesses and municipalities that are owed money - both principal and interest - from the C&I account. In fact, it is the court's hiding (and failure to disburse) the C&I trust funds that opened the door for Pentoney and Fenton to plan and execute their scheme. 
          There is a wealth of information about the C&I account hidden deep in the archives of the court and only someone on the inside could get the information necessary to make claims against it. Enter Pentoney. 
          As an auditor in the court's finance office, Pentoney had at his
      disposal the court records on C&I trust accounts. Rather than devise a plan to disseminate information to the public about these uncollected funds, Pentoney secretly passed the information to his partner, Fenton. By keeping this information to themselves and working the C&I accounts for their personal benefit, Pentoney and Fenton also allowed deception by the court and the Los Angeles county government to continue. 
          This deception is not without purpose. Insight has learned that
      the county government on two occasions has taken a total of $10 million from the C&I interest trust to make up shortages in the general fund. Never mind that such a transfer is illegal without statutory authorization. John Naimo, chief of the accounting division for Los Angeles County, tells Insight they just did it: "There is no statute that calls for the existence of the interest fund; we created the interest fund for purposes of regulating interest earnings on the money deposited with the court on the C&I account." Naimo says he is unaware of any statute allowing withdrawal of funds from the C&I accounts. 
          In fact, according to testimony of Alf Schonbach, manager of the Superior Court Finance Office Internal Audit Division (and Pentoney's direct superior), two meetings were held among officials of the court, the Los Angeles County Treasurer's Office and an attorney representing county counsel to discuss the possible transfer of the funds from the interest-trust fund through proper escheatment procedures (a process in which funds may be taken by the county but only after the rightful owners have been notified and provided an opportunity to recover them).
      Schonbach testified that although he had no information about the $6 million transfer of funds from the trust account to the county general fund in 1985, he knew the $4 million transfer in 1994 was not carried out through proper escheatment procedures. 
          In other words, the county withdrew the funds without first
      notifying the public that it was holding monies on which claims could be made. 
          A California attorney familiar with trust law spoke to Insight on the condition of anonymity and explained that "the money in the interest account cannot be used for any other purpose. Any interest that is earned on the C&I account has to go into the interest account. Whenever money is in a trust, the county cannot take money from the account and use it for its own purposes. The treasurer knows this, but still it's done all the time." 
          The C&I accounts have existed since 1901. One part strictly is for deposits - the principal on eminent-domain cases that is held in trust by the superior court for the duration of legal proceedings. The California code mandates a fiduciary duty of the county to maintain records of these accounts and oversee the disbursement of the funds they contain. Then there is the account into which the interest on the C&I account is paid, and it is this which is overseen by the Los Angeles County Auditor/ Controller's Office. The county auditor, recently appointed Tyler McCauley, is responsible for calculating and disbursing interest on the court-ordered trust accounts. 
          According to Koumjian, auditor Pentoney and attorney Fenton sold inside knowledge of the C&I trust accounts when they "concocted a sophisticated and very lucrative criminal conspiracy." Here's how it worked. 
          Between December 1995 and October 1996, Pentoney used his position as auditor in the Los Angeles County Superior Court Finance Office to pass information on 99 C&I accounts to Fenton, who had contracted with local municipalities to recover funds that might be due them. From records that were found during a Nov. 1, 1996, search of both men's homes and the court's finance office, it was revealed that Fenton recovered more than $5 million for his "clients" and was paid fees for doing so. For instance, Fenton received 50 percent of the first $25,000,
      40 percent of the next $75,000 and 33.3 percent on any amount exceeding $100,000. In return, Pentoney received one-third of Fenton's earnings, a little less than $500,000. 
          Although the $5 million figure reportedly represented all of the
      99 C&I cases processed by Pentoney and Fenton through the Superior Court Finance Office, Los Angeles County District Attorney Gil Garcetti brought charges against Pentoney and Fenton in only 10 of the 99 cases. Those 10 cases involved monies that were owed to municipalities by the state of California rather than the county's trust fund, but the County of Los Angeles paid the municipalities nearly $1.5 million for
      condemnation cases that were, in fact, the responsibility of the state. 
          Koumjian tells Insight that the $3.5 million from the remaining
      89 cases Pentoney and Fenton recovered for the municipalities was "legitimately owed to the cities by the county." He claims "there is no law that says they [Pentoney, who apparently obtained the secret information as part of his job, and Fenton] can't keep the earnings from the recovered amount of the 89 cases, but I've argued that the money is unjust enrichment from the scheme and they should not be allowed to keep it." 
          In his sentencing memorandum to Orange County Superior Court Judge Stuart Waldrip, Koumjian reports that "Pentoney remains in possession of about $300,000 and Fenton retains double this amount, his share of the fees he received from the cities on the 89 cases." 
          A corresponding issue regarding these "earnings" is the repayment to the county of the funds it paid out for the 10 state cases totaling $1,457,202. The county notified the municipalities that the money they received was paid in error and a refund was requested. Pentoney and Fenton reportedly returned to the cities their take from the $1.4 million. However, while there is a check in the amount of just under $450,000 written by Fenton to one of the cities, there is no proof of payment by Pentoney. This became an important point in April 1999 when Pentoney filed with the court to be represented by a public defender, claiming financial difficulties. 
          Pentoney claims to have repaid his share of the take from the 10 state cases, but neither his public defender, Walter Katz, nor Koumjian have been able to provide Insight with documentation to support his claim. In fact, when asked to produce proof of payment, Katz became defensive. "As far as I know it is a nonissue. It simply is a fact that he [Pentoney] paid the money, and as far as we're concerned the county has been made whole," says Katz. 
          Apparently irritated by the push for answers about Pentoney's
      repayment of the illegally earned county funds, Katz resorts to
      name-calling. In a surprising tactic for a taxpayer-funded public
      defender to take when asked to provide straight answers to legitimate questions in a serious criminal case, Katz says, "Look, I already don't trust your publication based on its ownership." Finally, he agreed to search his records for documentation of Pentoney's payment. 
          The point of the questions, which Katz apparently did not grasp, is that Pentoney's earnings on the 10 state cases were from taxpayer funds, and in claiming poverty Pentoney also is receiving a taxpayer-funded public defender. Is he hiding money? If Koumjian is correct in his calculation that Pentoney retained $300,000 from the other 89 cases, and if he did not repay the funds earned from the 10 state cases, he hardly should be experiencing financial difficulties. Could there be other, undisclosed, conspirators to whom the missing monies were paid? And, if so, who are they and how high does this scam
      go? 
          Certainly the public defender isn't the only official giving these two felons a surprising amount of latitude. The district attorney's office also appears to have bent over backwards to give Pentoney and Fenton every possible break. 
          Despite having evidence of the elaborate scheme to profit from the C&I account in November 1996, the district attorney's office opted not to bring charges against either Pentoney or Fenton until two years later, in August of 1998. And the district attorney, in return for each defendant entering a plea of no contest to a single count, withdrew the other original 20 felony counts. Pentoney pleaded no contest to "accepting a bribe," while Fenton entered a no-contest plea for "giving a bribe." Insiders argue, however, that there is a curious flaw in the plea bargain made by Pentoney. If the evidence in the case is taken at face value, it was not Pentoney who took the bribe - that is, who received the money - it was Melissa Morris Pentoney, Pentoney's wife. 
          According to court records and evidence retrieved from the
      Pentoneys' home during the November 1996 raid, Melissa Pentoney operated Morris & Associates Bookkeeping Service, an individually owned business based in the couple's home. Each of the checks written by Fenton, which totaled nearly $500,000, were made out to Morris & Associates, yet Melissa Pentoney never was charged. Koumjian explains that "there is no evidence that she [Melissa] knew about the agreement between Fenton and
      her husband. There is no evidence that she knew anything beyond a reasonable doubt of what was going on." 
          This may be the district attorney's assessment, but he also
      acknowledged that "she invoked her constitutional right not to speak and I never asked her what she knew." The district attorney claims that "adding her to the case would have made it more likely that the judge would give them a lighter sentence. We considered Melissa, but she probably would not have been convicted. Judges don't like to put an entire family in jail, especially if there are children involved." Maybe, and maybe she is being held hostage to ensure someone's silence. 
          Several questions remain unanswered. Melissa Pentoney received checks written by Fenton to her business over a short period and in amounts uncharacteristic of bookkeeping services for a single attorney. These were checks such as the one dated Jan. 22, 1996, in the amount of $65,500 and another dated just 14 days later in the amount of $76,350. The total payment from Fenton to Melissa Pentoney's company is just shy of $470,000. 
          Is it likely that the wife of the L.A. County Superior Court
      Finance Office auditor never wondered why Fenton was paying her so richly? Is it likely that Melissa Pentoney withheld her financial windfall from her husband? And is it likely that the district attorney failed to notice that her substantial increase in business coincided with the exact dates that her husband was working the C&I account with Fenton? 
          Furthermore, during a recent telephone conversation with the
      couple, Melissa Pentoney seemed acutely aware of the depth of the scheme. Through tears she explained her dissatisfaction with the way in which the press had represented their story and, before an abrupt end to the conversation, explained that Insight never could report the full truth because the magazine does not "have enough money or political power to get to the bottom of this story." 
          Based on that short but direct conversation, Pentoney appears to be a woman who knows a great deal about what has been going on both in the superior court and in the C&I trust-fund scheme involving her husband and Fenton. Who is being protected, and how high does this scheme go? 
          Whether justice has been served - and the people of Los Angeles have been fully reimbursed and "made whole," as the public defender says he believes - remains a subject of debate. Trying to get to the bottom of these matters, Insight has been denied access to two important audits - the first conducted in November 1995 to determine the amount of interest on hand in the C&I account, and another audit that began after the raid on the finance office in 1996 concerning the 89 C&I cases.
          According to Mike Galindo, assistant auditor for Los Angeles County, "Some of the information is confidential - attorney/client privileged." For all intents and purposes, however, with the July 14, 2000, sentencing of Pentoney and Fenton, it appears to be a done deal: case closed. 
          But it remains a hot topic. Although the charges were brought by the County of Los Angeles, all the Los Angeles Municipal and Superior Court judges recused themselves from hearing the case. It was transferred to another jurisdiction in Orange County, where Judge Waldrip presided over the sentencing hearing for Pentoney and Fenton. Both men appeared in court on July 14 with their extended families and friends. Pentoney, a handsome blonde still in his 30s with three small children to raise, and Fenton, a middle-aged man with dark good looks whose three teen-age sons quietly watched from the back of the courtroom, were visibly surprised and shaken when Waldrip appeared to sentence the two to hard time. 
          In a considered discussion of sentencing that only can be
      described as judicially poetic, Waldrip said: "This was a big-time deal - a series of events that involved a large sum of money . taking a bribe and giving a bribe. It was not a casual crime of opportunity. This was a series of events - a carefully orchestrated process of criminal behavior. Mr. Pentoney was on the inside and used his position to carry out the scheme. What happened is they found a bleeding body in the street and, rather than help, they began to cut it up." 
          Both men were visibly upset as Waldrip announced his intention to sentence Pentoney to two years and Fenton to 16 months in the state's prison system. But both men were given time to "put their lives in order," and final sentencing and resolution of the issue of restitution were scheduled for Aug. 11. 
          Meanwhile, it appears that exposure of the scheme carried out by Pentoney and Fenton is forcing changes in the way the county handles the C&I trust fund. The superior court finance office now sends notices once a year to the municipalities advising them what monies may be due to them from the county's C&I deposits. Such notices will not, however, be sent to individuals or companies that might be owed these monies, so the greater scam will continue. An interesting note to this new effort is that, according to the finance office, the county currently has
      approximately 1,300 C&I cases in which principal and interest are owed. The county does not, however, have any idea of what is owed and to whom on the "zero-balance" cases that long have been archived. A "zero-balance" case is one in which principal has been paid but interest still may be owed - and tens of millions of dollars are known to be at stake in such cases. 
          Despite the fact that attorneys for both Pentoney and Fenton have raised the issue of Los Angeles County's wrongful escheating of $10 million from the trust account, and even Waldrip's scolding of the Los Angeles County Superior Court for its mishandling of the county's trust-fund account, stonewalling continues. The county's random practice of looting funds from the C&I interest account to beef up the general fund has not been addressed, and neither the Board of Supervisors nor the Los Angeles County Council have responded to Insight's calls. Given the fact that the rush now is on to recover the "forgotten" C&I trust funds, both of those elected bodies might need to make at least the appearance of reform a priority. The prospect of bailing out the trust account a second time may not sit well with the taxpayers of Los Angeles County. Or, for that matter, with certain ambitious prosecutors. *
      Thanks to Connie Valentine for sending this article to JAIL - cppa001@...


      * Due to multiple conflicts of interest throughout the County of Los Angeles, this is a proper case for an investigation by the Los Angeles County Grand Jury, however, there is a conflict in that it is the District Attorney who is their legal advisor preventing them from exercising their autonomous power. When passed, JAIL will provide the People with an autonomous state-wide Grand Jury.
      -Ron Branson.
       
      J.A.I.L.  (Judicial Accountability Initiative Law)
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