The Ventura County District Attorney announced that it won’t be filing charges against Oxnard city officials who had been under investigation since August 2010. The following is the announcement plus the report on the investigation.
A REPORT ON THE PUBLIC INTEGRITY INVESTIGATION OF OXNARD CITY OFFICIALS
GREGORY D. TOTTEN
County of Ventura
State of California
April 18, 2012
During the summer of 2010, the Ventura County District Attorney’s Office learned of serious allegations of corruption involving elected and non-elected officials at the City of Oxnard.1 The allegations involved potential criminal violations of conflict of interest, misappropriation, and gift-reporting laws. In response, the District Attorney conducted a thorough investigation to determine the truth of the allegations and whether the law had been violated. The investigation focused specifically on the following allegations:
1 As used in this report, the term “officials” refers to elected City of Oxnard city council members and non-elected City of Oxnard employees in supervisory positions.
2 In June 2010, Ken Ortega resigned from city employment. For ease of reading, Ortega’s position will be referred to as Public Works Director throughout this report, as that was the position he held during the relevant times discussed in the report. The same convention will be applied to other officials who have changed position or employment since June 2010.
. Several city officials misappropriated taxpayer dollars to pay for excessive travel, meal expenses, and personal purchases.
. City Manager Ed Sotelo violated misappropriation and conflict of interest laws by taking an improper $10,000 personal loan of city funds and establishing an improper retirement benefit for himself and others.
. Public Works Director Ken Ortega2 misappropriated taxpayer dollars to fund a formal grand opening celebration of a city facility.
. City officials received gifts of vacations, meals, rounds of golf, and event tickets from companies doing significant business with the city, without publicly declaring the gifts as required by law.
. City officials violated conflict of interest laws by approving multi-million dollar city contracts from which they stood to profit.
To determine the truth of these allegations, district attorney investigators interviewed dozens of witnesses and executed more than 30 search warrants at more than 50 locations, gathering over 100,000 pages of documentary evidence. The investigation found evidence establishing the following:
. A clear pattern of fiscal waste by a small number of city officials. Oxnard’s lax policies and recordkeeping enabled officials to spend excessively while traveling on city business. These same deficient policies and recordkeeping leave insufficient evidence to prove criminal misappropriation under the law.
. City Manager Sotelo took an impermissible personal loan of city funds in 1998. Because the statute of limitations for this conduct has expired, the loan having occurred more than 13 years ago, the law does not permit prosecution.
. In 2003, City Manager Sotelo implemented a retirement benefit for himself and others that was improper because under state law only the city council has the legal authority to set employee salaries and benefits. Because the statute of limitations has expired and there is insufficient evidence to prove a criminal violation of misappropriation or conflict of interest laws, this conduct cannot be prosecuted.
. A formal grand opening celebration that cost an estimated $95,000 appears to have been funded with a combination of private contributions and diverted city funds. The available evidence does not reliably establish the extent of city funds expended on the celebration or who authorized the expenditures. City of Oxnard contracting practices did not accurately reflect the scope or cost of work to be performed under city contracts. Inaccurate contracting practices resulted in the improper diversion of city funds through an artificially inflated contract amendment. The diverted funds were used to finance a mural and a scale model featured at the grand opening celebration. Due to incomplete recordkeeping of both contracting practices and city expenditures, the evidence is insufficient to establish criminal misappropriation.
. Several city officials failed to declare gifts they received. The failures to declare gifts of meals, golf and event tickets have been referred to the Fair Political Practices Commission for administrative enforcement action. There is insufficient evidence to prove the most serious allegations involving gift vacations and the statute of limitations has expired as to many of the gifts.
. Close relationships existed between several city officials and private individuals conducting multi-million dollar transactions with the city. There were several instances of international travel by officials aboard one company’s private aircraft. Companies affiliated with the private individuals made significant profits from transactions with the city. However, there is no evidence that the officials had any direct financial interests in the questioned transactions. The evidence does not establish criminal conflicts of interest related to the multi-million dollar transactions examined.
In May 2010, the Ventura County Star reported that city officials had received gifts from companies doing business with the city without declaring the gifts as required by law.3 In response to the initial allegations, district attorney investigators examined public records and interviewed witnesses. The interviews and records confirmed that several city officials received gifts from companies doing business with the City of Oxnard and failed to publicly declare the gifts as required by California law.4 Investigators subsequently received reports of additional violations by city officials and encountered a lack of cooperation and repeated delay attempts from some city officials. The Mayor of Oxnard told the District Attorney that he suspected the city manager and assistant city manager were engaged in a “cover-up.”
3 Hadly, “Gifts Get Scrutiny as Oxnard Official Admits Not Reporting Some Freebies, Ventura County Star, May 29, 2010, http://www.vcstar.com/news/2010/may/29/gifts-get-scrutiny-as-oxnard-official-admits-not/accessed on April 13, 2012.
4 As discussed in Section Six of this report, there is no criminal prohibition against companies providing gifts to officials. The reporting requirement is an obligation imposed on the official, not the company. However, officials are required to declare certain gifts they receive and are limited in the value of the gifts they may accept.
In response, the District Attorney sought and was granted court authorization to search Oxnard City Hall on August 13, 2010. Subsequent search warrants were served at various city facilities, the homes and offices of several city officials, the offices of several companies doing business with the city, and numerous financial and escrow companies. In addition, several businesses provided documents voluntarily and the city provided additional documentation in response to Public
Records Act requests.
The investigation was hampered by serious impediments to obtaining evidence, including city policies and practices that did not reliably document expenses or payments, the unavailability of critical witnesses, and the inevitable loss of evidence with the passage of time. Also, when interviewed by district attorney investigators, several City of Oxnard officials made statements that were demonstrably false, including Mayor Tom Holden, City Councilmember Andres Herrera, and City Manager Ed Sotelo. Mayor Holden repeatedly denied having taken international trips aboard a local businessman’s private jet, when in truth he had done so. Councilmember Herrera and City Manager Sotelo each said they had stayed in New York City on a city-expensed trip for only two or three nights, when in truth they had stayed five nights.
Criminal Filing Standards
In determining whether to file criminal charges, the Ventura County District Attorney’s Office is guided by the same standards used by prosecutors throughout the state. In summary, a prosecutor may only file criminal charges if he or she believes, based on the evidence available after a thorough investigation, that the accused is in fact guilty of a crime and that guilt can be proven beyond a reasonable doubt at trial.
Misappropriation of Public Funds (Penal Code section 424)
Under California law, the crime of misappropriation of public funds refers generally to the unlawful use, taking, or expenditure of public money by a public official. In August 2011, the California Supreme Court issued a ruling in an unrelated case that dramatically increased the proof required under misappropriation law.5 The court added a new requirement that to prove misappropriation, prosecutors must prove the official knew, or was criminally negligent in not knowing, the use of public funds was unlawful.
5 Stark v. Superior Court (2011) 52 Cal.4th 368.
City officials regularly traveled on city business, when most of the misappropriation of public funds was reported to have taken place. When traveling, officials often ate expensive dinners at taxpayer expense in cities such as Washington, D.C., New Orleans, Las Vegas, and New York. The dinner bills, paid with city credit cards, often ran into the hundreds of dollars, with group meals most often paid for with a single credit card by an employee. Witnesses suspected the expensive meals were an unlawful expenditure of public funds.
Meal expenditures by Oxnard’s non-elected employees are governed by the city’s travel and reimbursement policy. The city’s published meal reimbursement policy contained no effective limitations, permitting restaurant bills of virtually unlimited amounts to be paid with taxpayer funds, as long as receipts were submitted. Because the Oxnard officials followed the city’s written policy authorizing virtually unlimited expenses, the non-elected city officials’ expensive meal expenditures did not violate the law.
In contrast, California law and a 2005 Oxnard resolution limit Oxnard’s elected officials to Internal Revenue Service (IRS) reimbursement rates.6 The city’s policies and recordkeeping practices did not consistently identify the officials present at particular meals or who was legally responsible for any portion of the bill. Due to the city’s inadequate recordkeeping systems and practices, it cannot be determined whether any elected official’s portion of a group meal exceeded IRS rates. Moreover, the evidence does not establish the officials knew or were criminally negligent in not knowing their expenditures were illegal. As a result, there is insufficient evidence to prove misappropriation under the law.
6 Government Code sections 53232.2 and 53232.3.
7 Penal Code section 424; Government Code section 8314.
Officials reportedly misappropriated city funds by using city funds for personal purchases while traveling. Significant allegations were made that three officials unnecessarily extended a city-funded trip to New York City, essentially taking a vacation at taxpayer expense. However, the investigation revealed that one official paid a portion of his hotel bill. In addition, there is evidence corroborating claims the trip was extended to meet hotel minimum-stay requirements during a busy travel season and to meet with representatives of a company doing business with the city.
The investigation also revealed that while officials traveled on city business, they occasionally used city credit cards for personal purchases such as spa charges, inroom expenses, alcohol, or, in a few instances, spouses’ travel or meal expenses. State law and city policy prohibit such use.7 Nonetheless, city practice allowed officials to charge personal expenses and reimburse the city at the end of the trip.
Because the city’s recordkeeping system does not itemize personal expenses nor reliably record who reimbursed the city, it is impossible to determine whether personal purchases were actually paid for by the city or by the official. Moreover, the evidence is insufficient to prove the officials were aware that the city’s practice was contrary to law, as required by the California Supreme Court decision in Stark v. Superior Court. As a result, the evidence is insufficient to prove criminal misappropriation.
City Manager Sotelo reportedly misappropriated city funds by loaning himself $10,000 of city funds without lawful authorization. In 1998, City Manager Sotelo requested and received a $10,000 personal loan of city funds. There is no evidence that the loan was approved by city council. Consequently, the loan was unauthorized and therefore improper. However, the statute of limitations bars prosecution because the conduct occurred 13 years ago.
In 2003, City Manager Sotelo created a $300 monthly retirement benefit for city management, including himself.8 Although this was done without formal city council approval as required by state law,9 there is evidence that councilmembers informally authorized Sotelo to create the benefit. Thus, there is insufficient evidence to prove that Sotelo’s creation of the benefit was criminal. In addition, the statute of limitations has expired, barring prosecution.
8 As of July 1, 2007, Oxnard’s “Top Management” classification included the assistant city manager, chief financial officer, city clerk, city treasurer, community development director, deputy city manager, development services director, fire chief, housing director, human resources director, library director, police chief, and public works director. The city manager and city attorney were entitled to the same benefits given to Top Management by the terms of their city employment contracts.
9 Government Code section 36506.
Grand Opening Celebration and Contractual Impropriety
Public Works Director Ortega reportedly misappropriated city funds in three ways to pay for a formal grand opening celebration at a city facility, to commission a mural and a scale model of another project displayed at the facility, and to pay favored consultants for unnecessary services to the city.
The grand opening celebration was funded primarily by payments from private companies involved in the facility’s construction or having other business with the city. Although city funds were diverted to pay for a portion of the celebration, the evidence does not reliably establish the nature of the city’s expenditures or who authorized the expenditures.
The mural and scale model on display at the city facility were purchased by a company doing business with the city, using city funds received from the city. The city diverted public funds by overpaying the company under an artificially inflated city contract pertaining to another Oxnard city facility. The company used the excess funds to pay for the mural and scale model. The evidence does not establish who inflated the city contract. Instead, several city officials were identified who may have been responsible. The investigation revealed that similar contracting practices were used at other times by officials with the Public Works Department.
Several direct city contracts with the allegedly favored consultants were lawfully authorized and do not amount to misappropriation. The evidence does not reliably establish that the use of the consultants as subcontractors was without authority of law or which city officials were responsible for the subcontracting expenditures. Moreover, the statute of limitations has expired as to these allegations.
Based on the available evidence, the various misappropriation allegations involving Ortega cannot be proven beyond a reasonable doubt.
Failure to Declare Gifts (Penal Code section 118 / Government Code sections 87203 & 87207)
Several City of Oxnard officials reportedly received gifts from various companies involved in multi-million dollar transactions with the city, without publicly declaring the gifts as required by law. Three officials allegedly received separate gifts of travel to Cabo San Lucas, Mexico, courtesy of one local businessman. These trips cannot be substantiated as gifts. One official clearly purchased his trips. Another provided evidence that he exchanged fair value in services for his trips. It cannot be determined whether the third official’s trips were gifts.
Reports were also made that officials received gifts of meals, rounds of golf, Broadway show tickets, and tickets to sporting events. These reports have proven true as to several officials, though in lesser amounts than alleged. While there is evidence to prove the gifts were not disclosed, there is insufficient evidence to prove the nondisclosure constituted felony perjury. Enforcement of these reporting violations has been referred to the Fair Political Practices Commission in accordance with the Political Reform Act.10
10 Government Code sections 81000, et seq
Conflict of Interest (Government Code sections 1090 / 87100)
City officials reportedly violated conflict of interest laws by having financial interests in multi-million dollar contracts they approved. The questioned transactions included the RiverPark development, fees for underwriting a number of municipal bond issuances, the city’s purchase of a sports park property at Oxnard Boulevard and Gonzales Road, the city’s purchase of a police annex building on Sturgis Road, the city’s sale of vacant lots in Oxnard Shores, and the selection of the operator of the city’s Materials Recovery Facility.
Conflict of interest concerns arose as to the RiverPark development and the municipal bond issuances as a result of gifts given to city officials by the companies involved. Conflict of interest allegations were raised about the sports park purchase because a company bought the property and sold it to the city on the same day, allegedly profiting by more than $8 million. Conflicts of interest were also reported as to the Sturgis Road, Oxnard Shores and Materials Recovery Facility transactions due to the close personal relationships between several city officials and one local businessman who was involved in all three transactions. The businessman was alleged to have given the officials gifts of travel to Cabo San Lucas, Mexico, on a private jet.
There is clear evidence of close relationships between city officials and some of the individuals involved in the transactions. There is also evidence that officials received gifts from some of the businesses involved, though the travel to Cabo San Lucas cannot be substantiated as gifts. However, there is no evidence that any of the officials had a direct financial interest in any of the transactions they approved and insufficient evidence that any official had an indirect financial interest in any transaction. Accordingly, there is insufficient evidence to prove any criminal conflicts of interest.
Deficiencies in City Policies and Practices
The investigation revealed several city policies and practices that do not comply with state law. Other city policies leave the city vulnerable to waste and abuse. These policies are identified below.
Responsibility for Employee Benefits
Although state law requires city council to set employee benefits,11 the council impermissibly delegated its responsibility to the city manager. This allowed a supplemental retirement benefit for city management to go undisclosed to city council and the public for several years. Oxnard city councilmembers have since become aware of their legal responsibility to set employee salary and benefits and have committed to doing so in the future. The city council is reportedly examining its legal ability to modify or cancel the retirement benefit.
11 Government Code section 36506. Violation of this code section does not carry a criminal penalty.
City Credit Card Usage
Though state law and city policy prohibit the use of city credit cards for personal purchases,12 city practice allowed such use under certain circumstances. The city’s recordkeeping systems failed to accurately identify the personal purchases and failed to ensure reimbursements were made to the city. While the city has modified its credit card practices, city reimbursement policies still permit some personal expenses to be charged to a city credit card, as long as reimbursement to the city is made.
12 Government Code sections 8314 and 36514.5; Penal Code section 424.
13 In June 2009, the City of Oxnard cut budget allocations to several city departments in response to tightening fiscal limitations.
14 Government Code section 53232.3. Violation of this reporting requirement does not carry a criminal penalty.
Excessive Spending on Travel Expenses
City policy and practices permitted virtually unlimited spending of public funds on meals and other travel expenses. In one example, taxpayers paid more than $14,000 for five city officials to travel to New York City to attend an industry award dinner.13
In February 2011, the city modified its travel reimbursement policies, limiting all employees and elected officials to the federal government’s published reimbursement rates.
Failure to Report City-Expensed Travel by Elected Council
Under California law and city resolution, when a city councilmember travels at public expense, the member must provide a brief report about the travel at the next city council meeting.14 In Oxnard, city officials did not consistently comply with this legal requirement. Failure to make the required report thwarts transparency in government.
Failure to Use Competitive Bidding
The City of Oxnard used the same investment banking company as a bond underwriter for several years. While the city has no legal obligation to solicit competitive bids for each bond issuance, the failure to regularly seek competitive bids reduced transparency and risked undermining public confidence in the use of taxpayer funds. Within the past 18 months, the city used a competitive process to establish a pool of qualified underwriters and began to diversify its use of bond underwriters.
Failure to Comply with City Ethics Standards
Oxnard city policy appropriately demands adherence to the highest ethical standards:
The policy of the City is that City officials and employees shall observe the highest standards of ethics…. City officials and employees shall conduct themselves so as not to give a reasonable basis for the impression that any such official or employee can be improperly influenced in the performance of his or her City duties…. They shall avoid even the appearance of conflict between their City duties and their personal interests.
The investigation revealed that several officials in the city did not follow the city’s published ethics standards. City policy prohibits officials from accepting gifts valued at more than $50 from anyone doing business with the city. Many officials routinely violated this policy.
This report is not intended as an indictment of the City of Oxnard, its residents, or the vast majority of employees. The allegations and misconduct described in this report are limited to a very small group of individuals serving the city in leadership positions.
A thorough investigation by the District Attorney’s Office revealed that the most serious allegations of criminal conduct are unsupported by the evidence. Several multi-million dollar transactions were scrutinized and no evidence of criminal activity was found. However, the investigation raised legitimate questions regarding the use of taxpayer funds and the lack of accountability among several city officials.
The investigation established that city officials took advantage of the city’s policies and practices to enjoy expensive meals with city funds. These same policies and practices insulate the officials from liability for the expenditures.
Some of these same city officials violated city ethics standards and state law while accepting gifts of meals, golf, and event tickets from companies doing business with the city, then failing to report the gifts as required by state law. The investigation also revealed that city contracting practices did not accurately reflect the scope or cost of work to be performed under city contracts. The lax contracting practices allowed city officials to conceal the true nature of city expenditures on a grand opening celebration for a city water facility and to divert city funds to finance a mural and scale model at the water facility. In addition, the investigation determined that City Manager Ed Sotelo used his position to obtain an improper $10,000 loan of city funds and to create an improper supplemental retirement benefit for himself and others.
It is not the District Attorney’s role to evaluate the wisdom of the city’s transactions and no such evaluation is included in this report. Such judgments are best left to the community the officials serve. Nonetheless, where city policies and practices conflict with state laws, or expose the city to potential criminal abuse, those policies and practices are identified as requiring reform.
For the full report, click on the link: