NORWALK — Former City Administrator William H. Kraus, who resigned under fire two years ago, said he plans to run for City Council next year, despite being under a federal mail fraud indictment.
In announcing his candidacy last week, Kraus predicted that a 23-count indictment against him in San Diego for alleged mail fraud would be dropped, although the prosecutor in the case, Special Assistant U. S. Attorney John Heisner, said he has no plans to dismiss any charges.
Heisner added that the case against Kraus and seven other defendants will not come to trial before August. The city election is April 8.
Kraus also is one of five former business associates being sued by three banks for more than $190,000 in allegedly defaulted loans.
For the Record
Los Angeles Times Thursday January 16, 1986 Home Edition Long Beach Part 9 Page 3 Column 6 Zones Desk 2 inches; 68 words Type of Material: Correction
In a Dec. 22 story on the Norwalk City Council candidacy of former City Administrator William H. Kraus, the name of a restaurant Kraus had a business interest in was incorrectly stated. The name of the restaurant is Olay LA Inc. Also, Kraus is one of four business associates involved in the restaurant who are now being sued by three banks for more than $190,000 in defaulted loans. The Dec. 22 article incorrectly stated that Kraus was one of five business associates involved in the deal.
Despite his problems, Kraus said in an interview that he is seeking office because he is sad and angry about what he called "an atmosphere of mistrust and apprehension" among employees at Norwalk City Hall, where Kraus was city administrator for 10 years.
One Other Challenger
Kraus said that city employees have been intimidated by Councilman Lou Banas, who is seeking reelection next year along with two other incumbents, Mayor Marcial Rodriguez and Cecil Green. So far only one other cchallenger, Grace Musquiz Napolitano has announced plans to run.
Banas denied Kraus' charges and City Administrator Raymond Gibbs declined comment.
Three years ago, Banas pushed for an investigation of allegations brought up by a community activist about Kraus' business dealings. A lawyer hired by the city to investigate the allegations raised questions about a property deed Kraus used in 1978 to finance a mortgage on a house in San Diego. The report was forwarded to the Los Angeles County District Attorney's office, but no charges were brought against Kraus.
Kraus denied he was seeking political revenge or vindication at the polls.
"This is not a grudge match. I've never been a vindictive person and in my old age, I'm not going to start now," said Kraus, 47, who is a $42,336-a-year graduate instructor at the Center for Public Policy and Administration at Cal State Long Beach and the executive director of the Orange County Apartment Assn. in Garden Grove.
While Kraus maintained that he is running to restore a sense of "care and concern for people" in city government, Banas charged that Kraus is the head of a "government in exile" that is attempting a political comeback. Banas said he was referring to council candidate Napolitano, a former member of the Norwalk International Friendship Commission, and her campaign manager, Randy Economy, the city's former public information officer.
Kraus and Napolitano both said they are running independently, while Economy said he has no role in Kraus' campaign.
In the federal indictment handed down in February, Kraus and seven other people from California and Utah were each charged with 23 counts, including conspiracy to commit mail fraud, mail fraud, and aiding and abetting mail fraud. Each count carries a potential penalty of five years in prison and between $1,000 and $10,000 in fines.
Alleged Fraud Ring
At the time the indictment was issued, Kraus was described by prosecutor Heisner as the "front man" in a sophisticated fraud ring that Heisner said bilked a dozen investors out of $1.4 million. Heisner has said that the investors were duped by phony investments supposedly secured by land deeds that were also phony.
The federal indictment charged that Kraus was linked to a conspiracy through his purchase of a beachfront condominium in Leucadia, on April 15, 1981, from a San Diego doctor.
Kraus later deeded the property to Edward Elbert Wingender of Long Beach, who deeded it to a company that defaulted on payments to the doctor. Kraus also paid for real estate appraisals that inaccurately increased the value of the condominium from $350,000 to more than $500,000, Heisner has said. The land deed was then used as security for the phony investments, Heisner has said.
Wingender was also charged in the federal indictment with Kraus. Heisner said that Kraus had also had business dealings with Wingender in a 1977-78 investment deal in San Diego that defrauded two banks of nearly $80,000 and led to fraud convictions for Wingender and three other men. In that case, Kraus borrowed money from the banks on behalf of Wingender and another man, and Kraus wound up owing the banks $80,000.
A federal prosecutor, however, concluded that Kraus, like the banks, had been duped, and Kraus testified against Wingender.
Admits Bad Judgment
Kraus said last week that he is guilty only of bad judgment because he continued to do business with Wingender. He said he agreed to buy the Leucadia beach property because Wingender had told him he wanted to make good on the debts he had gotten Kraus into in the past and that the purchase would be a profitable deal for Kraus.
"He (Wingender) said 'I want to make good' and I believed him. . . . I have the fullest confidence that the entire matter will be dismissed before it ever goes to trial just because I did nothing wrong . . . . I wouldn't be running if I didn't feel there are no ultimate implications in San Diego," Kraus said.
Kraus, along with four other business associates, is also being sued by the Mercantile National Bank, the American Asian Bank and Mitsui Manufacturers Bank for more than $190,000 in what bank lawyers said are defaulted loans.
The loans were made to finance LA Olay Inc., a restaurant in which Kraus said he held 25% ownership. The restaurant at the Bonaventure Hotel in Los Angeles has closed, and Kraus said he and other owners are attempting to pay off the firm's debts.