CLAREMONT — After disclosing that bad investments had cost the Three Valleys Municipal Water District more than $900,000, district Director William Koch was censured by his fellow board members last week for leaking confidential information.
Koch was alleged to have disclosed information about the district's loss of $900,000 of the $1.5 million it invested in November with E. F. Hutton & Co. Koch also revealed that the district intends to sue the investment firm to recover its losses, board members said. Litigation is one of a few topics that public agencies may discuss in private.
"The purpose of executive session, the reason the law allows it, is that there are certain sensitive areas that need to be discussed without everybody knowing about it," board member Sandra Baldonado said in an interview last week. "There's a risk in tipping your hand, in letting out information that might hurt your bargaining position."
However, Koch said the material he provided to citizens and newspapers was public information that had been discussed by the board in open session. Koch, who was the only board member to vote against investing with E. F. Hutton, accused his colleagues of trying to hide the loss.
"It appears to be a conspiracy and a cover-up," said Koch, who alerted newspapers about the loss and provided a transcript of the open-session portion of the meeting to reporters and the public.
"(The board members) do not feel this is the public's business, the money we lost on investments. . . . It was public record. Everything that appeared in the paper was what happened at the public meeting."
The board of directors voted, 3-1, to censure Koch at its meeting Tuesday night. Board members Baldonado, Douglas Miller and Carlton Peterson approved the motion, with Koch opposing it. Board President Muriel O'Brien is on vacation.
In November, the district invested $1.5 million each with E. F. Hutton, Prudential-Bache and the Dover Group. The money for the investments came out of the district's reserve fund, which currently contains $14.2 million.
The district receives money from interest income, property tax funds allocated by the county Board of Supervisors, revenue from its hydroelectric facilities and surcharges assessed to water companies and city water departments in the eastern San Gabriel Valley.
Buys, Sells Water
Serving as a water broker, the district buys water from the Los Angeles Metropolitan Water District and sells it to water providers serving the cities of Claremont, Covina, Glendora, Industry, La Verne, Pomona, San Dimas, Walnut and West Covina, and the unincorporated communities of Diamond Bar and Rowland Heights.
According to minutes of the board's Sept. 21 meeting, the directors met in closed session "for discussion of possible litigation." The board then reconvened in open session and passed a motion calling on the district to close its account with E. F. Hutton "at the most propitious time." The minutes mention Koch's opposition to the motion but do not contain any reference to a possible lawsuit against the firm.
But according to the transcript of the open session, litigation was discussed in detail by the water district's attorney, Art Kidman. In response to questions from board members, Kidman said the district had "a very good case" to recover its money from E. F. Hutton. He explained the legal grounds for such a suit and said the case would most likely be settled through arbitration.
The district's general manager, Richard W. Hansen, confirmed last week that litigation was mentioned by the board in open session. But, he said, specific questions from reporters and members of the public led the directors to conclude that Koch had leaked confidential information.
"It was obvious that there was a lot more information divulged than just what was divulged in open session," Hansen said.
Baldonado, who practices law in Claremont, said Koch could be held personally liable if it can be proven that his statements hampered the district's efforts to recover its losses. She also said Koch "orchestrated" the open part of the meeting to cause confidential information to be made public.
"(If) you look at the transcript of the public meeting, it appears Mr. Koch said more than he should have said," Baldonado said.
According to the transcript, Koch mentioned the $900,000 loss almost immediately after open session was convened. However, Peterson was the first to mention litigation; Miller revealed that the district's lawyers had sent a letter of demands to E. F. Hutton, and O'Brien asked Kidman the questions that elicited his legal analysis of the district's case.
When Kidman attempted to further clarify his remarks about legal action, Baldonado cut him off by saying: "I think we don't want to be discussing this in open (session)." O'Brien agreed and moved to adjourn the meeting, the transcript reported.