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California Elections : Investment Loss Gives Challengers Ammunition in Water Board Race

November 06, 1988|JEFFREY MILLER | Times Staff Writer

Challengers seeking to unseat senior members of the Three Valleys Municipal Water District's board of directors say the district's loss of $1.5 million last year in investments with E. F. Hutton & Co. reflects poor judgment by board members.

The two established incumbents respond that the loss, which led the district to join several other public agencies in a lawsuit against the firm, was the result of deceit by an investment broker. They say the investment loss is being used as a political ploy by allies of a dissident board member who wants to gain control of the board.

Regardless of which side they're on, most candidates are doing a lot of talking about the ill-fated investments in the final days before Tuesday's election.

Three of the board's 5 seats are at stake, with incumbents Sandy Baldonado and Doug Miller running for reelection. The Rev. Richard Engdahl, appointed to the board in August after the death of Carlton Peterson, is also seeking to keep his seat.

Baldonado, who represents Claremont and half of Pomona, is challenged by two well-known Pomonans in her bid for a third term. Former Mayor G. Stanton Selby and former Planning Commissioner R.V. Armstrong said they were prompted to challenge Baldonado after reading newspaper accounts of the investment loss.

Miller, a former Glendora city councilman who represents Glendora, San Dimas and part of Covina, faces a similar challenge from Bruce Milne. A San Dimas consultant on waste-water projects, Milne said he entered the race because he did not believe Miller should run unopposed after the district's loss of public funds.

Neither of the two challengers to Engdahl, who was not on the board when it voted to make the investments in October, 1986, has made the loss an issue. Philip Crocker and Paul Stiglich, both of whom work for water providers, have chosen to make their expertise the focus of their campaigns for Engdahl's seat, which represents Diamond Bar, Rowland Heights and parts of Walnut and the City of Industry.

Not up for reelection, but a key figure in the race nonetheless, is board member William Koch, who voted against the investment with E. F. Hutton and has opposed the board majority on numerous other issues.

Entire Account Lost

It was Koch who disclosed in September, 1987, that the district had lost at least $900,000 of its $1.5-million investment with Hutton. The district later revealed that its entire account with Hutton had been lost through margin trading on the bond market.

Three Valleys General Manager Richard Hansen has said he was unaware that the district's money had been invested on margin--the purchase of commodities with borrowed money, which substantially increases both potential returns and the risk of losing everything.

In January, the water district joined a lawsuit by public agencies including the cities of Lawndale, Palmdale and San Marino, alleging that Hutton broker William Parodi had invested public money on margin without the knowledge or authorization of the agencies.

Officials with Hutton, which has since been absorbed into the firm of Shearson Lehman Hutton, insisted that the agencies were kept informed of the nature and status of their investments. The FBI and the U.S. Securities and Exchange Commission have been investigating the matter since last year, but have yet to release their findings.

Board Censured Koch

Koch also accused board members and Hansen of attempting to cover up the loss. The board subsequently censured Koch for disclosing to the press information about the loss that had been discussed only in closed session.

Earlier this year, the district filed suit against Koch, accusing him of collecting $4,700 in excess fees while he was serving as the district's representative to the Metropolitan Water District of Southern California. The district attorney's office is investigating Koch for possible criminal conduct.

In a letter sent to local newspapers last week, Koch blamed Baldonado and Miller for the loss of the district's reserves. Although he did not endorse any candidates in the letter, Koch urged voters to "discipline (the incumbents) at the ballot box."

In interviews last week, Baldonado and Miller said Koch was exploiting the loss to promote the candidacies of Selby and Milne. The two said Koch had talked Selby and Milne into running for the board in hopes of achieving a majority that would reinstate him as representative to the Metropolitan Water District and dismiss the lawsuit against him.

"He wants his cronies and his puppets to get on the board so he can get back on the Metropolitan board and continue bleeding the district," said Baldonado, 53, a Claremont attorney.

Koch denied encouraging the two challengers to enter the race, adding that he did not even speak to them about their candidacies until they had filed papers to run. He rejected the assertion that he was seeking a board majority he could manipulate.

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