SACRAMENTO — A Superior Court judge on Friday froze the assets of a foundation created by Insurance Commissioner Chuck Quackenbush after hearing it described as a "sham" operation whose monies were improperly diverted by one of the commissioner's key deputies.
Sacramento Superior Court Judge John R. Lewis ruled that funds deposited with the foundation for Northridge earthquake victims will be frozen until he can conduct a hearing May 22. On that date, the court will consider state Atty. Gen. Bill Lockyer's request for a temporary restraining order preventing the organization from continuing to dole out grants.
Lewis rejected arguments by a lawyer for the foundation, the California Research and Assistance Fund, that Lockyer's case against it is built on outdated information and designed "essentially to close my client down."
The judge said he had concerns about what would happen to $6.3 million that would soon be deposited into the foundation by 21st Century Insurance Co. (formerly 20th Century) for distribution to earthquake victims who lacked sufficient insurance to cover damages from the 1994 disaster.
The foundation was set up with insurance company penalties for improper claims handling. The penalties were in lieu of fines--perhaps in the billions--that Quackenbush's top deputies had threatened to impose on the companies.
Quackenbush, who declined to be interviewed about the judge's decision and was not at the hearing, issued a statement suggesting that he may ask the insurance company to deposit the money elsewhere.
"We have been reviewing all options for expeditiously distributing that money to victims through another vehicle," said Quackenbush spokesman Dan Edwards.
He said a plan for disbursing funds was approved recently by 21st Century and a special administrator for the foundation.
'Pervasive Fraud and Abuse of Authority'
The judge's action was prompted by a 177-page complaint from Lockyer charging that the powers of the foundation's board of directors had been usurped by George Grays, a top deputy to Quackenbush, and used to improperly divert millions of dollars to friends and acquaintances.
Lockyer said Grays and the foundation's directors were guilty of "persistent and pervasive fraud and abuse of authority."
"[They] have engaged in the mismanagement of the charitable assets of CRAF and have wasted those so that the vast majority have not been used for any charitable purpose whatsoever," wrote Lockyer, who oversees the state's charitable trusts.
