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Investors' Funds Sent to Sheriff

An Orange County firm selling a safety device donated stockholder money to '02 campaign.

March 26, 2004|H.G. Reza, Christine Hanley and Scott Martelle | Times Staff Writers

A Mission Viejo company that sought Orange County Sheriff Michael S. Carona's help selling a high-tech police tool steered money from at least nine investors, and perhaps dozens more, into the sheriff's 2002 campaign fund -- in some cases without the donors' knowledge.

The practice raises serious ethical questions and may be illegal, experts said.

The revelation, provided by documents and interviews, is the latest evidence of ties between the company, Carona's campaign and George Jaramillo, who -- until Carona fired him last week -- was second in command of the 4,200-member Sheriff's Department.

Jaramillo is under investigation by the Orange County Grand Jury for his alleged interference in criminal cases involving the son of another assistant sheriff.

The FBI also has opened a probe into alleged public corruption in which Jaramillo's ties to the Mission Viejo company, CHG Safety Technologies, are being examined. Jaramillo and his wife earned $25,000 in 2000 and 2001 as consultants with the company, which was developing a laser device that police could use to safely stop speeding cars.

Until this week, none of those unfolding scandals had touched the sheriff. But campaign records support claims by CHG owner Charles H. Gabbard that he steered investors' money in 2000 into Carona's 2002 reelection war chest to encourage his support of the product Gabbard invented.

Sheriff's spokesman Jon Fleischman said Carona knows nothing about the campaign donations from CHG investors and will ask state Atty. Gen. Bill Lockyer to investigate.

"Needless to say, he is very concerned," Fleischman said. "Earlier today, he made an informal request to the attorney general to look into these matters, the seeming campaign irregularities," and will make the request formal today.

Fleischman also said Carona did nothing to benefit the company apart from signing a letter of support -- along with other law enforcement leaders -- for legislation promoting the technology that was the basis of Gabbard's device.

In 2000, as his company was seeking the sheriff's endorsement of his product, Gabbard asked up to 40 investors to allow $1,000 of their stake to be diverted into Carona's campaign, said the inventor's lawyer, John Gladych. In some cases, Gladych said, the privately held company offered investors 1,000 shares of stock in exchange for a donation to Carona.

Gabbard "had no idea this is not an acceptable practice," Gladych said.

But an expert on campaign ethics said the funneling of investors' money to the Carona campaign raised serious questions.

It is illegal for someone to swap cash for a contribution, said Tracy Westen, chief executive officer of the Center for Governmental Studies, a nonprofit political research organization in Los Angeles.

Whether it is legal to swap something like company stock, which has a floating value, for a contribution is less clear, he said -- particularly if the intermediary knew the stock was worthless. But if the expectation was that the stock value was equal to the contribution, then the practice would be problematic.

Two of 11 investors contacted by The Times on Wednesday and Thursday said they gave to Carona's campaign independently. Five others remembered being asked to contribute to the campaign.

Ken Hagen, an electrician from Wyandotte, Mich., said he learned about Gabbard's laser device from his boss and a co-worker, both of whom invested in CHG. "We were all going to make a lot of money when the company went public. That's why I joined the others," Hagen said.

He refinanced his house to buy 8,000 shares for $8,000. But Gabbard offered him a different deal, Hagen said.

"He offered me 8,000 shares for $7,000 if I donated $1,000 to Mike Carona," Hagen said. Gabbard "said he was the sheriff who was backing the [laser] gun and was helping the company. I had no idea who Mike Carona was, but it sounded like a good deal," said Hagen.

But four other investors said they had no idea their investment would go to help reelect the sheriff or did not remember being asked. Some had never heard of him.

Diana Scharf, a waitress from Trenton, Mich., purchased 1,000 shares at the urging of Gabbard's nephew, who frequented the restaurant where she works. She could not remember the man's name, but she said someone instructed her to write out the $1,000 check to Michael S. Carona.

On Thursday, she asked, "Who is Michael Carona?" She said that at the time she assumed Carona had something to do with CHG.

Robert Paige, a retired bricklayer from Novi, Mich., said he invested $16,000, a large chunk of his life savings. To his surprise, he is listed as a $1,000 contributor to Carona's campaign.

"I remember the name [Carona]," he said. Gabbard "said he was a big promoter of the laser device. But I sent him money to purchase stock. I thought the checks were only for that purpose. I never intended to make a donation to someone I don't even know," said Paige.

Like the other investors, Paige received stock certificates that are worthless today. CHG is broke, and Gabbard is in a legal battle over ownership of the company.

Sharon Headley of North Kingsville, Ohio, said she wrote a check for $1,000 in the spring of 2000 for stock in CHG but left the recipient's line blank after a company representative said the firm was still incorporating and did not have a name.

A few months later, Headley began getting mail inviting her to attend fundraisers for Carona. She said she'd never heard of the man.

At first, Headley said, she feared she had been the victim of identity theft and made several calls to Carona's office trying to find out why she was on his contributors list.

She finally figured out that her investment had been diverted to Carona's political war chest.

"I had invested with an individual privately, and he took my check and donated it," she said of her dealings with CHG. "I was a little disgruntled. I think he took us for a ride."

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