A federal grand jury Thursday delivered the first indictment in a wide-ranging criminal investigation of corruption in Los Angeles city government, alleging that a former public relations executive at Fleishman-Hillard defrauded city agencies and private clients.
The indictment accuses John Stodder Jr., a partner and senior vice president who ran the firm's local public affairs practice, of participating with "others known and unknown" to submit at least $250,000 in false billings to the Department of Water and Power. Also allegedly cheated were the Port of Los Angeles, the Worldwide Church of God and the firm of renowned architect Frank Gehry.
The indictment makes it clear that grand jurors believed Stodder was not acting alone, referring to at least two other "co-schemers." Law enforcement officials declined to say whether they would seek charges against others, but noted that they had not finished their work.
"This is an ongoing investigation, and charges may or may not be filed against other individuals," said Assistant U.S. Atty. Adam D. Kamenstein, who is directing the joint inquiry that involves the FBI, the Los Angeles County district attorney's office and the U.S. Department of Transportation.
For The Record
Los Angeles Times Saturday January 15, 2005 Home Edition Main News Part A Page 2 National Desk 2 inches; 62 words Type of Material: Correction
Stodder indictment -- A headline on Friday's front page incorrectly stated that the indictment of Fleishman-Hillard executive John Stodder Jr. involved a "pay to play" scheme. Although federal and local agencies are investigating whether firms were forced to make political contributions in return for contracts, the part of the inquiry involving Stodder accuses him of overbilling the Department of Water and Power.
The "pay to play" investigation focuses on whether firms doing business with the DWP, port and city airport agency were forced to make political contributions in return for contracts. Under its $3-million-a-year contract with the DWP, Fleishman-Hillard helped promote the department and billed the utility more than $400,000 in 2002 and 2003 for work to bolster the mayor's image and help him with policy initiatives, records show.
The indictment immediately became an issue in the mayoral campaign, with all four of Mayor James K. Hahn's major challengers criticizing his leadership and focusing on his close ties with senior Fleishman executives.
Douglas R. Dowie, a former partner and senior vice president of the firm who ran the Los Angeles office and was Stodder's boss, was a Hahn confidant and major fundraiser. Fleishman ousted both Dowie and Stodder last week.
Dist. Atty. Steve Cooley called Stodder's indictment "an important step in a concerted ... effort to prosecute public corruption in Los Angeles."
Stodder, who turned 49 on Thursday, denied the charges through his attorney.
"Mr. Stodder is shocked and dismayed that the U.S. attorney has filed these serious charges against a mid-level manager at Fleishman-Hillard, especially one who has been there such a short period of time," said Jan Handzlik, a former federal prosecutor.
"He has always conducted himself in an ethical and above-board fashion and believes the evidence will establish this," the lawyer added. "Mr. Stodder denies the charges and looks forward to his day in court."
The Times revealed the alleged overbilling scheme last year, quoting seven former Fleishman-Hillard employees as saying they were encouraged -- and sometimes told -- to falsify their hours each month under the DWP contract.
Two of the employees said Dowie was aware of, and encouraged, phony billings that at times amounted to $30,000 a month.
"There were a lot of people that were disgusted with what went on there," according to Diana Greenwood, who worked at Fleishman-Hillard for a year and said she was ordered to add bogus hours to her time sheets. "I speak for myself -- probably many others -- that we're happy to see some vindication."
The firm's alleged defrauding of the port, the Worldwide Church of God and Gehry's architectural firm was first disclosed in Thursday's indictment.
Even before The Times published its article, federal prosecutors had subpoenaed e-mails related to the Fleishman-Hillard contract, prompting a flurry of action. Hahn discontinued all public relations contracts at City Hall. Fleishman said it would give up all its work for the city.
After the Times story appeared in July, City Atty. Rocky Delgadillo filed a lawsuit against Fleishman-Hillard and City Controller Laura Chick launched an audit, which found $4.2 million in questionable charges by the firm over the last five years.
"The drumbeat of justice is certainly louder and clearer today with this indictment," Chick said. "While this is painful to witness, answers are needed as to why and how this happened, and this indictment is the beginning of that important process."
Officials at St. Louis-based Fleishman-Hillard have said their internal probe found $650,000 in unsubstantiated billings.
"We're saddened and deeply disappointed that a former employee has been charged with wrongdoing," Richard Kline, who succeeded Dowie as director of the firm's Los Angeles office, said after the indictment was returned.
Kline said neither he nor "anyone else in corporate management in St. Louis was aware of any improper activities, and nothing in the indictment accuses [Fleishman-Hillard] corporate management of wrongdoing."