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Assemblywoman Diane Harkey accepted $16,600 from firms borrowing from husband's company

The developers later failed to repay millions of dollars in loans from the lender, Point Center Financial, now target of an SEC probe and an investor suit. Harkey and the firms deny any impropriety.

March 03, 2009|Stuart Pfeifer

California Assemblywoman Diane Harkey accepted $16,600 in political contributions from real estate developers who had received loans from her husband's business, now under investigation by the Securities and Exchange Commission.

The borrowers later failed to repay loans brokered by her husband's lending company, Point Center Financial Inc. of Aliso Viejo. The firm was accused of fraud last month in an investor lawsuit, and the company's owner has confirmed that Point Center is under investigation by the SEC.

Harkey (R-Dana Point) said Monday that there was nothing improper with the developers' contributions and that she had no idea they had loans pending with her husband's company at the time they donated to her campaign.

"It is totally legal and totally proper. I'm not voting on anything that affects them," she said. "I will take campaign contributions from anybody who chooses to support me. But I will not take anything from anyone who has a conflict."

In the lawsuit filed last month, the investors contend that Point Center neglected to inform them about the risky nature of its loans and that Harkey, a defendant in the lawsuit, used proceeds from bad loans to donate nearly $1.1 million to her political campaigns.

Harkey said she used her own money -- from a prior "six-figure" banking career -- to donate to her campaigns for the state Senate and Assembly.

"It came from my personal income. I don't care what the lawsuit says. It's frivolous. It's full of lies. And it will all come out in court," she said.

Harkey accepted $16,600 in campaign contributions from three developers who borrowed tens of millions of dollars from Point Center, according to campaign finance records.

Two of the loans ended in foreclosure and a third was modified because the developer was unable to meet the original terms.

C. Lynn Burnett, president of Burnett Development Corp., gave $5,000 to Harkey's failed Senate campaign Dec. 31, 2005, records show. Two months later, Point Center Financial funded a $19.2-million loan to Burnett for a development project at the Palm Springs Country Club.

Burnett's company defaulted on that loan, and Point Center investors ended up holding title to the property, which is now in such disrepair that the city of Palm Springs sued Point Center and the investors demanding immediate improvements. The property is worth a fraction of the amount Burnett owed when he defaulted. Burnett died in 2007.

Home builder R.W. Hertel & Sons Inc. gave Harkey $5,000 on Dec. 31, 2005, two months before closing on a $16-million real estate development loan with Point Center. Hertel defaulted on that loan and Point Center foreclosed on behalf of investors. Like the Palm Springs project, the Hertel property is worth only a fraction of the loan that investors funded, according to allegations in the lawsuit.

Developer representatives said they did nothing wrong and supported Harkey simply because they agreed with her political philosophy. Robert Fowler, a former partner in Hertel, said it was not uncommon for the company to donate to political campaigns.

"We're interested in having government representatives that espouse the same values that we do: lower taxes and a friendly business climate," Fowler said.

Lloyd Charton was among more than 50 investors who sued Point Center, Harkey and her husband. He said he believed the company should have made investors aware that borrowers had donated to Harkey's campaign.

"At no time did Point Center Financial ever disclose that she was receiving money from borrowers at the time investors were putting up money for loans," Charton said. "Had they disclosed it, investors might have said, 'I'm not going to give you money to lend to somebody you have a special relationship with.' "

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stuart.pfeifer@latimes.com

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