Dave the Gambler

HB Mayor Dave Garofalos high-stakes gamble on the Bank of George Argyros

In addition to Richard Nixon's reputation for general sleaziness, excessive perspiration and a wicked 5 o'clock shadow, his 1960 presidential campaign had to deal with charges that billionaire strange-o Howard Hughes exercised improper influence over Nixon's brother, Don. The charge arose from $205,000 Hughes had loaned Don Nixon to save his grocery and restaurant company from bankruptcy. The business ultimately flopped, but to many it appeared that Hughes had used Don's troubles to get tight with the would-be president.

Huntington Beach Mayor Dave Garofalo is in a similar situation, but he doesn't have an oafish brother to blame. In recent weeks, it has become increasingly clear that Garofalo's $50,000 investment in Huntington Beach-based Pacific Liberty Bank is part of a high-stakes gamble that may have put him at the mercy of businessmen with high-stakes deals of their own before Garofalo's City Council.

Along with Garofalo, Pacific Liberty's prominent investors include Garofalo's wealthy real-world boss, Ed Laird, and George Argyros, the developer behind a controversial plan to bring a Wal-Mart to Garofalo's town.

Indeed, Garofalo's investment first came to light when the Weekly revealed that he had failed to disclose his business relationship with Argyros before voting several times to approve the developer's Wal-Mart project.

At first, Garofalo, Pam Julien and Shirley Detloff—two council colleagues who are also investors in Pacific Liberty—claimed their investments were motivated by something like charitable instincts. In Garofalo's case, that perspective is more difficult to sustain with each passing day. Julien and Detloff each invested less than $10,000 from what appears to be their own money; Laird and Argyros each invested $100,000, but both are men with large personal fortunes. But Garofalo, a man of more modest means, borrowed his stake from Pacific Coast Banker's Bank of San Francisco for 60 months at prime plus 1 percent using only the stock he was purchasing as collateral, according to the mayor's personal-disclosure forms.

If Pacific Liberty's stock fails, it's easy to imagine Garofalo's losses totaling $70,000—and perhaps more: the 54-year-old Garofalo says he also invested money from his own retirement fund.

The financial upside of the gamble is attractive, one of Garofalo's acquaintances said.

"A little bank like [Pacific Liberty] is a great investment," said Bill Borden, a writer for The Local News, a Huntington Beach newspaper Laird owns and Garofalo publishes. "I'm an investor in Pacific Liberty, too, and that's why. You hold on to your shares for a few years and get a great return. Look at Liberty National Bank. After a few years, another bank came along and bought it, and everybody who owned shares got fat off the deal."

As Borden suggests, one possible happy ending for Garofalo is that Pacific Liberty will follow the path blazed by Liberty National Bank. That bank was opened in Huntington Beach in 1982 by the same men who formed Pacific Liberty—Richard Ganulin and Philip Inglee—and they built that bank on investments from many of the same Huntington Beach business leaders who today hold Pacific Liberty stock. Some years were good for Liberty National, and some were not: during the 1993-1994 recession, the bank hemorrhaged millions of dollars. But business improved by 1997, when Liberty National was gobbled up by the much larger Tustin-based El Dorado Bank.

That year, when the bank he helped found became just another El Dorado branch, Liberty National president Inglee resigned and was praised for a job well-done. His send-off from The Orange County Business Journal quoted him recalling the motivation of the bank's founding shareholders, who "thought it would be a good investment to start a community bank." Citing the bank's $160 million in assets and $1 million profit, the Journal agreed: "They were right."

Six months later, Ganulin and Inglee began soliciting investments for Pacific Liberty. The bank's prospectus shows Garofalo was one of the first to invest. But his investment doesn't look so hot at the moment. In its first six months ending in September, state records show, Pacific Liberty lost more than $400,000. The same records show the bank's start-up capital stock at $4.8 million—slightly less than the $5 million it needed to open.

Huntington Beach city attorney Gail Hutton has said Garofalo's investment in Pacific Liberty is not a conflict of interest because the bank itself does not have business before the council—despite the fact that Argyros is Garofalo's biggest fund-raiser and Argyros' controversial Wal-Mart project required city approval.

But Garofalo has a few years left on his loan, and he may be banking on something else: that voters will forget his business dealings in Pacific Liberty by 2002, when he runs for office again.

 
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