Clear As Mud

HB mayors investment in developer-backed bank gets murkier

Photo by Jack GouldHuntington Beach Mayor DaveGarofalo's latest explanation of his investment in Pacific Liberty Bank is consistent in only one way—it is inconsistent with all the others he has given during the past two months.

In a faxed response to an interview request from the Weekly, Garofalo said he purchased $50,000 of Pacific Liberty stock by combining a $35,000 loan and $15,000 from his retirement fund. But the Dec. 29 missive from Garofalo contradicts his previous explanations as well as the information he provided on a state-mandated disclosure of his 1998 personal finances. It boiled down to the latest in a series of answers that are non-answers.

The state of California requires all public officials to detail their investments, property interests, business ties and finances once a year in what's called a personal-disclosure form. The reason for this is simple: so the public can see whether these officials have any conflicts of interest.

"The whole purpose is so you'd have a record of who gave what to whom, to be able to tell where people's financial interests might lie," said Huntington Beach city clerk Connie Brockway. "It also helps officials think, 'Oh, I just did this. I better not vote on this.'"

But Garofalo did not submit his disclosure form by the April 1 deadline. Instead, he waited until April 6—one day after he cast the deciding vote in the Huntington Beach City Council's 4-3 approval of a controversial plan to build a Wal-Mart on the old Crest View School site. The developer of that Wal-Mart project is George Argyros, who subsequently invested $100,000 in Pacific Liberty Bank, where Garofalo is a director.

The city attorney, a deputy district attorney and the county grand jury have since declared that Garofalo and council colleagues Pam Julien and Shirley Dettloff did not violate conflict-of-interest laws by investing in the Argyros-backed bank and then voting on his Wal-Mart project. The state Fair Political Practices Commission (FPPC) is still investigating the deal.

Garofalo's tardy personal-disclosure form for 1998 doesn't mention investments in Pacific Liberty Bank. It lists no stock investments of any kind, though such disclosures are required by law.

Almost two months later, on May 31, Garofalo filed an amendment with just one item: a five-year loan for "more than $10,000" at prime plus 1 percent interest from San Francisco-based Pacific Coast Bankers' Bank. In his fax, Garofalo told the Weekly the loan was for exactly $35,000 and that he used it, along with $15,000 from his retirement fund, to purchase $50,000 in Pacific Liberty stock.

Garofalo's professed reason for neglecting to mention the loan earlier appears at the bottom of the amended form in a curious, almost confessional hand-written note: "Since loan was for stock in a start-up company and company start-up was after filing period, intent was to report on next statement."

The statement is entirely disingenuous. Pacific Liberty Bank's prospectus detailing Garofalo's $50,000 interest in the bank was released almost 10 months earlier—in July 1998—not after the April 1, 1999, filing period. It will be left to the FPPC to determine whether that constitutes an attempt on Garofalo's part to mask the timing of his investment in Pacific Liberty.

The FPPC will also have to figure out how Garofalo secured the $35,000 loan in the first place. He has told the Weekly "under penalty of law, I swear that my investment is $50,000"; that he used the Pacific Liberty stock itself as security for the Pacific Coast Bankers' Bank loan; and that he received no special deal from the lender.

Using bank stock as security is standard procedure at Pacific Coast Bankers' Bank, according to its president and CEO, Timothy M. Leveque. But Leveque added that the bank always protects itself by requiring that the stock held as collateral be double the loan's value. In other words, because Garofalo borrowed $35,000, the bank would typically demand that he own $70,000—not just $50,000—in Pacific Liberty stock as security.

When asked to comment on Leveque's statements, Garofalo stopped returning the Weekly's phone calls.

For her part, Huntington Beach city attorney Gail Hutton—who supposedly scrutinized Garofalo's record during a subsequent "investigation"—doesn't seem to have read his state disclosure form. When asked by the Weekly what she thought of apparent discrepancies in Garofalo's method of securing his loan, Hutton responded that Garofalo "used his house" as security. When told this was wrong—that neither of Garofalo's two Huntington Beach homes appears on his disclosure form and Garofalo himself says he backed the Pacific Coast Bankers' Bank loan with Pacific Liberty stock—she remained unconcerned. "Oh, okay, so he used his stock," she said.

Like Garofalo, Hutton has a habit of offering varied, even contradictory, versions of events surrounding Pacific Liberty. On Sept. 24, 1999, at the request of City Councilwoman Pam Julien—a $10,000 investor in Pacific Liberty—Hutton declared in a five-page memo that there were no conflicts of interest in the business relationships between Huntington Beach City Council members, Pacific Liberty Bank and George Argyros. The memo cleared the way for Julien to vote on the Wal-Mart project—like Garofalo, she approved it—and went out to each council member, as well as the city administrator, assistant city administrator and director of economic development David Biggs, himself a small investor in Pacific Liberty.

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