George Argyros is busy taking beginner diplomacy courses, struggling with basic Spanish lessons, and likely dreaming of the day he's sworn in as the next U.S. ambassador to Spain.
But before Argyros packs for Madrid, the temperamental Newport Beach businessman—who is worth between $600 million and $1 billion—may want to ponder ways to survive what could be an ugly U.S. Senate hearing on his nomination.
A previously undisclosed law-enforcement report obtained by the OC Weekly unequivocally concluded that a "heavy-handed" Argyros personally directed a massive, "systematic rip-off scheme" to defraud thousands of poor and middle-class tenants who occupied nearly 5,000 apartments he owns in Orange County.
Specifically, the report details evidence that the ambassador-designee:
•Rewarded employees with bonuses for illegally withholding security deposits, overcharging tenants for apartment repairs and billing tenants for imaginary expenses;
•Reprimanded employees when they did not defraud tenants;
•Angrily complained to top managers on at least two occasions that they were not sufficiently padding tenant charges.
Argyros was also consumed—perhaps even neurotic—about money. According to investigators, he once made an international call from his yacht in Greece to an Orange County employee to see if one tenant had paid a $25 late fee.
Deputy District Attorney Wendy Brough, who wrote the detailed report after a 13-month investigation, did not mince words about Argyros' behind-the-scenes role.
"He is personally liable and should be barred [from similar business practices] by injunction," Brough wrote.
Brough was skeptical about Argyros' ability to reform himself. She noted "a long history of violations dating to 1980," when Argyros paid a fine and promised to reform his rental practices.
Since the scandal was first reported on Feb. 6 by The Orange County Register's Bill Rams, Argyros' lawyers and associates have strenuously denied that Arnel Management Co. has committed any crime. They have also argued the case should not spur pesky inquiries into Argyros' business practices while his nomination is at a critical juncture.
But such sentiment appears hallucinatory. Congressional sources in Washington, D.C., said the scandal could prompt the powerful Senate Foreign Relations Committee, headed by Senator Joseph Biden (D-Delaware), to deem Argyros unfit to serve in the high-profile overseas post. California Senator Barbara Boxer, another Democrat, is also on the committee. Her office declined comment, but sources say that Boxer and other senators have taken an interest in the nomination.
No hearing date has been set for Argyros, who has no known diplomatic skills but who has contributed several million dollars to Republican Party candidates. Argyros' supporters say he raised $50 million for George W. Bush's successful presidential campaign. (Argyros did not return calls for this story.)
The Bush White House says it reviewed the backgrounds of all ambassadorial nominees and was satisfied.
It is unlikely that the civil case against Argyros and his company will be settled before Senate confirmation hearings. That's owing to the case's tortured history. DA investigators completed their first draft of the suit against Argyros in December. But their boss, Orange County District Attorney Anthony J. "Tony" Rackauckas, an Argyros pal and close political ally, ordered Brough to rewrite the suit, this time without naming Argyros specifically.
"To remove his name from the complaint is totally inappropriate, totally outside the normal procedure in a case like this," said Stephen Douglass, an investigator who has since left the DA's office. "Everybody [on the case] was very upset."
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Nevertheless, the staff obliged Rackauckas, redrafted the suit, and on Feb. 1, officially filed it in the county courthouse. But then Rackauckas intervened again: in an unprecedented move, the DA pulled the suit 90 minutes after it was filed and ordered it removed from public inspection. His explanation: the investigation was incomplete.
The case against Argyros might still be secret if not for the anonymous source who leaked it to the Register. Publication of the suit there led Rackauckas to refer the case to state Attorney General Bill Lockyer. While the attorney general's office investigates, private attorneys have filed three separate civil suits on behalf of Argyros' former tenants. One of those suits reportedly seeks damages of $96 million.
Ex-investigator Douglass says it's possible the months-long delay in filing the DA's case was Rackauckas' way of protecting Argyros' pending ambassadorial nomination.
"Tony was doing a lot of favors for Argyros in the case," Douglass said. "We were told to wait, wait, wait. We were always puzzled by the delays. And then we heard about the nomination for the first time, and we said, 'Bingo.'"