Merrill Lynch Mob

In 1990, Charles Keating, head of the corrupt Irvine-based Lincoln Savings and Loan, stood defiantly at the podium of the National Press Club in Washington, D.C. A reporter had asked Keating-whose privately owned but government-supported financial empire would later stick American taxpayers with a $3.4 billion bailout tab-if he thought his millions of dollars in contributions had prompted Congress members to work feverishly on his behalf against federal regulators. The soon-to-be convicted felon, who cheated thousands of retirees out of their life savings and once managed to lure five U.S. senators to a single private chat, said, "I want to say in the most forceful way I can: I certainly hope so."

Barely a decade later, a Keatingesque political-influence game-and its ugly ramifications-is being played out in the current controversial battle over a planned massive development of Treasure Island in Laguna Beach. The names are different, but the scheme is similar: the manipulation of public institutions and the political process for a private financial killing.

If developers get their way on April 27, Laguna voters will approve Measures A and B, literally paving the way for a dense resort and residential development on the last available oceanfront property in the city.

The major backer of A and B is Merrill Lynch-the same Merrill Lynch that made tens of millions of dollars while guiding Orange County into a $1.7 billion bankruptcy in 1994. In 1989, Wall Street's giant investment house bought the Treasure Island mobile-home park. It's now clear that Lynch's goal has been a real-estate version of ethnic cleansing-without the ethnicity and the guns. In partnership with Costa Mesa developer Richard Hall, Lynch systematically harassed residents (mostly elderly on fixed incomes) with draconian rent increases until they vacated.

Having dumped the residents, Lynch turned to Phase Two of its project: building a relationship with Laguna's famously progressive and environmentally minded City Council.

Councils are in a position to green-light-or kill-a real-estate developer's plans. A council like Laguna's-one that had acted as the public's faithful guardian-can be a pain in the developer's ass. Until 1994, the City Council-led by Robert Gentry, Lida Lenney and Ann Christoph-had proven time and again that it would side with residents' interests at Treasure Island.

Stealing a page from Keating's playbook, Merrill Lynch and Hall reshaped the local political landscape. In the 1994 election season, they found amenable candidates and showered them with generous campaign contributions. Pro-development candidates like lawyer Steve Dicterow, for example, came out of nowhere to win a place on the council, thanks largely to $42,000 in developer contributions-a colossal amount in a small town election. Dicterow's campaign theme: "Let's replace the nonsense with common sense for a change."

In the 1996 race, Kathleen Blackburn and Wayne Peterson received financial backing from the developers and won.

Phase Two was breathtakingly effective. From 1994 until Toni Iseman was elected in November 1998-a period when the council made critical decisions about Treasure Island's fate-not one of the council's five members could be described as skeptical of Merrill Lynch's intentions. Indeed, few of Laguna's politicians even attempt to mask their first-name relationships with the project's developers. At meeting after council meeting, council members affectionately refer to New Jersey's Jack Cuneo of Merrill Lynch simply as "Jack" and developer Kim Richards as just plain "Kim." In stark contrast, Peterson lambasted a number of residents who voiced concerns about the project and the waiver of the city's development fees. At a contentious January meeting, Peterson (a Chamber of Commerce favorite and member of the gay Republican Log Cabin Club) became visibly angry and warned that he would "remember the people" who spoke against the project.

If Merrill Lynch managed to reshape the City Council, it hit the jackpot in the council's appointed two-man negotiating team: Peterson and council member Paul Freeman, who by day is a lobbyist for prominent Orange County real-estate developer C.J. Segerstrom and Sons. Working closely with the developers, the pair helped carry out Phase Three: selling the park to a rightly skeptical public.

For years, politicians like Freeman-a registered Democrat whose political advisers/contributors include some of Laguna's most vociferous arch-conservative Republicans-adamantly insisted that the Treasure Island project should include two components: a world-class resort hotel and, as an incentive to local voters, a sizeable and equally world-class oceanfront park. There would be no residential development.

But the concept of a sprawling park had a short life. When it came time to vote on the area's zoning, Peterson, Freeman and their council colleagues eagerly acceded to developer demands and added a huge residential component. In addition to the hotel, the council approved 34 homes (some up to 10,000 square feet) on 7 acres at the property's western edge-the exact spot proposed for the seaside park. The park now envisioned by Merrill Lynch is comparatively miniscule; but the lush park lives on in the fantasy world of an artist's rendering reprinted in political mailers for the Yes on A and B campaigns.

Not everybody has been fooled. Local resident Ron Harris, a former City Council candidate who probably isn't on Merrill Lynch's Christmas-card list, said cramming in development and neglecting open space isn't the Laguna tradition. "The kind of large project that works, say, on the Hawaiian coast or works in the vast expanse of the Scottsdale [Arizona] desert does not necessarily work that effectively in Laguna Beach," he said.

However, Freeman-the city's top negotiator-was untroubled by criticism of the project's size or the incredibly shrinking park. At a recent City Council meeting, he urged angry residents "to be realistic."

Cleverly, the campaign for A and B claims the City Council will force the builder to make "more than 50 percent" of the project "open space." But that is standard developer sleight of hand, implying that the open-space area will be parkland. Actually, much of the so-called open space in the council's plan consists of narrow corridors between buildings, roads, paths, beach and even the sides of steep cliffs.

In more progressive times, the Laguna Beach City Council might have required the developer pay for-"mitigate," in the language of planning-problems created by the project. Not anymore. Led by a pro-development negotiating team, the City Council introduced Phase Four: a plan for taxpayers to pay Merrill Lynch and its partners for certain development costs. In exchange for modest concessions from the developer, Freeman and Peterson pledged the city to give the developers $500,000 to build 50 parking spaces, $600,000 to build a bluff-top park, and $300,000 to landscape along Pacific Coast Highway. The developer must have been ecstatic a year ago when the council waived $994,000 in permits, drainage fees and construction taxes. The total pledged subsidization to date: $2,394,000.

Iseman, alone on the pro-Lynch board, was speaking for any independent observer when she said recently: "I always felt that we really didn't put the heat on the developer. I don't think we were tough enough."

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