California Capitol shaken by FBI sting


SACRAMENTO -- The California Legislature, for decades touted by students of government as a model of professionalism and competence, has been shaken to its foundation by an FBI sting operation aimed at ferreting out corruption.

On Aug. 24, while legislators voted on dozens of bills, more than 30 federal agents carrying search warrants conducted an unprecedented raid on the Capitol offices of four leading lawmakers, seeking evidence of wrongdoing until the wee hours of the morning.


Following the raid, the Legislature staggered through the final week of its two-year session, giving only cursory attention to such concerns as California's crumbling and congested freeways, schools that have outgrown tax bases and rural counties on the verge of bankruptcy.

Instead, the Capitol was abuzz with speculation about the scope of the FBI sting, careers possibly in ruin and, perhaps, indictments.

Save to acknowledge it will be weeks before the investigation is finished, the FBI and the U.S. attorney's office have been silent. But these facts have surfaced:


Two years ago, a Mobile, Ala., company, Gulf Shrimp Fisheries, came to Sacramento, claiming it wanted to build a food processing and cold storage plant and import fresh fish for distribution to California restaurants. It said it expected to employ 22 workers in Yolo County, west of Sacramento.

It obtained a loan guarantee from a company called Superior Valley Rural Small Business Corp., one of six firms with state contracts to help small businesses.

It also obtained the help of Superior Valley's president, Darryl Freeman, 41, a former legislative aide, who acted as Gulf Shrimp's lobbyist when the firm turned to the Legislature.

Gulf Shrimp said it needed a special bill to sell tax-exempt industrial development bonds to finance its plant.

Recently, it was learned Gulf Shrimp was a dummy company set up by the FBI, and the $100,000 loan guaranteed by Superior Valley was on paper only, along with the lender, a Norcross, Ga., corporation called Sunbelt Diversified.

But the bill that sailed smoothly through both houses with few dissenting votes was real. It was vetoed by Republican Gov. George Deukmejian, who said that if the Democrat-controlled Legislature wanted to make it easier to market bonds, it should do so for all companies, not just one.


Somehow -- it has not been revealed how -- a $67,000-a-year state Senate aide, John Shahabian, 38, was caught up in the sting. For two years he agreed to work secretly as an FBI informant, setting up meetings between lawmakers and undercover FBI agents and wearing a hidden tape recorder.

After the 1986 legislative session, Gulf Shrimp disappeared and was replaced last December by a successor, Peachstate Capital West Ltd., supposedly located in Atlanta -- but also an FBI creation. It opened an office in Sacramento about a block from the Capitol, asking for a second bill just like the first.

Again, the bill sailed through the Legislature and again was vetoed by the the governor.

The Los Angeles Times, in a report the governor refuses to confirm or deny, said FBI agents tipped off Deukmejian, a former attorney general who built a career on law-and-order issues, about the investigation and the bills so he would be certain to veto them.

The two dummy companies paid out at least $59,000 in campaign contributions, including $11,500 to Assembly Speaker Willie Brown, the flamboyant San Francisco Democrat. Brown, on behalf of Jesse Jackson, spurred the Democratic National Convention in July to choose Michael Dukakis by acclamation.


Of the money that went to Brown, $6,500 was disguised through a local marketing research firm, a maneuver orchestrated by Freeman, according to the firm's president. Some contributions were generated in a $1,000-a-plate fund-raiser May 26 attended by at least one undercover FBI agent.

At least $10,000 went to Assembly Republican leader Pat Nolan of Glendale, who publicly has said he wants to oust Brown as speaker, then become governor.

Another $20,000 went to Paul Carpenter, a former Democratic senator now on the tax-regulating state Board of Equalization.

Assemblywoman Gwen Moore, D-Los Angeles, who authored the two FBI-spawned bills, received $10,500, of which $3,500 was disguised through the marketing research firm. Moore, chairwoman of the Assembly Utilities and Commerce Committee, reported that she returned $5,000.

State law requires that the true source of campaign contributions be disclosed.

Brown's office was not among those searched by the FBI. Moore's and Nolan's were, along with the offices of Republican Assemblyman Frank Hill of Whittier, a key GOP fund-raiser, and Democratic Sen. Joseph Montoya of Whittier, chairman of the Senate Business and Professions Committee.

Montoya has conceded he received a $3,000 honorarium from Peachstate for a speech earlier this year. He would not disclose the time or place of his talk.


The lawmakers have issued statements expressing confidence they did nothing wrong, save for Hill, who has declined to talk to reporters.

But to many in California, a state that once enjoyed a reputation for squeaky-clean government, a sting operation was long overdue. Lobbyists have complained for years of mounting pressures for campaign contributions, which public-interest groups contend have had a corrupting influence on lawmaking.

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