Quackenbush fund linked to possible crimes

Associated Press

SACRAMENTO — Board members of a nonprofit fund created by Insurance Commissioner Chuck Quackenbush described possible criminal activity including falsified meeting minutes and checks that may have been forged.

They and other witnesses, contradicting statements by Quackenbush and his aides that the California Research and Assistance Fund was run separately from the Insurance Department, told the Assembly Insurance Committee yesterday that then-Deputy Commissioner George Grays ran CRAF from his office at the department.

Attorney General Bill Lockyer is conducting a criminal investigation of CRAF’s activities, two sources said on condition of anonymity. No charges have been filed in the case. Lockyer has gone to court to try to freeze the fund’s remaining $6 million.

Grays, who was to testify yesterday before the committee, was rescheduled to appear June 22 under subpoena.

Lawmakers are investigating Quackenbush‘s creation and use of the nonprofit, financed by insurance companies who avoided the potential of $3.7 billion in penalties for Northridge earthquake-related claims violations by paying a total of $12 million to the new fund.

Quackenbush has acknowledged that none of CRAF’s $6 million in spending has financed seismic research or consumer aid, the fund’s stated purposes, but said he had no knowledge of or participation in its spending decisions. Others have testified that the fund made expenditures that benefited Quackenbush politically.

A media strategist whose firm received a $2 million contract from the nonprofit testified that he called Quackenbush to complain about Grays after having problems with his contract, and that it was his impression Quackenbush was aware of the project.

Jack Scott, D-Altadena, chairman of the committee, said he was “very, very concerned” about that testimony. He declined to elaborate.

Earlier yesterday, Kimberly Brockman, former CRAF board president, told the committee she had no recollection of signing at least four fund checks that went out with her name on them. She said the handwriting looked like Grays’.

“He (Grays) told me that we had met and he had asked me to sign four blank checks and I did. I don’t recall the meeting,” Brockman said.

The checks at issue were $250,000 for a public service announcement; $97,000 and $20,000 for Skillz Athletics, a football scouting and training program attended by two Quackenbush children; and $13,839 for legal fees.

At least one applicant for CRAF funding, an expert in quake research, said his request was rejected by the foundation even though he appeared to meet all the criteria for funding.

Seismic expert John Osteraas of a consulting firm called Exponent Failure Analysis Associates, said Grays turned down his request for $1.5 million for earthquake research. Osteraas said the funding would have been added to $6 million from federal and state emergency services agencies.

“I never got the money,” Osteraas told the committee.

Brockman said she resigned from the board after she “began to have a bad feeling in my stomach” about the fund’s spending. She said she joined the board thinking that the fund would spend its money on earthquake-related causes, but later discovered it was not doing so.

Board member Eric Givens testified that although he was its secretary, he was not invited to some of the meetings. He said Grays gave him fake minutes to sign for board meetings that never occurred. Givens said he signed the minutes on one occasion but then refused to do so.

Witnesses testified that the fund was run by Grays, although his name appeared nowhere on CRAF’s letterhead. At the time, Grays was a state employee.

Grays “represented to us that he was in charge of all things foundation-related. It was pretty much his meeting,” said media strategist David Bienstock, referring to a discussion of a fund contract.

Later, when Bienstock complained about Grays’ handling of a $2 million contract for Bienstock’s Target Productions for a public-service TV ad featuring Quackenbush, Bienstock talked directly to Quackenbush, he said.

“I talked with him, that we were having a very difficult time working with Mr. Grays,” and “as far as I know, he (Quackenbush) was aware of the overall project,” Bienstock said.

Testifying earlier this week, Quackenbush political consultant Joe Shumate said the TV spot, which cost a total of $3 million, evolved from an ad featuring earthquake damage and victims into a showcase for the elected commissioner. Shumate, who received $175,000 for working on the ad, told the committee that he never discussed the spot with Quackenbush.

Bienstock’s testimony came on the last of three days of hearings this week by the committee. Chairman Scott said the panel will hold more hearings and call some witnesses back for more questioning, including Quackenbush.

After the committee completes its inquiry, it will determine whether Quackenbush has committed wrongdoing and, if so, what action it should take. The possibilities include censuring the commissioner, seeking criminal charges or recommending that the Legislature begin impeachment proceedings.

Scott said the committee would refrain from any impeachment discussion until it concludes its hearings.

Grays resigned in April as legislative investigations intensified into insurer donations to CRAF and other funds created by the commissioner’s office, and into the funds’ spending. He has denied wrongdoing.

Deputy Insurance Commissioner Dan Edwards, Quackenbush‘s top spokesman, said the commissioner had no knowledge of Grays’ taking a direct role in the fund’s operation or of any wrongdoing.

“The intention of CRAF was for it to be arm’s length (from the department) and that Mr. Grays would simply be a liaison between the CRAF foundation and anyone who made inquiries about that foundation to the department,” Edwards said in an interview.