Sacramento Bee

Former Deputy Insurance Commissioner George Grays will tell federal and state investigators that Insurance Commissioner Chuck Quackenbush personally quarterbacked efforts to collect money for political advertising from insurance company settlements, his lawyers said Thursday.

Grays — who himself has been heavily implicated in the scandal that led to Quackenbush‘s resignation — also will say that numerous top aides at the Department of Insurance were aware of Quackenbush‘s goal of benefiting politically, despite their claims to the contrary, William Portanova, one of two criminal defense attorneys representing Grays, told The Bee.

His comments came on the same day that a half-dozen high-level department officials submitted resignations to McGeorge School of Law Professor J. Clark Kelso, who was appointed Wednesday to take over the department after Quackenbush‘s resignation becomes effective Monday.

Quackenbush attorney Donald Heller called Grays “a liar trying to save his own skin and willing to do anything to save himself from going to prison.”

Resigning from their positions Thursday were Chief Deputy Commissioner Michael Kelley, whom Kelso replaced; Chief Counsel Brian Soublet; and Deputy Commissioners Jim Dong, David Langenbacher, Mark Lowder and Steve Suchil. Department spokesman Scott Edelen said he believed all would exercise their right to return to nonappointed positions in the state bureaucracy.

The resignations will not stop the continuing civil and criminal investigations by state Attorney General Bill Lockyer, or what appears to be a growing investigation by U.S. Attorney Paul Seave.

Grays’ potentially explosive testimony, meanwhile, could make Quackenbush and others more vulnerable to potential criminal charges arising from those investigations. It would cast Quackenbush in a role he has always denied — the leader of a department-run campaign to use the Republican commissioner’s authority to raise money from insurers for political gain.

In addition, Grays has told his lawyers that Quackenbush discussed money-raising goals in more private meetings attended by Grays and former Quackenbush confidant William Palmer, who held a variety of top positions at the department, according to Portanova.

“George Grays is prepared to testify to any grand jury that there was a system in place at the commissioner’s office directed by Quackenbush and (then-Chief Deputy) Palmer which provided for the ready inflow of monies from insurance settlements into political advertising promoting the political ascendancy of Chuck Quackenbush,” Portanova said.

“The critical issue was the timing,” Portanova said. “Settlements were constructed and driven with an eye toward how much money was needed for particular media buys.”

Grays told Portanova and his co-counsel, Wayne Ordos, that Quackenbush‘s goal of finding money for media buys was “a topic of open discussion” at regular executive staff meetings, some of which Quackenbush attended, Portanova said.

Heller said Quackenbush “categorically denies” ever participating in a discussion about using insurer settlement money for political gain.

Palmer resigned last year when confronted with conflict-of-interest charges regarding his private law practice.

Ordos and Portanova, both former federal prosecutors, have informed federal and state prosecutors of Grays’ willingness to testify and his likely testimony, Portanova said.

Grays did not fully cooperate with the state attorney general’s investigators when he was interviewed more than a month ago, according to Portanova.

That changed after it became public that Grays personally cashed checks for $90,000 of insurer settlement money from the account of a nonprofit foundation for which he arranged a grant.

Portanova insisted that Grays will give his damning testimony regarding Quackenbush and others regardless of whether he gets immunity or a sentencing deal.

“It’s his intention to just tell the truth, period,” Portanova said.

Heller questioned the motives of Portanova and Ordos. “You wonder whether they are trying to leverage a deal, create some kind of public support for Grays, who it turns out was nothing more than a petty thief,” Heller said.

Grays became one of the first casualties of the scandal when he resigned in early April amid questions about his involvement with the California Research and Assistance Fund.

He declined to testify under oath before the Assembly Insurance Committee, invoking his Fifth Amendment right to avoid self-incrimination.

Quackenbush resigned days later after Soublet and Deputy Commissioner Norris Clark told legislative investigators that Quackenbush wanted a series of anticipated settlements with insurance companies to garner $4 million for “a media buy.” Quackenbush was to testify before the committee under oath the next day.

Lockyer is conducting a far-reaching investigation, and his investigators recently spent days culling through department documents on foundations established with insurer settlement money.

According to Lockyer, Grays took the $90,000 from the Skillz Athletic Camp, a Roseville-based nonprofit for which he secured a $263,000 grant from the research and assistance fund.

Lockyer earlier filed court documents accusing Grays of improperly commandeering the operations of the research and assistance fund, which was created by the department and established with nearly $12.5 million from insurance companies accused of wrongdoing.

The resignations

The six top officials in the state Department of Insurance who resigned Thursday:

Chief Deputy Commissioner Michael Kelley: Lawmakers said they were frustrated by Kelley’s vague testimony, particularly when he said he could remember almost nothing of a three-hour meeting in which a media consultant said he warned Kelley of “unconscionable” spending by a department-created foundation.

Chief Counsel Brian Soublet: Provided critical detail to legislative investigators that Chuck Quackenbush wanted the department to secure $4 million from a series of settlements with title companies for a media buy. Testified he didn’t think the department had subpoenaed insurers to appear at a March 1999 settlement conference. Representatives of four insurance companies said later that they received subpoenas.

Deputy Commissioner Jim Dong, administration: A department financial officer, Dong wrote an e-mail that suggested Quackenbush personally wanted money from fines that was spent on public outreach campaigns to be accounted for independently from normal budgeting procedures.

Deputy Commissioner Steve Suchil, policy research and special programs: A member of the department’s executive staff, he was legislative liaison.

Deputy Commissioner Mark Lowder, enforcement: He signed some of the key settlement agreements with insurance companies and defended Quackenbush‘s approach. On June 26, Lowder declined to testify before the Assembly Insurance Committee, invoking his Fifth Amendment right to avoid self-incrimination.

Deputy Commissioner David Langenbacher, consumer services: Recanted initial testimony to the Assembly Insurance Committee and admitted that department officials used fake sensational news stories to coerce major insurance companies into making contributions to the earthquake foundation.