Quackenbush given free pass after scandal

The San Francisco Chronicle

Former Insurance Commissioner Chuck Quackenbush, who resigned in disgrace as the Legislature considered impeaching him, won’t face criminal charges for his role in using insurance settlement funds to enhance his political profile, officials said yesterday.

“There aren’t going to be any charges filed,” said Patty Pontello, spokeswoman for the U.S. Department of Justice, which worked for more than a year with the state attorney general and the Sacramento County district attorney to investigate Quackenbush and his top aides.

Sandra Michioku, a spokeswoman for the Department of Justice, said the case is not officially closed but declined further comment. But sources within the department said it was unlikely they would file charges if federal authorities had declined.

Quackenbush, a Republican, resigned in July 2000 rather than testify under oath. He and his family moved to Oahu, Hawaii, two months later, and Democratic Gov. Gray Davis subsequently appointed his replacement, retired San Francisco judge Henry Low.

Had Quackenbush not resigned, he faced almost certain impeachment from the Democrat-majority Legislature, which had conducted a months-long investigation of his department.

The hearings revealed that Quackenbush had coerced insurance companies into paying $12 million to nonprofit foundations that boosted his political campaigns. The payments allegedly allowed the insurers to avoid as much as $3.7 billion in fines for improper handling of policyholder complaints stemming from the 1994 Northridge earthquake.

Other players in the scandal have not been as lucky as Quackenbush.

George Grays, a top department deputy, pleaded guilty in January 2001 to mail fraud and money laundering, after admitting to taking $170,900 in kickbacks from grants made by a nonprofit foundation the department created and Grays controlled.

Investigators told the Sacramento Bee that they had trouble finding a credible third source to verify Grays’ testimony about Quackenbush and others.

The evidence against Grays included a paper trail, such as bank statements, but nothing could be found showing Quackenbush or his former chief deputy, William Palmer, enriched themselves, the newspaper reported.

“As an old prosecutor myself, I know it’s almost impossible to get a conviction based on the testimony of one man,” said William Portanova, Grays’ Sacramento attorney. “Corroboration of any one witness is critical for a case to have any chance of being prosecuted.”

Neither Quackenbush nor his attorney could be reached for comment.

In an interview, Palmer said he had worked on almost every high-profile issue for Quackenbush, including a landmark settlement for Holocaust victims, but that he had gotten unfairly pulled into the Quackenbush scandal. In testimony before the Legislature, Palmer said he had resigned in 1999 primarily because of exhaustion.

“I did nothing wrong and have been gone now from the department for almost three years, and was dismayed to be drawn into this controversy,” Palmer said. “My family and I are nonetheless grateful for the vindication.'”

The failure to bring charges against Quackenbush angered a Southern California consumer group that targeted Quackenbush for years, particularly because he funded his election campaigns with donations from the companies he was supposed to regulate.

“When corruption goes unpunished, democracy suffers,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights. “It undermines public confidence in elected officials and, more broadly, government’s ability to protect the citizenry.”

In the Grays matter, the kickbacks came from the Skillz Athletics Foundation in Sacramento, a nonprofit set up by Grays’ friend Brian Thompson, who has pleaded not guilty to five federal counts of conspiring with Grays to defraud the department-run foundation.

Thompson is scheduled for trial on May 20.

Grays cooperated with state and federal prosecutors in their investigation of Quackenbush. He will be sentenced on March 28, federal prosecutors said.