Testimony on mystery checks at Quackenbush foundation

San Francisco Chronicle

Sacramento — Suggestions of criminal wrongdoing surfaced for the first time at an Assembly Insurance Committee hearing yesterday over testimony that checks may have been forged and board minutes falsified for a foundation set up by Insurance Commissioner Chuck Quackenbush.

Several witnesses testified that then-Deputy Commissioner George Grays, one of Quackenbush‘s key assistants, ran the foundation out of his office in the Department of Insurance.

That contradicted statements by Quackenbush and his other top aides, who said the foundation was completely separate from the department.

More questions were raised about the operation of the foundation by its former board president, who said foundation checks went out that she does not remember signing.

In addition, the board secretary testified that he was asked by Grays to sign minutes for meetings that never took place. The minutes showed approval of payments that both board members said did not happen.

The foundation was funded by settlement payments from insurance companies and was intended to help victims of the 1994 Northridge earthquake.

Yesterday’s explosive testimony came at the end of a week of legislative hearings into allegations that the Republican Quackenbush coerced insurance companies to pay into the foundations in lieu of paying up to $3.7 billion in fines for improper handling of policyholder claims. Critics say the “settlement” payments to the foundations were then used to promote Quackenbush‘s own political fortunes.

Even fellow Republicans on the committee yesterday said that the mounting evidence raises questions that Quackenbush will have to answer.

“It seems clear that Mr. Grays was deeply involved — over his head — in this foundation, and was in fact directing it,” said Assemblyman Dave Cox, R-Fair Oaks. “We don’t have yet any testimony that the commissioner was directing Mr. Grays. But we have to acknowledge that the commissioner knew or should have known.

Grays resigned in April, as legislative investigations intensified into insurance company donations to the foundation and other funds created by the commissioner’s office and into how those funds were spent.

The committee is negotiating with Grays to testify when hearings resume. He was scheduled to appear yesterday but had planned to invoke his Fifth Amendment privilege.

The Los Angeles Times, quoting sources, reported in today’s editions that Grays has agreed to cooperate in a investigation of the Department of Insurance by the California attorney general.

Lawmakers are investigating Quackenbush‘s creation and use of two nonprofit foundations. The main foundation, — called the California Research and Assistance Fund — was financed by insurance companies who avoided the potential of $3.7 billion in penalties for Northridge-related claims violations by paying a total of $12 million to the fund.

Quackenbush has acknowledged that none of the fund’s $6 million in spending so far has financed seismic research or consumer aid, the stated purpose of the fund. Others have testified that the fund made expenditures that benefited Quackenbush politically.

Yesterday, Kimberly Brockman, the former board president of the foundation, testified that she did not remember signing at least four checks that went out with her signature and that the signature “looks slightly different” from her own.

Brockman said the handwriting on the checks looked like that of George Grays. The checks included $117,000 in donations to a football camp attended by Quackenbush children.

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

Brockman said she resigned from the board after she “began to have a bad feeling in my stomach” about the fund’s spending.

Another board member, Eric Givens, said he was asked to sign minutes of board meetings that never took place. He refused.

Attorney General Bill Lockyer is investigating the foundation’s activities and has filed a civil complaint seeking to freeze the fund’s remaining $6 million in assets.

Earlier yesterday, board director Ron Weekley refused to testify at the Assembly hearing, invoking his Fifth Amendment protection against self-incrimination.

Weekley is a defendant in a civil lawsuit filed against the foundation by Lockyer and said he understands a criminal investigation may also be under way.

Weekley’s company, Community Connections, signed an $18,000 contract with the foundation. He told the committee that he denies any wrongdoing.

Also yesterday, a media strategist whose firm received a $2 million contract from the nonprofit foundation, testified that he called Quackenbush to complain about Grays’ professionalism with respect to the contract.

The strategist, David Bienstock, said Grays had been the one in charge, even though the checks he received came from the foundation.

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

But Bienstock said that it was his impression Quackenbush was aware of the project, and that it came from the foundation.

Assembly Insurance Committee Chairman Jack Scott, D-Altadena, said he was “very, very concerned” about that comment.

“We have seen a network of witnesses who have given us a picture to work with, and we’re going to have to ask the commissioner some tough questions,” said Scott.

While Democrats have been careful to avoid talking about impeachment at this time, at least one Republican has raised the possibility.

“If it is proven that the commissioner was involved in directing or approving either the tactics that were used to compel these contributions or the decisions involving the disbursements of these funds, then yes, I do believe that constitutes misconduct in office and is impeachable under the state constitution,” said Assemblyman Tom McClintock of Northridge.

“But it needs to be emphasized that we don’t have the full picture yet and that the commissioner is entitled to refute the evidence that is now in possession of the committee. We have to be patient as the process unfolds.”

In addition to negotiating with Grays about giving testimony, the committee said yesterday, additional hearings will be called when Quackenbush can attend.