Ex-official allegedly paid funds without authorization

The City of Industry's former top administrator allegedly signed off on roughly $8.5 million in payments to a developer, now accused of fraud, without proper approvals from the City Council, according to court testimony in an ongoing criminal case.

The Los Angeles County District Attorney's office charged former City Manager Paul J. Philips with a single felony count of misappropriation of public funds in September. Though there is no evidence that Philips received any of the $20 million that flowed from the city's coffers, the prosecution has argued that Philips, through his leadership role, allowed — either intentionally or negligently — a developer proposing a solar farm to obtain the funds by fraudulent means, including through forged documentation.

Under state law, a city official who is tasked with safeguarding municipal funds can be charged with misappropriation if he or she disburses funds “without authority of law” for the use of another, even if the official does not directly benefit.

A preliminary hearing has been underway since February to determine if Philips should stand trial on the charge.

During recent testimony, Philips' attorney, Joe Weimortz, asked City Attorney Jamie Casso if Philips ever “acted outside of or in excess of his authority.” Casso had declined to answer a similar series of rapid-fire questions by asserting attorney-client and closed session privileges, and Weimortz, who is intentionally triggering such responses to build a future argument that Philips' right to a fair trial is being violated, seemingly did not expect an actual answer. “Yes,” Casso said.

Casso explained that publicly available documents showed that while the city paid out $20 million to the solar developer, San Gabriel Valley Water and Power, only about $11.5 million of the total appeared on the “register of demands,” a form of accounting that allows the City Council to approve requests for payments in bulk during council meetings.

An analysis of the registers from 2016 to 2018 indicated $8.5 million in wire transfers sent to the developer never came before the City Council. The records show nearly a yearlong gap in payments, from August 2016 to July 2017, during a time period when work on the solar proposal was well underway.

“He was the individual — the city manager — responsible for those registers,” Casso testified. “Somebody approved them, and it wasn't the City Council that approved them.”

Casso testified he wasn't aware of any other instances where expenditures were left off the register during Philips' tenure as city manager. The city, he said, did not become aware of the missing payments until after the solar project was shut down.

Casso, however, cited attorney-client, work product and Brown Act privileges when asked additional questions about whether evidence existed that would exonerate Philips. Weimortz has suggested he will argue, at some point during the hearing, that the case should be dismissed because Industry's refusal, as the victim, to voluntarily waive those privileges has put Philips' “rights and liberty at stake.”

`Red herring'

Steve Cooley, a former L.A. County district attorney serving as co-counsel for Philips, called the missing payments a “nonissue.” The City Council had approved a lease agreement and a series of amendments that set a cap on the project at $20 million. The total amount paid was public knowledge at the time. Philips' attorneys have argued previously that Philips was the final signature in a lengthy approval process that included signoffs from the Finance Department.

“The city's annual independent audit has never ever identified it as being relevant,” Cooley said. “This issue being advanced by the prosecution has the smell of a red herring.”

The missing payments appeared at odds with both state and city laws. A city attorney consulted for this story stated it would be unusual for payments to never appear on the register of demands and that the city manager would need written authorization from the city council to issue payments otherwise. A city council cannot approve such requests for payment in closed session, he said.

Industry's Municipal Code states that any demand for payment is required to be presented to the City Council for approval or rejection at the next regular meeting and must include a “certification by the city manager, or his or her designated representative that the demands are accurate, proper and correct.” The city treasurer is required to certify that enough funds exist to cover the payment.

State law states that “resolutions or orders for the payment of money shall be adopted or made only at a regular meeting or at a special meeting for which the notice of such special meeting specifies the business to be transacted.” Any order for payment of money requires “a recorded majority vote of the total membership of the City Council.

Hearing to continue

Due to scheduling issues, the preliminary hearing for Philips is likely to continue into July, but the prosecution has stated it is nearing the end of its list of witnesses. Over the course of the hearing, the District Attorney's Office has alleged Philips ignored red flags about the developer's invoicing and recommended the initial hiring of Anthony Bouza, an attorney who represented Industry's interests in the solar project while simultaneously being owed $1.5 million by the developer, William Barkett.

Barkett is accused of using nearly $9 million of the city's funds on personal items, including a $2 million wedding for his daughter in the French Riviera.

Philips “controlled the flow of information, he controlled the staff and he controlled the money,” said Ana Lopez, one of the deputy district attorneys prosecuting the case.

If tried and convicted, Philips could spend up to four years in prison and would be disqualified from holding office in the state. The other three defendants — Barkett, Bouza and former state Sen. Frank Hill, who is accused of using his influence to play both sides of the deal — have not begun their preliminary hearings and are not scheduled to appear in court again until July 14.