Sunday, January 8, 2006

In a case that echoes the Jack Abramoff influence-peddling scandal, two Northern California Republican congressmen used their official positions to try to stop a federal investigation of a wealthy Texas businessman who provided them with political contributions. Read the article at LA Times

A Donor Who Had Big Allies

DeLay and two others helped put the brakes on a federal probe of a businessman. Evidence was published in the Congressional Record.

By Richard A. Serrano and Stephen Braun, Times Staff Writers
January 8, 2006

WASHINGTON — In a case that echoes the Jack Abramoff influence-peddling scandal, two Northern California Republican congressmen used their official positions to try to stop a federal investigation of a wealthy Texas businessman who provided them with political contributions.

Reps. John T. Doolittle and Richard W. Pombo joined forces with former House Majority Leader Tom DeLay of Texas to oppose an investigation by federal banking regulators into the affairs of Houston millionaire Charles Hurwitz, documents recently obtained by The Times show. The Federal Deposit Insurance Corp. was seeking $300 million from Hurwitz for his role in the collapse of a Texas savings and loan that cost taxpayers $1.6 billion.

The investigation was ultimately dropped.

The effort to help Hurwitz began in 1999 when DeLay wrote a letter to the chairman of the FDIC denouncing the investigation of Hurwitz as a "form of harassment and deceit on the part of government employees." When the FDIC persisted, Doolittle and Pombo — both considered proteges of DeLay — used their power as members of the House Resources Committee to subpoena the agency's confidential records on the case, including details of the evidence FDIC investigators had compiled on Hurwitz.

Then, in 2001, the two congressmen inserted many of the sensitive documents into the Congressional Record, making them public and accessible to Hurwitz's lawyers, a move that FDIC officials said damaged the government's ability to pursue the banker.

The FDIC's chief spokesman characterized what Doolittle and Pombo did as "a seamy abuse of the legislative process." But soon afterward, in 2002, the FDIC dropped its case against Hurwitz, who had owned a controlling interest in the United Savings Assn. of Texas. United Savings' failure was one of the worst of the S&L debacles in the 1980s.

Doolittle and Pombo did not respond to requests for interviews last week. They publicly defended Hurwitz at the time, saying the inquiry was unfair. Hurwitz's lawyer said Friday that the FDIC had been overzealous. This summer, a judge in Texas agreed and awarded Hurwitz attorney fees and other costs in a civil suit he filed. "They sought to humiliate him," U.S. District Judge Lynn N. Hughes, said in the ruling. The government is appealing the decision.

In key aspects, the Hurwitz case follows the pattern of the Abramoff scandal: members of Congress using their offices to do favors for a politically well-connected individual who, in turn, supplies them with campaign funds. Although Washington politicians frequently try to help important constituents and contributors, it is unusual for members of Congress to take direct steps to stymie an ongoing investigation by an agency such as the FDIC.

And the actions of the two Californians reflect DeLay's broad strategy of cementing relationships with individuals, business interests and lobbyists whose financial support enabled Republicans to extend their grip on Congress and on government agencies as well. The system DeLay developed and Abramoff took part in went beyond simple quid pro quo; it mobilized whatever GOP resources were available to help those who could help the party.

In the Hurwitz case, Doolittle and Pombo were in a position to pressure the FDIC and did so. Pombo received a modest campaign contribution. In another case, Pombo helped one of Abramoff's clients, the Mashpee Indians in Massachusetts, gain official recognition as a tribe; the congressman received contributions from the lobbyist and the tribe in that instance.

Andrew Wheat, research director for Texans for Public Justice, a nonpartisan electoral reform group based in Austin, put it this way: "DeLay and Hurwitz seem like natural allies in that they have geographic and ideological proximity. Mr. Hurwitz is a guy who has a reputation of being willing to pay to play. And DeLay likes to play that game too, so there's a natural affinity."

DeLay announced Saturday that he was giving up his efforts to regain the majority leader position. He was majority whip when he first became involved in helping Hurwitz.

In the Abramoff scandal, members of Congress allegedly did favors for the politically connected lobbyist's clients — including Indian casinos — and received campaign contributions and lavish free entertainment. Last week, the lobbyist pleaded guilty in separate cases in Miami and Washington in a deal that government investigators hope will lead to more prosecutions. Others involved have also made deals to cooperate, and Washington is braced for new criminal charges to come.

The episode involving Hurwitz and the two California congressmen took place with little public notice just before the Abramoff scandal began to escalate. The Sacramento Bee published a story when Doolittle inserted FDIC investigative documents into the Congressional Record, noting that it occurred at a time when Congress was distracted by the Sept. 11 terrorist attacks and the anthrax episode.

But what lay behind Doolittle's action, and the actions of Pombo and DeLay, did not become clear until recently, when the government documents and copies of letters between the congressmen and FDIC officials were obtained by The Times.

J. Kent Friedman, the general counsel for Hurwitz's vast Houston-based holding company, said last week that the FDIC was overzealous in its dealings with his boss.

"Their case was weak from the start. They had a terrible case," Friedman said. He said anyone trying to connect the congressmen to the fact that the case fell apart would be "attempting to put a bow on a pig."

The Texas S&L in which Hurwitz held a controlling interest of about 25% collapsed in 1988 as part of a financial fiasco that took federal regulators years to untangle. The investigation of Hurwitz began in 1995 and continued for about seven years before it was dropped.

After DeLay's 1999 letter attacking the investigation failed to dissuade the FDIC, Doolittle weighed in with a statement on the House floor in 2001, saying the FDIC investigators were "clearly out of control" and should have "dropped the case, period."

Pombo, in his own 2001 floor statement, suggested that the banking regulators were using strong-arm methods against Hurwitz, or what Pombo called "tools equivalent to the Cosa Nostra — a mafia tactic."

Doolittle, 55, an eight-term congressman, represents California's fourth district, the Sierra Foothills region and the eastern suburbs of Sacramento. He has a consistent conservative voting record, opposing gun control and abortion and siding with property rights, timber and utility interests against environmental groups.

By 2000, he had grown close to DeLay, working with the Republican leader to oppose proposed changes to campaign finance law and restrictions on fundraising. When DeLay was indicted in Texas last year, Doolittle distributed about 100 lapel pins in the shape of tiny hammers as a tribute to the man nicknamed the "Hammer" for his ability to pound congressional Republicans into line.

Doolittle also was closely aligned with Abramoff. Records show that Abramoff gave Doolittle tens of thousands of dollars in contributions and employed the congressman's wife for other fundraising activities.

Pombo, the son of cattle ranchers, plays up his cowboy roots, often appearing in his district wearing a ranch-hand's hat and ostrich-skin boots. Forty-five years old, a seven-term congressman, he represents the fertile farming expanse of the Central Valley.

He had impressed DeLay with his fundraising prowess, garnering about $1 million for his 2002 House reelection, which he won easily.

And not long after his role in helping Hurwitz, the GOP House caucus — led by DeLay — helped get Pombo elected chairman of the Resources Committee over several more senior Republicans.

Hurwitz has been a prolific campaign donor since the early 1990s.

He has contributed personally and with funds provided by his Houston-based flagship company, Maxxam Inc., through subsidiaries such as Kaiser Aluminum, and through a company political action committee, Maxxam Inc. Federal PAC.

In the last three federal elections cycles, those entities have given about $443,000 in political contributions — most of it to conservative politicians, including President Bush, for whom Hurwitz pledged to raise $100,000 in the 2000 campaign and also helped during that year's vote tally deadlock in Florida.

Hurwitz has been generous with DeLay too.

Starting in the 2000 election cycle, the businessman and his committees have distributed at least $30,000 to DeLay and his federal causes, including $5,000 for his current legal defense fund in the Texas money-laundering case.

Hurwitz also contributed $1,000 to Pombo for his 1996 reelection campaign. And through the Maxxam PAC, Hurwitz gave Doolittle $5,000 for his 2002 reelection campaign and then followed up with $2,000 more for his 2004 race.

When DeLay went to bat for Hurwitz, he was particularly critical of reported internal government discussions that would have pressed Hurwitz to settle his obligations for the collapsed S&L by selling the government vast forest areas and redwood trees in Northern California near Scotia. The forest land was owned by Hurwitz's Pacific Lumber company

"I am extremely concerned," DeLay told then-FDIC Chairwoman Donna A. Tanoue, "about the apparent abuse of governmental power and what appears to be misconduct in the form of harassment and deceit on the part of government employees."

Tanoue responded by telling DeLay "we can assure you that the FDIC lawsuit against Mr. Hurwitz was not filed for political reasons."

The investigation pressed on, and a year later the House Resources Committee, which had jurisdiction because of the forest area, set up a special Headwaters Forest Task Force and launched its own review. Doolittle was appointed task force chairman, and Pombo one of its members.

Duane Gibson, the committee's general counsel who later went to work for Abramoff, was named the chief investigator. They immediately subpoenaed internal records from the FDIC and the Office of Thrift Supervision, which also had responsibilities for S&Ls.

Both agencies were wary and, although complying with the subpoenas, repeatedly urged the lawmakers not to make the documents public or share them with Hurwitz.

William F. Kroener III, general counsel at the FDIC, warned the committee that Hurwitz and his lawyers were not entitled to see many of the documents.

Kroener told the panel that, should the material end up in their hands, it "could significantly injure our ability to litigate this matter and reduce damages otherwise recoverable to reimburse taxpayers."

Carolyn J. Buck, chief counsel at the Office of Thrift Supervision, also wrote the committee emphasizing that "we note our objection to any publication or release of these documents."

The task force was set up for six months, and disbanded in December 2000. It held one hearing, and called FDIC and Office of Thrift Supervision officials as witnesses.

At that hearing, Tanoue defended the FDIC's investigation.

"I have listened to and considered the arguments made directly to me by representatives of Mr. Hurwitz," she testified. "However, I have found no compelling reason to take the extraordinary step of … taking this case out of the hands of the judicial system."

Kroener testified that the FDIC was not interested in a trees-for-debt swap, saying his agency "has expressed its preference for a cash settlement."

Six months later, in June 2001, Pombo submitted a portion of the subpoenaed documents that filled 14 pages in the Congressional Record.

Six months after that, in December 2001, Doolittle did the same, even though he was no longer a member of the committee. And his submission was much larger — filling 111 pages.

The documents were so voluminous that Doolittle and Pombo had to pay a total of about $20,000 from their congressional accounts to cover the extra printing costs.

The FDIC was outraged over the documents' release.

Its chief spokesman, Phil Battey, said in a statement to the Sacramento Bee at the time that the publication of the materials was a "subordination … and a seamy abuse of the legislative process."

Not long afterward, the FDIC dismissed its case, and the Office of Thrift Supervision settled with Hurwitz for about $200,000 in administrative costs.

*Times staff writer Ted Rohrlich contributed to this report.