Washed It!

For former insiders at some of the several hundred banks that collapsed during the financial crisis and in its aftermath, a day of reckoning has arrived.

The Federal Deposit Insurance Corp. has told dozens of former bank officers and directors that it has drawn up lawsuits accusing them of misdeeds such as fraud and breach of fiduciary duty. The federal agency is seeking damages to help offset losses in the nation’s deposit insurance fund.

It’s time, the FDIC warns these officials, to sit down and work out settlements — or head to court to decide the matters there.

The letters being sent by the agency are “very detailed,” said Jeffrey A. Tisdale, a Los Angeles lawyer for former officials of five banks targeted by the agency.

“I mean eight to 10 single-spaced pages of purported misdeeds,” he said.

The showdowns follow FDIC probes that typically take well over a year.

“We’re only doing this after careful investigation. We don’t bring suit every time a bank fails,” said Richard Osterman, the FDIC’s acting general counsel.

The FDIC board has authorized suits seeking to recover more than $2 billion from more than 80 former bank officials, up from about 50 a month ago, Osterman said. The number could multiply as the agency works through its investigative backlog.

The agency could end up suing or settling with former insiders of about one-quarter of the more than 300 banks that have failed since the start of 2008, officials say.

“This is only the first wave,” Tisdale said. “I’ve got my next five-year professional plan laid out pretty well.”

Although the FDIC says it will try to settle the cases, officials expect to file a significant number of suits. Criminal charges could result in a few cases.

“We are investigating [criminal] bank fraud and related cases in many different parts of the country, including in California,” said Fred Gibson, deputy inspector general at the agency.

So far only two civil suits have been filed. The first, filed in July, accuses four executives of Pasadena’s defunct IndyMac Bank of negligence in granting construction and development loans that the suit says were unlikely to be repaid. The defendants are contesting the suit, which seeks $300 million in damages.

Last week, the FDIC sued 11 former insiders at defunct Heritage Community Bank in Glenwood, Ill. Calling the case “regrettable and wrong,” defense lawyers said in a statement that their clients, in failing to foresee the economic meltdown, were no different from Wall Street and the FDIC itself.

Tisdale concurs that the FDIC is going after people for failing to accurately predict the future.

“The economy is the real culprit here,” he said. “There was no way to plan for real estate values dropping 30% to 50% throughout California, Nevada and Arizona.”

But Darren Robbins, a San Diego lawyer who specializes in filing investment fraud suits, says the FDIC has plenty to work with just by looking at what banks said about their assets toward the end of the boom.

“It’s our belief that in places like Illinois, Georgia, California and Arizona there was an inordinate amount of game-playing with financial statements in ‘07 and ‘08,” said Robbins, whose firm has fraud suits pending against several casualties of the bust, including PFF Bancorp, the former parent company of Pomona’s PFF Bank & Trust, which failed in November 2008.

In targeting the former officials, the FDIC typically also has its eyes on insurance companies that would be on the hook for damages stemming from alleged misconduct by the bankers. In many cases, the FDIC formally gave notice of possible litigation months ago, just before the expiration of the relevant insurance policies, to ensure that the coverage would apply.

Some policies covering directors and officers don’t apply to actions by the FDIC. In such cases, the agency is going after bank officials only if they have sufficient assets to justify the expense and risk of litigation, Osterman said.

The FDIC’s litigation strategy borrows from a playbook the agency used after the savings and loan meltdown of about two decades ago. From 1986 through 1996 the FDIC recovered $5.1 billion from former insiders at failed banks and savings and loans, Osterman said. That’s a small fraction of the eventual cost of the S&L crisis.

scott.reckard@latimes.com
FDIC prepares to crack down on officials of failed banks

Iowa’s rejection of three state supreme court justices who ruled in favor of same-sex marriage underscored the growing electoral vulnerability of state judges as more and more are targeted by special interest groups, legal scholars and jurists said Thursday.

“It just illustrated something that has been troubling many of us for many, many years,” California Chief Justice Ronald M. George said. “The election of judges is not necessarily the best way to select them.”

The three Iowa high court justices were ousted in the kind of retention election California uses for appeals court judges: They face no opposing candidates and list no party affiliation, and voters can select “yes” or “no.” Legal scholars have generally said that system is among the most effective ways of avoiding a politicized judiciary.

But a report by the Brennan Center for Justice this year found a “transformation” in state judicial elections during the last decade throughout the country. Big money and a campaign emphasis on how a judge votes on the bench has become “the new normal,” the report said.

“For more than a decade, partisans and special interests of all stripes have been growing more organized in their efforts to use elections to tilt the scales of justice their way,” said the report, which examined 10 years of judicial elections. “Many Americans have come to fear that justice is for sale.”

Although Iowa’s vote will have no immediate effect on marriage rights there, it sends a signal to other judges that voters are watching.

“It will pressure judges, or some judges anyway, perhaps even subconsciously, in their decision-making by what would be popular or what might meet the political preferences of the moment,” George said. “And the judge’s loyalty has to be first and foremost to the rule of law, and not to the political or social or economic pressures or personal preferences.”

Several jurists cited recent U.S. Supreme Court decisions that they believe will further politicize the bench. One ruling permitted judges to take political positions during judicial races, and another overturned campaign contribution limits.

Anti-abortion forces targeted George and California Supreme Court Justice Ming W. Chin for removal in 1998 after they voted to overturn a state parental consent law. Both raised money and mounted campaigns to save their seats.

More dramatically, voters ousted the late California Chief Justice Rose Bird and two colleagues in 1986 after a campaign that charged the court was failing to uphold death sentences.

“The Rose Bird situation is now being replicated throughout the United States,” said Justice J. Anthony Kline of the 1st District Court of Appeal in San Francisco. What happened in Iowa is likely to happen in other states, including California, where the Bird election generally has been seen as an aberration, he said.

“The independence of California courts has never been seriously challenged, ” Kline said. “But those days may be numbered.”

Most states elect judges, whereas federal judges receive lifetime tenure. Judges for Superior Court in California can be challenged.

A group opposed to gay marriage targeted the Iowa justices, who were on the ballot for their regular retention election, after last year’s unanimous Iowa Supreme Court decision to lift a ban on same-sex marriage. Even though a new governor will now appoint their replacements, the recall is not expected to affect same-sex marriage rights in Iowa.

“It was an attempt to intimidate judges,” said Dean Allan W. Vestal of Drake University Law School in Des Moines. “It had no immediate practical effect.”

The justices who were ejected from the bench blamed “an unprecedented attack by out-of-state special interest groups.” They included the Mississippi-based American Family Assn., the Washington-based Family Research Council and the New Jersey-based National Organization for Marriage.

Liberty Counsel, one of the groups that has been fighting gay marriage, praised the results.

“The justices crossed the line when they played the role of a legislator and abandoned judicial restraint,” said Mathew Staver, founder of the group.

George said pressure has come from both the left and the right in California judicial retention elections.

Rejection of Iowa judges over gay marriage raises fears of political influence

Jerry Brown returned to Sacramento on Thursday as California’s next governor, forging relationships and crunching numbers as he anticipates his first budget, which will set the tone for a new administration that he says will be characterized by his trademark frugality.

The former two-term governor has little time. He must present a spending plan within days of taking office in January, when the state will probably be grappling with a new deficit as well as with the new restrictions that voters placed on how revenue can be raised and used. Throughout his campaign, Brown offered few specifics on how he would balance the state’s books, focusing instead on an “exhaustive” collaborative process that he says will include all stakeholders, including labor unions and business.

The spending plan is typically sent to the printer in late December, meaning Brown won’t even be governor by the time his initial draft must be finished. Brown said his transition team is working with the staff at the state Department of Finance.

On Thursday, Brown met with the state budget director, Ana Matosantos. Addressing reporters, Brown described the meeting as “very sobering” and vowed to start working full-time on a budget after he returns from a weeklong vacation.

“I think the problems we face are as bad as anyone could imagine, and it’s going to take a lot of very tough decisions,” Brown said. “It’s very daunting. It’s certainly as bad as it’s ever been, and it’s going to take people in both the Democratic Party and the Republican Party” to produce a viable budget.

He added: “The people of California, they’ll have a chance to see in great depth what it is we’re doing and what kind of money we have to do it and what the gap is. And it’s certainly considerable.”

By next Tuesday, Brown’s transition team will probably be sitting in on a key meeting that takes place at this time every year, when leading state economists come to Sacramento to offer revenue projections. The governor’s office uses those projections to come up with its own forecasting model, on which the proposed budget is based. One of the economists, Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto, said all the early signs suggest no major improvements.

“The budget will include some very difficult revenue numbers,” he said. “We’ll be back in the soup.”

Legislative leaders have estimated that the state will face a deficit of at least $12 billion.

Brown flew with Gov. Arnold Schwarzenegger to Sacramento on Thursday from San Diego, where the two attended the funeral of a police officer. Later, Brown worked the halls of the Capitol, meeting with Matosantos, Assembly Speaker John P

Democrats fought Republicans on Saturday in a campaign battle that stretched coast to coast, pushing against an epic tide of anger, frustration and economic anxiety that could sweep the GOP to control of one and possibly both houses of Congress.

Driving deep into once-solid Democratic territory, Republicans spent the last weekend of the midterm election campaign targeting House seats in blue-state bastions such as California, New York and Massachusetts. Democrats poured tens of millions of dollars into a last-ditch effort to save dozens of threatened incumbents, writing off others whose chances appeared beyond hope.

With spending near the $4-billion mark, a record for a midterm contest, there was little escaping the last blast of campaigning. Candidates and others with a stake in Tuesday’s outcome — including, most prominently, President Obama — staged rallies while hundreds of thousands of volunteers knocked on doors and manned phone banks, urging supporters to the polls.

In Philadelphia, the first stop on a final campaign swing, Obama said all the progress of the last two years could be rolled back if Republicans seize control of Congress.

“We can’t move backwards now. We’ve got to keep moving forward,” Obama told an audience of Democratic volunteers at Temple University. “And that’s all going to be up to you. So I want everybody to get out there, knock on doors, make phone calls, volunteer, talk to your friends, talk to your neighbors.”

Rep. John A. Boehner of Ohio, the likely House speaker if Republicans take over, used the party’s weekly radio address to jab at the president and Democrats and to promise a change from the last time Republicans ran Congress. He promised smaller government and greater accountability.

“We’ve tried it President Obama’s way,” Boehner said. “We’ve tried it Washington’s way. It hasn’t worked.”

All the while, a torrent of TV and radio advertising provided a loud and surly campaign soundtrack, blaring virtually around the clock. In some states, every last minute of TV ad time was sold out.

All 435 U.S. House seats are up on Tuesday. Republicans need a gain of 39 to win control of the House, which they lost in 2006. Despite a public show of optimism, based on healthy Democratic turnout in some early voting, party strategists privately echoed Republicans who have suggested a change in power was highly likely. The only question, both sides agreed, was the magnitude of Republican gains and whether it approaches — or surpasses — the 52-seat GOP landslide in 1994, the last time Democrats controlled Congress and the White House.

Voters will cast ballots for 37 of 100 U.S. Senate seats. Democrats were confident they would keep the majority, albeit narrowly, and Republican strategists conceded the likelihood. The GOP needs to convert 10 seats to take over and many handicappers predicted the party would fall short, as contests in Connecticut and West Virginia seemed to tip the Democrats’ way and as Sens. Barbara Boxer in California and Patty Murray in Washington appeared to shore up support.

The last time either party gained at least 10 Senate and 40 House seats in a single election was in 1958.

Also on the ballot Tuesday are the governorships of 37 states, including California, Florida, New York and Texas. Republicans seem poised to gain about a half-dozen governor’s seats and take control of several statehouses, which could have significant implications for races in 2012 and beyond, as legislators redraw the boundaries used to elect members of Congress.

Midterm contests are typically a referendum on the president and almost always cost his party congressional seats. This year appears no different. If anything, the achievements of Obama and congressional Democrats — passing massive economic stimulus and healthcare bills, rescuing the auto industry, cracking down on Wall Street — sharpened the opposition, giving birth to the “tea party” movement that promised to usher a number of insurgents into Congress.

Compounding problems for the president and his party, this year’s races were run in a brutal economic climate, following the worst downturn since the Great Depression. At nearly 10%, the jobless rate is the second highest it has been for a midterm election in the last 50 years.

“If unemployment was 7.4%, or even 8.1%, but dropping, and people clearly perceived that things were getting better, then Democrats would take some losses,” said Tim Hibbitts, an independent pollster in Oregon. “But not the potential catastrophe they’re facing.”

A look at the national map showed the party’s dire circumstances.

Of 100 or so House seats that looked at least marginally competitive, Democrats were on the defensive in all but a handful. Some of the party’s most durable incumbents — including committee chairmen Barney Frank of Massachusetts, Ike Skelton of Missouri and John M. Spratt Jr. of South Carolina — were in trouble or, at the least, facing their toughest reelection fight in years.

Seats that would normally be out of Republican reach, in districts Obama easily carried two years ago, were in the toss-up category or leaning Republican, leading some independent analysts to forecast GOP gains of as many as 70 seats or more.

A swing of even 60 seats would be the largest midterm shift since 1938.

Both parties campaign to the finish line

Defections from Meg Whitman’s ranks on the part of women, Latinos and nonpartisan voters have fueled a surge by Jerry Brown in the race for governor, according to a new Los Angeles Times/USC poll.

The shift comes after a tumultuous month for the Republican candidate that has led some voters to question her veracity and her handling of accusations by an illegal immigrant housekeeper.

Brown, the Democratic attorney general and former governor, led Whitman 52% to 39% among likely voters, the poll found. His advantage has more than doubled since a Times/USC poll in September.

The abrupt movement in the race for governor came as Democratic incumbent Barbara Boxer held onto her 8-point margin over Republican Carly Fiorina in the U.S. Senate contest. Boxer’s 50% to 42% lead was statistically unchanged from September’s 51% to 43% edge.

For both Democrats, the month between the two polls found the party’s strongest supporters rallying to the candidates’ sides: liberals, women and Latinos either solidified or expanded their backing for Brown and Boxer. Nonpartisan voters, whom Republicans had counted on to overcome the Democratic advantage in voter registration, moved away from the two Republican candidates, and moderate voters also tilted toward the Democrats.

Paula Bennett, a schoolteacher in the Sacramento-area town of Acampo, said she was drawn to Brown in part by the blizzard of cash Whitman has thrown at the race.

“I like the little guy; he didn’t have the money behind him like she did,” she said in a follow-up interview, adding that she sided with Brown for the same reason that she favors a mom-and-pop establishment over a retail behemoth.

“We don’t shop at Walmart. We shop at the local store. He just seemed like more of a down-home candidate.”

Although she is Republican, Bennett is also siding with Boxer. She said she was offended by both Whitman’s and Fiorina’s infusions of personal cash into their races.

“That message that they’re sending to people is a very bad choice,” she said. “We’re looking to people to act their values rather than throw money at causes. People are holding their money really closely and those candidates are really splurging.”

Most of the nation has seen pronounced enthusiasm by Republican voters as the midterm elections approach. In California, however, Democrats have gained strength and GOP motivation has ebbed slightly in the last month, the poll showed. The current standings represent a reassertion of a more typical profile for the state after an election year convulsed by a foundering economy, widespread discontent about the future and record-breaking spending by Whitman, who has dropped more than $141 million of her own money into her campaign.

The poll was conducted for The Los Angeles Times and the USC College of Letters, Arts and Sciences from Oct. 13 to 20 by the Democratic polling firm Greenberg Quinlan Rosner and the Republican firm American Viewpoint. It included a random sample of 1,501 California voters, including 922 likely voters. Results for likely voters have a margin of sampling error of 3.2 points in either direction, with a larger margin for subgroups.

The survey was taken as the two gubernatorial candidates pummeled each other over the state’s airwaves and flooded telephone lines and mailboxes with entreaties for the election — now nine days away. And it came at the close of a particularly difficult period in the race for Whitman.

A turning point appears to have been the Sept. 29 announcement by her former housekeeper, Nicandra Diaz Santillan, that she had been employed by the former EBay chief for nine years, a period during which she said Whitman became aware of her illegal status. Whitman countered that she had not known of Diaz Santillan’s status until shortly before firing her in 2009, and she released copies of falsified documents presented to her by Diaz Santillan.

Diaz Santillan, accompanied by attorney Gloria Allred in a series of sob-wracked news conferences, displayed a copy of a 2003 government document sent to Whitman and her husband that could have alerted them that their employee was using a false Social Security number.

The subsequent days of controversy upended Whitman’s carefully nuanced position on illegal immigration and whipsawed her between voters who thought she was too easy on Diaz Santillan and those who thought the housekeeper deserved better than banishment. Whitman slipped among both groups in the new poll.

Among likely Latino voters, support for Brown grew from a 20-point lead in September to a 34-point advantage in the new survey. His lead among women voters expanded from 9 points to 21 points. Among nonpartisan voters, who in California register as “decline to state” and tend to recoil from tough stances against illegal immigrants, Brown’s lead over Whitman grew from 6 points to 37 points.

At the other end of the ideological scale, Whitman’s standing among conservatives ebbed slightly, from 77% to 70%. She continued to outdistance Brown among those voters, although his support grew slightly from 16% to 21%.

Overall, by 52% to 41%, voters said that Whitman had not handled the housekeeper controversy well. The same key voter groups — women, independents and Latinos — offered the harshest verdicts. When asked how Brown had handled the matter, voters were more divided, with 37% saying he did well and 43% saying he did not. Among independent voters, a plurality approved of Brown’s actions.

Jerry Brown’s lead doubles in a month; little change in Senate race

Repeated clashes over illegal immigration have marked the state’s political races for years, but a new Los Angeles Times/USC poll found that voters hold positive views about immigrants overall and favor accommodating illegal immigrants who have held down jobs in the state.

Asked whether immigrants represented a benefit or a burden to the state, 48% of voters likely to cast ballots in November said they were a benefit, and 36% said they strongly held that view. Only 32% said immigrants overall were a burden to California because of their impact on public services, and only 22% felt that way strongly.

Separately, 59% of likely voters said that an illegal immigrant who had lived and worked in the United States for at least two years should be allowed to remain here if discovered. More than 2 in 5 voters saidthey felt strongly that such an option should be available. Only 30% of likely voters thought the illegal immigrant should be deported, and only 19% backed that option strongly.

But views varied widely by political persuasion and age.

Liberals were most supportive of immigrants legal and illegal, with 75% saying immigrants were a benefit and 81% saying that working illegal immigrants should be able to keep their jobs. Voters under 45 agreed, with 59% saying immigrants were beneficial and 68% calling for illegal immigrants to keep their jobs rather than be deported.

Among conservative likely voters, 52% felt immigrants were a burden and 25% felt they were a benefit. Conservatives were the only group that leaned more toward deportation — by a narrow 2 percentage point margin.

Voters over 65 were more split, with 41% citing immigrants as a benefit and 36% as a burden. They also favored letting illegal immigrants keep their jobs, 55% to 33%.

By far the demographic group most supportive of immigrants was Latinos. Sixty-eight percent said immigrants were a benefit, a view shared by 43% of whites. And 76% felt illegal immigrants should be allowed to stay in the country, a sentiment shared by 56% of whites.

The poll was conducted for The Los Angeles Times and the USC College of Letters, Arts and Sciences from Oct. 13 to 20 by the Democratic polling firm Greenberg Quinlan Rosner and the Republican firm American Viewpoint. It included a random sample of 1,501 California voters, including 922 likely voters. Results for likely voters have a margin of sampling error of 3.2 points in either direction, with a larger margin for subgroups.

cathleen.decker@latimes.com
Californians hold positive views of immigrants; most oppose deportation

President Barack Obama rallied thousands of loyal supporters at the USC campus Friday, urging them to defy skeptics who have predicted losses for Democrats and turn out in force on election day to give his administration more time to turn around the nation’s flailing economy and deliver the change he promised in the 2008 election.

“We need all of you to fight on. We need all of you fired up,” the president told the roaring crowd of students and admirers — 37,500 of them, by USC officials’ estimates — who spilled out across the sun-soaked lawn of Alumni Park and the streets beyond. “We need all of you ready to go, because in just 11 days … you have the chance to set the direction of this state and of this country, not just for the next two years but for the next five years, the next 10 years, the next 20 years.”

“Just like you did in 2008,” the president said, “you can defy the conventional wisdom that says young people are apathetic, the conventional wisdom that says you can’t beat the cynicism in politics.”

In the combative tone that has defined his remarks in recent days, Obama offered a sharp rebuke of the Republican agenda, accusing the opposition party of embracing a strategy of “amnesia” after sitting on the sidelines saying “no to everything” while blaming him for the nation’s troubles.

“They figured that y’all would forget that they caused the mess in the first place,” he said. “…But Los Angeles, as I look out on this crowd, this tells me you haven’t forgotten.”

With a new Los Angeles-Times/USC poll showing a narrowing enthusiasm gap between Republicans and Democrats, the president’s trip to California served the dual purpose of motivating his troops and raising money for endangered Democratic U.S. Sen. Barbara Boxer and attorney general candidate Kamala Harris. Boxer, Harris and state Atty. Gen. Jerry Brown, the Democratic gubernatorial candidate, all spoke briefly at the event, asking Democrats to match the fervor of Republicans.

Actor Jamie Foxx also underscored the Democrats’ precarious position by alluding to Obama’s encounter with a woman earlier this year who said she was exhausted by defending him — and then prompting the crowd to chant: “We’re not exhausted.”

Boxer, who has been hit with millions of dollars’ worth of attack ads from the U.S. Chamber of Commerce and other outside groups, said the other side has “giant, wealthy, unlimited-spending special interests with them.” But, she said, “We have our own army.”

Unlike on his last visit to Los Angeles, the President sought to avoid the wrath of the city’s commuters by flying from LAX to USC on Marine One for the event organized by the Democratic National Party. He also attended a luncheon fundraiser for Boxer and sat for an interview with Spanish-language radio host Piolin in Glendale. Then he jetted off to Nevada for another Democratic rally and a dinner to benefit Senate Majority Leader Harry Reid, who is in an uncomfortably close race of his own.

While some Democratic candidates have kept Obama at arm’s length — distancing themselves from the administration’s controversial healthcare legislation and the $814-million stimulus package — Boxer has welcomed his help in California. In this state, 56% of likely voters said in a recent Times/USC poll that they wanted a senator who supports the president.

Boxer has been an unfailing defender of Obama’s policies, even in the face of relentless criticism of Obama’s policies from her challenger, Republican Carly Fiorina. The White House has rewarded Boxer’s loyalty with multiple trips to California on behalf of the three-term senator, who is clinging to a slim lead over Fiorina.

The president’s visit will be followed next week by a fundraising event for Boxer featuring First Lady Michelle Obama. The efforts will provide a much-needed boost to Boxer’s coffers in the final stretch.

New fundraising reports covering the period from Oct. 1 to Oct. 13 showed Fiorina, the former Hewlett-Packard chief executive, raising slightly more than Boxer, though Boxer still had twice as much cash on hand as her opponent. But Fiorina announced a new $1-million loan to her campaign Friday for the final push, in addition to the $5.5 million she gave herself for the primary.

At Friday’s rally, the candidates took care to avoid mentioning the names of their rivals but drew distinctions between themselves and their opponents.

Brown signaled that he would reject what he has criticized as the divisive tactics of his opponent: “We don’t scapegoat anybody, not public workers, not immigrants, not anybody because we’re all Californians together.”

And Obama argued that if Republicans were to regain control, they would cut “middle-class families loose to fend for themselves.”

“Their basic philosophy is — you’re on your own,” he said.

Fiorina spokeswoman Julie Soderlund called Obama’s visit “another rescue mission for Boxer” and said the fact that Boxer did not mention Friday’s new unemployment figures or her specific plans to address them in her short speech proved “just how out of touch she is with the reality that 1 in 8 Californians is without a job.”

Brown’s Republican rival, Meg Whitman, meanwhile, campaigned in San Jose on Friday with New York City Mayor Michael Bloomberg. He had held the all-time record for self-funding a campaign until Whitman, who has put $141.5 million into her gubernatorial bid, surpassed him.

The former EBay chief executive said the Obama administration’s efforts to revive the economy had been a failure.

“The progress has been terrible,” Whitman said. “Look at the unemployment rates we face in California and we face in the country.”

maeve.reston@latimes.com

seema.mehta@latimes.com

Times staff writer Michael J. Mishak in San Jose contributed to this report.
In USC speech, Obama urges 37,500 Democratic voters to ‘fight on’

The California attorney general’s office on Thursday significantly widened its probe into the city of Vernon, issuing subpoenas for information on high salaries, lavish travel bills and pension costs for six former and current officials.

The action comes two days after L.A. prosecutors filed charges of conflict of interest and misappropriation of public funds against Vernon’s former city administrator and Los Angeles County Dist. Atty. Steve Cooley suggested the scandal-plagued city be disbanded.

In addition to the Vernon action, Atty. Gen. Jerry Brown’s office Thursday unveiled plans to seek a court-ordered monitor to watch over neighboring Bell, which has been hit by a corruption scandal that has resulted in criminal charges against eight current and former officials. All eight pleaded not guilty on Thursday.

In an interview, Brown said the compensation received by top Vernon officials — which in one case topped $1.6 million — was excessive and that attorneys in his department were trying to determine whether a lawsuit should be filed.

“I’ve never seen anything like it, it’s so egregious,” said Brown, who is running for governor. “It’s clear to me that we need a state authority to set some standards and curb these excesses.”

So far, the Los Angeles district attorney’s investigation appears to have focused primarily on Donal O’Callaghan, the former city administrator who was indicted by a Los Angeles grand jury on charges regarding two contracts the city established with his wife.

The attorney general is now demanding that Vernon make officials available for testimony regarding the compensation and perks received by former city attorney and city administrator Eric T. Fresch, Finance Director Roirdan S. Burnett, former City Atty. Jeffrey Harrison, former City Administrator Bruce Malkenhorst Sr., and former City Clerk Bruce Malkenhorst Jr., as well as O’Callaghan.

Those six constitute the last decade of leadership in Vernon, a small, well-heeled industrial city just south of downtown Los Angeles. Vernon has been dogged for decades by claims that it is run by a small fiefdom of well-connected people who use the city of 90 residents to generate large incomes.

The Times reported this summer that those six officials all earned more than $500,000 in at least one of the last five years, with Fresch, a former city administrator who now works as a legal consultant, making $1.65 million in 2008.

The Times also reported on luxurious travel expenses billed to the city by Fresch, O’Callaghan and other Vernon officials. In one February 2007 trip, the two former city administrators flew first class with a financial advisor to New York, at a combined cost of $12,700. They stayed at the Ritz-Carlton and dined at the Four Seasons. Fresch alone spent $7,600 over four nights at the upscale hotel.

Fresch often commuted to work from the San Francisco Bay Area and billed the city for first-class flights. O’Callaghan was reimbursed for trips to Ireland and Sweden.

Brown’s subpoena also seeks testimony on “pension or other retirement benefits” for the Vernon officials. The exact focus of this part of the investigation is unknown. But The Times reported in September that Fresch, Harrison and other Vernon attorneys would receive an enhanced pension package typically reserved for police, firefighters and other safety workers.

Vernon reclassified its attorney positions as “safety employees” in 2004, which entitles them to more lucrative pensions and earlier retirement. In a letter signed by then-City Administrator Malkenhorst Sr., the city told CalPERS that its attorneys were “primarily engaged in the active enforcement of criminal laws.” But a former Vernon police chief told The Times that he could not recall a single instance when Vernon’s city attorneys prosecuted a case in criminal court.

Vernon City Manager Mark C. Whitworth released a statement Thursday saying the city “has fully cooperated with the attorney general’s investigation, and we will continue to do so.”

Neither Fresch nor O’Callaghan could be reached for comment.

Brown did not give a time frame for his office’s investigation into Vernon beyond the start of testimony Nov. 10. He said that the subpoena was meant to get information “on the record.” Although it requires only one designee to testify, Brown said it is possible several Vernon officials would be deposed.

“They know who knows, and they’re supposed to tell us and then we will go from there,” he said. “We want to hear who knows, and we’ll keep digging.”

Brown also said his office is pushing ahead with creating a monitor who would have wide-ranging access to city affairs in Bell, where four of the five council members were charged with public corruption.

A court hearing on the proposal was scheduled for Nov. 17.

State widens inquiry into Vernon

SAN DIEGO (AP) — The military is accepting openly gay recruits for the first time in the nation’s history, even as it tries in the courts to slow the movement to abolish its “don’t ask, don’t tell” policy.

At least two service members discharged for being gay began the process to re-enlist after the Pentagon’s Tuesday announcement.

Meanwhile, a federal judge in California who overturned the 17-year policy last week was likely to reject the government’s latest effort to halt her order telling the military to stop enforcing the law.

The Justice Department will likely appeal if she does not suspend her order.

The Defense Department has said it would comply with U.S. District Judge Virginia Phillips’ order and had frozen any discharge cases. Pentagon spokeswoman Cynthia Smith said recruiters had been given top-level guidance to accept applicants who say they are gay.

Recruiters also have been told to inform potential recruits that the moratorium on enforcement of the policy could be reversed at any time, if the ruling is appealed or the court grants a stay, she said.

Gay rights groups were continuing to tell service members to avoid revealing that they are gay, fearing they could find themselves in trouble should the law be reinstated.

“What people aren’t really getting is that the discretion and caution that gay troops are showing now is exactly the same standard of conduct that they will adhere to when the ban is lifted permanently,” said Aaron Belkin, executive director of the Palm Center, a think tank on gays and the military at the University of California Santa Barbara. “Yes, a few will try to become celebrities.”

An Air Force officer and co-founder of a gay service member support group called OutServe said financial considerations are playing a big role in gay service members staying quiet.

“The military has financially trapped us,” he said, noting that he could owe the military about $200,000 if he were to be dismissed.

The officer, who asked not to be identified for fear of being discharged, said he’s hearing increasingly about heterosexual service members approaching gay colleagues and telling them they can come out now.

He also said more gay service members are coming out to their peers who are friends, while keeping their orientation secret from leadership. He said he has come out to two peers in the last few days.

“People are coming out informally in their units,” the officer said. “Discussions are happening right now.”

An opponent of the judge’s ruling said confusion that has come up is exactly what Pentagon officials feared and shows the need for her to immediately freeze her order while the government appeals.

“It’s only logical that a stay should be granted to avoid the confusion that is already occurring with reports that the Pentagon is telling recruiters to begin accepting homosexual applicants,” said Tony Perkins, the president of the Family Research Council, a conservative advocacy group based in Washington that supports the policy.

The uncertain status of the law has caused much confusion within an institution that has historically discriminated against gays.

Before the 1993 law, the military banned gays entirely and declared them incompatible with military service. There have been instances in which gays have served, with the knowledge of their colleagues.

Twenty-nine nations, including Israel, Canada, Germany and Sweden, allow openly gay troops, according to the Log Cabin Republicans, a gay rights group and plaintiff in the lawsuit before Phillips.

The Pentagon guidance to recruiters comes after Dan Woods, the group’s attorney, sent a letter last week warning the Justice Department that Army recruiters who turned away Omar Lopez in Austin, Texas may have caused the government to violate Phillips’ injunction. Woods wrote that the government could be subject to a citation for contempt.

Military recruiters told to accept gay applicants, as gov’t appeals court decision

The Courier-Times–Telegraph arrives on driveways in Tyler, Texas, on Sundays with a pleasant thud. It can be thicker than a rib-eye steak and flecked with the sort of small-government red meat that satisfies the palates of its conservative readers.

So the paper startled some readers last weekend when it ran a rare front-page editorial, one that took aim at the state’s Republican governor. The piece urged Rick Perry to reverse his “unacceptable and undeserved silence” to debate his Democratic opponent and to meet with newspaper editorial boards, as he has in years past.

Publisher Nelson Clyde said he’s disturbed by a trend in the current midterm election in which some politicians hide out or speak only through a few friendly news outlets. “For me, from a journalist’s point of view, I think this is really going to polarize us and the media further,” Clyde said in an interview. “It’s a regrettable circumstance.”

Regrettable, but maybe the new normal. Politico has declared this the “Year of the Missing Candidate,” with politicians disdaining debates, appearing rarely in public, declining to release public schedules to reporters and shunning interviews with all but the most compliant journalists.

Many Americans may believe the media are biased. Politicians are wielding that notion, still not true most of the time, to excuse their pronounced absence from the public arena. The ref’s being banished from the ring, while the boxers tell us they wouldn’t think of throwing a sucker punch.

Candidate Barack Obama alienated the national press corps during portions of the 2008 campaign, making himself scarce for questions and shrinking away when reporters pulled out their tape recorders. During one notable period of more than a month before election day, he took few questions and held no formal news conferences.

But Obama’s campaign plane seems like a cozy welcome wagon compared to the chilly vehicles plying the trail in Campaign 2010. The duck-and-dodge has been primarily, but not exclusively, a tactic among Republicans, according to Politico and several other news outlets. But more than one Democrat has gone to lengths to minimize unscripted moments too.

It would be nice to think we’re passing through a brief era of absentee candidates. But don’t count on it. The profusion of news outlets, many calibrated to a particular ideology, enable candidates to shop for preferred messengers. Or they can take to the Internet to cut out media intermediaries altogether.

In Wisconsin, reporters from many media outlets have complained about trying to cover U.S. Senate candidate Ron Johnson, who won’t put out his daily schedule. The Milwaukee Journal-Sentinel reported Thursday that a campaign spokeswoman said the Republican Johnson would take his message, “directly to the people.” It’s a little better with incumbent Russ Feingold, the Democrat, who doesn’t give out an advance schedule either, but will at least confirm dates after they have been set.

In Delaware, “tea party” favorite Christine O’Donnell has made herself so invisible in the U.S. Senate race that she faced questions about whether she had gone into hiding. A CNN reporter chased after her in one report this week, but O’Donnell slipped out the back door after an event. As an SUV whisked her into the night she promised to answer questions. Some day.

In Colorado, Senate hopeful Ken Buck went nine consecutive days without a public event. But the Republican promised to show his face more this month, now that a crucial fundraising period has passed.

Marco Rubio, the frontrunner for U.S. Senate from Florida, launched a bus tour this week but one group was noticeably not on board: the media. Reporters can chase the bus if they like. But the Republican candidate has a substantial lead. So he’s following a time-honored tradition in both parties of sitting on his advantage and avoiding pesky reporters, who present considerable risk and little potential reward.

In the tight Nevada senate race, reporters can’t get much love from either incumbent Harry Reid, the Democrat, or GOP challenger Sharron Angle. Reid has a history of spouting malaprops, while “tea partyer” Angle has preferred to speak through friendly outlets like Fox News. Veteran political reporter Jon Ralston of the Las Vegas Sun told Politico the scant access to the candidates was “unprecedented.”

All this has not stopped the media from needling, cajoling and pleading for more face time. And shame can still bear its rewards. Witness the fallout from an incident last March in the California gubernatorial race.

The episode began with Republican candidate Meg Whitman inviting reporters to an event at the Port of Oakland. The journalists waited a couple of hours in a holding pen at a Union Pacific rail yard. When the time finally came for questions at the “open press” event, Whitman staffers instead shooed away the reporters. Video of the Whitman’s uneasy silence aired widely on Bay Area television. The candidate called reporters to apologize. She has gotten more accessible since then.

Whitman opponent Jerry Brown could be held up as Exhibit One by nervous campaign managers who want to minimize contact with the media. During an unscripted moment last month, the attorney general managed to raise the adulterous past of Democratic icon Bill Clinton. Caught on a jogging path by a reporter one weekend in June, Brown uncorked a doozy — comparing Whitman to Nazi propagandist Joseph Goebbels.

Those are the kinds of remarks that have candidates apologizing and back-pedaling for days, instead of delivering the message their campaigns want to harp on.

Longtime Republican political strategist Dan Schnur said he doesn’t see any slowing of the trend toward candidates hiding out or facing only friendly media. News outlets will likely enable the process, he said, by hunkering down into increasingly isolated ideological corners.

And the perception of a biased media will give politicians the excuse to shut out even the many reporters who still try to be honest arbiters.

The result will be candidates able to remain, more and more, “on message.” And a public that knows less and less about who the politicians really are.

james.rainey@latimes.com

Twitter: latimesrainey
On the Media: Candidates are MIA during 2010 elections campaign