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State agency opens probe into how Bell used bond money

October 28, 2010 |  7:04 pm

The state Department of Corporations has launched an investigation into the way Bell handled bond issues over the last decade, marking the sixth outside probe into the troubled city’s finances.

The agency’s investigation comes two weeks after the SEC announced that it was looking into allegations that bond money was misused by former City Administrator Robert Rizzo and others. But unlike the SEC, the Department of Corporations could turn over its findings to Los Angeles County prosecutors if it finds evidence of criminal activity.

The department issued the city a subpoena Monday, asking for documents pertaining to its bond sales, Mark Leyes, a spokesman for the agency, confirmed Thursday.

The investigation marks the first time in memory that the department has opened an investigation into municipal bond sales without having first received a complaint, Leyes said.

The small city southeast of downtown Los Angeles has been battered by scandal since The Times reported in July on the outsized salaries of city administrators and part-time council members.

Los Angeles County Dist. Atty. Steve Cooley filed a sweeping public corruption case that alleges city leaders misappropriated more than $5 million from the city treasury -- “corruption on steroids,” Cooley said.

Eight officials, including Rizzo, Mayor Oscar Hernandez and five current or former council members have been charged with felony corruption-related charges. The City Council has not met since all but one member was jailed.

In addition to the criminal charges, state Atty. Gen. Jerry Brown filed a suit against former Police Chief Randy Adams, Rizzo, Hernandez and five others alleging that they schemed to enrich themselves by inflating their salaries and pensions, and attempted to conceal their compensation. The suit asks for hundreds of thousands of dollars in refunds from the city leaders.

The city, which also has been ordered to refund property taxes that the state alleges it illegally collected from residents, is in precarious financial shape and Brown’s office has asked the courts to appoint a monitor to watch over the city and its treasury.

The U.S. Justice Department is investigating possible civil rights violations and the California State Controller’s Office is examining the city’s lack of fiscal oversight.

The latest probe is aimed at determining whether the city misused the money from the bond sales, some of which was supposed to help build a sports complex. The sports facility has never been built.

Leyes said the agency also wants to determine whether the city made “material misrepresentations or omissions” regarding the city’s financial health because of the inflated salaries and the “improper business and property taxes levied on residents of the city.”

-- Corina Knoll and Jeff Gottlieb