A City’s Surprise Scandal

Folks who know the civic-minded Hambarian family wonder how one of the clan’s sons seemingly wandered so far astray, landing in an Orange County courtroom, accused of swindling millions of dollars from his hometown.

Jeffrey Hambarian grew up in Orange, a small town with conservative values, his family steeped in an old-fashioned work ethic. His father, Sam, began collecting the city’s garbage in the 1950s, tooling around in a road-weary pickup that spoke to his thriftiness.

Through the years, even as the family’s trash business boomed with the city’s growth, Sam Hambarian embraced a humble, philanthropic lifestyle. He gave as much hard labor as he did money to causes around town, stooping to clean up parks and feed the homeless.

Never mind that some trash companies elsewhere carried the reputation of being shady; Hambarian’s family did right.

But as young Jeffrey Hambarian grew up and took over the lucrative recycling arm of the family business, eyes began to widen.

He bought a $3-million hillside home overlooking the community. He drove flashy cars. He wore sleek suits, in contrast to his dad’s uniforms of jeans and flannel shirts.

Jeffrey Hambarian’s life was grand -- and so unlike that of his unassuming parents.

In 1995, an auditor for the Hambarians began telling city officials that something smelled in his employer’s revenue reporting. Seventeen months later, the city announced a fraud investigation involving its long-time trash hauler.

Soon, the stench of corruption took over the city known for its old-fashioned soda fountain and antique stores in the tree-lined traffic circle downtown.

Old loyalties were questioned as city officials publicly cast doubt on each other’s judgment. Finger-pointing escalated, the police chief was fired and conflict-of-interest charges plagued the city manager. A group of residents, their confidence in City Hall collapsed, launched an effort to recall the mayor.

Through it all, Jeffrey Hambarian, 50, has maintained his innocence. He hired defense attorney Mark Geragos, who stalled the start of trial until he finished representing convicted wife-killer Scott Peterson.

And now, eight years after the criminal investigation began, Jeffrey Hambarian is standing trial on charges of fraud, for allegedly bilking Orange out of $4.3 million. If convicted, he could face more than 10 years in prison and millions of dollars in fines.

The Orange County district attorney’s office alleges that Hambarian blackmailed his vendors into padding and faking invoices, then forced them to funnel the profits back to him so he could launder the money at check-cashing businesses in south Los Angeles County.

As a growing city that continued to conduct business as a small town, current and former civic leaders said, Orange was ripe for fraud. For years, deals were sealed with handshakes. Officials allowed contractors to operate largely without outside auditing or supervision. Contracts were renewed without competitive bidding.

“There was this cozy, good-ol’-boy system that was so entrenched in city life,” said Realtor Dan Slater, an Orange councilman when the scandal surfaced in 1997.

The Hambarians epitomized how local businesses were tied to City Hall.

For more than 50 years, the family was in the thick of the community. The sons’ classmates became city officials and golf partners. Sam and Alyce Hambarian were among the first season-ticket holders when the California Angels came to neighboring Anaheim, and they were founding members of the county’s performing arts center.

But as Jeffrey Hambarian’s parents mixed with the community’s elite, their son stayed under the radar.

Senior Deputy Dist. Atty. Ron Cafferty believes that Hambarian was quietly weaving a complicated web of fraud based on threats, promises and kickbacks.

In one alleged scheme, detailed during the ongoing trial, Hambarian instructed a tire seller to send him a phony invoice for truck parts. Hambarian would pay, and the city would reimburse his company. Under an agreement, the city paid a portion of Hambarian’s costs. In the meantime, the seller would cash Hambarian’s check, then kick back some or all of it.

The city continued to pay the recycler’s bogus bills -- ranging from $40 for tires to more than $300,000 for truck upgrades -- unaware of anything amiss.

In retrospect, city officials say, they were too trusting of the recycler, in part because of the company’s low trash-hauling rates. Besides, everyone in town knew the Hambarians.

But when company auditor Steven Nakada couldn’t trace all of the money that the recycling company should have paid Orange, he suspected his boss might be pocketing the revenue. In October 1995, Nakada warned the city’s public works director and his assistant of the alleged irregularities.

It wasn’t until a year later -- after Nakada quit and wrote a strong memo to the City Council about his concerns -- that the city hired the Arthur Andersen auditing firm, which verified the auditor’s suspicions. The city then hired a private consultant to review the paperwork.

“I wouldn’t want to be responsible for accusations that are not correct or accuse an individual of doing anything wrong,” then-Mayor Joanne Coontz told The Times in June 1997, when the probe had become public knowledge. “So you just keep your mouth shut.”

By then, the investigation had been handed over to police, and the comfortable relationship between the Hambarians and the city had turned fragile. The Hambarians’ request for a 32% rate hike was rejected and the council halted its automatic contract renewal with the trash hauler.

To preempt the city from suing the family, Sam Hambarian sold his company to Waste Management Inc., a billion-dollar Houston company, which Orange decreed was not allowed to employ the accused son.

Sam Hambarian and his wife tried to repair relations with Orange, sending the city an unsolicited check for nearly $10 million -- more than the alleged fraud loss -- as an initial settlement. The city accepted the money, but the criminal probe into their son’s activities moved forward.

Jeffrey Hambarian was arrested Dec. 16, 1998. He remained in jail for almost two months before his bail was reduced from $2.5 million to $500,000, paid by his mother in cashier’s checks.

Even those most skeptical of the city’s handling of the Hambarian case are confident that it would be much more difficult, if not impossible, to perpetuate fraud in Orange today, thanks in part to improved auditing practices. Nonetheless, the trial is revealing past weaknesses and opening old sores.

“The legitimate questions are: Who was minding the store, and how long it would have gone on had the accountant not come forward,” said John Robertson, the city’s former police chief whom the City Council fired during the turmoil that erupted in the wake of the allegations. Robertson recently retired as police chief in the Bay Area city of Newark.

Orange already had lost $7 million in 1991 after it invested in a Ponzi scheme run by a municipal fund manager who is now serving a 14-year federal prison term. And the city lost an additional $28 million when the county investment pool, which included Orange funds, collapsed in 1994.

But the allegations against Hambarian were in some ways more distressing because he was one of Orange’s own.

Robertson became the first casualty of the Hambarian scandal after investigative documents were leaked and he ordered the city manager and City Council members fingerprinted to see if they had handled the material. In February 1998, the council fired him by a 3-2 vote.

Robertson now wishes he had asked for FBI help because the City Hall probe was filled with political landmines.

“Loyalty is absolutely paramount in that city,” Robertson said. “In Orange, you need to bleed Orange.”

After the scandal broke, the district attorney’s office weighed conflict-of-interest charges against then-City Manager David L. Rudat because his wife, Carol, sold a house for Hambarian in 1995 and earned a $13,375 commission. State law mandated that her husband should have abstained from decisions regarding the Hambarians for 12 months after the commission was paid, but a confidential city report leaked to the media said that during that period Rudat participated in 13 decisions related to the trash and recycling companies -- even as the city grappled with how and whether to investigate the reported thefts.

Rudat paid a $2,000 fine to settle a civil, conflict-of-interest charge with county prosecutors. Then he asked the city to reimburse him for the $10,000 in legal fees he amassed during the investigation. He withdrew the request a month later.

If city officials were guilty of anything in the Hambarian matter, then-Mayor Coontz said, in retrospect, it was that they didn’t seek competitive bids or independent audits of the contract.

“If you’re already doing better than all the other cities, it doesn’t make a lot of sense to go out and look for something even better,” Coontz said in an interview shortly before she was termed out of office in 2004. “The Hambarians had been servicing us wonderfully for generations before this situation came along.”

The credibility of city officials suffered, too, when during the police investigation and rumors about City Hall culpability, their silence appeared cagey.

“Things kept trickling out, and there was a new front-page story every time,” said David A. DeBerry, the city attorney both then and now. “It just made us look worse and worse.”

At the peak of the City Hall upheaval, angry voters with recall petitions in hand demanded that Coontz resign as mayor, but she refused.

Political emotions began to cool when recall organizers concluded that City Hall may have been guilty of naivete, but not skulduggery.

All the wiser, the city today invites residents to sit on the auditing committees that oversee contractors, and rate increases are tied to inflation unless the contract is renegotiated.

“There’s no way you can have oversight of every single piece of paper going out the door,” said Shannon Tucker, 43, one of the recall leaders who, although reassured, maintains some skepticism. “We’re always going to be vulnerable to the opportunists who come along and find the loopholes in the system.”

DeBerry tries to see such scandals as hidden blessings, forcing the city to be more vigilant.

Meanwhile, as the case stretches into its 12th week, both sides in the legal battle have weakened. Jeffrey Hambarian’s father and one of his brothers have died, as have potential prosecution witnesses who say they laundered his checks. Other witnesses whose testimony could be used by the defense also have died.

Now Jeffrey Hambarian sits at a wooden counsel table in a ninth-floor Santa Ana courtroom, in the home stretch of a legal battle almost a decade in the making.