County Still In Pursuit

Of $12.5 Million Claim

County officials pursuing a $12.5 million performance bond to recover losses in the misappropriation of the treasury are in the process of providing information to the insurance carrier in the first step towards a possible settlement.

That is the report from Chester Robertson, recently appointed Modoc County chief administrative officer. “The administrative office had a meeting with the insurance broker, and we have worked to set a meeting with a claims specialist with the broker to discuss processing of the claim,” Robertson told the Modoc County Daily News.

The claim against various county officials was filed last March with Alliant Insurance through Trindel Insurance Fund, the county’s broker. At the time an electronic memo between staff members at Chartis Insurance and Alliant Insurance acknowledged receipt of the claim, but asked for more information.

“We are trying to better understand how the insured may have suffered a loss,” writes Chartis’ complex claim director for fidelity bonds, in a e-mail to Alliant Insurance.

Chartis, headquartered in New York City, is a global insurance company offering various protection including political risk and crisis coverage, according to its web site. Alliant Insurance Services of San Francisco ranks among the 15 largest insurance brokerage firms in the United States.

Auditor Darcy Locken is another county official participating in early discussions with representatives of the insurance broker and the California State Association of Counties’ Excess Insurance Authority.

“I participated in a conference call with our insurance broker, Trindel representative and CSAC EIA representative.  They had questions regarding the treasury deficit (what, how, when and where) and I did my best to clarify the situation. There was no actual transmittal of information, other than verbal communication,” Locken said.

The claim seeks damages against bonded county officials who are linked to the treasury misappropriation estimated at nearly $20 million. Heading the list, according to allegations by then-DA Gary Woolverton who drafted the claim, are former Auditor Judi Stevens, current Treasurer Cheryl Knoch and retired CAO Mike Maxwell.

It is unknown at this time if a monetary settlement would set in motion an effort by the insurance carrier to recover its compensation to the county by filing suit against the various individuals named in the performance bond claim.

Modoc County Grand Jury Report

An Analysis

Editor’s Note: The Modoc County Grand Jury’s report is a reflection of its investigations into a broad area of county and city government. The following analysis is devoted only to the on-going financial scandal facing the county.

By Ray A. March

The recently released Modoc County Grand Jury report is both puzzling and revealing.

The report is puzzling because it fails to specifically reveal details of its on-going investigation into the misappropriation of an estimated $20 million from the county treasury.

It gives cursory acknowledgment that the treasurer and auditor’s offices were even investigated, leaving the reader in a state of wonderment.

The report is revealing because the strongest statements directed at the treasury raid are not to be found where one might expect to look, but in an open letter to the public tucked away at the report’s conclusion.The letter the public will read is an emotionally-toned down version rewritten by Judge Francis Barclay, according to grand jury sources who would not speak publicly.

An examination of Barclay’s version states the grand jury is of the opinion that there has been a “misuse and misdirection” by “certain county officials” of both state and federal restricted (treasury) funds -- and that misuse and misdirection is the primary cause of Modoc County’s fiscal crises.

Barclay’s version goes on to state that the findings by this recent grand jury and also previous grand juries “suggests” there is “potential” criminal liability on the part of certain county officials. The grand jury’s original unedited letter, while not naming any county officials linked to the treasury misappropriation, alleges that specific state laws were violated by “past and present elected and appointed county officials” -- not vaguely-described “certain” county officials.

The original letter also states that the grand jury has proof of the county’s illegal use of treasury funds and that the “Board of Supervisors’ decision-making process has denied the citizens of Modoc County the opportunity to be included or informed.”

“Dereliction of duties by elected and appointed officials has resulted in personal financial damage and harm to every resident in the county. In our opinion this is not a victimless crime,” the grand jury’s unedited letter stated.

In both versions, the open letter to the public called for more public monitoring of county officials and their appointees, and acknowledged that Barclay, District Attorney Chris Brooke and Attorney General Kamala Harris have been requested to investigate the county’s treasury misappropriation.

So far, Barclay has declined the invitation. Brooke did not immediately respond to messages and e-mails left with his office. It is not known if Harris has responded to the grand jury.

What is puzzling is that the grand jury was entitled to audit both the offices of treasurer and auditor, yet there is no evidence in the report that any grand jury audits were conducted. Continuing the mystery, the grand jury was entitled to report on so-called “questionable practices,” yet there is no accounting of questionable practices such as a treasury misappropriation in the report.

The grand jury was entitled to subpoena witnesses, yet there is no evidence anyone was subpoenaed.

As a result of interviewing Treasurer Cheryl Knoch and Auditor Darcy Locken, who was not in office during the misappropriation, the grand jury came to the widely known conclusion that restricted funds in the treasury were still being used by the Board of Supervisors.

Knoch, along with former Auditor Judi Stevens and former CAO Mike Maxwell, are among those named in a subsequent performance bond claim as officials potentially responsible for the misappropriation.

It is well known that last year when the Board of Supervisors took the calculated risk of using restricted treasury funds to off-set its negative cash flow in the general fund -- otherwise known as temporarily avoiding insolvency -- that it was at risk of a lawsuit challenging that decision. However, no lawsuit has surfaced.

The Board of Supervisors’ risk was based on a legal decision under Auerbach vs. Los Angeles Board of Supervisors which argued that the board did not have authority under the law to make transfers from the treasury to the county’s general fund. A lower court and an appellate court ruled that the county did have the authority.

Undefined is the question how long is temporary?

“At some level, the legal efficacy of the so-called dry period loan resolution is suspect,” wrote former District Attorney Gary Woolverton, when he drafted the $12.5 million performance bond claim now with the county’s insurance carrier.

To his credit, foreman Wesley Cook of Surprise Valley did devote considerable space to quoting the California Association of Grand Juries regarding a grand jury’s duties and authority. That same information appeared Sept. 14, 2010 -- nearly a year ago -- on the Modoc County Daily News blog.

In effect, the 2010-11 Modoc County Grand Jury report covers no new ground, but does emphasize that investigations by this most recent grand jury and previous ones have uncovered enough information to warrant a criminal investigation.

Modoc-gate

Barclay Declines Request

For Criminal Investigation

Three months ago the recently disbanded Modoc County Grand Jury wrote a letter to Superior Court Judge Francis Barclay requesting that he impanel a criminal grand jury to investigate the misappropriation of nearly $20 million from the county’s treasury.

Barclay declined saying in an undated letter recently obtained by the Modoc Independent News that it was fruitless to form a criminal grand jury unless there was a prosecutor to pursue the case. Nevertheless, in the grand jury’s letter of June 1 to Barclay, it expressly argued that it has “solid evidence” that state laws have been violated by “the conscious and witting participation of elected county officials in creating a multi-million dollar deficit in the county.”

    

The letter, in its entirety, goes far beyond the grand jury’s report recently released to the public.The letter alleges that the county sheriff “when presented with the violations of the penal codes, determined not to pursue charges or open an investigation in this serious matter.” It is not clear from the letter if the grand jury was referring to current Sheriff Mike Poindexter or recently retired Sheriff Mark Gentry.

   

The grand jury pressed Barclay to address four major points: Misuse of restricted funds by county officials, the auditor issuing unlawful financial warrants against non-existent funds, the treasurer honoring warrants issued illegally and the Board of Supervisors’ failure to provide budgetary direction and oversight responsibility.

County officials named in a $12.5 million performance bond claim as potentially responsible for the misappropriation include current Treasurer Cheryl Knoch, former auditor Judi Stevens, former CAO Mike Maxwell and to a lesser degree various members of the Board of Supervisors.

“The treasurer stated that if ‘she had known that she could have refused to honor the illegal warrants’ she might have done so,” the letter to Barclay states. “The auditor issued illegal warrants. Both these fiscal departments have demonstrated an on-going unwillingness to follow approved accounting practices designed to assure compliance with existing laws and maintain proper accounting records.”

Barclay responded to the grand jury’s request by admitting he has “technical authority to impanel a criminal grand jury” but to do so would be meaningless “unless a criminal grand jury was requested by the prosecuting authority.” He acknowledged the information that the grand jury had simultaneously requested criminal investigations by both District Attorney Chris Brooke and Attorney General Kamala Harris.

“I believe that it is appropriate for you to request that either or both of these agencies conduct further investigation regarding potential criminal liability,” Barclay said. “However, I hope you understand that I do not intent to impanel a criminal grand jury unless or until a prosecuting authority requests the Superior Court to impanel one.”

Editor’s Note

Blog Protocol

From time to time we are compelled to toss in our two bits worth in order to hopefully clear up misconceptions and gently guide our readers in the protocol of open forum debate on this blog. Now is the time -- again.

First, there is no such thing as a “legally recognized” newspaper. Let’s think about this for a moment. If a newspaper, regardless of which one, were legally recognized would that not imply that it is approved by the state -- and therefore a state organ? Such newspapers exist in totalitarian countries, but not to our knowledge in this country.

There are necessary newspapers, and we have one in this county, that are approved by the court to run legal notices. We are not that newspaper. One of the qualifications for adjudication is the newspaper must print at least weekly for a period of three years before appealing to the court. It is not a simple process as some of our readers would believe.

The fact that the Modoc Independent News, a monthly newspaper with a subsidiary daily blog, is not adjudicated does not make it less a newspaper. We explained this once in our coverage of Supervisor Dan Macsay’s diatribe against us when he was chair of the Modoc County Board of Supervisors.

Which leads us to the comments we have been receiving recently concerning that other newspaper, the necessary one adjudicated by the court. It is not the intention of the Modoc County Daily News blog to engage itself or its readers in a debate over the merits of one newspaper’s coverage versus another. Newspapers should stand on their own two feet.

However, the Modoc County Daily News blog, in addition to its in-depth reporting on the county’s fiscal crisis and the misappropriation of treasury funds, finds that it has also evolved into a public forum for the exchange of ideas and information. Far be it for us to censure in any way a free exchange of ideas.

We would also suggest that if our readers have questions in their exchange of ideas that could possibly be answered by other entities who happen to be the subject of those questions that readers also direct those questions to those parties.

With that belief, we invite any and all subjects of debate on this blog to join our readers in their on-going commentaries -- with a proviso. Keep it constructive. Keep it free of libel. Keep it open in the spirit of traditional free journalism. With that said, we reserve the right to make judgment calls as to what appears on this blog and what does not.

The comments expressed on this blog do not necessarily reflect the opinions of the Modoc Independent News or its subsidiary publications.

-- Ray A. March

Nielsen Restraining Order Against Bird

http://www.willows-journal.com/news/nielsen-7097-bird-gerber.html