California Candidates Seek Restitution After Fraud Plea

A California campaign treasurer pleaded guilty Friday to defrauding at least $7 million from a high-profile roster of politicians in the largest embezzlement case of its kind.
by | April 2, 2012
 

SACRAMENTO, Calif. — A California campaign treasurer pleaded guilty Friday to defrauding at least $7 million from a high-profile roster of politicians in the largest embezzlement case of its kind.

But the resolution of the criminal case is expected to do little to help victims recover money they lost in the scheme that the U.S. attorney said highlights the shortage of regulations governing campaign finance managers.

Kinde Durkee entered the pleas to five counts of mail fraud in U.S. District Court in Sacramento. The crimes could have carried a maximum penalty of 100 years, but her plea deal calls for a possible sentence of 11 to 14 years. Durkee's attorney said he will argue for a shorter term.

Prosecutors say Durkee, 59, ran a complex shell game from her Burbank office in which she shifted millions of dollars between bank accounts for politicians, community groups, personal accounts and those of her business, Durkee & Associates.

U.S. Attorney Benjamin Wagner believes the actual fraud was closer to $10 million, and called Durkee "the Bernie Madoff of campaign treasurers," referring to the infamous New York financial manager who pleaded guilty to operating the largest Ponzi scheme in history.

Durkee's scheme relied on the trust of her victims, who included U.S. Sen. Dianne Feinstein, who has said she lost $4.5 million, along with members of Congress and state lawmakers.

"People would provide and trust her with money based on that trust, and that's certainly something that she took advantage of," Wagner said.

Durkee's case serves as a cautionary tale for politicians who sometimes raise millions of dollars to run for office, he said, noting the nature and cost of campaigns has changed dramatically in the past few years.

"You can't run these kind of campaigns out of your kitchen anymore." Wagner said. "Unfortunately, it's not a terribly well-regulated industry. ... It's not the sort of thing where there are a lot of industry, kind of, standards of conduct or traditional ways of doing things."

The deception has left numerous candidates with little or no money in their campaign accounts, which have been frozen since Durkee's arrest. Many are heading into an election year in which they face newly drawn districts and a new primary system in California.

Durkee was ordered to pay restitution and her attorney will compile a detailed accounting of her finances, but the prospects for most victims recovering their money are slim, Wagner said.

Durkee and her husband, John Forgy, have agreed to forfeit the Burbank office from which she operated and to hand over her 401(k) retirement account, estimated to be valued between $100,000 and $120,000.

"I think the candidates would rather have their money back than someone in jail, but she's getting punished for what she did," said John Burton, chairman of the state Democratic Party. The party was not among the victims.

Feinstein and other victims have filed civil lawsuits against Durkee and the bank she used, First California Bank.

State Assemblyman Jose Solorio, D-Santa Ana, lost at least $677,000 to Durkee, according to the criminal complaint. He hopes to recover the entire amount from the bank, which he accuses of participating in Durkee's fraud.

"I and many others through civil courts are going to be very aggressive in suing Durkee and First California Bank and recovering the remainder of the funds that were stolen from us," he said after Durkee made her plea.

First California Chief Executive Officer C.G. Kum denies the bank is to blame.

"We have asked the court to dismiss the lawsuits because the plaintiffs have failed to demonstrate that First California Bank had any knowledge of Ms. Durkee's misconduct," Kum said in a statement.

Durkee had not spoken publicly or appeared in court since her arrest. On Friday, she entered the courtroom wearing a loose-fitting, black pantsuit and black Crocs. She avoided eye contact with spectators in the courtroom and spoke only in response to questions from the judge, at times speaking barely above a whisper. Her attorney said she would not speak outside of court.

She was released after the hearing until her sentencing, which is scheduled for June 20. Durkee previously put up a $200,000 bond.

Durkee's attorney, Daniel Nixon, agreed that her victims lost more than $7 million but disagreed with prosecutors' claim that there were at least 50 victims.

Asked what she did with her clients' money, Nixon said, "I'd really prefer not to get into the specifics today of what her motivation was, but it's going to come out at sentencing and we'll address it at that time."

Prosecutors say Durkee controlled some 700 bank accounts. She used some of the money to pay mortgages on her home and business, various business expenses and her mother's care in a home for seniors.

She also used the money to cover an array of personal expenses, involving Disneyland, Costco, Amazon.com, Ulta cosmetics and the Los Angeles Dodgers.

Wagner said Durkee had a large staff that was not supported by the business income she brought in and "was known as a fairly generous person."

Her former clients have been in limbo because their campaign accounts were frozen as investigators tried to trace the money.

The Fair Political Practices Commission has delayed a decision about whether affected state candidates would be allowed to request additional contributions from donors who already gave the maximum amounts allowed by law. The state commission is awaiting a decision on that matter in a federal case filed by Feinstein. A hearing is scheduled for April 12.

Eric Bauman, chairman of the Los Angeles County Democratic Party, which lost an estimated $200,000, said many campaigns are scrambling to make up for the lost money.

"It just means that we have to work overtime to make sure we have enough money," he said. "It means spending a little wiser and a little more targeted, but we'll hold our own."

Copyright 2012 The Associated Press.

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