California leaders announce investigation into missing bond funds

By Robin Respaut

SAN FRANCISCO (Reuters) – California officials and lawmakers said on Thursday they will hold legislative hearings following allegations of embezzlement of $1.3 million in bond funds held by a Bay Area government financing entity.

State Treasurer John Chiang and Senate President Pro Tempore Kevin de León said they would conduct legislative oversight hearings to ensure that government bonds were safe from fraud, abuse, and mismanagement.

The hearings follow the disappearance of nearly $1.3 million of bond funds held by the Association of Bay Area Government (ABAG), an organization that issues bonds for local governments, nonprofits and private entities, the Treasurer’s office said.

The missing money was earmarked for infrastructure improvements in downtown San Francisco and was controlled by ABAG’s Finance Authority for Nonprofits (FAN), a separate entity from ABAG but whose workers are ABAG employees.

Clarke Howatt, who resigned as FAN’s financial services director, appeared to have “executed a sophisticated scheme to defraud the agency by creating illegitimate documents, creating false identities, and deceiving the FAN board and bank trustees to wire these funds,” ABAG said in a Jan. 30 statement.

State Controller Betty Yee said on Thursday that her office would conduct an audit of ABAG following the theft allegations, which her office described as “a sophisticated scheme involving illegitimate documents, false identities and deception of the finance authority’s board and bank trustees.”

ABAG’s Deputy Executive Director Brad Paul said the association would work with investigators.

“We want to learn as much as we can from a forensic audit,” Paul told Reuters on Thursday. “FAN is financially siloed from every other ABAG program. Mr. Howatt did not have access to any other money at this agency.”

Howatt’s attorney did not immediately reply to an email seeking comment.

California and its local governments issued more than $700 billion in public debt over the last decade, the state treasurer’s office reported.

“The ease in which one of ABAG’s leaders allegedly fleeced more than a million dollars in bond funds raises concerns regarding whether there are sufficient safeguards at the thousands of State and local agencies which are responsible for nearly three-quarters of a trillion bond dollars,” said Chiang in a statement.

Senator Bob Hertzberg (D-Van Nuys), chairman of the Senate Committee on Governance and Finance, will lead the legislative hearings, focused on finding problems and solutions to avoid abuse and waste.

“These abuses of the public’s trust are shocking and should serve as a wake-up call to local and state governments,” said Hertzberg.

(Reporting By Robin Respaut; Editing by Andrew Hay and Ken Wills)