Two investment groups and a developer connected to Santa Ana Mayor Miguel Pulido were involved in a real estate flip in 2003 that resulted in the Santa Ana Unified School District paying nearly twice as much for a piece of land slated for an elementary school than it had previously offered.
And in the process, the developer realized a more than $600,000 profit.
That deal has in recent weeks been the subject of conversations among City Hall watchers as multiple local and state agencies investigate a more recent property swap between Pulido's family and a city contractor that netted the mayor a $200,000 profit.
The developer at the center of the school district deal was Kris Kakkar, a high-profile businessman who had owned other properties in the city and well-known associate of Pulido's. The two, for example, were partners on a hotel and senior housing development in Garden Grove.
Pulido’s former political opponent, Nativo Lopez, contended in a 2001 lawsuit that the mayor failed to disclose his business ties to Kakkar on public statements of economic interest as required under state law. During the court battle, Pulido offered Lopez’s immigrant rights organization Hermandad Mexicana Nacional $20,000 to withdraw the case, according to the Los Angeles Times.
As a result of the suit, the mayor was forced to amend his filings, the Times reported.
Those amendments and other records reveal that nearly every player involved in the real estate flip was connected to the mayor – the individuals and partnership that financed the acquisition, Kakkar, even the attorney who controlled the trust account that received the school district’s settlement payment.
'A Shrewd Developer'
The roots of the deal go back to the late 1990s, when an era of rapid population growth in the city had reached its peak. The school district was constructing new schools at a rapid clip to absorb the influx of new students.
School district officials envisioned a site at 1111 W. Civic Center Drive for the kindergarten to fifth-grade Heroes Elementary School. The site, which had been on the market for three years, was being sold by Pacificare Health Plan Administrators, a medical company that was mired in financial troubles and looking to close a deal by the end of 1999, according to a school district appraiser’s account in an eminent domain lawsuit filed by the school district against Kakkar over the property.
In September of that year, the school district had offered $784,080 to buy the site, records from the lawsuit show.
But before the district could consummate the deal, Whitestone Properties, a company owned by Kakkar, came in with a higher bid. Whitestone ended up buying the property for $938,508. The sale closed Dec. 29, 1999.
When a school district attorney deposed Kakkar and asked him how he had arrived at his $1-million offer to the medical company, Kakkar replied that he was simply a “shrewd developer” and knew to lowball his offer.
In a brief interview with Voice of OC, Kakkar said he had only a “vague recollection” of the transaction. When asked how he managed to buy the property before the school district and then resell it, he cut the interview short.
“It’s an old story. You need to get the right information. Thanks for calling,” Kakkar said before hanging up the phone.
Pulido didn't return a call seeking comment.
School officials who might have had knowledge of the deal and could rebut Kakkar's claims have since left the district's employ, said Assistant Superintendent Joe Dixon. Al Mijares, the district's superintendant during that time, did not return calls seeking comment.
Under the eminent domain action, the school district was supposed to pay fair market value as of mid-2001, just a year and a half after Kakkar bought the site, according to court records.
And what is known from documents contained in the lawsuit, which was settled in 2003, is the school district ended up paying Kakkar $1.55 million for the site, 60 percent more than the price Kakkar had paid in 1999.
'Watch Your Wallet'
Insiders say Kakkar has had a reputation as an aggressive businessman who isn't afraid to leverage his contacts in high places.
Pulido’s appointee to the Santa Ana Planning Commission, Alexander Nalle, was vice president of the real estate company that was the medical company’s broker on the school site land sale.
Nalle said he couldn’t recall the sale of the site, but about Kakkar he said, “watch your wallet,” and refused to comment further.
Perry Madge, owner of L J Kelly Mortgage Co., said that the school district deal had all the hallmarks of a typical Kakkar transaction. Kakkar seemed to have insider information, and those involved were on a “need to know basis,” Madge said.
“What you’re asking is, does he have someone who knew what was going on? The answer is yes, he did,” Madge said. “Who it was, I can’t tell you. I don’t know.”
Madge said that the loan he put together for Kakkar on the school site was only “short term,” but he couldn’t recall further details. He said he destroyed the file on the loan because it was several years old.
Political Reform Act Violation?
If Pulido passed along confidential information to Kakkar that he eventually profited from personally, it could have been a violation of the state’s Political Reform Act, one of the state’s conflict of interest laws governing public officials, according to one ethics expert.
“I think that this would fall within the Political Reform Act that talks about use of official position for private gain,” said Jessica Levinson, associate clinical professor at Loyola Law School. “And specifically in this case, by financial gain.”
And if Pulido did draw income directly tied to the sale, he would have been required to disclose it on his public statements of economic interest, which he did not.
Pulido, though, has a history of filing incomplete disclosures. For example, the mayor didn't amend his Form 700 reports to include his more recent real estate deal with NAPA Orange County Auto Parts, a longtime city vendor, until after a Voice of OC article revealed the transaction.
A Tight Circle of Associates
However, Pulido did disclose several of the players involved in the school site flip as sources of other income, while others were known to be close to the mayor.
Richard J. O’Neill, the former Orange County Democratic Party chairman and Santa Ana powerbroker, was very close to Pulido until his death in 2009. The mayor — described by many as having a “father-son” sort of relationship with O’Neill — was a pallbearer at O’Neill’s funeral.
O’Neill was a member of the general partnership 1111 Civic Center Drive, one of two groups that made loans to acquire the school site. The loan amount was $450,000.
According to Pulido’s disclosure forms, O’Neill was a source of income to Pulido’s consulting business, The LaFarga Group. O’Neill was also partners with Pulido in a business to export catalytic converters to Mexico City called Sol Distributing Group.
Walter “Rick” Niemann was also a member of 1111 Civic Center Drive and another development partnership that included Pulido as an investor called Victoria Grove, which was involved in residential development in Riverside County.
Niemann was also a member of Sungrove, Garden Grove Partnership, which included Pulido and Kakkar and developed senior housing in Garden Grove.
In a brief interview, Niemann said that Pulido was not a member of the 1111 Civic Center Drive partnership. He declined to comment further.
The other loan on the school site acquisition — this one for $500,000 — came from a group of investors that had also loaned Kakkar and Pulido money for their Garden Grove project. They included Lee Wayne and Velma Thomas, Phyllis I. Harvey, Dr. W.M. Townsend and Donna G. Keene, according to property records.
That loan was put together by L J Kelly Mortgage Co., which also assembled a loan for Pulido and Kakkar’s senior housing project. Pulido disclosed the mortgage company as a source of income to his Sungrove, Garden Grove Partnership.
Pulido’s longtime attorney, Charles McClung, represented Whitestone in the eminent domain suit, and his firm controlled the trust account that received the final settlement check. The $345,000 check was written to “Whitestone Properties, Inc. McClung & Davis Attorney-Client Trust Account,” according to court records.
McClung did not return a phone call seeking comment.
Even the attorney firm for the school district in the eminent domain suit — Alvarado Smith — is close to Pulido, according to the mayor. Earlier this month Pulido abstained on a City Council vote involving the attorneys, saying that he was “very close” to them.
Ruben Smith, the managing shareholder of the firm, said he couldn’t confirm nor deny the details of any possible relationship with the mayor, citing potential attorney-client privilege.