Former Industrial City Manager Tried in $20M Misappropriation Case – Orange County Register

Former Industry City Manager Paul Philips, a lifelong city manager who has managed half a dozen Southern California cities, is on trial for allegedly helping a developer plan to siphon up to $20 million in public funds from a planned solar park, a judge ruled Tuesday, October 4th.

Los Angeles County Superior Court Judge Michael Pastor found there to be probable cause of embezzlement of public funds, which was filed against the 71-year-old official to go to court. The verdict ended a 45-day preliminary hearing that spanned eight months of recurring appearances and included an estimated 200,000 pages of evidence.

Pastor dismissed attempts by the Philips defense team to dismiss the case on statute of limitations and constitutional grounds. Attorneys for Philips, Steve Cooley and Joe Weimortz, had argued that the Los Angeles County Attorney’s office filed the case too late and that Philips’ rights had been violated because the City of Industry had successfully prevented multiple witnesses from testifying about City Council decisions testifying meetings.

Probable cause is not a “factual determination” of guilt, but rather a determination that an ordinary person, hearing the same evidence, is more likely to believe the allegations to be true.

“It’s an exceptionally low standard and we believe his innocence will be proven,” Weimortz said after the decision.

Philips has previously served as city manager in Industry, Bell, Covina, Maywood and other cities, and as associate executive director of the California Contract Cities Association.

Paul Philips, former City Manager of the City of Industry (file photo)
Paul Philips, former City Manager of the City of Industry (file photo)

3 others charged

Prosecutors indicted Philips and three others in September 2021 for their various roles in allegedly siphoning off funds from a failed solar farm proposal that was quietly funded by industry from May 2016 to December 2017.

The alleged plan required Industry to fully fund a private developer’s proposal to build solar panels on ranch land called Tres Hermanos, which Industry had purchased decades earlier through its defunct reclamation agency. The industry would then buy energy from the solar farm it built at above-average prices, prosecutors claimed.

La Jolla developer William Barkett allegedly altered or falsified bills to inflate his refund requests from the city. The proposal peaked at $20 million in less than two years without a single shovel touching dirt. Only about $11.5 million of those payments have been publicly approved by the council.

The Southern California News Group first revealed the existence of the secret solar farm project in 2016 and later flagged questionable bills. Prosecutors have said stories about the project’s fallout that appeared in the San Gabriel Valley Tribune in 2018 were part of the reason they launched their investigation.

Unrestricted access to funds

Prosecutors allege Barkett had full access to the funds through a “shell” limited company formed solely for the Proposal and spent more than $8 million on personal items, including a $2 million Dollar wedding for his daughter on the French Riviera.

Philips served as city manager throughout the period in question and is accused of aiding the scheme through deliberate concealment. Throughout the hearing, Assistant District Attorney Ana Marie Lopez described Philips as a key component of the fraud that otherwise could not have happened or lasted as long “unless he was a knowing participant.”

She accused Philips of deliberately withholding information from the city council, which originally approved agreements related to the solar project in closed session and did not publicly vote on the matter for more than a year to prevent them from disclosing the scheme.

“He controls the staff, he controls the flow of information, and he controls the money,” Lopez said.

Project hidden from the public

The payments to the San Gabriel Valley Water and Power development company went through an abbreviated approval process to hide the funding from the public, Lopez said. Although Philips had been hired as a reformer and had actually backed the city’s policies regarding bills for other projects, those reforms weren’t applied to the solar payments, she said.

When employees and a contractor raised concerns about suspicious bills, the agreement with the developer was restructured into a loan so that it would be subject to less scrutiny.

“He didn’t just relax the internal controls, he eliminated them,” Lopez said.

The defense, meanwhile, portrayed Philips as an outsider simply following orders in an otherwise isolated town controlled by its founding families. They argued the solar farm was a legitimate investment or, at worst, a “political goodie,” but regardless, Philips was following directions from its employer, the city council. The defense argued that there was no evidence that Philips knew that Barkett was skimming money.

“I think the only thing that people have proven is that Mr. Barkett embezzled $8 million,” Cooley said during closing arguments.

Plan hatched in secret

The decision to support the solar farm on pristine cattle ranch land between Chino Hills and Diamond Bar was made during secret meetings months and maybe years before Philips was hired, the defense said. A similar project in 2013 had been put forward by Barkett and another of the defendants, Frank Hill, a former state senator-turned-ruler, but it had not garnered the support of a previous city councillor.

Hill, along with waste management scion David “Mayor Dave” Perez, organized a new slate of council candidates in 2015, ousting almost everyone who had opposed that earlier project. Testimony during the hearing showed that Hill and Perez’s desire to resume the solar farm project was first expressed in primary calls with the three candidates who would later form a new majority.

Whether Philips was at these meetings or whether he showed up later was a contentious point of contention during the proceedings, largely due to a council member’s blurred memory. Both sides pointed to the conflicting statements as evidence for their theories, although there was never a definitive answer.

After the election, Hill, whose ties to industry stretched back decades, became the unofficial adviser to the council, and a company that paid him became the city’s engineering firm. The final defendant, Anthony Bouza, an attorney with a conflict of interest arising out of a $1.5 million debt owed by Barkett, was later hired to negotiate the agreements with Barkett on behalf of the industry. Essentially, the alleged schemers controlled both sides of the deal until late 2017 when the city council began voicing its own concerns about the spending.

The council members eventually fired Philips and anyone else they believed had ties to Hill.

Fired by the council

According to witnesses, Philips did not appear to have benefited financially from the program. Bank records showed that all significant transactions in his family’s accounts came “from established and legitimate sources,” which the defense said shows that Philips had no motive for complicity in the crime.

Prosecutors alleged that Philips owed CalPERS $106,000 from a previous overpayment and needed to keep his $275,000 a year job in the industry.

Philips is scheduled to appear for the indictment on October 18. The other defendants, whose preliminary hearing has not yet been scheduled, will next appear on November 9th.

https://www.ocregister.com/2022/10/04/former-industry-city-manager-ordered-to-stand-trial-in-20-million-embezzlement-case/ Former Industrial City Manager Tried in $20M Misappropriation Case – Orange County Register

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