George Elliot Grays, a former senior aide to erstwhile California Insurance Commissioner Chuck Quackenbush, pled guilty on Jan. 16 to federal charges of two counts of mail fraud and one count of conspiracy to commit money laundering.
The criminal charges against Grays, 38, were the first to result from the scandal which led to the resignations of Quackenbush and seven other high-level California Department of Insurance (CDI) executives last summer. Grays resigned from his position as California Deputy Insurance Commissioner on April 13, 2000, shortly after initial allegations of irregularities in the Quackenbush regime surfaced.
“He admitted his responsibility completely-he hid nothing,” said William J. Portanova, a former federal prosecutor who is acting as Grays’ attorney. “It was a stupid thing, a moment of weakness. But he’s charged now with the responsibility of paying that money back, and he is going to face imprisonment for it.”
Portanova, who has represented Grays since the latter took the Fifth Amendment to avoid self-incrimination before a State Assembly committee investigating Quackenbush last June 27, explained that Grays had been cooperating with authorities for several months.
As part of a plea agreement struck with federal prosecutors, Grays agreed to continue that cooperation, providing information to assist with the investigation into the CDI conducted by a joint state and federal task force, including the California Department of Justice, the Sacramento County District Attorney’s office, the Federal Bureau of Investigation and the Internal Revenue Service.
While the charges against Grays carry a maximum penalty of 30 years’ imprisonment and a $1-million fine, Portanova said the “sentencing range is going to be about 40-46 months. The government has agreed to recommend the sentence at the low end of the sentencing range…and has further agreed that in exchange for Mr. Gray’s continuing cooperation into various dealings within and without the insurance commissioner’s office, they may move for a reduction in sentence of up to 50 percent.” Sentencing for Grays, who remains free on his own recognizance, is scheduled for April 12, 2001.
Grays was accused of participating in a scheme to defraud the California Research and Assistance Fund (CRAF) by directing $263,000 of the organization’s grant monies to the California nonprofit Skillz Athletics Foundation. Despite the fact that Grays was not an officer or director of CRAF, he held the organization’s purse strings and appointed its original president, treasurer and secretary.
Skillz, which purportedly sought to “educate, coach, counsel, and provide guidance to at-risk student athletes,” was incorporated in September 1999 by a former friend of Grays, Brian K. Thompson. Grays admitted that he and the Skillz director had agreed to do this in order to make Skillz eligible to receive CRAF grants.
Prosecutors charged that Grays accepted $170,900 in illegal kickbacks from Thompson in the form of 23 checks, including four used to pay off more than $20,000 of Grays’ credit card debt. Thompson then allegedly used tens of thousands of remaining CRAF funds for personal, not charitable, purposes. It is further alleged that Thompson falsified CRAF’s corporate records in order to mask such distributions of the organization’s funds.
On Jan. 18, Thompson was indicted by a federal grand jury on two counts of mail fraud, one count of conspiracy to launder money and two counts of obstruction of justice. “We’ll be entering a not-guilty plea,” said Thompson’s attorney, Peter Kmeto, who would not comment on what his client’s defense would be.
CRAF was created through part of the $12.3 million in settlement monies paid by a group of insurers through an arrangement with Quacken-bush in the wake of the Northridge earthquake.
A report from the California Bureau of State Audits reviewing the CDI’s settlement practices was presented to Governor Gray Davis and other legislative leaders in October 2000. Among the nonpartisan auditor’s conclusions was one charging Quackenbush with abuse of authority for requiring insurers to make “off-the-book” or outreach payments “to nonprofit organizations and vendors for purposes not specifically related to his regulatory responsibilities.”
Sacramento Superior Court Judge John R. Lewis seized control of CRAF in May 2000, following a complaint filed by California Attorney General Bill Lockyer, labeling the foundation a “sham” and seeking its dissolution. Pending the court’s decision, Lewis later extended the freeze on CRAF’s remaining $6.3 million after finding that CRAF’s Board of Directors had improperly ceded control of the fund to Grays and that charitable assets had been misspent.
In November 2000, Lockyer’s office filed an amended complaint containing allegations “that Grays and CRAF board members Ronald Weekley and Eric Givens…breached their fiduciary responsibility in the operation of the charitable trust.” The amended complaint seeks damages not only for that alleged violation but also for “self-dealing and the diversion or distribution of charitable assets by Weekley, George Grays and as yet other unnamed defendant.”
Attorney Portanova would not speculate as to who or what activities the combined state and federal investigators might focus on next. However, he has repeatedly been quoted to the effect that his client, Grays, would supply investigators with information alleging the personal involvement of Quackenbush in the collection of monies from insurance companies for self-promotion through political advertising. Further allegations would implicate other top aides at the CDI as being aware of Quackenbush’s motivations with regard to the settlements.
Topics California
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