DEFENDANTS 'LIED, STOLE' LAWYER ACCUSES PR EXECS OF FRAUD.

Byline: Beth Barrett Staff Writer

A federal prosecutor said Thursday that "fraud was rampant" in Fleishman-Hillard's Los Angeles Office under former executives Doug Dowie and John Stodder, accused of bilking the Department of Water and Power of more than $300,000 and overbilling other clients.

But in their opening trial statements before U.S. District Judge Gary Allen Feess, lawyers for Dowie and Stodder countered that while the defendants may have made management or other mistakes, they did nothing criminal.

Any improper billings, they argued, were the result of subordinates acting on their own.

The grand jury indictments charging Stodder and Dowie with conspiracy and wire fraud are the first to come out of a lengthy City Hall corruption probe by U.S. Attorney Debra Wong Yang and District Attorney Steve Cooley.

Among those subpoenaed to testify in the trial are former Mayor James Hahn and former Deputy Mayor Troy Edwards who received extensive free public relations help from Dowie and the firm even as they benefited from the $3 million-a-year Department of Water and Power contract.

Assistant U.S. Attorney Cheryl O'Connor Murphy argued that Dowie and Stodder padded the firm's bills with hours that were not worked and "breached the trust" of their clients, including the city DWP and Harbor Department, architect Frank Gehry's firm and the World Wide Church of God.

"The defendants lied and stole," Murphy said. "They made up hours that were not worked and included them in the bills."

The motive, she said, was "not to line (their) pockets" but rather to enhance their professional reputations and to allow Dowie to "shine" as head of Fleishman-Hillard's L.A. office.

"A stellar professional reputation is as good as money in your pocket," she said.

Murphy said former Fleishman-Hillard employees - including Steve Sugarman, who previously pleaded guilty, and Monique Moret, who has been granted immunity - will testify about the defendants' role in the alleged fraud that spanned nearly four years from 2000 to 2003.

She said Sugarman will describe how Dowie referred to the $3 million-a-year DWP contract as a "cash cow" and how it was frequently and fradulently tapped to boost other faltering accounts.

Ellyn S. Garofalo, Sugarman's attorney, declined comment.

Murphy said that when former company executive Fred Muir quit, he told Dowie in a heated conversation that the real reason for his resignation was the fraudulent billing practices, but that Dowie didn't vigorously pursue the allegation.

Muir on Thursday confirmed the conversation.

Lawyers for Dowie and Stodder said the men weren't "rogue" operators or "kingpins," but midlevel managers in an international public relations firm owned by OmniCom Group, a publicly traded Fortune 500 company.

They said the firm's top executives in St. Louis applied tremendous pressure to maximize revenues, and the defendants kept them in the loop about their actions - in part, by sending them copies of e-mails.

Fleishman-Hillard attorney Mark E. Beck said the company, which paid the city nearly $6 million to settle a lawsuit alleging overbilling, would have no comment during the trial.

Dowie attorney described his client - a 58-year-old ex-Marine who served in Vietnam - as a hard-charging manager who may have misplaced his trust in subordinates who did wrong without his knowledge.

"Maybe the people who are responsible cut a deal with the government to save their own skins," said defense attorney Tom Holliday. "He trusted his people."

Holliday said Dowie, who resigned from his position as managing editor of the Daily News in 1990, was viewed by some as a "fish out of water" in public relations because of his demanding style.

"But, being a tough, hard manager isn't a crime, and that's where the government wants to go," he said.

beth.barrett(at)dailynews.com

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