DEPUTY MAYOR KEELEY QUITS : REPORT CRITICIZES RELEASE OF LEGAL PAPERS.

Byline: Patrick McGreevy and Rick Orlov Daily News Staff Writers

Deputy Mayor Michael Keeley resigned Friday after an internal investigation found that his actions were ``clearly wrong'' in giving confidential documents to lawyers opposing the city.

His decision to step down came on the same day a report by Deputy Mayor Robin Kramer and former City Attorney Burt Pines concluded that Keeley ``overstepped his authority'' in releasing the documents.

``Mr. Keeley improperly took it upon himself to decide what was in the city's best interest, bypassing the agencies of government which have that ultimate responsibility,'' the report said.

``Mr. Keeley's conduct here was knowing, intentional and clearly wrong.''

Although the probe cleared him of criminal wrongdoing, Keeley said he would resign as Mayor Richard Riordan's chief operating officer effective Friday.

``Unfortunately my actions have brought embarrassment upon the mayor and risk distracting Angelenos from his important message,'' Keeley said.

He said personal considerations loomed large in his decision to quit, adding, ``This job has taken a huge toll on my personal life and on my financial circumstances.''

Keeley, 42, earned $92,000 in City Hall - a fraction of what he earned in private practice at Riordan's old law firm, Riordan & McKinzie.

During an emotional late afternoon news conference, Riordan - alternately somber and angry - said he had asked Keeley to reconsider but reluctantly accepted the resignation.

``I've asked Mike to continue his service to my administration and to Los Angeles,'' Riordan said.

``I did this with confidence in Mike and with my commitment to Los Angeles in my heart,'' he said. ``Mike has decided that he's due for a change and that it's time to move on with his life.''

The investigation was triggered when City Attorney James Hahn disclosed April 19 that Keeley had released a confidential city legal strategy memo to lawyers who later sued the city over a geothermal energy contract on behalf of California Energy Co. Inc.

In a cover letter to the lawyers, Keeley asked that they not disclose that they had received the memo because ``the city attorney did not want me to share these materials with you.''

Hahn called Keeley's actions a breach of public trust, and said his office would not share legal documents with the Mayor's Office as long as Keeley remained on the job. In addition, the City Council gave a vote of no confidence in Keeley.

Keeley said he released the documents in hopes of reaching a settlement with the lawyers.

But the report found that Keeley's ``approach and his conduct were incompatible with the orderly and established process of government,'' noting that Keeley acted against the advice of the City Attorney's Office and without consulting Riordan.

Moreover, ``we find it very troubling that Mr. Keeley failed to tell the City Attorney's Office that he had turned the memorandum over to Cal Energy's attorney, and that he requested Cal Energy's attorney to conceal the fact that the Cal Energy attorney had received the memorandum,'' the investigative report said.

The report concluded that Keeley was acting in the belief he was trying to save public funds.

``Our review indicates that he was motivated by the public interest, not his self-interest,'' Kramer and Pines wrote. ``We do not find any evidence indicating corruption or personal gain on his part.''

An Ethics Commission investigation into the matter, also released Friday, found that Keeley did not violate city ethics laws.

``The city Ethics Commission has found no evidence or reason to believe that your release of the Aug. 28, 1995, city attorney memorandum to John Shiner was in violation of (the) Los Angeles Municipal Code,'' wrote commission Executive Director Rebecca Avila.

``Accordingly, we are closing our investigation,'' she wrote.

Hahn said Friday that the resignation was appropriate and that the city should move ahead.

``The whole incident was unfortunate and this is an unfortunate end to it,'' Hahn said. ``But a breach of the public trust is not something that you can hide behind closed doors.''

Riordan, however, again criticized Hahn - saying the city attorney publicly released the allegations before Keeley had a chance to address them.

``I continue to question and to be upset and disappointed by how this matter was released and publicized and the swift, cynical rush to judgment which followed,'' Riordan said.

Hahn said he acted with no other motive than that ``I thought this was a serious breach of the public trust.''

Riordan has been Keeley's friend and mentor for 15 years, starting when Keeley joined Riordan & McKinzie as a young lawyer.

``His creativity and tough negotiation skills have combined with an incredible commitment to our city. The value of his work in the public interest is literally in the hundreds of millions of dollars,'' the mayor said.

Despite Keeley's mistake, Riordan said he wanted to keep him in his administration.

``There is no doubt that some of his actions were mistaken,'' Riordan said. ``But who among us has not made mistakes, even in the pursuit of a worthwhile goal?''

Keeley said that after talking with friends and advisers over the past week, he had decided it was in his and the mayor's best interest to step aside.

Reading from a prepared statement, Keeley admitted mistakes but repeated his assertion that his intentions all along have been to improve city government,

``Still, I screwed up,'' he said. ``The investigative report just issued is critical. It is not a complete exoneration.

``But, frankly,'' he added, ``I believe my chief offense is naivete: Somehow I deluded myself into believing I could help do the remarkable things the mayor asked of me without being a politician.

``I have learned from my mistakes and will take these hard-learned lessons with me for the rest of my life.

``But I have also learned that in Los Angeles, running the city like a business is fundamentally incompatible with our political structure.''

As Keeley concluded his remarks, he and Riordan hugged and some 30 staff members that were gathered in the mayor's City Hall conference room erupted in applause.

Riordan said Keeley will continue to serve as an unofficial adviser.

Confidantes said Riordan was torn between loyalty to his aide and the need to eliminate the controversy over Keeley's actions as he heads into next year's re-election campaign.

``This was very tough for the mayor,'' said one associate, who asked not to be identified. ``This might have been the toughest decision he has ever had to make because he and Mike are so close. The mayor was in anguish over this and talked to scores of people about what he should do.''

Reaction from council members was mixed.

``I'm disheartened,'' said Councilman Joel Wachs, ``because, for all practical purposes, it really means the end of any serious effort to run city government like a business.''

But others said they were relieved at the decision.

``I think it was the appropriate and only decision to make,'' said Councilwoman Laura Chick.

REPORT CONCLUSIONS An investigative report into Michael Keeley's actions concluded that:

Keeley's conduct was ``knowing, intentional and clearly wrong'' when he provided a confidential city attorney's memo to a private attorney who later sued the city.

Keeley should not have released the information without conferring with the mayor and others.

Keeley ``improperly took it upon himself to decide what was in the city's best interest, bypassing the agencies of government which have that ultimate responsibility.''

Keeley's conduct was ``incompatible with the orderly and established process of government.''

Keeley did not seek personal gain and his conduct did not violate state law.

In a separate report, the city Ethics Commission also found that Keeley did not violate city ethics laws.

CAPTION(S):

Photo, Box

Photo: (color) Mayor Richard Riordan was at Michael Ke eley's side Friday.

Evan Yee/Daily News

Box: REPORT CONCLUSIONS (see text)