FELON HIRED TO MANAGE LAUSD JOB SUBCONTRACTOR OUT AFTER PROBE.

Byline: Beth Barrett Staff Writer

A politically connected developer who received a $107 million no-bid contract to build a turnkey high school hired a firm headed by a man convicted of felony grand theft to manage construction, the Daily News has learned.

An investigation by the Los Angeles Unified School District inspector general, Don Mullinax, found that Emerald Development Co. hired Laguna Pacific Builders Inc. of Irvine, whose president and chief executive officer, Brad Scott Gorman, was convicted in 1997 of grand theft from a business partner. He was unavailable for comment.

In his report, Mullinax said no due-diligence review was conducted, although required by law, on the continuation and high school being built downtown on the former Santee Dairy site at 231 E. 23rd St. It is being financed with voter-approved bonds.

The developer ended the contract after Gorman's background was uncovered, but the incident has raised new concerns about oversight of the district's $5.8 billion building campaign and its use of the controversial turnkey process in which the developer is given total responsibility from design through completion.

Jim McConnell, head of the LAUSD's Facilities Division, said in a printed statement that LAUSD officials ``will not tolerate these types of situations,'' but conceded there are no guarantees such breaches won't occur again.

``This is a $5 billion construction project, and things like this may occur in the future. But we will remain vigilant.''

At the same time, he distanced the LAUSD from the problem, citing the developer as responsible, before the school is completed, under the turnkey system.

``We did not hire Gorman's company. They were subcontracted through W.P. Carey/Emerald Development Co. Our team never met this guy, and the minute we learned about this situation we urged the developer to sever the relationship, and that is what they did.''

Mullinax's report, dated April 30, made the same point: ``The builder assumes all of the risk until such time as the project is completed or the building is ready for occupancy. Therefore, (LAUSD) owner oversight is minimal.''

Board member David Tokofsky, the only one to object to the no-bid deal, said the failure to check Gorman's background thoroughly, or demand that the contractor do so, illustrates a weakness in the Facilities Division. He said Mullinax should be given authority for construction oversight.

``This particular incident reveals there are no more checks than there ever were and something ought to be done,'' Tokofsky said. ``There ought to be some burden on the contractor to take an oath of integrity for its (subcontractors) and to run the risk itself.''

Board President Caprice Young, though, called it an isolated incident.

``The controls that are in place are relatively good,'' she said. ``That's part of the reason this was caught.''

The project has faced controversy from the outset.

Emerald Development, a subsidiary of W.P. Carey, used a loophole in state law to get the deal with the LAUSD without competitive bidding.

W.P. Carey's chairman, William Carey, attended Princeton University with former Mayor Richard Riordan, a key player in LAUSD affairs. The two became acquainted more recently, but neither played a role in the deal, according to those involved in the negotiations - among them two Riordan & McKinzie lawyers.

Emerald Development officials and their attorney, Thomas Harnsberger, who left Riordan's law firm a couple of months ago, did not return calls.

The project was delayed earlier this year when it was discovered that the developers had failed to report potential environmental problems as required by law.

According to the inspector general's report, Gorman and his firm were given crucial oversight authority for financial and payment information provided to the district.

In addition, the developer was seeking to assign the project to Emerald Education Development Venture, in which Gorman was a principal.

``Investigators learned the developer was negotiating with the district to increase Laguna Pacific's and Mr. Gorman's interest in the assigned development joint venture,'' the inspector general's report says.

That assignment has been withdrawn, the report adds.

``This whole type of procurement doesn't allow for the proper vetting and due diligence of the parties involved,'' a district source said. ``It shows the need for oversight in this multibillion-dollar program we have going here. We ought to be sure we spend all this money wisely.''

Officials with Emerald Development learned of Gorman's grand theft conviction before the board approved the project, but said Gorman told them his record had been cleared.

``Investigators reviewed the Superior Court criminal file and found no request or order on file to have the record expunged,'' the inspector general's report says. ``Mr. Gorman later acknowledged to investigators that the conviction had not been expunged.''

According to the report, Gorman's grand theft conviction grew out of a $20 million real estate dispute or swindle in Long Beach.

The report says Gorman was sentenced to 180 days in jail and three years' probation for that offense.

Beth Barrett, [phone]

beth.barrett(at)dailynews.com

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South Central LA Area New High School No. 1 and Jefferson Continuation High School 

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