Houchen pleads not guilty

Dave Brooks

Pam Julien Houchen came in to office promising to clean up City Hall.

First elected to her seat in 1996, Houchen was highly critical of

the business activities of former Huntington Beach Mayor Dave

Garofalo and was on the dais when he pleaded guilty to one felony and

15 misdemeanor conflict of interest charges.

On Monday, Houchen found herself in a courtroom facing charges

that she abused her position on the council to illegally convert

apartments to condominiums. Unlike Garofalo who faced an Orange

County Superior Court Judge, Houchen appeared in a federal

courthouse, pleading not guilty to 18 counts of wire and mail fraud.

Appearing with Houchen was defendant Mike McDonnell, 38. The U.S.

attorney’s office alleges that Houchen used McDonnell as a straw

buyer to purchase property in a redevelopment zone and then sell it

for a profit. Both Houchen and McDonnell pleaded not guilty.

Absent from Monday’s hearing was Phil Benson, 72, the alleged

mastermind behind the scheme who was excused from court on doctor’s

orders his cancer had rendered him too sick to leave his Ohio home.

Benson is said to have convinced nearly a half dozen others to

lie, forge documents and even accept bribes to push the conversions

through. Police records show that Benson has past felony convictions

for drunk driving, car theft and burglary.

Also appearing in court were Tom Bagshaw, 55, who pleaded not

guilty to charges he notarized the transactions, and real estate

investor Mike Cherney, 57, who plead not guilty to charges that he

helped illegally convert several units on 11th Street.

Federal Prosecutor Andrew Stolper said some of the defendants

might work with the U.S. Attorney’s Office to prosecute the case, but

no one is off the hook.

“Everyone involved is accused of committing a crime and everyone

faces a prison sentence,” he said.

Of the four appearing in court Monday, McDonnell faces the most

counts of mail and wire fraud.

In the late 1990s, McDonnell successfully litigated against a

movie theater company for labor discrimination and received several

hundred thousand dollars in settlement money, court records show.

Authorities believe he sunk that money into pursuing the condo

conversions with a voracity unlike anyone else in the scheme.

While most of the investor defendants in the case are charged with

converting about seven or eight units, McDonnell is said to have

converted 19, authorities said.

One of those condos was purchased by Renee Tarnow, who says she

had to spend over $80,000 to fix electrical and structural

deficiencies in her home. When she complained about the problems to

city officials, she learned that her unit had been illegally

converted from an apartment. It was that news that tipped off the

Planning Department to look into problems with other illegally

converted condominiums and ultimately led to the police and federal

investigation.

Truck driver Steve Worley also bought one of the units converted

by McDonnell. He said city inspectors recently informed him he needed

to perform major repairs to bring the building to code.

“The entire electrical system has to be reoutfitted,” he said. “It

looks like we’re going to have to do a lot of work that should have

been done before we moved in.”

McDonnell declined to comment.

The complexity of converting the condos detailed in court suggests

that the scheme wasn’t especially profitable. Besides possessing the

capital required to purchase a condominium, investors had to pay

Benson about $20,000 to do the paperwork and thousands more to have

the deal notarized, sometimes illegally, and then pay off title agent

Harvey Du Bose to ensure that the deals were insured.

The labor involved in converting the condos was also expensive,

and Worley said McDonnell tried to save money by doing the work

himself.

McDonnell, Houchen and the other defendants are set to begin their

estimated two-and-a-half-week trial on Feb. 1. All defendants are

free on $5,000 bail.

* DAVE BROOKS covers City Hall. He can be reached at (714)

966-4609 or by e-mail at [email protected].