Sweetwater underwriters reel in the big one — a grand jury indictment

In August 2006, Jesus Gandara was selected as Sweetwater Union High School district’s new superintendent. According to a grand jury witness, on his first day on the job, Gandara found time to go to a bayside restaurant and drink tea with two bond underwriters and a Sweetwater trustee.

Three of the four men who sat down for tea — Jesus Gandara, former trustee Greg Sandoval, and bond underwriter Gary Cabello — are among the 15 who have been indicted in what the San Diego district attorney has called the largest public corruption case the DA’s office has ever prosecuted. Gandara, Sandoval, and Cabello have pleaded not guilty.

More than a billion dollars in South Bay school bond construction money set these players in motion. In 2006, Sweetwater Union High School district passed Proposition O for $644 million; in 2010 Southwestern College passed Proposition R for $389 million.

The grand jury transcripts offer the public a unique opportunity to look at the shenanigans involved in landing a piece of the underwriter action.

The fourth man who sat down for tea that morning, and the one who reported the meeting to the grand jury, is Jeffrey Kinsell, a principal in the bond finance company Kinsell, Newcomb, Dadios.

Kinsell was not indicted in the South Bay corruption case. However, in April 2013, in an unrelated case, the Securities and Exchange Commission charged Kinsell’s finance company and the city of Victorville with defrauding investors on a municipal bond.

When Kinsell sat down for tea with Gandara, the $644 million bond had not even been suggested to the voters. But to better jockey into position for more of the public dollars, Kinsell put a minority face on his company.

Kinsell explained to the grand jury that in 2006 or 2007 there was “a guy by the name of Gary Cabello and his partner, Luis Ruiz Dana, and they wanted a job. And I said let’s not give you a job, let’s start a new firm to take advantage of the minority status that we could sell, and make the two partners in charge of Alta Vista. I would be a partner, my partners Dadios and Newcomb would be partners as well, but the five of us would start this firm and we would market our abilities in the finance world with the minority status.”

Kinsell also told the jury that 55 percent of what his company does is “prospecting” for potential clients. Cabello, according to the transcripts, knew everyone in the South Bay, hence he was the perfect prospector.

Kinsell describes Cabello as “like a Santa Claus. He was 5ʹ8ʹʹ and weighed 320 pounds. And always had difficulty handling money.”

So Cabello and cohorts began to work the South Bay — donating to charities, buying tables at educational foundations, and even donating $50,000 to Friends of Proposition O.

District attorney investigator Vince Giame told the grand jury that Cabello’s 2006 expense report for Sweetwater prospecting totaled $4446.43, for 2007 he spent $3219.45. Two weeks before Sweetwater’s board voted on the bond deal, Alta Vista spent $1357.08 on a dinner for some Sweetwater decision-makers.

Along with entertaining, Cabello partially footed the campaign bill for Sweetwater trustee Pearl Quiñones in her 2006 bid for National City mayor. Political consultant John Wainio told the grand jury that Cabello paid his public relations company to employ Quiñones’s campaign manager Bob Castaneda.

After the bond passed, Alta Vista and Sweetwater’s ex-superintendent Bruce Husson, who was a consultant to the bond campaign, hosted a Friends of Proposition O victory celebration in San Diego’s exclusive University Club. The average voter, of course, was not invited.

Landing the proposition was one thing, but then how do you reel in the big one? How do you make sure your bond company is chosen and gets a hefty portion of the sale?

As the U-T San Diego reported June 14, Michelle Durgy, a finance officer for the county at that time, was part of the Sweetwater panel that interviewed the underwriters. Sweetwater’s then-chief financial officer, Diane Russo, told Durgy that Alta Vista had to make the cut, had to be one of the underwriting companies that was chosen.

Ultimately, the panel picked three companies with the recommendation that the smallest portion of the initial bond sale go to Alta Vista.

Another grand jury witness, Jason Richter, whose company was hired to give financial advice to Sweetwater, was summoned from Los Angeles to a very unusual meeting with ex-superintendent Jesus Gandara, ex-trustee Greg Sandoval, and trustee Pearl Quiñones.

Richter told the grand jury: “Frankly, it was a very bizarre meeting. It kind of started with the superintendent and Mr. Sandoval making statements that were largely innuendo about too many cooks in the kitchen, and this was regarding the number of underwriters…. For periods of time they would speak together in Spanish, which I don’t speak….”

The upshot of this “bizarre” meeting was that one of the large underwriting companies was dropped, and the percentage that Alta Vista received was upped to 40-to-50 percent according to Richter’s testimony.

Alta Vista also wined, dined, and took administrators and employees from Southwestern College on lavish golf excursions. At Southwestern, as well, Alta Vista won a portion of the bond sale. Later, when Cabello went to work for another underwriting company, Cabrera Capital, he was able to take Sweetwater and Southwestern’s business with him.

In May of 2012, California Watch reported that “in the past five years in California, five major underwriters donated $1.8 million to help pass 111 ballot measures authorizing $15.5 billion in debt…. Overwhelmingly, bond underwriters who donate to these campaigns were granted contracts by school districts.”

State legislation is being considered that would regulate this relationship, though school districts are lobbying heavily against it.

Trials for the 15 South County trustees, administrators, and vendor /contractors indicted by the grand jury begin in February 2014.