Hark and Behold! AD-73’s Diane Harkey Actually Could LOSE This Autumn!

It’s not really the ideal time to be a defendant in a huge fraud lawsuit. Will voters notice?

Assembly member Diane Harkey has been considered a prohibitive favorite against Jim Corbett — a libertarian-leaning Democrat — in the South County’s AD-73.  After all, AD-73 is the most Republican district in the state.

For Harkey to lose the election would require some sort of enormous and damaging scandal breaking at just about the last minute before early voting begins and then building into a frenzy as Election Day approached.  Now, seriously — what are the odds of that happening?

Those odds may not be quite as bad as you’d think.

Harkey is just not going to show up on Election Day as things stand and lose to Corbett.  For that to happen, she’d have to lose something else first — something big like a trial in federal court accusing her and her husband of defrauding and abusing the elderly as part of their family’s business.  (Link is from a story by the Register’s Andrew Galvin in 2009.  Time for a follow-up?  I might as the same question to the LA Times, whose story appeared here.  Note that they extensively quote “defender of all that is evil in the world” political consultant Dave Gilliard, which is a sure sign that there’s legitimate reason for concern.)

Coincidentally, just such a trial is beginning on Monday.  Harkey has spend a long time trying to push the trial date back, further and further, to move it past this year’s election.  Finally the judge got sick of the baseless delay and said that they were going forward.  The trial starts tomorrow — and it is lurid.

UPDATE: Someone has already put up an apparently quite comprehensive website on the scandal that began its trial today: find it at http://www.pointcenter investigation.com.  Hat tip to gigi.

My headline for this article cleverly refers to Harkey’s losing the trial — but if she loses the trial, it could conceivably apply to the election as well.  There are a lot of “good government” types in AD-73 — and defrauding and abusing the elderly is surprisingly unpopular with the voting public.  Now we just have to determine the facts — and that’s exactly what a trial is designed to do.

Strangely enough, Orange Juice Blog (in its previous pulpier version) has covered this very issue before — 40 months ago, for example — under the Art Pedroza byline “Admin.”  (Honestly, the things you find in our archives!  Amazing!)  I’ll reprint that here in its entirety for your convenience.

There is an excellent article in today’s L.A. Times, O.C. edition, highlighting the lawsuit against Assemblywoman Diane Harkey’s husband Dan, and his Point Center Financial company.

The article does a great job of explaining exactly what it is that Dan did to get in such hot water.  He was a “hard-money lender,” which is to say that he was lending money to folks involved in real estate who could not get funding through regular channels.  Obviously that was risky.  Here are a few excerpts from the L.A. Times article that explain this further:

Hard-money lenders rely almost exclusively on the value of property used as collateral, expecting to profit when loans are repaid or to foreclose when they’re not. In a good economy, investors can make significant gains. Harkey said he paid investors 9% annually, sometimes more.

With those hefty payouts comes risk. If the real estate market crashes, hard-money lenders can end up with foreclosed properties suddenly worth far less than the money they lent. And investors, once confident that their loans to developers were backed up by property, can find that their holdings are now of little value.

Did Dan benefit from all of this?  You bet.  Check out this excerpt, which mentions Diane as well:

His adult life, thanks to success with Point Center Financial, included all the trappings of comfort and luxury: a multimillion-dollar home in a gated Orange County beach community ( Magic Johnson has a place next door), a Learjet for business trips and a fleet of luxury cars including a Bentley, a Porsche and a Jaguar. Harkey’s wife was elected last year to the California State Assembly, giving the family political muscle to accompany its financial might.

Did Dan explain the risk sufficiently to his investors?  And did he manage their money responsibly?  And did any of that money end up funding Diane’s campaigns?  Those seem to the be main issues in the lawsuit.  This could end up being the fall of not one but two Harkeys.

(Since I promised you “lurid,” I’ll also link to this story by Art Pedroza in our archives on the Point Center Financial mess, which is too long to reprint here.  Take a pinch of salt or ten and check out the comments.  Yikes!)

Now you might be saying to yourself: well, those are just allegations.  Aren’t we making a bit much over them?  And the answer would be: if this were still May 4, 2009, when the story came out, that might be so.  But since then, the lawsuit has survived numerous attempts to defuse, dismiss, derail, and delay it — and they haven’t worked.  The show is about to open — and at almost the worst possible time for Harkey!

Corbett is, shall we say, not unaware of this upcoming trial.  From an interview of his with the Mission Viejo Patch:

Ms. Harkey is a crony capitalist who has been the object of a recall while serving Dana Point and is currently defending herself from charges of elder abuse and fraud in relation to her position as an executive in a mortgage bank. There are over 80 plaintiffs in the case and plaintiffs’ lawyers have taken the case on contingency which is a measure of their confidence Harkey and her husband converted money from their bank to maintain their lifestyle, including a $7,000,000 dollar house in Ritz Cove. Harkey is a poster girl for everything that is wrong with American Politics. As a conservative Democrat, I can work with both parties and I will.

Orange Juice Blog is resisting the impulse to refer to Corbett as “Gentleman Jim,” a joke that Orange Juice Blog suspects he has already heard enough times in his life.

(File that one under “Does Not Mince Words.”)  Now, of course, Corbett doesn’t have the money to plaster the entire district with fliers and mailers regarding Harkey’s losing an elder abuse and fraud trial.  She hasn’t lost yet.  But if she does — well, this is going to be an awfully tempting late target for California Democrats — who would not even have to run such a campaign through Corbett’s campaign itself, or even tell him about it in advance.  This is one of those rare cases where two widely distributed mailers — one before early voting and one before Election Day, could completely cut off Harkey’s candidacy at the knees.

“HARKEY ORDERED TO PAY $5 MILLION TO
VICTIMS OF ELDER ABUSE AND FRAUD.”

You know, something like that.  (Of course, this headline hasn’t actually occurred — yet — so don’t quote it.  It’s just a mock-up.  It can’t hurt to be prepared!)

I’ve been waiting on this story until the trial got closer, hoping that no one else would pick it up, but I have to admit that OC Weekly’s Matt Coker did get to it last week.  He has a nice summary as well of the case that led to an SEC investigation of Harkey’s business, Point Center Financial:

But later came disclosures that some of the Dana Point Republican’s campaign funds–$16,000 worth–came from three developers who received millions in loans for her husband’s investment company, Point Center Financial of Aliso Viejo.

…

One developer contributed $5,000 to Diane Harkey’s campaign in 2005, two months later received a $19.5 million loan from Point Center Financial for a Palm Springs development, then defaulted on the loan, leaving a property in disrepair to the city and investors.

A second developer did the same: gave to the Harkey campaign in 2005, two months later received a $16.5 million loan through Point Center Financial and defaulted on the loan, leaving investors holding property worth far less than what they were promised.

Oh, that does NOT look nice.  The Harkeys, of course, deny wrongdoing.

Looking back in the local Internet archives through the magic that is Google tells you that this was a major, major deal back in the late winter and early spring of 2009.  So far, the political blogosphere hasn’t produced much about it (with the exception of Coker’s article) as the trial approaches.

I have tried (successfully, I believe) to arrange for OJB to have one or two shadowy special correspondents (who happen to be experienced attorneys) covering the trial every day and sending back dispatches to me for publication here.  Now I don’t mind OJB being the pre-eminent and even sole news source around as what was a major story 3-1/2 years ago finally has its rubber meet the road, but if others larger news and analysis outlets want to check out the events as well, I’ll reconcile myself to OJB’s being just one in the crowd.

Read those links above, folks.  This is going to be an interesting, interesting, interesting trial!  And the stakes — even if it means only replacing an obstructionist fiscal conservative with a potential swing vote fiscal conservative who can represent economically libertarian South County without hamstringing the state altogether and rooting for governmental collapse — are especially high.  Stay tuned!