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VOLUME 18, ISSUE 30 | SACRAMENTO’S NEWS & ENTERTAINMENT WEEKLY | THURSDAY, OCTOBER 19, 2006 | WWW.NEWSREVIEW.COM SOFIA COPPOLA, GRRL HISTORIAN See Film, page 41. MORE ALLEN GINSBERG THAN YOU CAN SHAKE A PEN AT See Arts&Culture, page 30. TURNED IT UP. BROUGHT THE NOISE. See Nothing Ever Happens, page 36. GO FISH! See 15 Minutes, page 79. SIBERIA FOR SEX OFFENDERS See News, page 15.
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State Got Your Bling by Stephen James - Sacramento News and Review - Stephen James Investigative Journalism and Photography - Investigative Reporter Stephen James Reporter Silicon

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State Got Your Bling? The controller may have sold your stuff already and fed the cash into California's general fund. By Stephen James Independent Investigative Journalism and Photography. Investigative Reporter Stephen James, Silicon Valley, California.
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Page 1: State Got Your Bling by Stephen James - Sacramento News and Review - Stephen James Investigative Journalism and Photography - Investigative Reporter Stephen James Reporter Silicon

VOLUME 18, ISSUE 30 | SACRAMENTO’S NEWS & ENTERTAINMENT WEEKLY | THURSDAY, OCTOBER 19, 2006 | WWW.NEWSREVIEW.COM

SOFIA COPPOLA,GRRL HISTORIANSee Film, page 41.

MORE ALLEN GINSBERGTHAN YOU CANSHAKE A PEN ATSee Arts&Culture, page 30.

TURNED IT UP.BROUGHT THE NOISE.See Nothing Ever Happens, page 36.

GO FISH!See 15 Minutes, page 79.

SIBERIA FOR SEXOFFENDERSSee News, page 15.

Page 2: State Got Your Bling by Stephen James - Sacramento News and Review - Stephen James Investigative Journalism and Photography - Investigative Reporter Stephen James Reporter Silicon

22 | SN&R | OCTOBER 19, 2006

The courts are poised to decide if California’smethods for handling $5 billion in unclaimed

property are legal BY STEPHEN JAMES

STATE GOT YOUR BLING?IL

LUST

RATI

ON B

Y K.

J. P

ARGE

TER

Page 3: State Got Your Bling by Stephen James - Sacramento News and Review - Stephen James Investigative Journalism and Photography - Investigative Reporter Stephen James Reporter Silicon

INSIDE | OPINION | NEWS | FEATURE STORY | ARTS&CULTURE | NIGHT&DAY | FILM | THEATER | DISH | WORDS | MUSIC | BACK OF THE BOOK | CLASSIFIEDS | OCTOBER 19, 2006 | SN&R | 23

More than adecade ago, an SN&R investigation

exposed how Californiawas using its citizens’unclaimed property as a sort of secret stash to balance its budget. Now, 11 years after that exposé, the statecontroller’s methods for handling unclaimedproperty again are beingcalled into question.

Today, California’s Bureau ofUnclaimed Property holds $5 billionworth of property—money left idlein bank accounts, inactive stocks,contents of abandoned safe-depositboxes—belonging to 8 million indi-viduals. The idea is for the state tohold the property for safekeepinguntil it can be returned to its owners.Since only about 20 percent of thesepeople ever claim their property, theprogram provides a significantsource of revenue for the state, fun-neling hundreds of millions ofdollars each year into the generalfund that the state spends freely.

State and federal courts are poisedto rule on lawsuits that charge mis-management by the Californiacontroller’s office has cheated plain-tiffs out of tens of thousands—evenhundreds of thousands—of dollarsowed for unclaimed property. StateController Steve Westly and othergovernment officials estimate that these lawsuits, if successful, ultimately could cost Californiabetween $500 million and $1.5 billion.

SN&R reviewed hundreds of pagesof court documents, court-hearingrecordings and additional recordsobtained using California public-records law to tell the inside storyabout a brewing scandal that the main-stream media virtually has ignored.

AA bbaadd ddaayy iinn MMaayy In May, as Westly campaignedacross California in hopes of secur-ing the Democratic nomination forthe higher office of governor in theJune 6 primary, the wheels werecoming off a major division of hiscurrent state office.

On May 16, Westly’s campaign“Rally Blog” boasted that “over10,000 people have joined the cam-paign in the last month—that’s alot—and more and more join us eachday. They are ready to take on theSchwarzenegger $120-millionmachine, and know that Steve is theguy who can lead the charge.”

That same day, SacramentoSuperior Court Judge ShelleyanneChang issued her own charge againstWestly and the chief counsel of hisoffice, Richard Chivaro. In a damn-ing ruling, in a lawsuit in whichWestly and Chivaro were named asdefendants, Chang found that thecontroller’s Bureau of UnclaimedProperty had violated state law andessentially cheated the plaintiff inthe case, Trust Realty Partners, outof roughly $200,000.

“The Court finds defendantsacted unlawfully with respect to theUnclaimed Property Law,” Changformally declared. The judge saidthat Westly and Chivaro did not pro-vide Trust Realty with an effectiveway to retrieve more than $500,000worth of its own ostensibly “lost”property that the state had taken, didnot effectively notify Trust Realtythat the state had its property, anddid not pay the interest required by

law on the property, which it heldand used for more than four years.The judge ordered the controller torecalculate what it owed TrustRealty, in principal and interest, andpay up within 15 days.

Not only that, but she also orderedWestly and Chivaro to dramaticallychange how their office obtains, holdsand returns unclaimed property to thepublic. If upheld on appeal, Chang’sdecision could paralyze the con-troller’s unclaimed-property divisionuntil the changes are made, jeopardiz-ing the more than $300 million inyearly income the program currentlygenerates for the state.

The Trust Realty case, however,may be only the proverbial tip of theiceberg. Two and one-half monthsafter Chang issued her ruling, a simi-lar but unrelated case reached, for asecond time, the highest level of thefederal judicial system, short of theSupreme Court of the United States.On July 31, the 9th Circuit Court ofAppeals heard oral arguments inTaylor v. Westly, a lawsuit originallyfiled against Westly’s predecessor,Kathleen Connell. Six plaintiffs sofar have joined in the class-actioncase, and thousands more areexpected, since the litigation coversanyone who had property confis-cated and sold by the controllersince 1989. One plaintiff is ChrisTaylor. California’s controller’soffice seized Taylor’s shares of Intel

stock that allegedly were “lost.”Taylor, who resides in England andhas never lived in California, con-tends that his stock was not lost andthat the state had no right to take andsell it. The state sold Taylor’s sharesfor about $200,000 in the 1990s.Years later, those same shares wereworth up to $4 million, according tocourt records. Understandably,Taylor believes California’s con-troller owes him the difference.

The Taylor case, which began inSacramento, was dismissed in 2003by U.S. District Judge FrankDamrell. But, in 2005, the case wasreinstated by the 9th Circuit court,

which said that the taking ofTaylor’s stock, and the stock of theother defendants, was illegal, ifproven to be true in further proceed-ings. “California did not and couldnot authorize its officer to takepeople’s property without notice andin the absence of any connection tothe state of California,” the 9thCircuit court ruled. Like in the TrustRealty case, this court found prob-lems with the state’s process forseizing and selling off unclaimedproperty. Indeed, if the process istruly as described in the lawsuit, theappellate court declared it wouldviolate the U.S. Constitution.

When the case returned in Julyfor the 9th Circuit court to considera lower court’s refusal to order aninjunction against the controller’s

office, the appellate court clearlywas annoyed that California had notaltered its procedures in the inter-vening year. “I thought our lastdecision was clear enough so thatyou would work out a constitutionalprocedure,” one member of thethree-judge panel told Westly’s attor-ney, Robin Johansen, during oralarguments, according to the officialrecording of the session. “And whenI read this stuff, I wonder whethersomebody was going to have to goto jail before you did.”

A ruling on the Taylor-caseinjunction is expected within weeks,and, meanwhile, a third major class-

action case against Westly, Chivaroand the controller’s office is pendingin U.S. District Court in San Jose.

These cases now are accelerat-ing into high gear as rulings areexpected that may send them,finally, to trial. The cases couldcost California taxpayers between$500 million and $1.5 billion.That’s bound to cause Westly a fewsleepless nights. So, too, is the factthat the star witness against Westlyand the Bureau of UnclaimedProperty is a former veteranemployee of that organization, now turned whistleblower.

“BLING” continued on page 25

If successful, the lawsuits could cost California taxpayers between $500 million and $1.5 billion.

Page 4: State Got Your Bling by Stephen James - Sacramento News and Review - Stephen James Investigative Journalism and Photography - Investigative Reporter Stephen James Reporter Silicon

CCaalliiffoorrnniiaa’’ss ccaasshh mmaacchhiinneeCalifornia’s unclaimed-property pro-gram originally was designed tofunction as a lost-and-found, reunit-ing owners or their heirs with lost orforgotten property. The legal term forthe process is escheat: the transfer ofunclaimed or lost property from theholder of the property—such as abank—to the government, for safe-keeping, until the property is claimedby the owner or the owner’s heir.

Last year, the state took custodyof almost $900 million in propertyand paid out about $240 million inclaims. The state currently holdsabout 8 million accounts worth morethan $5 billion. Of the $5 billion, thestate keeps only about $20 millionon hand to pay unclaimed-propertyowners, if and when they are able to

figure out that the state has theirassets, but the rest of the money istransferred to the general fund andspent. The 2006 governor’s budgetestimated that the general fundwould receive $300 million fromunclaimed property.

The low ratio of property that isreturned relative to property that istaken means that the program is acash cow for the state. Since nearlyall unclaimed property is convertedto cash by the state, even if the casheventually is claimed, the state getsto use the money in the interim. Thisdynamic means that the state has astrong, albeit tacit, incentive to takeas much property as possible and toreturn as little as possible.

The most common types ofunclaimed property are checking andsavings accounts; the contents ofsafe-deposit boxes; securities such asstocks, mutual funds, bonds and div-idends; matured or terminatedinsurance policies; estates; mineralinterests and royalty payments; andescrow accounts. Most securities aresold within 30 days of the statetaking possession, and the contentsof safe-deposit boxes of value, suchas family-heirloom jewelry, wedding

rings and rare coins, are auctionedoff. Other safe-deposit-box items,such as almost anything in paperform (a will, a marriage certificateor treasured family photos) is shredded.

Years ago, the controller wasrequired by law to wait 16 yearsbefore taking possession ofunclaimed property. But theLegislature repeatedly has changedthe law, speeding up the process soCalifornia can get its hands on themoney quicker. The 16-year waitingperiod was reduced to seven, thento five, and, since 1995, the stateonly has to wait three years to takeproperty for which the owner sup-posedly is missing. (TheLegislature has tried, unsuccess-fully, to reduce the waiting periodto one year.) Not surprisingly, thetiming of the law changes generallycorrespond to the state’s cyclicalbudget problems.

In the past, the law also requiredthe state to pay interest on themoney it held for unclaimed-prop-erty owners. But that law also waschanged, and, since 2003, the statedoes not pay interest on the money ituses primarily to help run the gov-ernment. And the state made the newzero-interest rate retroactive, whichChang said was illegal. A 9th Circuitjudge expressed his own thoughts onthe interest-rate change, and whatthe state does with unclaimed-prop-erty cash proceeds, at the Julyhearing. “You’re using somebodyelse’s money for free. You’re notgoing to use my money for free.You’ll pay interest if I give you any-thing,” he said, incredulously. “Youuse [unclaimed-property cash pro-ceeds] to pay your debt or to reducecosts of government or use it to paveroads or whatever you want; that’swhere it goes.”

In addition, the effort the stateexpends, and must expend by law, tonotify people whose property it hasseized has taken a similar path ofchange. The methods used to notifyindividuals that the Bureau ofUnclaimed Property has taken theirproperty have landed Westly and

others on his staff in court, facingmillions in damages. For example, inJuly, a 9th Circuit judge becameirate when Westly’s state attorney,Robin Johansen, argued that the con-troller’s often-publicized searchableWeb site of lost property satisfiedthe state and federal laws thatrequire the agency to try to find lostowners. “Wait a minute, wait.Through a Web site?” the judgeasked. “I don’t care about Californialaw; what I care about is federalconstitutional law.” One judge onthe three-judge panel also pointedout that property only is listed on theWeb site after it is sold by the state,leaving citizens virtually no opportu-nity to claim their property, in itsoriginal form, before it is sold.

As plaintiffs in one of the law-suits, Richard and Jo-Ann Seitzingerhave first-hand knowledge of theproblem. The Seitzingers ownedthree batches of General Electricstock, which they bought whenRichard worked for GE in the 1980s.Statements, and other correspon-dence related to the stock from GE,all were sent to the same address,where they had lived for more than30 years. About five years ago, how-ever, the Seitzingers weredumbfounded when their son calledfrom Kentucky to say he’d seen theirname listed on the Internet as havingthe cash proceeds of a stock salelisted as unclaimed property with thestate of California. Jo-Ann contactedthe controller’s office to try to findout how the state ended up with their stock.

“I wrote them a letter in August2000 because I was so upset aboutall this, and they just ignored us,” Jo-Ann told SN&R. “They wouldn’tsend us the stock. They said they hadsold it. They never contacted us—wewere never notified—and they knewexactly where we lived. They knewwe had been filing income-taxreturns in the state of California forover 30 years, and all they had to dowas call the Franchise Tax Board tofind out where we were.”

Like thousands of stockholdersthroughout California, the UnitedStates and even other countries, theSeitzingers have learned that stockowners can be declared “lost” if theyfail to cash a dividend check,respond to a proxy or voting state-ment, or simply have mail sent tothem returned to the company thatholds the stock for them. A 9thCircuit judge angrily summarizedthe problem at the July hearing:

“Look, if I buy a stock, and itdoesn’t pay me dividends, and Idon’t vote my shares, and it’s maybesomething like Microsoft—for yearsthey didn’t pay dividends—I’d loseit,” he said. “I haven’t changed myaddress in 32 years, and a lot of mystocks don’t pay dividends, and I

“BLING” continued from page 23

“BLING” continued on page 26

What’s in thevault?Like those who have held the post before him, stateController Steve Westly has used the unclaimed-property program of his office to generate mediacoverage by traveling the state handing out checks tolost-property owners. Last December, Westly publicizedthat his office had returned a rare Patek Philippe pocketwatch worth more than $1 million to its rightful owner.On the same tour, the controller showed off otherprecious heirlooms, such as an 88-carat blue-starsapphire ring, a Victorian ruby-and-diamond crescent-moon brooch, and 100-ounce silver bars.

Since the state sells and then spends the proceeds ofthe vast majority of the unclaimed property it takes in,SN&R wanted to find out what happened to the 88-caratring and other property. So on September 5, SN&R madea request under the California Public Records Act for,among other things, a list of the unclaimed propertyauctioned in 2005 and 2006 and the price each piece soldfor. The government is required to respond to such

requests within 10 days. That 10days came and went. After

some prodding by SN&R, thecontroller’s office implied therecords would be provided by

October 6. By press time, SN&Rhad yet to receive them.

In its 2003 audit of theBureau of Unclaimed Property,

the state auditorgave several

examples ofunclaimed

property auctioned bythe state. Louis XIV sterling-silver flatware was

auctioned for $897.62, anuncirculated St. Gaudens $20

coin was sold for $503.26, and agold-nugget tie tack and ring went

for $290.48.—Stephen James

“You’re using somebody else’smoney for free. You’re not going touse my money for free. You’ll payinterest if I give you anything.”

Judge on the 9th Circuit Court of Appeals

INSIDE | OPINION | NEWS | FEATURE STORY | ARTS&CULTURE | NIGHT&DAY | FILM | THEATER | DISH | WORDS | MUSIC | BACK OF THE BOOK | CLASSIFIEDS | OCTOBER 19, 2006 | SN&R | 25

ILLU

STRA

TION

BY

OCTA

VIO

DIAZ

Page 5: State Got Your Bling by Stephen James - Sacramento News and Review - Stephen James Investigative Journalism and Photography - Investigative Reporter Stephen James Reporter Silicon

never bother with proxies because Idon’t know or I don’t care. And boy,if any of my property has aCalifornia nexus, it’s gone.”

At the same court hearing,Johansen triggered even more ani-mosity from the three-judge panelwhen she admitted that, after thestate takes the stock, it makes noattempt to contact the owner unlessthe owners’ address it received fromthe company that holds the stock isdifferent from the stock owners’address on file with the stateFranchise Tax Board. In theSeitzingers’ case, and in thousandsof similar cases, it wasn’t.

The Seitzingers ultimatelyreceived a $1,318 check in paymentfor the stock that the controller’soffice sold in the 1990s. But theycontend that the amount is signifi-cantly less than the stock would beworth today had it not been sold.And that’s why they’re suing.

FFoorrmmeerr aauuddiittoorr bblloowwss tthhee wwhhiissttlleeThe most damning information onhow the state’s current process forhandling unclaimed property hasbeen changed over the years to workagainst property owners, like theSeitzingers, and serve to line thestate’s coffers is coming from asworn court statement provided inthe Taylor case by Daniel McKinley.McKinley’s the former chief auditorof the controller’s Bureau ofUnclaimed Property, and herecounted his first-hand experienceof how that process evolved over 25years until he retired in 2005. Duringthose years, he wrote, the processchanged from one that passivelytook possession of lost property andtried to find lost owners to one thataggressively seeks out lost propertyand makes a less-than-diligent effortto reunite it with its rightful owners.

When McKinley started workingfor the unclaimed-property divisionunder Kenneth Cory, who was con-troller from 1975 to 1987, in 1979, hewas told by his boss that the philoso-phy of the office was known as “fairplay.” Back then, that meant that thecontroller’s office did not use itsgovernmental power to force compa-nies to turn over “unclaimedproperty” until a company had veri-fied that a property owner was trulylost and unknown. “And second, butmost important, the objective was toprotect the rights of the owners, sowe went to great lengths to provideforms of direct mailing and publica-tion notice to the owners and usedthe locator unit,” McKinley attests inhis affidavit. The now-defunct loca-tor unit had full-time employees whotried to find lost property owners.

Stock certificates, in particular,were handled differently than theyare today. SN&R obtained an inter-nal memo that the controller’s officehas twice fought to suppress incourt. That memo reveals that in thepast, the unclaimed-property divisionheld—rather than sold—most stockcertificates until lost owners couldbe tracked down or came forward.The internal memo explains: “Therationale for this policy was due to

the fluctuation of the stock market,and by paying in certificate form,owners were not exposed to the situ-ation where we may have sold theirstock for $100.00 per share (forexample), and when they came toclaim, the stock had appreciated to$500.00 per share.”

That’s no longer the case. Theconcern-for-the-lost-shareholderpolicy was replaced with its extremeopposite: selling all stock shareswithin 30 days of taking possessionand putting the proceeds in thestate’s general fund to be spent.

According to McKinley, the turn-around accelerated when Gray Davistook over as controller in 1987. First,Davis cut back, and eventually dis-banded, the locator unit. Davis, whowas controller until 1995, alsochanged how the office attempted tofind lost-property owners throughnewspaper ads. The law required thatthe controller place ads listing thenames of each individual unclaimed-property owner in newspapersthroughout the state. The controlleralso was required to publish ads in thecounties of the last known address ofthe owners. Instead, Davis began run-ning generic ads that just said the statehad lost property and listed a toll-freenumber for people to call if theythought they had lost property. Theoffice also stopped providing direct-mail notification to stockowners, asrequired by law under Davis’ tenure,according to McKinley.

“At the time, we knew that the[ad and direct-mail change were]illegal and would harm propertyowners, because they would have noway to claim their property before itwas sold,” McKinley wrote. “The[controller] recognized that if properdirect mail and publication noticewas not provided to the owner, the‘revenue’ or the secondary purposeof the law would increase.”

26 | SN&R | OCTOBER 19, 2006

“BLING” continued from page 25

PHOTO BY LARRY DALTON

Now that he is safely retired, former Bureau ofUnclaimed Property Chief Auditor Daniel McKinleyhas turned whistleblower against his formeremployer. McKinley says the controller broke the law by seizing and selling off millions in supposedly unclaimed property.

The concern-for-the-lost-shareholder policy was replacedwith its extreme opposite: selling all stock shares within 30 days of taking possession and putting the proceeds in the state’s general fund to be spent.

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Johnstone Whitley—a plaintiff inone class-action suit against the con-troller—suspects that the statecontroller’s office still is increasingrevenues by not making a good-faitheffort to reunite owners with their“lost” property. “According to whatI’m hearing, they want to keep themoney in the state, and then they canuse it for whatever they want to dowith it,” he told SN&R. “They shouldbe open to giving it to whose it is.”

The long-retired Whitley, wholives at the Eskaton Village seniorcommunity in Carmichael, has beentrying, with his daughter’s help, toobtain copies of trust records from thecontroller’s office, which the officeacknowledges it has. Whitley con-tends that the records will show thatreal estate he owned was sold and theproceeds were delivered to the state.But the task of getting help from thecontroller has been daunting.Whitley’s daughter, Lynn Keith,reports her shock at being told by thecontroller’s employees that if shewanted to look at any public records,she needed to hire an attorney.

“When I went there with my hus-band, two supervisors I talked to atthe counter were not like, ‘Well, thisis your asset. We’ll help you.’ It waslike, ‘I don’t think you’re gettingthis—go get an attorney,’” she said.“I didn’t know you needed an attor-ney to see public records.”

They’re now suing to get moneythey believe Whitley deserves fromthe sale of his property.

DDaavviidd vvss.. GGoolliiaatthhWestly and Chivaro, the two keydefendants being sued by the stockand property holders who contendthey were wronged by the con-troller’s office, are backed up by thedeep pockets and massive resourcesof the state. For example, in theTrust Realty case, the defendant’sappeal brief lists four attorneys fromthe attorney general’s office whoworked on the defense of Westly

and Chivaro, including a “seniorassistant attorney general,” a “super-vising attorney general” and two“deputy attorney generals.” On theother side of the battlefield in thatcase and the other two cases, is justone man, local attorney WilliamPalmer. To learn more about the manwho has taken on the controller’soffice in these complicated lawsuits,SN&R sat down with Palmer at hisSacramento home office.

Palmer’s office is adorned withawards and photographs that seem todocument his career and reveal some-thing about who he is. On one wall isa framed photo of former CaliforniaGovernor George Deukmejian.Across the office, a low bookcasecovered with various awards alsoholds a book autographed by RosaParks, which Palmer said he wasgiven as a thank you for his pro-bonolegal work on behalf of Sacramentocommunity leader and minority book-store owner Carol McNeal. Abovethe bookcase hangs a framed letterfrom the former prime minister ofIsrael, Benjamin Netanyahu, thanking

the home-grown advocate for his probono work on the Holocaust insur-ance-reparations law, which returnedassets to Jews around the world.“Due in no small measure to thework of your office, those unable forso long to have their claims honoredmay now look forward to finallyobtaining what is rightfully theirs,”Netanyahu wrote.

Palmer also enjoys showing astack of snapshots from a two-monthtour of duty he did in Iraq earlierthis year, doing legal work at therequest of the federal government. Inthe photos, the attorney looksuncomfortable in the flak vest hehad to wear while traveling in thetumultuous country.

SN&R asked Palmer why hebelieves California effectively hasturned its unclaimed-property

PHOT

O BY

LAR

RY D

ALTO

N

Attorney WilliamPalmer (left) is suingCalifornia ControllerSteve Westly on behalfof Johnstone Whitleyand Lynn Keith.Whitley says theBureau of UnclaimedProperty refuses tohelp him claim moneythat belongs to him.

“BLING” continued on page 29

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program into an ATM for the stategovernment.

In his soft-spoken style, Palmerattributed the alleged misconduct ofthe controller’s office to the seem-ingly endless financial problems ofthe state: “They have cash-flowproblems, and this is one way thatthey resolve it. They have figuredout that this unclaimed property isbasically a profit center.” He sensesthat the economic condition ofCalifornia is essentially a house ofcards, ready to topple. “Things are alot worse than people think theyare,” he said. “Everything is kind ofglossed over. It’s an election year,and they downplay the deficits, andthey basically have tapped out everyfund that there is to spend. That’swhere things are.”

Naturally, each controller in therecent succession has blamed his orher predecessor for problems withthe unclaimed-property program.But Palmer alleged that unclaimed-property seizures have increaseddramatically during Westly’s tenure,even though he knew the methodsbeing used to bring in more propertywere illegal.

“He didn’t just continue the mis-conduct. He doubled-down,” Palmersaid. “He not only inherited a prob-lem, but he increased it twofold.”The attorney charges that Westlyignored internal reports, audits andcourt rulings that described the col-lection methods as improper, and letthem continue, which is why he andChivaro are being held accountableby the courts. “In the face of allthese stop signs and warning lights,

“BLING” continued from page 27

they just charged forward,” Palmercontended.

Westly did not respond toSN&R’s phone, e-mail and faxrequests for an interview. Westly’sspokesman, Russ Lopez, said that hecouldn’t talk about any of the pend-ing litigation.

But as these cases appear to bemoving closer to trial, the office, inthe meantime, has changed severalof its policies on how it handlesunclaimed property. And Lopezdescribed the changes to SN&R. Forone, the procedure of immediatelyselling off seized stock as soon as itcomes in the door has ended for thetime being. “That is on hold right

now,” Lopez said. “We’re not doingthat anymore. … We’re just holdingon to the [stock] certificates.”

The office also has changed itsnotification policy and now will mailnotices to stock and other propertyholders, even if the address associ-ated with the stock or propertyrecords is the same as the one on fileat the Franchise Tax Board. “We’rechanging our procedure. We’re goingto send out notices whether we finda new address or whether it’s thesame address,” Lopez said. Heemphasized that notices only will be

sent out when the controller’s officereceives property—after that, lost-property owners are on their own.“Once it’s in the system, by statutewe can’t go out and aggressivelystart calling people and lettingpeople know they have money [inthe unclaimed-property fund],” he said.

Lopez also said that the onlineauctions of safe-deposit-box con-tents, and other assets that thecontroller holds, temporarily are sus-pended. “We’re holding off until wehave resolution on some of thesecourt cases,” he said.

Chivaro takes issue with whistle-blower McKinley’s characterizationof the controller’s past and currentpolicies. “We don’t believe that he’scorrect in his analysis, and a lot ofwhat he says is pure hearsay,” hesaid. When asked to specify inaccu-racies in McKinley’s swornstatement, Chivaro punted: “I am notgoing to go into all of the areas atthis time, as that would reveal litiga-tion strategy. Suffice to say that it isbased on hearsay, opinion and specu-lation, rather than fact, and will, inall likelihood, be disregarded by thecourt as such.” Ω

“We don’tbelieve that[whistleblowerDanielMcKinley’s]correct in hisanalysis, and alot of what hesays is purehearsay.”

Richard Chivarochief counsel, California controller’s office