Crime: Former Industry city manager ordered to stand trial in $20 million embezzlement case

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Oct. 4—Former Industry City Manager Paul Philips, a lifelong municipal administrator who has led half a dozen cities in Southern California, will stand trial for allegedly assisting in a developer's scheme to steal up to $20 million in public funds from a proposed solar farm, a judge ruled Tuesday, Oct. 4.

Los Angeles County Superior Court Judge Michael Pastor determined probable cause exists for the misappropriation of public funds charge filed against the 71-year-old public official to go to trial. The ruling ended a 45-day preliminary hearing, stretched across eight months of on-and-off again appearances, that included an estimated 200,000 pages of evidence.

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Pastor denied attempts by Philips' defense team to have the case dismissed on statute of limitation and constitutional grounds. Philips' attorneys, Steve Cooley and Joe Weimortz, had argued the Los Angeles County District Attorney's Office filed the case too late and that Philips' rights were violated because the City of Industry successfully blocked several witnesses from testifying about decisions made in the City Council's closed sessions.

Probable cause is not a "factual finding" of guilt but rather a determination that an ordinary person, hearing the same evidence, is more likely than not to believe the charges are true.

"It is an exceptionally low standard and we believe his innocence will be proven," Weimortz said following the decision.

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Philips has previously served as the city manager in Industry, Bell, Covina, Maywood and other cities, as well as the deputy executive officer of the California Contract Cities Association.

3 others charged

The District Attorney's Office charged Philips and three others in September 2021 for their various roles in the alleged siphoning of funds from a failed proposal for a solar farm quietly bankrolled by Industry from May 2016 to December 2017.

The alleged scheme required Industry to fully fund a private developer's proposal to build solar arrays on ranch land known as Tres Hermanos that Industry had purchased decades earlier through its defunct redevelopment agency. Industry would then buy energy from the solar farm it built at higher-than-average rates, the prosecution alleged.

The developer, William Barkett, of La Jolla, is alleged to have altered or forged invoices to inflate his requests for reimbursement from the city. The proposal hit a $20 million cap in less than two years without a single shovel touching dirt. Only about $11.5 million of those payments were publicly approved by the Council.

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The Southern California News Group first revealed the existence of the secretive solar farm project in 2016 and later flagged questionable invoices. Prosecutors have said stories about the fallout over the project that appeared in the San Gabriel Valley Tribune in 2018 were part of the reason they launched their investigation.

Unfettered access to funds

Prosecutors allege Barkett had unfettered access to the funds through a limited liability "shell" company created solely for the proposal and spent more than $8 million on personal items, including a $2 million wedding for his daughter in the French Riviera.

Philips served as city manager throughout the time period in question and is accused of aiding the scheme by intentionally concealing it. Throughout the hearing, Deputy District Attorney Ana Marie Lopez described Philips as a key component in the fraud that otherwise could not have happened or continued for so long "unless he was a knowing participant."

She accused Philips of intentionally withholding information from the City Council, which had initially approved agreements related to the solar proposal in closed session and did not publicly vote on the matter for more than a year, to prevent them from discovering the scheme.

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"He controls the staff, he controls the flow of information and he controls the money," Lopez said.

Project hidden from public

The payments issued to the development company, San Gabriel Valley Water and Power, went through an abbreviated approval process to hide the financing from the public, Lopez said. Even though Philips had been hired as a reformer and, indeed, had shored up the city's policies around invoices for other projects, those reforms weren't applied to the solar payments, she said.

When employees and a contractor raised concerns about suspicious invoices, the arrangement with the developer was restructured into a loan so it would face less scrutiny.

"He didn't just relax the internal controls, he eliminated them," Lopez said.

The defense, meanwhile, painted Philips as an outsider simply following orders in an otherwise insular city controlled by its founding families. They argued the solar farm was a legitimate investment or, at worst, a "political boondongle," but regardless, Philips followed the direction of his employers, the City Council. There is no evidence Philips knew Barkett was skimming money, the defense argued.

"I think the only thing the people have proven is that Mr. Barkett misappropriated $8 million," Cooley said during closing arguments.

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Plan hatched in secrecy

The decision to back the solar farm on pristine cattle-grazing land straddling Chino Hills and Diamond Bar had been made during clandestine meetings months, and perhaps years, before Philips was hired, the defense said. A similar project in 2013 had been brought forward by Barkett and another of the defendants, Frank Hill, a former state senator turned power broker, but it had failed to garner the support of a prior City Council.

Hill, along with waste management scion David "Mayor Dave" Perez, organized a new slate of council candidates in 2015 and ousted nearly everyone who had opposed that earlier project. Testimony during the hearing revealed Hill and Perez's desire to restart the solar farm project first came out in preelection meetings with the three candidates that would go onto become a new majority.

Whether Philips was at those meetings, or whether he showed up later, was one contested sticking point during the proceedings largely because of one councilman's fuzzy recollection. Both sides pointed to the contradictory testimony as evidence to support their theories, though no definitive answer ever materialized.

After the election, Hill, whose ties to Industry go back decades, became the council's unofficial adviser and a company paying him became the city's engineering department. The final defendant, Anthony Bouza, an attorney with a conflict of interest due to a $1.5 million debt owed by Barkett, was later hired to negotiate the agreements with Barkett on Industry's behalf. Essentially, the alleged schemers controlled both sides of the deal until the City Council began raising its own concerns about the spending in late 2017.

Council members eventually fired Philips and anyone else they thought had ties to Hill.

Fired by council

Philips seemingly did not benefit financially from the scheme, according to the testimony. Bank records showed all significant transactions in his family's accounts were "from established and legitimate sources," which the defense argued shows Philips would have no motive to participate in the crime.

The prosecution alleged Philips owed $106,000 to CalPERS due to a prior overpayment and needed to keep his $275,000-a-year job in Industry.

Philips is scheduled to appear for arraignment Oct. 18. The other defendants, whose preliminary hearings haven't been scheduled yet, will next appear Nov. 9.

(c)2022 Pasadena Star-News, Calif. Distributed by Tribune Content Agency, LLC.

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