Fraud Unit Cut a False Economy, City Data Hints

The decimation of the San Diego city attorney’s consumer fraud unit cost local, county and state government $250,000 in potential revenue from fines in 1989, and has created the possibility that no penalty money will be generated in 1990, city officials say.

The unit handled a monthly average of 2,400 consumer complaint calls until its staff was halved by city budget cuts in June. It has not produced a single penalty judgment since August, after generating a record $415,000 in fines against businesses during the first eight months of 1989, according to a Dec. 6 memo written by William Newsome III, head of the unit.

A $375,000 cut in the budget for City Atty. John Witt’s criminal division led to a reduction of the fraud unit’s staff from nine to four, ending on July 7 the unit’s program of fielding consumer complaints by telephone. One attorney, two investigators and two legal secretaries were transferred, Newsome said.

The change meant almost total abandonment of civil cases in favor of the misdemeanor criminal cases that are referred to the fraud unit by other agencies such as the state Department of Health Services, Newsome said. Consumers calling the fraud unit now receive only a recorded message referring them to state and county agencies.

To the extent that the county district attorney and state attorney general’s offices cannot intervene, the cuts also leave city consumers with virtually nowhere to seek help with complaints of false and misleading advertising, charity fraud, landlord-tenant fraud, automobile rental disputes and many other kinds of rip-offs, Newsome said.

“It’s an unfortunate by-product of the ever-increasing demand on prosecutor’s offices to deal with day-to-day street crime,” Newsome said of Witt’s decision to slash the fraud unit’s staff while retaining other prosecutors. “Would you rather be ripped off or would you rather be bumped off? Given that choice, I guess I’d rather be ripped off.”

But the work done by the fraud unit draws favorable reviews from county officials.

“In the past couple of years, there have been very significant consumer actions that they’ve brought that showed they were doing their job,” said Anthony Samson, deputy district attorney in charge of the district attorney’s fraud division.

The June budget cut was part of the city’s effort to raise money to add 116 police officers to its force for fiscal 1990. (The council did, however, add $1.96 million to Witt’s budget to hire private attorneys and consultants to oppose the merger of San Diego Gas & Electric Co. and Southern California Edison.)

“Right now, no cases are pending, because we haven’t been able to take in cases,” Newsome said. “It wouldn’t be outside the range (of possibility) to say that the prospect is zero for civil cases in 1990.”

With city budget deliberations for fiscal 1991 beginning, the city attorney’s office will ask City Manager John Lockwood to restore the two attorneys, two investigators and a secretary stripped from the fraud unit during the budget cuts, said Stuart Swett, senior chief deputy city attorney in charge of Witt’s criminal division.

Lockwood said it is too early in budget deliberations to weigh the fraud unit’s request against competing desires of other city departments.

As it did in June, the city attorney’s office wants the council to consider that the fraud unit is nearly self-sustaining. Before the budget cuts went into effect July 1, the nine-member fraud unit had a budget of $393,195, but brought in $219,411 in revenue to the city during the first eight months of 1989 alone, according to Newsome.

Today, with a budget of $216,331, a staff of four, and no consumer complaint staff, the fraud unit probably will bring in nothing in 1990. Under state law, fines and penalties brought in by the unit are split about evenly with state and county governments.

“Through the budgetary process, we will be hoping to convince the City Council that it makes sense” to restore the fraud unit to full strength, Swett said. “We are doing very little civil work because the criminal work we have to do takes up most of the time and resources we have,” he added.

In his memo, Newsome estimated that, without the budget cuts, the fraud unit could have recouped $666,315 this year in civil judgments against area businesses. Instead, it will earn $249,868 less, he wrote. More importantly, while the city budget cut saved $176,864, the loss of staff will cost the city slightly more than $131,000 of the $249,868 in lost revenue--meaning that the cut saved the city no more than $45,000, according to Newsome’s calculations. The rest would have gone to state and county agencies.

This year’s revenue includes $140,000 paid by five large grocery store chains to settle civil claims brought by the fraud unit that the stores were offering “unlimited” double coupons to customers but placing limitations on their use. The complaint was generated by a consumer’s call.

Last year, the fraud unit garnered $250,000 in penalties from the Nissan Corp. for misleading car buyers about the amount of leather in the seats of its sporty 300 ZX automobiles. The company, which admitted no wrongdoing, also agreed to pay $4.6 million in rebates to the 26,500 Californians who bought the cars new before Aug. 1, 1987.

The case began when a consumer who had gone to get his seats repaired by an upholsterer learned that the bolsters, or reinforced side parts of his car seats, were simulated--not genuine--leather.