Tax Group Guilty of Campaign Violation : Courts: Judge also scolds Howard Jarvis organization and political consultants for fund-raising tactics.

An Orange County Superior Court judge has criticized the Howard Jarvis Taxpayers Assn. and two of California’s best-known political consultants for “hoodwinking” the public with fraudulent fund-raising tactics in the 1980s.

Superior Court Judge Donald E. Smallwood said this week that the anti-tax Jarvis group, along with consultants William Butcher and Arnold Forde, raised money from the public under false pretenses to put more than $1.5 million into the consultants’ pockets.

“There is something terribly wrong when huge sums of money can be raised in the course of political campaigns, transferred to a parent or sponsoring organization and then funneled back to the political consultants,” Smallwood wrote.

Smallwood’s scathing assessment of the mid-1980s fund-raising techniques of the tax-fighting Jarvis group and Butcher and Forde capped one of the county’s most complex and secrecy-shrouded legal cases.

The judge wrote that although he found the conduct of Butcher and Forde “reprehensible” and they had “facilitated” campaign reporting violations by the Jarvis group, they could not be held liable under the Political Reform Act.

But Smallwood found that the Los Angeles-based Jarvis group had violated the act by not reporting more than $624,000 spent and $738,000 raised during one direct-mail campaign launched six days after Jarvis’ 1986 death. The feisty Jarvis led the campaign that resulted in passage of tax-cutting Proposition 13 in 1978.

The judge’s decision came in a lawsuit brought in 1988 by Paul McCauley, a Sherman Oaks accountant. McCauley charged that the Jarvis group, then known as the California Tax Reduction Movement, should have regularly disclosed where it was getting its money and how it was being spent.

Also contested was whether Butcher-Forde Consulting was the Jarvis group’s “de facto” treasurer and therefore financially liable for any campaign reporting violations.

Smallwood awarded McCauley $300,000 plus six years worth of attorneys’ fees and ordered the Jarvis group to deposit $300,000 in the state’s general fund as required by the Political Reform Act. The penalty is one of the largest ever levied in a civil suit brought by a private citizen under the act.

“This case cried out for a public hearing,” said McCauley who, with attorney Anthony Kornarens, spent six years poring over the Jarvis group’s books. “They thumbed their noses at the law, and they’re paying a very steep price for it. As far as Butcher-Forde’s concerned, I think the judgment itself is a heavy indictment of their conduct.”

Butcher-Forde and longtime associate Stu Mollrich are coordinating the campaign for passage of a June 27 ballot measure that would boost Orange County’s sales tax by half a cent. Smallwood’s decision is unrelated to the consultants’ work on the sales-tax proposal.

An attorney for the Jarvis group, Lawrence J. Straw, said he was pleased overall with the decision because Smallwood found only one violation of the Political Reform Act out of 30 campaign transactions at issue.

However, Straw said the penalty for the one violation was unfairly high. He stressed that the Jarvis organization was run on a shoestring during the mid-1980s and perhaps relied too heavily on Butcher and Forde to decide what was right.

“The judge said the treasurer (that the Jarvis group) went out and hired let them down, and that Butcher and Forde were playing things close to the line,” Straw said. “The people they were relying upon really let them down.”

Butcher’s and Forde’s attorney, David Elson, said his clients were pleased because “they frankly felt all along that there was no basis for having them in this case for campaign reporting violations.”

Elson said he did not attempt to rebut the portrayal of his clients in the case because, “frankly, we didn’t believe (Butcher’s and Forde’s conduct) was material to what was being tried.”

The case has already been to the 4th District Court of Appeal five times and has been wrapped in secrecy for much of that time. For four years, the hundreds of pleadings, motions and depositions taken in the suit--enough to fill a pair of three-drawer file cabinets--were mysteriously locked away in the basement of the Santa Ana courthouse. No one seems to know who sealed the suit, and no one can find a court order declaring it secret.

Smallwood unsealed the documents after The Times first wrote about the suit in November.

Smallwood found that the Jarvis group had violated the Political Reform Act during a 1986 campaign that hinged on a letter sent out after Jarvis’ death. The black-bordered letter pleaded for cash to pass Proposition 62, an initiative to shore up Proposition 13. It was signed by Jarvis’ widow, Estelle, but was written by Butcher-Forde.

None of the $738,097 raised went to the Proposition 62 campaign, according to testimony by the group’s treasurer, Costa Mesa attorney Dana Reed. Instead, the money went into the Jarvis group’s general account and was not reported, Reed testified.

After examining a series of the group’s fund-raising campaigns from 1984 to 1988, Smallwood wrote that it was well established that the Jarvis group and Butcher-Forde sent out “debt reduction” letters in the closing days of campaigns when no debt existed. Some of the letters yielded revenues from which Butcher and Forde were paid a $1.5-million bonus.

These campaign committees would then donate the surplus money to the Jarvis group, which did not file campaign reports detailing how the money was spent, according to court documents.

“If the funds received and expenditures made were properly reported (by the committees), then the underlying deceit is an abuse which must be accepted,” Smallwood wrote.