Moorlach Decries Toll Deal Team

Orange County Treasurer John M.W. Moorlach called on the county to sever its ties to the legal and financial advisors for an Irvine-based nonprofit group, amid allegations that they did not fully disclose the group’s business ties when seeking to buy the 91 toll lanes.

At issue is whether NewTrac, the nonprofit buyer, concealed its relationship with the seller, the California Private Transportation Co., when it submitted applications to the Internal Revenue Service, Caltrans and transportation agencies from Orange and Riverside counties.

NewTrac needed IRS approval for nonprofit status, which would allow the group of businessmen to sell tax-free bonds to buy the 10 miles of toll lanes from Anaheim to the Riverside County border. Without such approval, the deal could not have moved forward.

The proposed $274-million bond deal was halted Wednesday by the state treasurer after Riverside County transportation commissioners voted to block the sale in court. On Monday, a delegation of Riverside and Orange County officials, including Moorlach, plan to ask Gov. Gray Davis to intervene and to open up the toll lanes for all to use.

In letters and government application forms, neither NewTrac’s bond counsel, Orrick, Herrington & Sutcliffe, nor financial advisor Sperry Capital mentioned that the California Private Transportation Co. came up with the concept of selling the toll lanes to NewTrac, helped identify its board members and then loaned the nonprofit $1 million.

Orrick, Herrington, which helped draft NewTrac’s application for nonprofit status to the IRS, checked the “no” box when asked whether NewTrac was “the outgrowth of (or successor to) another organization, or does it have a special relationship with another organization by reason of interlocking directorates or other factors?”

Also as part of the application to the IRS, the firm’s attorney Steven C. Malvey wrote: “The owners, directors and employees of [California Private Transportation Co.] have no business or family relationship with the expected officers, directors or employees of [NewTrac].”

However, in two other sections of the application, Malvey mentioned the ties. He wrote that a spinoff group of the California Private Transportation Co. was expected to provide day-to-day management of the toll lanes.

In fact, NewTrac has made it clear that it will hire back one of the owners as the toll road operator for at least five years. And Greg Hulsizer, the current toll road manager for the California Private Transportation Co., is to be hired by NewTrac to run the Express Lanes as part of a newly formed company called Co-Par.

Hulsizer and NewTrac officials did not return calls seeking comment, and Malvey declined to discuss the documents.

Sperry Capital helped fill out a Caltrans questionnaire seeking the state agency’s support of the sale. When asked on that document whether NewTrac had any pending loans, Sperry Capital’s James W. Martling wrote that the nonprofit had no lenders. In fact, NewTrac had already borrowed the $1 million, according to other documents and disclosures.

Martling declined to discuss the matter or the documents he submitted on behalf of NewTrac. Instead, he said that NewTrac Chairman Gary Hausdorfer, the former mayor of San Juan Capistrano, and his fellow board members are “prominent business leaders” whose efforts to run a toll road have been unfairly portrayed in the news media.

Orrick, Herrington and Sperry Capital have emerged as part of a possible financial team that would help the county figure out what to do with its $912-million tobacco settlement windfall. Moorlach told the advisory committee overseeing the distribution that he had “serious reservations” about using either firm.

“Their participation in the NewTrac acquisition of the 91 Freeway toll lanes has reduced their integrity and credibility to zero,” Moorlach wrote in a memo Friday to members of an advisory committee, scheduled to vote Monday on whether to hire the firms.

“I do not condone the stealth tactics that they used to perpetrate a potentially harmful bond financing transaction on the citizens of Orange County,” Moorlach wrote.

Deanna Hodgin, a spokeswoman for Orrick, Herrington, said the firm was “puzzled” by Moorlach’s memo but otherwise declined to respond to Moorlach’s charges. She said there was a full disclosure of ties between the two entities.

“Orrick is confident that the IRS application contained a complete and accurate description of the planned activities of the nonprofit corporation,” Hodgin said.

Orange County Supervisor Todd Spitzer said he is “deeply disappointed” by NewTrac’s failure to disclose its $1-million loan and close business ties when soliciting the support of the Orange County Transportation Authority. OCTA wrote an endorsement letter to the IRS in support of NewTrac’s application for nonprofit status.

“Our support was contingent on this being an arm’s length transaction,” Spitzer said Thursday. He also said that NewTrac had initially wanted a confidentiality agreement with the government agencies it dealt with--but Spitzer refused.

“They wanted a veil of confidentially in all of their dealings,” Spitzer said. “NewTrac was designed from the get-go to not have a tremendous amount of public oversight.”

An IRS spokeswoman would not discuss the specifics of the NewTrac application. And she would not disclose whether the federal agency was investigating NewTrac.

“If they submitted an application that contained incorrect information, or if the form wasn’t complete--if information had been left out--then the [IRS designation giving the group nonprofit status] would be null and void,” Rosalind Kochmanski said. “They would no longer be a tax-exempt entity.”

Times staff writer Jeff Gottlieb contributed to this report.