Illegal Payments Allegedly Known -- Von Reichbauer Aware Of Payments, Stewart Tells Panel

The Seattle business executive who admitted illegally funneling $60,000 to a city campaign said yesterday that Metropolitan King County Councilman Pete von Reichbauer knew about the payments.

Thomas J. Stewart, chairman and CEO of Services Group of America Inc., told the Seattle Ethics and Elections Commission that von Reichbauer "knew about the situation" last June when Stewart began making payments through intermediaries who were secretly reimbursed. The money supported a failed campaign last November to change the City Council from at-large representation to a district-based system.

Stewart gave a hazy account of his conversations with von Reichbauer, but said that as close friends they talk on a daily basis. Von Reichbauer is a former employee of Services Group of America.

Stewart said he told von Reichbauer about the concealed donations but didn't recall whether the councilman warned him they were illegal. "I don't know. Maybe he did. Maybe he didn't," Stewart, who runs one of the nation's largest privately held companies, told the commission.

Von Reichbauer denied that he knew anything specific about Stewart's financing of the campaign.

"I don't recall any conversation relating to financing, other than the fact that he wanted to support it (the campaign)," von Reichbauer said this morning.

"There was no indication of a subterfuge or anything," von Reichbauer said. Their conversations were philosophical, and von

Reichbauer said he told Stewart he favored electing representatives by district because it is "more beneficial to the neighborhoods."

Stewart declined to be interviewed.

Meanwhile, the chairman of the Ethics and Elections Commission, Timothy Burgess, said his agency is issuing new subpoenas for bank records in a widening probe of campaign fraud. He declined to identify targets of the probe.

"We have indications of similar contributions being made, where the identity of the donor was concealed," Burgess said, declining to elaborate.

State law prohibits concealing the identity of campaign donors and bars contributions of more than $5,000 within 21 days of a general election.

Burgess said he was "surprised that Mr. von Reichbauer didn't advise him (Stewart) or caution him that he was breaking the law."

Asked if the commission would subpoena von Reichbauer if necessary, Burgess said, "I'm confident that he'll talk with us without one. He's a public official."

Perhaps signaling the direction of the investigation, commission members asked Stewart if employees had to return some pay for use by the company's political-action committee.

He said no, but two former senior executives with Stewart's Food Services of America alleged in a 1993 lawsuit that "Stewart had a business policy . . . of forcing FSA executive employees . . . to contribute part of their compensation to Political Action Committees or political candidates in order to evade or avoid political-contribution laws."

In 1992, then Food Services of America President Kenneth Wagner and Paul Junker, chief operating officer, were fired in an apparent dispute over salary and equity interest in the company. Soon after, Wagner and Junker sued Stewart, claiming they had been wrongfully terminated and forced to kick back part of their bonuses to Services Group of Ameria's political-action committee.

In court documents, Wagner and Junker said they were told in 1990 and 1992 to contribute $1,000 each from company bonuses.

Describing what happened in 1990, Junker said: "When I had my salary and bonus review with (then Food Services of America president) Gary Walsh, he told me that my bonus would be $120,000, but he said, `You're going to see that your bonus is actually $121,000; you need to write a check back to the SGA PAC for $1,000."

Junker also said that in 1992 he received a $106,000 bonus, but was given to understand that $1,000 was to cover political contributions.

Wagner and Junker reached an out-of-court settlement with Stewart in 1993 concerning the allegations of coerced political contributions. Wagner declined comment on the settlement. Junker could not be reached.

On their claims of wrongful termination, Wagner and Junker were awarded $900,000 each by a jury.

Stewart makes himself felt in regional politics. Through his own money or through his company's, he gives large contributions to Republican candidates and other conservative causes. He also hosts the annual King County Republican picnic at his 167-acre estate on Vashon Island.

Services Group of America is one of the largest privately owned companies in the nation, but works hard to keep a low profile.

The company is a family of companies in the food-processing, workers-compensation-insurance, and real-estate development businesses. Services Group of America is a holding company for Food Services of America, Eagle Insurance Group and Development Services of America and other subsidiaries. It is thought to have about 3,000 employees.

According to the most recent Federal Election Commission records available, the Services Group of America Political Action Committee this year has given $26,500 to GOP congressional candidates, including $5,000 each to Rep. Rick White of Bainbridge Island, Rep. Jack Metcalf of Langley, and Rep. George Nethercutt of Spokane. An additional $4,000 has gone to Rep. Randy Tate of Puyallup, and $1,000 to at-large Alaska Rep. Don Young, an ardent defender of private-property rights.

Stewart is shown as contributing an additional $1,000 to Friends of Rick White, and $1,000 to Phil Gramm for President Inc.

Stewart has been unable to get city permission to land his helicopter at the Services Group of America's office on Delridge Way Southwest. "We were somewhat displeased with the way the city is governed," Stewart said in explaining his decision to secretly support the campaign to change how the City Council is elected.

"The intent was to not clutter the campaign with SGA and the helistop because the press likes to write about it," he said. He wanted to "let the voters decide how they want to be governed."

Burgess called the scheme "a premeditated conspiracy to flagrantly violate the election laws of the city of Seattle."

"This was an attempt to defraud the voters of the city and it came to light because of the professional diligence of our staff," he said.

Stewart agreed to pay $45,000 to settle the civil infractions. Lawrence Riggs, Services Group of America's president, admitted to participating and agreed to pay $15,000.

Stewart said he had not known the scheme was illegal. He said he had not made such donations in other Seattle campaigns but he declined to answer whether he had done so in noncity campaigns.

Burgess said, "It's not credible to me that two individuals who are very active politically and very aware of the political scene in Washington state can claim that they had no idea that concealing the identities of contributors was against the law. That is just not a credible claim."

Asked if he was suggesting that the pair had committed perjury, Burgess replied, "I'm not going to go that far at this point."

The commission yesterday asked the King County Prosecutor's Office to investigate for possible criminal violations.

Stewart's lawyer, Jim Hilton, had no comment when asked about criminal sanctions that Stewart or Riggs may face.

One of Stewart's senior employees, treasurer Greg Stevenson, serves on the finance committee of King County Prosecutor Norm Maleng's gubernatorial campaign and has donated $1,000 to Maleng's campaign.

Dan Donohoe, spokesman for the prosecutor's office, said Maleng did not think the matter presented a conflict. The Maleng campaign has not received money from Stewart, Riggs or the company, he added.

"At this point, we're waiting to receive the information from the ethics and elections commission," Donohoe said. "Once we receive it, we'll decide what action to take."

Information from Seattle Times staff reporters Peter Lewis and Susan Byrnes is included in this report.