Sleaze Saga

— With still another scandal rocking city government, have you ever wondered how San Diego got the chauvinistic sobriquet "America's Finest City"? It's a sordid story -- justifiably sullying San Diego, its government and establishment, as well as the Nixon administration.

In the late 1960s and early 1970s, San Diego was in the national headlines for business and government corruption and alleged fixes in high places (the Nixon White House).

This was a time when the city was run by businessman/banker C. Arnholt Smith and his sidekick, bookmaker John Alessio, whose family owned major pieces of Smith's holdings. Smith controlled a bank and a conglomerate (an odd agglomeration of companies) and also owned the San Diego Padres. He also was a buddy of Nixon's -- indeed, he was among the few who watched the 1968 election returns in Nixon's Waldorf-Astoria suite in New York.

The Rotary Club had given both Smith and Alessio "Mr. San Diego" awards. A San Diego Union writer had upped the ante, calling Smith "Mr. San Diego of the Century."

But sophisticated outsiders saw through Smith and Alessio. In 1969, the Wall Street Journal exposed the shaky, incestuous foundations of Smith's empire. But Smith had friends in high places: One federal bank examiner, realizing Smith's bank had problems, submitted his report and was transferred to Alaska.

In 1966, a Los Angeles- based federal organized-crime strike force began investigating police corruption, particularly cozy relationships with bookmakers. The strike force was interested in whether Alessio's Mexico-based bookmaking operation had connections with Las Vegas. Russell Alessio, one of John's brothers, was convicted of interstate gambling in support of racketeering. The U.S. attorney in San Diego was Ed Miller, and a major investigator was an Internal Revenue Service agent named David Stutz, now a deputy district attorney. Another key investigator was Richard Huffman, now a Fourth District appellate court justice.

The investigation eventually focused on Yellow Cab, a company that shortly before had been part of Smith's empire. After discovering how Yellow Cab was laundering political donations, Stutz concluded that it was the tip of the iceberg: Under Smith's direction, political contributions were being laundered by writing them off as business expenses.

By 1970, the strike force was assembling a case against Smith and several other San Diegans for conspiracy to violate federal tax laws and the Corrupt Practices Act. Republicans, led by Smith, were raising money in $2000 chunks for Nixon. Charlie Pratt, head of Yellow Cab, said he could not personally afford a sum that large. So it went on Yellow Cab's books as an expense. The $2000 donation was changed to a sum of $2068. "Pratt added $68 to represent the year 1968," recalls Stutz. "If it had been 1969, it would have been $69." The expense was supposed to be for a $2068 wage-and-salary study conducted by an advertising agency controlled by Smith.

After Nixon won the 1968 election and assumed office in 1969, Miller was replaced as U.S. attorney by Harry Steward. "Steward was a buddy of C. Arnholt Smith," recalls Miller, and was appointed by Nixon on Smith's recommendation, says Stutz.

So what happened when Smith's friend got Stutz's report on campaign money being laundered through a Smith-controlled ad agency? "Steward said, 'Knock it off,' " recalls Stutz. "He said that Smith got him the job and would make him a federal judge." Steward wouldn't permit Stutz to issue a subpoena for the head of Smith's ad agency to appear before the grand jury, recalls Miller.

According to a Life magazine report, "Tampering with Justice in San Diego," by Denny Walsh and Tom Flaherty, Smith was intervening with the Nixon administration, trying to get the Department of Justice off his back and also stop a tax-evasion probe into the Alessio family. The Alessio investigation did proceed, however, leading to guilty pleas from brothers John and Angelo, even though longtime Democrat John Alessio contributed a bundle to the Nixon campaign. But the brothers had an easy time of it at Lompoc, the bed-and-breakfast for white-collar criminals.

After leaving as U.S. attorney, Miller ran for district attorney. The incumbent "was a Smith guy who had been D.A. for 24 years," says Miller. The incumbent was leaving the post, but his deputy was running with Smith support. However, by this time (1970), even some establishment members were feeling queasy about Smith/Alessio's tightfisted control of the city. Even the San Diego Union wrote only a lukewarm editorial supporting the Smith candidate.

Miller won. The corruption investigation was moved from the federal government to the D.A. The primary focus became Yellow Cab. The probe of police corruption had led to the taxi company, because "the chief of police got a new car every year," courtesy of the company, recalls Stutz.

The cab company had been trying to get a fare increase approved by city council. Investigators got into the company safe and learned lots. Charlie Pratt of Yellow Cab, facing a stiff penalty, became a government witness. Stutz and his confreres learned that local politicians were getting illegal payoffs that were laundered through use of Mexican cashier's checks. "Charlie would take the cashier's check and hand it to politicians and say that the check could not be traced, and it would end up in Mexico," recalls Stutz.

An IRS official went to Guadalajara and brought the checks back. A grand jury returned conspiracy and bribery indictments against "The San Diego Nine" -- past and former councilmembers, supervisors, and the mayor and deputy mayor. In the end, all were acquitted, other than one who pleaded guilty to a misdemeanor.

Why the acquittals? In most cases, there was one major reason: The Nixon administration would not permit Stutz to go on the stand and present the Mexican cashier's checks and other evidence.

"When Stutz was precluded from testifying, I sent a hand-delivered letter to the Western White House, asking them to permit Dave to testify," recalls Miller. "What I got back was an incomprehensible letter from John Dean [of Watergate fame]. The letter gave no cogent reason why Stutz should not testify."

But after the acquittals, Richard Nixon called San Diego's Democratic mayor to congratulate him. The federal government told Stutz it was going to transfer him from San Diego for being a disruptive influence. He quit instead and went to work for Miller.

Steward had thwarted the investigation at several points, refusing to permit his friends to testify. Investigators appealed to Richard Kleindienst of the Nixon justice department. Kleindienst, who would later become attorney general, cleared Steward.

It was not widely known at the time that the Nixon administration was mobbed up. Nixon had made big bucks from mobsters and their front men for years. According to various investigative reporters, Kleindienst had assisted in the effort to soften or stop investigations into various Teamsters Union mob-tied officials.

According to investigative reporter Jeff Gerth, Kleindienst at Nixon's direction quashed a tax-evasion investigation into Morris "Mo" Shenker, a Teamsters and mob attorney. One of Shenker's buddies was San Diegan Irvin J. Kahn, who was developing local real estate with a potful of Teamsters money. The two once owned Murrieta Hot Springs near Rancho California, then a mob hangout.

Local street publications also took on the San Diego establishment. Marxist Herbert Marcuse had riled the state's conservatives with his presence at the University of California-San Diego. Lowell Bergman, who came to San Diego to study under Marcuse, followed the Smith/Alessio gang closely through these papers. "I didn't wind up in prison, as many people would have predicted in that period of time. And the people we were doing stories about did," Bergman said in a recent interview. Bergman went on to become a producer at TV's 60 Minutes. His work was chronicled in the movie The Insider.

And while all this was going on, San Diego -- which Nixon considered his "lucky city" -- had been selected as site for the 1972 Republican convention. But there were several problems: The city didn't have enough hotel rooms and many citizens didn't want it.

Then one of the major scandals of the Nixon administration broke: The conglomerate ITT pledged $400,000 to help underwrite the convention. ITT's Sheraton Harbor Island Hotel was to be convention headquarters.

The heat got too heavy. The Republicans pulled the convention out of San Diego. A young-looking Republican mayor named Pete Wilson blasted his party and, to boost city morale, named San Diego "America's Finest City."

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