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The Rocky Files

A mysterious investigation of City Attorney Rocky Delgadillo’s practice of hiring outside law firms to handle city business is being conducted by Diligence Inc., a private intelligence agency run by former CIA and British security agents, according to documents obtained by the Weekly.

The unusual probe comes as Delgadillo awaits a state audit examining his use of outside law firms, and as he gears up for his state attorney general campaign against Oakland Mayor Jerry Brown.

Last Thursday, Diligence associate director Gary Cohen of the agency’s Washington, D.C., office confirmed being hired by a Los Angeles–based law firm, which he declined to name. The goal, according to a letter by Cohen, is “to learn more about the process [of] how the City Attorney’s Office currently rewards contracts to outside law firms.”

Meanwhile, State Auditor Elaine Howle says her audit of Delgadillo’s use of outside law firms should be in by the end of January. The city has a long-standing practice of hiring private law firms, but the issue of rising costs and political connections has hounded Delgadillo, a former attorney with O’Melveny & Myers whose mentors include former Secretary of State Warren Christopher and former Mayor Richard Riordan.

After news reports last year exposed a spike in the city’s legal costs, the California Legislature approved the state audit, in August 2004. Howle did not have staff to move forward until last May, she said on Monday. The Diligence investigation is news to her, she said, recalling just one other time that such a parallel inquiry occurred. “Someone wanted their own work done to see if they agreed with our results,” Howle said, pointing to her office’s technology audit of Oracle Corp. in 2002. “Oracle hired someone to look over our shoulder. I wouldn’t call it an accepted practice, but it does happen.”

However, neither Howle nor a half-dozen sources contacted by the Weekly this week could say who is behind the Diligence investigation, the motive for it, or whether it involves what the company says it involves. Reached by phone last Thursday, Cohen, the agency’s associate director, stammered, “You might get a call from me or the client himself in a few weeks or a few months from now. I don’t know what the client wants to do with the information. I don’t know their plans.”

Founded in 2000 by former CIA agents and members of Britain’s MI5 Intelligence Service, Diligence is an intelligence-gathering and risk-management firm, with offices in Washington, New York, Miami, London, Brussels, Moscow, Berlin and Baghdad. Its advisory board includes former CIA director William Webster, former Bill Clinton chief of staff Mack McLarty, former George H.W. Bush deputy assistant Ed Rogers and former Washington Times editor Arnaud de Borchgrave.

The agency consists of ex-spies and consultants from the legal profession, the finance industry, investigative journalism and law enforcement. The key goal of Diligence, according to its Web site, is to help clients balance between “exploiting opportunities and protecting against risk.” This includes analyzing risks related to fraud, reputation and politics.

Diligence surfaced this fall when Cohen called former Assistant City Attorney Lynn Magnandonovan and asked to interview her, according to her attorney Michael King. Magnandonovan is embroiled in a wrongful-termination lawsuit against Delgadillo and the city for alleged discrimination and retaliation. She charges that Delgadillo approved her firing on specious grounds and advised the City Council not to convene a special committee to investigate the matter, as required by law. The city has paid more than $1 million in attorney fees to the firm of Baker & Hostetler in defending Delgadillo and former chief deputy Terree Bowers, according to the City Administrator’s Office. Because the City Attorney’s Office interviewed so many Los Angeles judges about Magnandonovan before firing her in 2002, the case has been moved to Orange County. Lawyers for Delgadillo have asked Orange County Judge Michael Hayes to dismiss the case. If Hayes rejects the request, a trial is set for January.

Alarmed by such an inquiry from a D.C.-based private investigator, Magnandonovan referred the call to King and his co-counsel Sam Wells. A letter from Cohen to King and Wells dated October 20 states that in looking into Delgadillo’s process for rewarding contracts to law firms, “we have combed the public record, including contracts currently on file with the City Budget Office for any leads. We are also interested in talking to you about your case, Magnandonovan v. Delgadillo.”

Cohen, in his letter, said he planned to be in Los Angeles the week of October 26. “I look forward to meeting with you,” he wrote. A date was set, according to King, but Cohen later canceled the appointment and never bothered to reschedule. “I was stood up,” King said recently. He said he was bothered by the direct call to his client, given that she is represented by counsel. And he questioned the motive of the inquiry. “My client would not know about the hiring of outside counsel,” he said.

Oddly, a Diligence agent named Garrick Tsui, managing director of the D.C. office, recently made a similar inquiry of former city employee Dan Carvin, who settled a wrongful-termination suit against the city for $490,000 in April. Carvin is a former Internal Revenue Service and MTA investigator who worked briefly for Controller Laura Chick in 2002. When Carvin sought to investigate the use of outside law firms in a major public-works lawsuit, Chick fired him, according to court papers. The Carvin case alone resulted in $530,000 in attorney’s fees paid by the city. “We spoke for 30 minutes a few months ago,” Carvin said on Monday. “[Tsui] said that his client was bringing some sort of action against the city. He wanted to know if I knew of any bodies and where they were buried, so to speak.” Tsui did not return calls for comment.

Carvin said he was unable to help Diligence. He said it occurred to him that the agency has some other agenda; he’s just not sure what it is. “You don’t get an agency like that involved because you don’t have anything better to do. I never question the extent to which people are conniving and looking to protect their political ass.”

Sources who have worked with Delgadillo speculated that the Jerry Brown campaign hired Diligence. On Tuesday, Brown campaign consultant Ace Smith, known as an opposition research expert, replied, “It’s not us. I’d have no problem saying so if it was. We have nothing to be squirrelly about. It sounds like a question that needs to be answered.”

Some former members of the City Attorney’s Office say the hiring of an investigative agency makes perfect sense — for the Delgadillo campaign. Answering a call at the Delgadillo campaign office in North Hollywood on Tuesday, Jennifer Kaminsky, a scheduler, said, “I know very little, and what little I know I can’t say.” Roger Salazar, press deputy for the Delgadillo campaign, replied, “I have no idea what [Kaminsky] is talking about. It sounds fishy to me. We’re not conducting any shadow audit.” Jonathan Diamond, a Delgadillo spokesman, said the City Attorney’s Office knows nothing about Diligence Inc.

Current and former members of the City Attorney’s Office acknowledge that the state audit could result in negative findings related to Delgadillo’s oversight of politically connected firms that do business with the city, particularly in the revenue-generating Department of Water and Power and at the port and the airport. “The use of outside law firms in nonroutine matters was an exercise in good judgment,” said one former member of the City Attorney’s Office. “But the auditor could find problems with who was chosen, how they were chosen and how often.”

On Monday, former members of Delgadillo’s office also recalled that Controller Laura Chick was gung ho about auditing the office until Assistant City Attorney David Michaelson produced a memo last January that said the City Charter prohibited it. (Michaelson was promoted this year to deputy in charge of the office’s Municipal Branch.) In the past, Chick has chosen unorthodox means of involving herself in the political arena, such as her private briefings before the March primary, in which she presented her findings against Jim Hahn to each of his challengers. After winning re-election, Chick asked Jerry Brown to swear her in, just before Delgadillo took his oath of office.

Chick did not respond to a written request and calls for comment. And for now, the mystery of the hiring of the D.C. spy agency remains unsolved.