Updated after the jump: Nick Pacheco responds, says his firm did not reimburse employees and that the accuser has a history of retaliating against employers.

A man who worked for Rudy Martinez supporter Nick Pacheco says the former city councilman's company had employees write checks to Martinez's City Council campaign and then reimbursed them.

In fact, says Carlos Lira, he and his wife, both employees of Pacheco's law office, were told to each write $500 checks and were each reimbursed about half that amount.

In what looks like some admittance that something wasn't right with the payments, Martinez returned $6,000 in contributions recently. Checks by Lira and his wife are listed among the returned funds.

Lira said a partner at Pacheco's business told him and his wife, who was the office's customer service manager, to contribute.

“He asked us to write $500 checks,” Lira, the former office manager, told the Weekly. “He said I need you to contribute more money — do you have another checking account?”

Lira's check to Martinez's campaign.

Lira's check to Martinez's campaign.

Lira said the returned money is all connected to Pacheco's firm. Pacheco, a rival to Huizar ally and Mayor Antonio Villaraigosa, once held the same Eastside council seat as the mayor and Huizar.

Individual contributions to council campaigns are limited to $500 per person, and having employees contribute only to be reimbursed is against the law.

We called the city Ethics Commission but couldn't reach a spokeswoman. A call to the Nick Pacheco Law Group went unreturned. (Pacheco's firm specializes in the not-so well-regarded business of home loan modification home-foreclosure litigation. A video on the firm's site touts “foreclosure defense.”).

Asked about the contributions, Martinez's campaign sent us the same statement it sent to the City Maven blog, which earlier this month broke the news about checks being returned:

We are committed to transparency and running an ethical campaign. Despite the fact that we were never asked to return the contributions, we did so proactively. The city Ethics inquiries are only into the contributors and not our campaign. Once Ethics finalizes their inquiries, we will be more than happy to take those contributions back.

Martinez is running a Cinderella campaign that involves some of his own money as a house flipper and reality show star. It's a fairly serious challenge in a game where challengers are dispatched by incumbents like Andy Dick trying to get past the velvet ropes.

Huizar campaign manager Parke Skelton states:

“The obvious suspicion is that these contributions were illegally reimbursed … which is a crime. It strains credulity to believe that paralegals, office managers, legal assistants and office clerks in Pacheco's law firm, none of whom lived in Los Angeles, would be making $500 contributions, the largest allowable under city law, to Rudy Martinez. Rudy Martinez needs to disclose every check associated with Nick Pacheco his largest backer, return those checks and apologize to the voters of the district for aiding a criminal activity.”

Lira, who says his former employers held his wife's immigration status over him as a way of controlling the couple in the office, said he was fired in December after complaining about unrelated matters.

Specifically Lira said he was concerned about the way customers' home loan modifications were being handled and that some homes were being lost even as the firm vowed to help. His wife, who is undocumented, was also fired at the same time, he said.

The reason given: That Lira helped to hire an undocumented worker — his wife.

A supervisor “always held the issue of my wife's immigration status over me,” Lira. “He always promised he would help her out.”

Ironically, Lira claims, the office has other undocumented workers. And, he says, he was hired by Pacheco's firm after his wife was.

The 39-year-old was denied unemployment insurance payments, he says, because Pacheco's office claimed he was fired for cause. He plans to appeal.

Lira said he filed a complaint about the contributions with the city Ethics Commission.

Update: Pacheco responded after we posted this story at 2:38 p.m.

First, he says his firm does not specialize in loan modifications but rather in challenging bank foreclosures “through litigation.”

Second, he says his firm has nothing to do with illegal contributions and reimbursement. He forwarded us a cease-and-desist letter he wrote to Skelton of Huizar's campaign demanding that he stop making the allegations:

“I would never allow the law firm to violate the ethics laws. For the record, NO law office, firm or law group with my name reimbursed any campaign contribution. Also, I did not personally reimburse any campaign contribution to any candidate. And finally, my campaign contribution was not reimbursed by anyone.”

Third, he forwarded us another letter in which he has argued that Lira has a history of “going after prior employers.” He gives examples which he says show Lira retaliating against employers he was not happy with.

In the letter he also admits that Lira's wife was “unable to provide employment eligibility documents” — that she was undocumented. (Why did he hire her and keep her on for months?).

Pacheco states that he's “exploring all my legal options” vis-a-vis Lira.

Added on Thursday afternoon: Pacheco responded to the issue of having an undocumented worker on his staff. He said Lira was responsible for maintaining documents for new hires and that when a review of employee records turned up his wife as not having legal-to-work papers on file he followed the law.

That review, in which employees had to update their legal-to-work documents, turned up no other undocumented workers, he said.

Pacheco also wanted to emphasize that the checks written to Martinez's campaign had nothing to do with him or his company. He notes that the man who Lira says encouraged workers to contribute and then reimbursed he and his wife is not at employee at his firm but that he is a consultant who has his own company.

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