Schwarzenegger's Vast Empire Questioned

By Harrison Sheppard and David M. Drucker, Sacramento Bureau

SACRAMENTO -- Gov. Arnold Schwarzenegger sits atop a vast empire of multimillion-dollar real-estate holdings, stock investments, production companies and miscellaneous businesses.

He owns everything from part of a mall in Ohio to residential and commercial property throughout Los Angeles County. And, of course, there are his leased private jets.

But while a recent controversy over an $8 million deal Schwarzenegger had with a bodybuilding magazine may have been resolved, critics say many of Schwarzeneggers' investments and sources of income continue to represent a potential minefield of conflicts of interest.

And a Santa Monica-based watchdog group is alleging that Schwarzenegger has acted in favor of 10 bills supported by six different companies with which he has a financial relationship.

"This guy is not just a capitalist, he's an opportunist," said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights. "If he's got opportunities to make money, he'll do it."

The group, a frequent critic of the governor, is calling for legislative hearings to probe more deeply into the governor's finances.

"The Legislature needs to dig," said Court. "There's no problem if there's nothing there to find, but what's the problem with looking?"

In most cases, the bills identified by the foundation were related to the entertainment industry, which remains a major source of residual payments for the governor.

One bill opposed by the industry that Schwarzenegger vetoed last year, for example, would have required companies to disclose more information about outsourcing and offshoring jobs from California.

Several of the bills also related to the insurance industry, including an overhaul of workers' compensation he signed last year.

Schwarzenegger's company Oak Productions listed Zurich American Insurance as a source of income but did not disclose the amount or the exact nature of the relationship.

His past financial disclosure forms have also reflected holdings of insurance company stocks in the range of $100,000 to $1 million.

Schwarzenegger spokesman Rob Stutzman said Zurich was only listed as a source of income because the company paid an insurance claim to Oak Productions, not because of any permanent financial relationship.

And the amount of residual payments Schwarzenegger receives from the movie industry are not affected by the bills he has signed that relate to the industry, Stutzman said.

Trying to connect those financial ties to his decisions on legislation is an "absurd" stretch, Stutzman said.

"His legislative secretary (Richard Costigan) is aware of what his interests are and is able to evaluate if there's ever a potential conflict and advise him of that," Stutzman said.

In an effort to avoid such conflicts, Schwarzenegger placed all of his assets into a blind trust when he took office, meaning he has no control or knowledge over most of the decisions made on his investments by the trust officer, his longtime financial adviser Paul Wachter.

The blind trust has served to hide Schwarzenegger's investments from himself and also from the public. Much of the detailed public information about his holdings still comes from forms he filed in 2003 when he was running for governor.

That has raised the intensity of questions when disclosures do arise, such as when the public first got a look at terms of the governor's deal with a bodybuilding magazine through corporate filings by American Media Inc.

The filings with the Securities and Exchange Commission showed the company had a contract with Schwarzenegger that could be worth up to $8 million over five years.

The deal involved Schwarzenegger writing a column and serving in name as an editor of two of the company's fitness magazines. Schwarzenegger himself had never previously disclosed the amount of money involved in the deal.

Critics said that when the governor vetoed a bill that would add new regulations to the nutrition supplement industry, it was a financial conflict of interest because his magazine deal was tied to advertising revenue the magazines received much of which comes from the supplement industry.

Without admitting he acted improperly, Schwarzenegger decided to forgo revenue from the companies, although he continues to write for them.

For now, Assembly Speaker Fabian Nuez, D-Los Angeles, said he sees no need for legislative hearings on possible conflicts of interest by the governor because Schwarzenegger gave up the income from the magazine deal.

Still, experts say Schwarzenegger's problem is a common one faced by wealthy people who run for or hold office, such as former Los Angeles Mayor Richard Riordan or businessman Al Checchi, who ran unsuccessfully for governor in 1998.

Such individuals often have a complex web of business holdings that can't help but overlap with government business.

"A politician is going to step directly on a mine, and suffer grievous political injury, if not permanent injury, if he or she holds interest in an entity that is directly affected by an action they're going to take," said Darry Sragow, a political consultant who ran Checchi's bid for the Democratic gubernatorial nomination.

"Being wealthy is something that creates a lot of questions on the part of voters because a wealthy person has to overcome the notion that they don't understand ordinary people," Sragow said. "If you can overcome that presumption, then you've got to confirm that in fact, you are doing what's best for the people, and not what's best for yourself."

And when a public official has a web of complicated holdings, it can lead to scrutiny every time he makes a decision that affects an industry in which he might have a financial interest.

Good-government advocates argue that the more disclosure, the better so even if a politician can't avoid a conflict, at least the public knows about it.

Public officials, who make decisions affecting millions of people and billions of dollars, should be subject to far greater scrutiny than the average citizen, they believe.

"If you want to be a politician, your life is an open book," said Robert Stern, president of the Center for Governmental Studies, a Los Angeles-based watchdog group.

Harrison Sheppard, (916)446-6723


Among Gov. Arnold Schwarzenegger's vast investments are 17 companies he owns or has major interests in, according to financial and property records. Some highlights:

Various business entities own more than a dozen residential and commercial properties throughout Los Angeles County valued at about $30 million. That includes commercial property in Santa Monica and Venice, his personal home in Pacific Palisades and vacant desert land he bought near Lancaster decades ago on speculation of a major airport development.

Oak Productions: The primary holder of his film rights, it receives income from at least 21 companies, mostly in the entertainment field, such as Warner Bros., Sony Pictures Entertainment and Universal Studios.

Fitness Publications: Publishes fitness books and holds trademarks.

Main Street Plaza and 812 Main Street: Commercial real estate ownership, mostly in Venice and Santa Monica. Receives income from tenants such as Adidas, Schatzi on Main and Sparky's Yogurt. Also, through a legal technicality, receives income from the governor's political committee, Californians for Schwarzenegger.

Starbucks: The governor owns more than $1 million in stock in the coffee retailer, plus rents commercial space to one of its franchises.

CellGuide Ltd.: Through an investment partnership, he owns between $100,000 and $1 million in stock of this company, which develops location software for cell phones.

Easton Town Center: The governor has invested more than $1 million in this mall in Easton, Ohio.

By Harrison Sheppard

See the article on Los Angeles Times website

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