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Fall Gal 

A money-laundering scandal may have helped bring down former Secretary of State Kevin Shelley. But indicted political maven Julie Lee stands to pay the ultimate price.

Wednesday, Nov 22 2006
In the autumn of 2000, the more than 600 people crammed into Chinatown's cavernous Meriwa Restaurant for a dinner hosted by the venerable San Francisco Neighbors Association heard community activist and political maven Julie Lee deliver some exciting news. After years of false starts, a resource center to serve the burgeoning Chinese-American community on the city's west side — something many in the audience had long agitated for — was about to be realized.

But Lee wasn't the only bearer of good news.

At her side (and the main attraction) was then-Assemblyman Kevin Shelley, who a short time earlier had helped procure for an obscure group formed by Lee and a few others a $500,000 state parks grant as seed money for the center. Lee, a Shelley ally whose fundraising proclivities were soon to play an important role in his successful bid to become California's secretary of state, made sure that her high-profile political guest basked in the glory.

A giant cardboard replica of a half-million-dollar check — which Lee personally paid to have produced — was trotted out from behind the dais, and the crowd erupted in applause as Shelley ceremoniously presented it to her.

Few could have realized that the object of the evening's fanfare would figure in one of California's most spectacular political meltdowns. Shelley, once a rising star in state politics and the son of the late former San Francisco Mayor and Congressman Jack Shelley, resigned in disgrace as secretary of state last year, in part because of a money-laundering scandal in which funds for the resource center wound up in the coffers of his successful 2002 campaign.

The center was never built. Lee's group, the San Francisco Neighbors Resource Center (SFNRC), was disbanded, its assets seized by the U.S. Attorney's office. And in what may be the final act of an unsavory political morality play, Lee goes to trial in January to face an array of felony charges that she illegally funneled money to Shelley and lied to cover it up.

Lee is on the hook for eight felony counts from a joint state and county prosecution, including grand theft and embezzlement of the grant funds. Prosecutors contend that she persuaded several people who've agreed to testify against her to make large contributions to Shelley, and reimbursed them with $125,000 from the grant.

She is also accused of persuading two home buyers for whom she was acting as a real estate agent to contribute $50,000 and $30,000, respectively, to Shelley as an off-the-books part of the purchase price of their homes. Although counted among the former secretary of state's most generous donors, each later told authorities that they didn't even know who Shelley was.

On the federal side, Lee faces mail fraud and witness tampering charges for allegedly falsifying documents sent through the mail to justify the center's expenses and telling several people through whom funds were purportedly laundered to lie to investigators.

Shelley's once-luminous political career is in tatters, nearly 21 months after resigning as the state's top election official. At the time he stepped down, he also faced embarrassing scrutiny for allegedly mistreating his staff and for his office's mishandling of millions of dollars in federal voter-outreach funds. Although a half-dozen state and federal entities were said to be investigating him when he left office, Shelley was never charged with a crime. He has proclaimed that he knew nothing of the alleged money-laundering scheme.

While declining to discuss Lee or the alleged campaign irregularities, the former secretary of state, in his first media interview since leaving office, tells SF Weekly that his life has "finally returned to some level of normalcy" after what he calls the "feeding frenzy" surrounding his departure from Sacramento. The man who at one time was often mentioned as a future governor is now practicing law out of his Glen Park home and doing political consulting for Platinum Advisors, the well-connected San Francisco-based lobbying group headed by Darius Anderson, the former chief fundraiser for ex-Governor Gray Davis.

Indeed, Shelley's friends in high places appear to have come through for him in a big way. Records show that a who's who of Democratic politicians, led by former state Sen. John Burton and Assembly Speaker Fabian Nunez, helped him raise more than a quarter-million dollars for a legal defense fund that even Shelley's lawyer, criminal defense attorney Matt Jacobs of Sacramento, says appears no longer to be needed.

Yet the zeal with which state and federal prosecutors have pursued Lee — who could face up to 44 years in prison if convicted of all the charges against her — compared to Shelley's relatively soft landing, has ruffled feathers within the city's Chinese-American community. In a milieu in which Lee had become a household name as a political mover-shaker, she is widely perceived to have been unfairly singled out for prosecution in the Shelley affair, regardless of whether people believe she is innocent or guilty.

A half-dozen people have been granted immunity in exchange for their cooperation in the case against Lee. They include Jeffrey Chen, her former business associate and legal adviser, and Bowman Leong, a former Lee crony who told a grand jury that he personally handed Shelley a $25,000 campaign check that prosecutors say was reimbursed from the same funds Shelley helped procure for the center.

"There's a sense that two different standards are being applied, and that Julie is being treated unfairly," says community activist Sonia Ng, who once worked closely with Lee and later parted company with her.

Attorney and longtime activist Edward Liu echoes that opinion. "Julie Lee didn't financially benefit from any of what they're accusing her of doing," he says. "Without assigning guilt or innocence, I think it's helpful to look at who benefited from her alleged misdeeds. Wasn't that Kevin Shelley?"

There were days when Julie Lee's name was in practically every city politician's Rolodex, when she could assemble a small army of supporters with a few phone calls. But you wouldn't know it from the bewilderment and even despair she projects as an accused felon. "I feel like I'm an easy target, that I've been made a scapegoat," she says, speaking by phone from her home on the west side.

Since being indicted on state and federal charges, the 60-year-old Lee has resolutely avoided the press. That she agreed to an interview for this article — against the advice of her attorney — may be reflective of her predicament. After endless months of having her name dragged through the mire and with her trial only two months away, she's eager to convey a message: "I'm not the evil, corrupt person that I've been made out to be."

When Lee's world collapsed amid charges of money-laundering in connection with the Shelley campaign, it was widely anticipated that she might turn star witness in a probe of the former secretary of state. Press reports that described her as uncooperative with authorities fueled such speculation.

But the reality was different.

Neither the state nor the feds ever sought to make any deals with Lee when it came to investigating how grant money for the ill-fated center found its way into Shelley's campaign. Instead, as Ronald Smetana, the supervising deputy attorney general in the state's case against her, told grand jurors, Lee was the target.

Lee's association with Shelley dates to 1997, when she and the San Francisco Neighbors Association (SFNA), which she co-founded, took up the battle to save the Central Freeway, which was slated for demolition after being damaged by the 1989 Loma Prieta earthquake. Shelley was a newly elected assemblyman eager to harness the support of SFNA. The group had earned its political chops by turning back former Mayor Frank Jordan's plan to restrict the remodeling and expansion of small houses in the Richmond and Sunset districts known as "Richmond specials."

Although reversed by referendum in 1998, the pro-freeway campaign made Lee a political player among west-side Asian-Americans and a rival to Chinatown-based political boss Rose Pak. Lee further enhanced her clout by buying airtime on KEST radio and co-hosting a Cantonese-language talk show with SFNA co-founder Rose Tsai.

Before long, politicians flocked to her. "Julie didn't have to seek anyone out; they came to her," recalls a veteran political operative who has known Lee for years. With a huge database of newly energized supporters from the west side, Lee marshaled troops to work precincts at election time, packed hearing rooms for and against causes of her choosing, and got her people to donate money to favored politicians.

Her fundraising became a thing to behold. Once a ridiculer of former Mayor Willie Brown, Lee switched to supporting him, and in 1999 spent more than $26,000 from her political action committee to help his re-election. She funneled much larger sums to candidates for supervisor that Brown backed in 2000. Brown rewarded her with an appointment to the city's Housing Authority Commission. He gave her son, Andrew, a job in the mayor's office. Other recipients of her largess include soon-to-be House Speaker Nancy Pelosi (D-San Francisco), Mayor Gavin Newsom, and even the local Republican Party.

But sources say that no one cultivated Lee better than Kevin Shelley, whose constituency, both as a member of the Board of Supervisors and, later, as an assemblyman looking to move to higher office, was on the west side. "Kevin really spent a lot of time developing a relationship with Julie because he could see how invaluable she and her organization were," says a former Shelley aide.

Those who know them describe Lee and Shelley's past relationship as one of mutual benefit. (They haven't spoken in the two years since the scandal broke.) Shelley's assembly staffers were instructed to treat calls from Lee with deference. Lee bragged to associates and would-be contributors about her "good friend" Shelley, touting him as someone she expected to be governor someday. When his 2002 campaign for secretary of state cranked up, Lee's allies weren't surprised that she became a generous contributor.

Yet as she awaits trial on charges of illegally funneling grant money to help Shelley win, Lee portrays the relationship differently. During the entirety of his race for secretary of state, she says, they spoke privately perhaps no more than five times. In all the years she's known Shelley, she was at his home "maybe twice," including once to drop off a gift after Shelley's wife had a baby.

She credits him as "the only politician ever really interested" in her dream for the center, but says the two were never close on a personal level and that it made her "nervous" to be around him. "He either talked too fast for me to understand properly or he was sometimes angry. Mostly I just tried to avoid [interaction]."

Lee shrugs off questions about her role in the fundraising operation, and demurs when asked what, if anything, Shelley knew about the source of the alleged laundered money. Does she expect that the question may be addressed at her trial? "I'll just say that I still believe in justice and I expect to show that I'm innocent," she says.

Similarly, she doesn't reveal what she thinks of Shelley's assertion that he was "shocked and mystified" to learn that the money may have been tainted. (His remarks to a panel of Chronicle editors and reporters constitute the only public comments Shelley has been willing to make on the subject since the money-laundering allegations hit the press six months before he left office.)

But Lee doesn't hide her disdain for another utterance — by Attorney General Bill Lockyer. Barely two months after Shelley's resignation, the state's top elected law enforcement official proclaimed to a TV interviewer that Shelley was innocent of "this crime," and directly accused Lee of guilt.

"I nearly fell off my chair when I heard that," she says, declining to elaborate.

Amid neat rows of pastel-colored town homes that line the 2300 block of busy 19th Avenue, the abandoned building and surrounding lot (once a fire department maintenance station) where Julie Lee had hoped to see the center constructed sticks out like a sore thumb. Its gates and doors are padlocked, and behind walls that extend for half the block weeds poke through cracked pavement.

Lee's dream of an all-purpose community center to house programs for everyone from preschoolers to the elderly appeared to be on the brink of fulfillment in the summer of 2000, after SFNRC, the entity she helped establish to promote it, received some good news. With the sponsorship of then-Assemblyman Shelley, the California Department of Parks and Recreation had chosen SFNRC to receive the grant.

That few people had heard of SFNRC at the time of the grant was perhaps understandable. It had been formed only a year earlier. Its three officers were Julie Lee, her husband Shing-Kit Lee, and Jeffrey Chen. Its creation was cause for friction among Lee's supporters within the San Francisco Neighbors Association.

For years, SFNA had campaigned for a neighborhood center to serve the west side's growing Chinese-American population. But the group resisted cozying up to any particular politician to accomplish its aims, and had taken pains to ensure that no elected office holder gained leverage over it.

In 1999, when Lee proposed the grant idea, with the pitch that Shelley would help, the SFNA board rejected the idea, says Rose Tsai, who was a board member at the time.

Instead, the Lees and Chen formed SFNRC and began working with Shelley. Although the center was expected to cost $5 million, Lee expressed confidence among associates that with Shelley's backing its eventual construction was assured. With the help of Willie Brown, the group struck a sweetheart deal to lease the property on 19th Avenue for $1 per year, a deal that Gavin Newsom renewed after becoming mayor.

Tsai says that Jeffrey Chen, and not Lee, was the prime driver of the idea to link up with Shelley to gain support for the grant. "I think Julie was totally taken in by the glamour of being an insider, and people were circling like vultures to use her," Tsai says. Despite Lee's reputation as a player, she says, "there's a certain naivety about Julie. I don't think she's ever really understood the nitty-gritty of how politics here works. She certainly doesn't consider that she did anything wrong."

Indeed, no one has suggested that the wealthy Lee used the allegedly misappropriated funds for personal gain.

She and her husband, who is also her business partner, own more than $12 million worth of real estate, including office buildings, houses, and apartments, mostly on the west side, property records show. "Julie is an exceedingly smart person," says Chris Gruwell, a lobbyist and former aide to both Shelley and Newsom who has known her for years. "If she'd been born [in the United States] and gone to the Wharton School, she'd probably be the CEO of a large company by now."

The daughter of a Shanghai tailor, Lee came to San Francisco with her husband from Hong Kong in 1969 with $200 in her pocket, she says. The couple lived in a one-bedroom house in the Sunset District for years while raising four young children. Lee began selling real estate — almost exclusively to Chinese immigrants — out of an office in her basement, while her husband studied business and finance. Their company, First National Realty, housed in a building that they own, has long been a fixture on Taraval Street, across from McCoppin Square.

Friends describe her as devoted to her children, who include a son who works for a Manhattan ad agency, a daughter who is a pediatric dentist, and another daughter who's in law school. But those who know Lee say it's her affection for her son Andrew, now 32, which, along with her desire to promote the center, best explains her vigor for helping Shelley.

Lee pushed her second-eldest child toward politics even though he seemed more interested in his career as an aspiring rapper, longtime colleagues say. After Lee joined forces with Brown, the former mayor gave Andrew a low-level job in his office, and even appointed him to the Public Utilities Commission, although Andrew later withdrew after Supervisor Chris Daly moved to block him. In 2002, Andrew Lee became a candidate for the board of supervisors. Among his endorsers were a number of high-profile politicians to whom Julie Lee had been helpful, including Brown, then-supervisor Newsom, and Kevin Shelley.

Andrew Lee finished fourth in the race for the seat won by Fiona Ma. But he soon wound up working for the newly elected Shelley in the secretary of state's San Francisco field office. Shelley promoted him to a civil-service-protected position under circumstances that the California State Personnel Board later concluded smacked of favoritism.

Now living in Sacramento, Andrew Lee still works for the secretary of state's office, albeit part time, having recently returned from disability leave after a work-related back injury. He is understandably among his mother's most vociferous defenders. "My mother is an honest, hardworking, and selfless person ... who has been the victim of character assassination," he says. "I can say she has no reason to break the law, and never has."

Julie Lee's problems emerged in July 2004, when a California Parks and Recreation auditor called to ask how SFNRC was spending the grant money. The group had reported spending tens of thousands of dollars for pre-design work on the center, and Reiko Hatch, the auditor, wanted to see receipts to verify it.

Instead, as Hatch later told a grand jury, she and a colleague got the runaround from Lee.

Parks & Rec might never have bothered with the matter had it not been for a tip from a disgruntled Shelley staffer aimed at causing problems for the famously difficult-to-work-for secretary of state. What gave the story of SFNRC's alleged abuse of state funds wings, as the Chronicle reported within weeks of Hatch's phone call, were allegations that some of the money may have wound up in the Shelley campaign.

That August, authorities aggressively zeroed in on Lee. With the cooperation of Jeffrey Chen, the FBI tape-recorded phone conversations between Chen and Lee that prosecutors used to indict her.

Her attorney, Donald Bergerson, says his client's worst offense may be that she is "a little politically naive and got involved in helping someone [Shelley] whom she believed in. She didn't believe then and doesn't believe now that she did anything wrong."

Bergerson says that the trial will demonstrate that Lee is a "scapegoat and a placeholder for others' misconduct," and questions the zeal of prosecutors in focusing their energies exclusively on his client. "I would say that the powers that be appear to have gone around the elephant in the room in order to crush the mouse."

He suggests that it was Jeffrey Chen, the anticipated star witness against Lee — who did not respond to interview requests for this article — who did most of the communicating with Shelley with respect to campaign contributions.

Sources say Chen and Lee met in 1999 and became fast friends after Chen expressed interest in doing volunteer work for Lee's various civic endeavors. Chen filed the incorporation papers for SFNRC. He handled the filings for Andrew Lee's board of supervisors bid. Lee helped Chen establish a client base for his law practice among her friends, and even helped him find an office near her own.

The grand jury testimony is not flattering to Chen. For example, one of his business partners, Steve Chen (no relation), testified that it was Jeffrey Chen who persuaded him to participate in the alleged scheme to give money to Shelley, purportedly at Lee's behest. Steve Chen donated $25,000 to the Shelley campaign, and was later repaid with funds that came from the grant, prosecutors say.

In his immunized testimony before the grand jury, Jeffrey Chen acknowledged a role in the alleged scheme, but portrayed his involvement as little more than doing the bidding of Lee. He contends that he never knew that SFNRC invoices submitted to the state for work purportedly done on the center were falsified. "It's her organization basically, and we just follow along with what she says," he told the grand jury.

But some observers who know both Lee and Jeffrey Chen, and who believe Lee is unjustifiably being left to take the fall alone in the Shelley affair, express doubts.

"Do I think that Jeffrey Chen was Julie Lee's puppet? Give me a break," says Rose Tsai, the community activist. "He's no babe in the woods."

While authorities were investigating Lee in 2004, Shelley's political career was unraveling in a barrage of negative publicity. Much of it suggested that the secretary of state was — or would soon be — the target of multiple probes.

Attorney General Lockyer's office, which had no particular reason to involve itself with the Lee matter except that it pertained to a state office holder, began a probe of the scandal. His office also looked into a claim that Shelley had accepted a $2,000 campaign contribution from a constituent inside Shelley's state office in San Francisco, a violation of campaign finance law.

Meanwhile, embittered staff members who had complained of Shelley's boorish treatment — mostly temper tantrums in which several staffers described being publicly berated and humiliated — came out of the woodwork. The result was a scathing report by the state Personnel Board questioning Shelley's behavior and management style. More significantly, opponents accused his office of misusing millions of dollars in federal voter outreach funds under the Help America Vote Act of 2001 for partisan political purposes. A federal commission found that Shelley's office had misused $2.9 million of the voter outreach funds. In May of this year, California was ordered to give back $536,000 to the federal government and replenish state election funds with the remaining $2.5 million.

Republicans in the Legislature were champing at the bit to put the secretary under oath before the bipartisan Joint Legislative Audit Committee in February 2005 when Shelley suddenly, and unexpectedly, announced his resignation.

Afterward, even as the state continued to build its case against Lee, the investigation into the alleged money-laundering involving his campaign did not appear to include direct scrutiny of Shelley. Indeed, sources close to the former secretary of state tell SF Weekly that neither the attorney general's office nor the San Francisco district attorney's office even interviewed Shelley about the matter.

Yet in May of last year, Lockyer went on television after an appearance in Berkeley and — in the remark that upset Lee — declared that "Kevin Shelley was not a participant in this crime. He is absolutely innocent of any personal involvement in the crimes that Julie Lee committed."

Lockyer's spokesman, Nathan Barankin, says his boss stands by those words, even while declining to comment on whether Lockyer's office ever interviewed Shelley. "The standard for being convicted in the court of public opinion is considerably lower than it is for formal court action," he says. District Attorney Kamala Harris' office did not respond to requests for comment on the matter.

Other investigations growing out of the Shelley affair remained arm's length from the former secretary of state. State Controller Steve Westly's office attempted to conduct an audit of SFNRC, but didn't get far; the group failed to cooperate in turning over records. He ultimately recommended that the group's assets be seized, and they were.

The only agency to lay a glove on Shelley was the Fair Political Practices Commission, which fined him $5,000 to settle a claim that he had personally accepted the $2,000 political donation inside the secretary of state's San Francisco office in 2003, records show. Under the law, state office holders are not permitted to accept campaign donations on state property. Shelley paid the fine in April of this year without contesting it. According to a summary of the FPPC's findings, Shelley refused to cooperate with its investigators.

Still, based on what the grand jury was told, Lee's approaching trial could elicit testimony that raises new questions about what, if anything, Shelley may have known concerning the source of the allegedly laundered money.

That possibility appears especially so with respect to Bowman Leong, a one-time business associate of Lee's who served on the Taxicab Commission under former Mayor Brown. In his grand jury appearance, Leong — among those granted immunity for his cooperation against Lee — described how he wanted to gain state contracts for an information technology company he had formed, and agreed to Lee's request that he contribute $25,000 to Shelley with the understanding that she would front him the money.

At the time, there were no limits on the amount individuals could contribute to political campaigns for state office. (A $5,600 limit took effect in 2003.) But it was and remains illegal to make or to knowingly receive a political contribution under false pretenses, as well as to use public money, such as the state parks grant, for political purposes.

Leong, who declined to be interviewed for this article, testified that he personally handed Shelley a $25,000 check during a brief exchange inside the doorway of Shelley's home in February 2002. Although he had gone to the house unannounced, Shelley appeared to be expecting him, he testified. Leong said the men briefly exchanged pleasantries "and then he asked if I had something for him." Leong said he handed Shelley an envelope containing the check, and that Shelley "looked inside and just said, 'Thank you very much.'"

Questioned by Ronald Smetana, the deputy attorney general, Leong described Lee's giving him a check to cover his ostensible contribution before he went to Shelley's house.

Smetana: And what did she say to you when she gave you this check?

Leong: She made a comment that, I remember the comment very distinctly because it just — she just said that, "Do you really expect Kevin [Shelley] to give us this check and not get anything back?"

Smetana: When she said that, "Do you really expect that Kevin would give us this check" —

Leong: I meant she was referring to the half a million dollars that Kevin arranged for the resource center to obtain.

Like former State Insurance Commissioner Charles (Chuck) Quackenbush, who resigned in 2000 under a cloud of official misconduct without being charged with a crime (and who's now a sheriff's deputy in Florida), Shelley has suffered dearly for his woes while in office.

"I think you could say that he got the death penalty in terms of being a politician," says Robert Stern, former chief counsel at the FPPC, who's now the president of Los Angeles' Center for Governmental Studies. "For a high-profile political figure, it doesn't get much worse than losing your career."

For his part, Shelley says that he is happier in private life than he has been in a long while. "I've been able to reconnect with my family and spend much more time with my two sons," ages 5 and 3, he tells SF Weekly.

Shelley says he regrets having been "a difficult boss" and "alienating a lot of the people who worked for me over the years," but insists that he had no reason to believe that there was anything suspect about the contributions Lee raised on his behalf.

"Although some of my critics may say that I was a jerk, or overly opinionated, they've never said that I was unethical," he says. "To be so profoundly accused of a lack of ethics, it literally hurts me to my core, and I certainly regret that that part of my reputation is so strikingly damaged."

He says his decision to step down was "the result of a complicated set of factors," not least of which were the toll his troubles were taking on his family and his assessment that had he chosen to stay in office he couldn't have been effective.

"In no way was there any fear of any legal consequences should I have remained," he says.

Although Shelley says he had to mortgage his home to meet personal expenses, his political friends have helped fill the coffers of his legal defense fund. John Burton and Fabian Nñez were the single biggest contributors, at $15,000 apiece. State Sen. Carole Migden gave $7,500, and Assemblyman Mark Leno chipped in $2,000. "I felt Kevin was shoddily treated, and he paid a heavy price for it," says Migden, who says she was "glad to help Kevin and his family during their time of need."

Meanwhile, Julie Lee awaits a January court date, uncertain about her future.

"She's holding up as well as one could expect," says Donald Bergerson, her attorney. "But let's face it: She's been left alone in this. She's got the weight of the world on her shoulders."

About The Author

Ron Russell


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