The Money Vanishes

California Democrats trusted quiet, sweet Kinde Durkee -- until millions of dollars disappeared.

December 15, 2011

When the Democratic Women of the San Fernando Valley held an awards banquet for their bookkeeper, they had no reason to think they were honoring a thief.

Kinde Durkee was an inconspicuous person. Quiet. Pleasant. Unassuming. She had been around local political circles for decades, often helping small Democratic clubs with their accounting at discounted rates. Her contributions had not been previously recognized, which made her the perfect choice for the club's inaugural Susan B. Anthony Award.

Durkee purchased a table for the event, which was held in April 2007 at the Sportsmen's Lodge in Studio City, and party officials paid tribute. When they gave her a crystal bowl with an inscription on it, she didn't have anywhere to put it. She didn't have a trophy case. So when she got it back to her office, she filled it with candies and set it out for clients.

That was the Kinde Durkee that everyone in local politics knew: cheerful, sweet and modest to the point of vanishing.

So when Durkee was arrested in September, accused of a massive embezzlement scheme, it was almost impossible to believe. Not Kinde.

But according to the FBI, she had confessed. And as her clients rushed to check their balances, a sinking feeling set in. The accounts were frozen. Those who could get information from the bank found they were short hundreds of thousands of dollars.

Sen. Dianne Feinstein — Durkee's top client — lost nearly $5 million. But smaller clients were not spared. Even the Democratic Women of the San Fernando Valley — which had less than $100 in the bank — found its account frozen.

In all, Durkee may have robbed her clients of as much as $7 million — maybe more. She allegedly shuffled money from one account to the next to hide the losses, earning comparisons to Bernie Madoff.

“Everybody feels like they've been kicked in the teeth,” says Cynthia Conover, who serves on the Democratic Women's board. “Nobody suspected anything.”

In hindsight, there were plenty of clues that all was not right with Kinde Durkee's work. But you had to be paying close attention to see those clues, and most clients didn't have the time. They simply trusted Durkee because everyone else did.

“When I would ask for my cash on hand, they would tell me” the amount, says state Sen. Ted Lieu, a Durkee victim. “It would never occur to me that that may not be true.”

The closer one got to Durkee's operation, the more suspicious it became. Durkee's committees were audited 100 times in the last decade, and some of those audits turned up troubling things. Auditors flagged unusual payments, which Durkee backed up with implausible explanations.

Yet Durkee escaped detection for a very long time. Only in the last year did investigators begin to piece it all together. Until then, she danced between the raindrops.

“I am stunned that she could get away with it for this long,” says Nancy Warren, a Bay Area political treasurer. “The audits are random. … The thinking that you're going to get away with it is either amazingly arrogant or crazy.”

Durkee's firm, Durkee & Associates, accumulated a hefty docket of campaign-finance violations, leading to nearly $200,000 in fines — far more than its competitors. But in the political community, that was chalked up to carelessness, not fraud.

The Franchise Tax Board deserves some of the blame, because its auditors were more familiar than anyone with Durkee's bookkeeping problems — and yet, time and again, failed to follow up with a more aggressive investigation.

But the biggest lapse was committed by the L.A. County District Attorney's Office. In 2009, state Sen. Christine Kehoe blew the whistle on Durkee. In a letter to the DA, she said Durkee had covered up for an employee who fled to Mexico after embezzling $57,000. By following that lead, the DA's Office could have unraveled the whole affair. Instead, it took no action — a failure that almost certainly worsened the damage to Durkee's victims.

While the FBI is still piecing everything together, several mysteries remain. How did this start? How did it go on for so long?

And what about the money? Durkee lived modestly. She drove a beat-up car. Her office was in a dingy part of Burbank, between a body shop and a boat dealer. Her 1,600-square-foot house in Long Beach badly needs a fresh coat of paint. So where did the millions of dollars go?

“I don't think she bought shoes or diamonds or clothes or pearls,” says Bettina Duval, founder of a committee that supports women running for state office and a Durkee victim. “She was not that kind of woman.”

But who was she?

Like many wealthy people, Dianne Feinstein knows a bargain when she sees one. In 1991, the San Francisco Democrat was coming off a failed bid for governor. She had broken with a previous treasurer, one who had gotten her into some compliance problems. Preparing to run for the Senate, she needed someone to straighten things out.

So she turned to Jules Glazer. An impish man, barely more than 5 feet tall, the L.A.-based Glazer was passionate about his art collection, opera and left-wing politics.

Glazer was as colorful as Durkee is colorless. As a business manager for Hollywood celebrities, he had worked for Laurel & Hardy, and he loved to sing their comic songs. He also collected the paintings of black and Chicano artists.

His interest in activism drew him into political finance. He raised money for John Kennedy and Robert Kennedy, and handled the books for Gov. Pat Brown.

He seemed to know everyone. “He was considered the premier political accountant in California,” recalls Bill Carrick, Feinstein's longtime media consultant. One of Glazer's proudest moments came when he helped to clear Mayor Tom Bradley — a friend and a client — of wrongdoing in a finance scandal.

Glazer lived comfortably, but he was not wealthy. His business ran on volume. He had lots of clients, low costs and low margins.

“He had somewhat of a cookie-cutter approach to how you deal with campaign finance,” says David Gould, a rival treasurer. “Take as many clients as you can and do as little work as you can.”

It was Glazer who taught Durkee everything she knew. She was just 18 years old, a pastor's daughter fresh out of high school, when she went to work for him, helping to raise money for George McGovern's campaign.

She arrived in time to witness the last days of the pre-Watergate era. In those days, enforcement was lax, if it existed at all.

And even after a wave of reform in 1974, it took time for the culture to change. Enforcement still was largely about ensuring compliance rather than exacting punishment. That was one reason Glazer could afford to take on hundreds of clients: If he had to cut corners, he could.

While Glazer prided himself on his attention to detail, he did tend to file a lot of amendments, Gould says. But as regulations grew tighter, and punishments more severe, the job became more labor-intensive. Glazer's high-volume approach would not work forever.

As Glazer contemplated retirement, he increasingly turned responsibility over to Durkee. By the 1990s, he had moved to the desert, near Palm Springs, commuting to work only occasionally.

Durkee still turned to Glazer for the bigger decisions. But when he wasn't around, she was in charge.

“He did see her as someone who would be a protégée,” says Michael Glazer, Jules' son. “She would call him for advice. He was tickled by that.”

Jules Glazer died of cancer in 1999. According to a friend, his widow sold the business to Durkee for $50,000 — a steal.

Durkee did what she had to do to hang on to her top clients, Gould says. As the years went by, and costs increased, Durkee never raised her rates.

“She didn't charge anywhere near what the real cost was,” Gould says. “You've got to realize there's a problem there.”

Feinstein obviously didn't see a problem there. She was getting a great deal. And as Durkee's top client, she got good service to boot.

“We never had trouble with media buys. There was never any sense that we didn't have the money we were spending,” Carrick says. “If it ain't broke, don't fix it.”

When Jules Glazer Business Management became Durkee & Associates, clients didn't notice much of a difference. They'd been dealing with Durkee for years, and she had always been cheerful, self-effacing and helpful.

But she was a different person around anyone who pried into her books. To auditors, she could be unhelpful to the point of stonewalling. An odd transaction might have an innocent explanation. But Durkee's explanations were often strange and even slightly unsettling.

Property records show that she got into financial trouble almost immediately after taking over the business. In 2000, she failed to pay $6,377 in federal small-business taxes, according to an IRS lien. The taxes were later paid, but in subsequent years she fell behind repeatedly on state and local taxes.

At the same time, strange things were happening in her accounts. California's Franchise Tax Board, or FTB, does routine, random audits of campaign accounts. Those audits are turned over to the Fair Political Practices Commission, which can levy fines or refer cases to the DA for prosecution.

In 2002, an FTB audit of Christine Kehoe's Assembly campaign turned up some irregularities. In the course of reconciling bank records with public-disclosure statements, the auditor found that Durkee had paid $79,236 in campaign expenses out of her own business checking account.

That was unusual. Durkee's money should have been kept strictly separate from her clients' funds. But here they were mixed up.

Kehoe's committee reimbursed Durkee for those expenses, and everything else seemed to be normal. Durkee told regulators that her business-account number had been mistakenly printed on Kehoe's outgoing checks.

But that mistake went uncorrected for almost a year. If that was sloppiness, it was extreme sloppiness. As an accountant, Durkee should have noticed that money was flowing out of her own business account for almost a year. Why didn't she stop it?

Another suspicious transaction came to light in a lawsuit arising from the 2002 race for mayor of Long Beach. Durkee had served as treasurer for a candidate, Councilman Dan Baker, and for California Citizens for Neighborhood Empowerment, an “independent” group backing Baker's campaign.

That in itself was an unusual arrangement. A group that shares a treasurer with the candidate it supports is not exactly independent.

But the more troubling thing came to light when Long Beach sued Durkee and the “independent” group, accusing them of using the committee to get around the city's $600 limit on campaign contributions. The city's lawyers subpoenaed checks and bank records in an effort to trace the source of the group's funds. They found, to their surprise, that $11,200 had come from Durkee herself.

Why would she pay for the mailers out of her own pocket?

“It struck me as very odd that she would do that,” recalls Monte Machit, the deputy city attorney who took Durkee's deposition. “It didn't make a lot of sense to me.”

Durkee's explanation was that she had overdrawn the committee's account and had to make up the difference to preserve her relationship with her bank. She said she had done the same thing for other campaigns, including an Assembly candidate in 2000.

As weird as that was, it was as far as the inquiry went. The independent group ultimately agreed to pay a $17,500 fine, and the case was closed.

A troubling pattern was taking shape — though you probably had to be an FTB auditor to see it. Durkee was sloppy. But worse, she was routinely using her own business funds to pay her clients' political expenses. Was it such a stretch to imagine that money might also flow the other way?

Durkee wasn't about to help anybody figure that out.

In fact, her firm maintained a blanket policy against disclosing candidates' personal bank records during audits. Government auditors seek those records when a candidate loans money to himself, to ensure that some wealthy donor isn't secretly bankrolling the campaign.

But Durkee and her employees simply refused to provide them, citing the First Amendment and Article 1, Section 1, of the California Constitution. (The section guarantees, among other things, the right to privacy.) Durkee withheld such records at least a dozen times. Each time her refusal was noted in the audit findings, but she was never sanctioned.

If stonewalling didn't work, she could provide an explanation that was just plausible enough to make the issue go away.

“There were suspicious things, but we were never able to get any traction with them,” says Grant Beauchamp, a former FTB auditor who now works at the Fair Political Practices Commission. “Most of the things that looked suspicious, when they were pursued, we were told they were legitimate payments.”

For example, a candidate might pay Durkee for some expense, and Durkee would then refund the money. That could be legitimate: a simple billing error that was caught and corrected. But when auditors looked at the bank records, it often turned out that Durkee had held on to the money longer than she had claimed in her public filings.

“It's suspicious,” Beauchamp says, “but it's not embezzlement.”

Over the course of 100 audits, many such issues were flagged. In isolation, each case didn't seem like a big deal. Taken as a whole, they pointed to trouble.

But the Franchise Tax Board never took the step of seeking Durkee's own bank records — action that might have revealed the full scope of the scandal.

Defending the tax board's handling of the matter, spokeswoman Denise Azimi argues that it was up to the FPPC to enforce violations.

“We disclosed our findings in the audit reports,” she says. “We sent the audit reports to the proper authorities.”

Instead of adapting Glazer's business strategy to the modern era, Durkee doubled down on it. She had a lot of clients and a big staff, yet she kept her rates unusually low.

The low prices were strategic: They built goodwill in the political world.

One of her larger clients was the L.A. County Democratic Party, which paid her $15,000 a year. She should have been charging more, because that work brought with it pro bono assignments with 70 or 80 smaller Democratic clubs and committees, such as the Democratic Women of the San Fernando Valley. “We thought, 'She's wonderful. She's generous. She's doing this because she believes in the Democratic Party,' ” says Lyn Shaw, president of the club.

When Durkee wasn't working for free, she almost gave her services away. She charged the Stonewall Young Democrats just $25 per month — far below cost.

When there were mistakes — and there were — she paid the fines herself. In those cases, clients tended to blame her undertrained staff.

“I never found that her business was managed well,” says Steve Afriat, a lobbyist and political consultant who has known Durkee for 30 years. “She was one of the nicest people you deal with in this business … [but] it was not uncommon for her employees to be flaky.”

In at least one case, that blame was well placed. Elsa Martinez went to work for Durkee in 2002. In early 2006, she began writing checks to herself out of Christine Kehoe's Senate account.

According to the letter Kehoe sent to the DA's Office, Martinez forged the signature of Frank Altamirano, another Durkee employee, ultimately pocketing $57,000.

When Durkee's bank flagged the embezzlement in November 2006, Altamirano called Martinez. Martinez said she would come in to explain herself. Instead, she fled to Mexico.

Instead of reporting the theft, Durkee covered it up for three years. The incident only came to light when FTB auditor Michael Chiquillo started to dig into irregularities in the Kehoe campaign.

As she had with others, Durkee did her best to stonewall him. She refused to provide copies of the fraudulent checks. In some cases, she provided electronic images, but the payee, amount and date were illegible.

Finally, in the fall of 2009, Durkee admitted to Chiquillo that Martinez had vanished. Durkee said she used her own money, as well as money from another client, the California Latino Alliance, to replace the stolen funds.

None of this, of course, had been disclosed in Kehoe's campaign-finance reports, which Durkee had signed under penalty of perjury. Nor did the transfers appear in the California Latino Alliance's reports.

Chiquillo took it upon himself to inform Kehoe of the theft. The state senator immediately fired Durkee, and sent off her letter to the DA, urging that charges be filed.

Prosecutors could have pursued an embezzlement case against Martinez and a perjury case against Durkee for the false statements. They did neither.

“We did gather material,” says Sandi Gibbons, the DA's spokesman. “We don't disclose what we do during criminal investigations.”

As an FTB auditor, Grant Beauchamp had suspicions about Durkee, but he had never been able to prove them. When he got another crack at her, he didn't miss his chance.

The opportunity came, thanks to a conflict of interest. The FTB handles the vast majority of campaign audits. But two state offices — the controller and the Board of Equalization — oversee the tax board, so their campaigns are audited by the Fair Political Practices Commission.

That's where Beauchamp was working when the Jerome Horton file landed on his desk in March 2010. Horton had run for Board of Equalization in 2006, and Durkee had been his treasurer.

Beauchamp, 54, is a mild-mannered veteran of political auditing, with more than 20 years' experience. Though it started routinely, the Horton file would become the highlight of his career.

It did not take Beauchamp long to find weird and unexplained payments. For one thing, Durkee initially said that an $8,000 payment the campaign made to Elsa Martinez, the former employee, was a consulting expense. Only later did she admit that it was embezzlement.

Beauchamp was sufficiently troubled by Durkee's evasive written explanations to schedule a face-to-face meeting. In June 2010, he flew to Burbank to give her one last chance to explain herself.

They met in a conference room at Durkee's drab headquarters on South Victory Boulevard. Beauchamp recalls becoming suspicious when Durkee and an employee, C. Lydia Almanza-Siu, refused to be tape-recorded.

“There were pauses, and looks back and forth, when they were answering questions,” Beauchamp says. “It was obvious they weren't telling me the truth on some issues.”

Evasiveness had worked for Durkee many times before. But unlike others, Beauchamp didn't let it drop there. Instead, he got approval from his boss to subpoena Durkee's bank records going back more than three years.

What he found was astounding.

Durkee was moving money around from herself to her clients and back, and from one client to another. She also had bounced thousands of checks.

Another surprise was the name on the account that was raided most often: Dianne Feinstein.

This was brazenness on an unimaginable scale. Sen. Feinstein is the state's most popular and most powerful politician. Taking her money was so reckless, so self-destructive, that it was like stealing from the mob. There would be no getting away with it.

The FPPC has no authority over federal campaigns, so Beauchamp turned the case over to the FBI in December 2010. The FBI finally arrested Durkee on Sept. 2. The criminal complaint accused her of stealing $677,000 from Assemblyman Jose Solorio.

In an interview with an FBI agent, Durkee “admitted that she had been misappropriating her clients' money for years and that forms she filed with the state were false,” according to the complaint. She also “admitted to the agents that she had personal and business-tax problems.”

Thus far, that's all she has said about it. Her attorney declined to comment, other than to say that she will plead not guilty.

Durkee spent a week in jail before her husband posted the $200,000 bond. At her bond hearing, she sat on a bench alongside other accused criminals, wearing a loose-fitting black shirt. Her hair was white and tousled. She stood when her case was called, lifting her shackled hands to wipe a tear from her eye.

The collapse of Durkee's firm was a disaster for her clients. U.S. Rep. Loretta Sanchez lost $125,000. Her sister, Rep. Linda Sanchez, lost $322,000. Rep. Susan Davis, who has likened Durkee to Bernie Madoff, lost $160,000.

As for Feinstein, she lost $4.65 million, with another $662,000 stuck in a frozen account.

Feinstein sued Durkee, but almost as an afterthought. Her primary target was First California Bank — which is more likely to have recoverable assets. In the suit, Feinstein alleges that First California must have known of Durkee's embezzlement. Her lawyers contend that the bank failed to report it because it was getting rich off her overdraft fees.

“First California continued to actively provide banking assistance to Durkee and [her firm] as they raided their clients' coffers,” Feinstein alleges, “all in the name of profit and greed.”

The bank has refuted those claims and sought to have Feinstein's lawsuit dismissed.

When the scandal erupted, Democrats feared it would hurt their prospects in 2012. But it's still far from clear that there will be much effect on congressional or legislative elections.

The most vulnerable may be U.S. Rep. Laura Richardson, a Long Beach Democrat. But she was already facing a tough re-election battle, thanks to redistricting and a series of scandals. And if she loses, it will be to another Democrat. Assemblyman Solorio may have a harder time running for state Senate in 2014, but he at least has some time to replenish his coffers.

The others likely will have to schedule more fundraisers. But they'll probably be OK. Feinstein simply wrote herself a $5 million check.

The real fallout may be at the local level, among smaller campaigns and committees.

One example is Diana Shaw, a retired labor attorney who narrowly lost her race in November for College of the Canyons Board of Trustees.

Durkee was her treasurer. When the scandal broke, Shaw was unable to access $1,300 in campaign funds — which would have come in handy when her Republican opponent sent out a misleading mailer, claiming to be the choice of Democrats.

Shaw wanted to send a piece pointing out that she was the only Democrat in the race. But without money, she couldn't. She ended up losing by about 600 votes.

“That $1,300 would have given us 5,000 more postcards,” Shaw says. “You tell me what the difference would be. I don't know. But I certainly do believe the Kinde Durkee problem did contribute.”

Shaw's defeat meant the teachers' union lost a potential advocate on the board. In the last round of collective bargaining, teachers didn't get a raise, but administrators did. Had she won, Shaw says, she would have been able to push for a better contract.

“I think the big fundraisers, like Dianne Feinstein, they have inexhaustible wealth,” Shaw says. “The small people are the ones who really suffered.”

The most intriguing mystery remains unsolved. Where did the money go?

It's clear from the federal complaint that some of it went to Durkee's personal expenses, such as her credit cards, her tax bills and her mother's nursing-home care. But that doesn't add up to the millions of dollars that have vanished.

It didn't go into real estate. After Durkee's arrest, the government launched a forfeiture action against her house and a condo in Long Beach. But the cases were dropped, likely because there was not enough equity in either property to make it worth the government's while. (The U.S. Attorney's Office declined to comment.)

In a third case, the government sought to seize Durkee's business headquarters. But the mortgage company objected, noting that Durkee had recently defaulted on her $660,000 commercial real estate loan. Durkee's stake in that property was worthless.

If the FBI found a pile of money in a private bank account somewhere, the government could move to seize it. So far, it hasn't, which suggests there isn't one.

“I really don't know where all the money went,” admits Grant Beauchamp, the auditor who unraveled the case.

Political professionals tend to be gossips, and in the days and weeks after Durkee's arrest, a number of theories made the rounds.

The most popular is that she had a secret gambling problem. Or perhaps she lost the money in the stock market. Yet another theory was that she had squirreled the money away in the Cayman Islands and was preparing to flee the country.

The most likely scenario is far less dramatic.

Absent better evidence, the best explanation is that she never solved the problem that Jules Glazer left for her, the challenge of bringing his business into the modern age.

She never figured out how to maintain hundreds of clients, charging rock-bottom prices, while doing all the things that a modern campaign treasurer has to do. And so — to cover her payroll — she cheated.

“I've talked to a number of people who think she simply didn't charge enough money,” says Renee Nahum, a political consultant and Durkee client. “She paid too many people. It didn't jibe. That money had to come from somewhere, and so she started moving money around.”

Durkee employed more than 20 people. David Gould, who handles a comparable number of accounts, employs just seven.

“Explain that,” Gould says.

The FBI complaint notes that Durkee used $55,000 of Jose Solorio's campaign money to make two payrolls. If you accept those figures and extrapolate them, her annual payroll works out to roughly $1.5 million. Add that up over a decade, and you can see where $7 million or more could go.

The world of California political treasurers is a small one. Everyone knows everyone else; they bump into each other at campaign events and at meetings of the California Political Treasurers Association. Durkee attended those meetings, and her fellow treasurers knew her in the same glancing way that her clients did — sweet, pleasant, modest.

There is no training course to become a political accountant and no licensing exam. Most fall into it the way Durkee did, by working for someone else.

And while much was made, in the days following Durkee's arrest, of the fact that she didn't have a CPA license, most political treasurers don't. It's a niche field, and the rules of traditional accounting don't apply.

After the arrest, there was talk of change. Perhaps there should be a training course, or a test. But that idea was quickly discarded. It would not have helped.

The business runs on trust. It always has and always will. And with trust comes the occasional betrayal.

“People figure out ways to rip off the system,” says Gould, who is president of the association. “This is a time-immemorial thing. It's been going on since mankind started. Go back to the Bible. It's there.”

Any further explanations have proven elusive. Durkee has refused to say anything. And her employees, all of whom lost their jobs when Durkee was arrested, have maintained their silence.

Meanwhile, people who thought of Durkee as a sweet and generous lady are left to wonder.

“For someone I've known for 30 years, I never knew her well,” admits Steve Afriat, the lobbyist and consultant. “We're all asking, 'Do we really know anything about her?'”