SAN FRANCISCO – A federal indictment filed today charges Harlan Kelly, former general manager of the San Francisco Public Utilities Commission (PUC), and Victor Makras, a locally known San Francisco real estate investor, of bank fraud and bank fraud conspiracy. announced Acting US Attorney Stephanie M. Hinds, Federal Bureau of Investigation Special Envoy Craig D. Fair, and Internal Revenue Service Special Envoy Mark H. Pearson. The indictment also alleges honest wire fraud and honest wire fraud conspiracy in connection with a bribery program first brought against Kelly in a November 2020 federal complaint. This lawsuit is being replaced by today’s federal prosecution.

Today’s indictment, like the November 2020 complaint, alleges that Kelly, 59, was involved in a longstanding bribery program and corrupt partnership with someone named “Contractor No. 1” in the indictment. Kelly was named general manager of the San Francisco PUC in 2012 and held that position until November 30, 2020 when he resigned after filing a criminal complaint in the federal complaint. Contractor # 1 is a senior construction company officer in San Francisco and a permit expediting consultant who directed or controlled several companies doing business with the city of San Francisco. Today’s indictment alleges that Kelly provided the # 1 contractor with confidential PUC internal documents and information in order to give the # 1 contractor a competitive edge in public procurement competitions. In turn, # 1 Contractor showered Kelly with personal financial benefits, including discounted construction work for Kelly’s residence and an international vacation for Kelly and his family, with # 1 Contractor paying hotel fees, hundreds of dollars for meals, and jewelry.

The other charges in the indictment, first made public today, describe the conduct that led to the bank fraud and bank fraud charges against Kelly and Victor Makras. Makras, 63, a San Francisco resident, is a San Francisco real estate agent and the director of Makras Real Estate. He also brokered a consortium of individual real estate investors (referred to here as Makras investors) who jointly issued residential real estate loans backed by real estate in the San Francisco Bay Area and real estate elsewhere. Makras has served on a number of San Francisco commissions and boards, including the San Francisco PUC, the San Francisco Port Commission, and the San Francisco Employees Retirement System Board.

According to the indictment allegations, Kelly and Makras have conspired to defraud Quicken Loans, the financial institution, with a $ 1.3 million real estate loan to Kelly. The indictment describes that when Kelly and Makras applied for the $ 1.3 million loan to Quicken Loans, they falsely represented an excessive amount of debt that Kelly owed Makras Investors on his existing home loan. This falsely inflated amount enabled Kelly to obtain a larger loan amount from Quicken Loans at a lower loan rate. The alleged conspiracy also included hiding Kelly’s other outstanding debts from Quicken Loans, including thousands of dollars given to Contractor No. The program also included the repayment of Kelly’s undisclosed debt with the loan proceeds from Quicken Loans. The undisclosed debt is believed to have been paid by Makras in a method designed to hide the fact that Quicken Loans’ loan proceeds were used to repay those other debts.

Kelly is out of custody and will appear for the first time on the indictment tomorrow, October 20, at 10:30 am in the United States Federal Court of Justice, Thomas S. Hixson.

Makras is out of custody and his first appearance in today’s indictment has not yet been determined.

Kelly is charged with honest service fraud and conspiracy to commit honest service bank fraud in violation of 18 USC Sections 1343, 1346 and 1349. If convicted, each charge carries a maximum statutory 20 year sentence in prison and a fine of $ 250,000 or double gross profit or loss. Kelly and Makras are both charged on bank fraud charges and bank fraud conspiracy charges in violation of 18 USC §§ 1344 (1), (2) and 1349. If convicted, each charge has a maximum statutory penalty of 30 years imprisonment and a fine of $ 1,000,000 or no more than double gross profit or loss. However, a post-conviction penalty would be imposed by the court only after taking into account the US Sentencing Guidelines and the Federal Act on the Imposing of a Penalty, 18 USC § 3553.

The allegations in the indictment are mere allegations. As in any criminal proceeding, the accused is presumed innocent unless proven guilty in court.

This case is part of a larger state investigation aimed at public corruption in the city and county of San Francisco. Twelve people have been charged so far, including two senior San Francisco officials, Mohammed Nuru and Harlan Kelly. Several city contractors and mediators were charged. According to charges against Mohammed Nuru and others, Nuru allegedly accepted hundreds of thousands of dollars in bribes in cash, meals and work in his vacation home from contractors who received public contracts in San Francisco.

The case is being pursued by the US Attorney’s Corporate and Securities Fraud Team. The case is being investigated by the FBI and the Internal Revenue Service-Criminal Investigation (IRS-CI).

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It’s been a week since Mayor London Breed hired District Attorney Dennis Herrera to run the Public Utilities Commission, a massive billion-dollar entity that supplies the San Franciscans – and indeed millions of locals nearby – with water and / or Powered.

It’s been a week and no one seems to be saying it, so we’re going to say it: this is weird.

It would be strange if the mayor were to put a hypothetical Director General of the Public Utilities Commission – with background information on engineering and water and wastewater and wastewater treatment, and hydropower generation and distribution – in charge of the prosecution. The opposite is also weird.

So it’s an odd move. But this is a strange place. It reflects San Francisco’s madness that this was even considered, let alone accomplished. It reflects in San Francisco that no suitable skilled candidate has cut or perhaps even promoted the plum job on the PUC, overseen by GM Michael Carlin since Harlan Kelly’s resignation in November, or perhaps even advertised with federal bribes. It reflects in San Francisco that it is a common practice to send an elected official to a department he or she may or may not have expertise in, rather than the problem that is causing a significant public setback here (more ) in a minute).

It also reflects in San Francisco that corruption is seen as so endemic that Herrera’s move has been sold as “putting the best watchdog in town at the head of the PUC”.

Herrera, who has been a damn successful city attorney for nearly 20 years, was already overseeing a public integrity investigation sparked by the January 2020 arrest of disgraced public works chief Mohammed Nuru. And it was active and productive.

Having to install a live-in watchdog on one of the city’s largest departments seems like a disturbing sign.

Harlan Kelly, right, and Mohammed Nuru in a 2017 tweeted photo from @mrcleansf, Nurus Account.

Proponents of the Herrera-to-PUC transfer said the city could have gone down the road of a statewide search, and yes, you could have found someone with relevant experience running a billion dollar hydropower plant – “but they would have 28th Street off 28th Avenue not known. ”

Oh I understand. I come from here too: “We like each other, don’t we?” as the church lady always asked. But to insist that only a Franciscan can solve the problems of San Francisco can be read as a justification for provincialism, insularity and ownership. Isn’t that how we got into this chaos?

Herrera’s lack of a traditional PUC résumé isn’t for everyone: “Look,” says another longtime city gamer, “Dennis Herrera doesn’t have to go out and fix the dam. You have professionals who can fix the dam. ”

Herrera – another damn successful city attorney – sued and beat PG&E before the utility giant blew up suburban neighborhoods or burned down much of northern California. His supporters praise him as more knowledgeable about urban energy policy than those responsible for urban energy policy. That may be an exaggeration, but it’s not: The city’s desire to expand its foray into the power business has seen San Francisco and PG&E increasingly bump into their heads – and Herrera is a man ahead has not shied away from these confrontations.

“PG&E has to be a hell of a lot less difficult when it comes to bringing city projects, affordable housing and the like together,” Herrera told us last week. “We had constant disputes with them in front of the Federal Energy Regulatory Commission over tariffs. We have a lot of problems with PG&E. ”

Herrera added, “We have been out there taking the lead on municipalization issues.”

Communalization. This is the kind of conversation former PUC Director-General Susan Leal – also an elected officer with no expertise on the PUC – claims she fired her from the job in 2008. Too radical.

That was then. Now it was apparently a requirement for Herrera. Defeating PG&E and achieving “public power” has long been the city Guardian’s feverish dream. If it comes to Mayor London Breed, the former stalwarts of this newspaper will roll around in their graves.

Even if they’re not dead.

Herrera supporters said there was “no one better” to clean up the PUC’s troubled Community Benefits program. Great if true. People will keep an eye on that.

If Herrera was just kicking out corrupt and / or incompetent players and killing the Gorgon that is PG&E – well, you could make it worse. Kelly had an engineering degree from UC Berkeley and was San Francisco’s longtime retired city engineer – and he allegedly turned the PUC general manager slot into a transplant machine.

For many years anyone could call the PUC and send you this amazing map of the Hetch Hetchy water system drawn by Farley cartoonist Phil Frank – for free.

But – and you knew there would be a but – Herrera faces major challenges.

San Francisco has had more than its share of unskilled department heads, and sometimes it works – but sometimes it doesn’t. Nobody doubted that former Muni boss Ed Reiskin was a good and serious guy, but the city’s transit agency didn’t exactly thrive under his watch. As we put it in April 2019 when he complied with the mayor’s demands after his departure, “the transit specialists seem to have taken liberties in his staff that an experienced boss may have noticed and not recommended.”

The same could happen here. Some PUC employees fear Herrera would not understand the complexity of their work – and some were frankly satisfied. You could still take liberties that an experienced boss may have noticed and not recommended.

It’s also worth noting that the PUC is an order of magnitude larger than the prosecutor’s office. Herrera will move from managing hundreds of high performing lawyers (employed ad libitum) to thousands of PUC employees of diverse backgrounds (and with protection for the public sector).

And despite all of Herrera’s successes in fighting PG&E and his knowledge of the city’s energy policy, the vast majority of the PUC’s income comes from its waterside. If you look at the agency’s most recent comprehensive annual financial report, water and sewage account for $ 827 million of the PUC’s revenue of $ 1.17 billion – 73 percent.

Public power, pun intended, gets the spotlights. But the PUC sells water to dozens of counties and millions of customers. That’s where the money is.

Herrera wanted a new challenge. He gets one. He’s going to jump into a huge and extremely complex machine with lots of moving parts.

Politically, however, there may now be fewer moving parts.

Town hall and surroundings, April 17, 2020.

Mayor London Breed hardly seems vulnerable, but a lot can happen between now and the next mayoral elections in 2023. If things go bad, even supposed allies could jump into the race.

But probably not Carmen Chu – the selected appraiser was tabbed by Breed to take the vacant seat of the city administrator. And unforeseen madness aside, Dennis Herrera – the city attorney-elect and former mayoral candidate – was not won over to the PUC. And what if Breed named MP David Chiu as the next prosecutor? He’s off the list too. And what if supervisor Matt Haney ran for Chius’ seat and won him?

Presto! Cleared the field.

In the meantime, the prosecutor’s investigation into corruption at City Hall is continuing and Breed will appoint the next head of that office. It is this, and not Herrera’s unconventional belief in a PUC boss, that has attracted the most fire. Supervisor Dean Preston issued a letter of inquiry to Herrera’s office on April 27, asking, among other things, whether the appointment of the prosecutor who will oversee this corruption investigation would create “a conflict or the appearance of a conflict”.

And that turns into a sensitive area. Because, of course, there is the obvious semblance of conflict. However, an actual conflict would require questioning the prosecutor’s integrity and the work they have done to date (including exposing the details that led Breed to go public with her mea culpa that she had a previous relationship with Nuru and recently accepted what certainly appears to be an inappropriate “gift” from him of $ 5,600).

It would also require questioning the work of Keslie Stewart, the actual day-to-day chief of the ongoing public integrity investigation.

Anyone who doesn’t want to do this should think twice about throwing stones.

A potential transfer of the investigation to a neighboring law firm would be challenging – this has been a longstanding affair and outside agencies, including those with reciprocity, would be reluctant to accept it. And if the district attorney is interested in asserting himself, he would likely need more money and staff. Let’s see if the Supes push for it in the upcoming budget season.

In the meantime, the city chugs on. A PUC official, when asked how colleagues were taking the news, said, “People are having trouble processing it.”

San Francisco is a strange city. But that – that’s not funny.

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