US Attorney Charges San Francisco Department Head With Fraud in Connection to Bribery Scheme

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San Francisco Public Utilities Commission General Manager Harlan Kelly announces a voluntary 10 percent cutback in water usage for Hetch Hetchy customers on Jan. 31, 2014. (Alex Emslie/KQED)

Another San Francisco official has been charged by the U.S. attorney's office in connection to a bribery scheme.

San Francisco Public Utilities Commission General Manager Harlan Kelly, 58, was charged with honest services wire fraud, the U.S. attorney's office and FBI announced Monday.

“Public officials owe their honest services to the people of San Francisco,” U.S. Attorney David Anderson said in a statement. “Bribery scams undermine our faith in City government. Our investigation into City Hall corruption will continue.”

Kelly resigned from the SFPUC Monday, San Francisco Mayor London Breed said in a statement.

"The allegations detailed in the Federal Investigation conducted by the US Attorney’s Office are disturbing and unacceptable for anyone serving in our government, let alone the leader of one of our largest departments," Breed said. "As public officials, we have to hold ourselves to the highest standard and put the public good before all else."

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Kelly denied the charges.

"I am not guilty of these allegations," he said in a press statement on Monday.

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Kelly continued, "I had intended to retire in the next 18 months. Unfortunately, I need to leave my position now in order to defend myself, my legacy and my family. It is painful for me to end a 35-year career as a result of false allegations, but it is simply not possible for me to do my job to the best of my ability while also defending myself. I know that stepping aside now is in the best interests of the City, the SFPUC, and my family."

The news follows the indictment of former San Francisco Public Works Director Mohammed Nuru in January, who was also charged in relation to a bribery scheme. Another department head, Department of Building Inspection Director Tom Hui, resigned this year after his own violation of city ethics laws were revealed in connection to a city attorney's office investigation.

That's three San Francisco department heads, with three alleged schemes, all revealed just this year. The thread that binds them all is Walter Wong, a permit expediting consultant and construction company executive.

In its statement, the U.S. attorney's office and FBI characterized Kelly's relationship with Wong as a "long-running bribery scheme and corrupt partnership."

The complaint alleges that Kelly took international trips paid for, or subsidized by, Wong, made cash exchanges with Wong and accepted free meals from him, all detailed in coded text messages on an encrypted text messaging app.

One of the trips in question was a March 2016 Hong Kong trip to visit the late Rose Pak, a San Francisco community activist. The complaint says investigators reviewed bank records and found Kelly and his wife, City Administrator Naomi Kelly, "incurred almost no significant expenses" on their known debit or credit cards on that trip, which "corroborates WONG's statements" to the FBI that he paid of thousands of dollars in incidental expenses for the Kellys during their trip.

All of those exchanges took place while Wong sought a multimillion-dollar contract from the SFPUC, which Kelly oversaw as general manager, for a citywide LED lighting contract. Wong's son ran Green Source Trading, LLC, which was bidding to convert thousands of San Francisco streetlights to smart LED technology.

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Kelly "used his official position to assist WONG's efforts," the complaint alleges, including postponing the deadline on the LED contract to benefit Wong, while he readied his bid contract.

At one point Kelly texted to Wong, "You told me [t]hat you had everything? I don't know what to do? I don't know how to stop the process anymore.”

Wong eventually gave up on the LED light contract, after a number of changes were made to the process.

According to the complaint, "according to WONG, after expressing frustration to Nuru about the changes, Nuru told him to forget about the project because someone else had bribed KELLY with a much larger sum and WONG was not going to win the (request for proposals)."

The two would frequently text about a San Francisco mayor using the code "35," referencing the mayor's initials on a phone keypad. Those numbers correspond with the letters "E" and "L," perhaps in reference to the late Mayor Ed Lee, who died in 2017.

One of those communications includes this one from 2014, referencing the idea that the mayor in question was aware of a permit Wong wanted to push through the SFPUC with Kelly's help:

Wong: “Just finished mayor breakfast
p's call me, lots of delevoper [sic] complaint your department.”

Wong: “1111 California, p/a # 201008199171. This
is a good example is a revised plan. PUC approved before but not willing to review and resign.”

After Kelly did not respond to Wong for four hours, Wong continued, invoking the code for the mayor:

Wong: did u request help to this permit 1111 California, p/a # 201008199171. this one is in 35 radar

Kelly: Yes have people working on ot.

Wong: tks

In text messages sent during 2013, Wong asked Kelly to confirm they would have lunch on a Sunday. Kelly responded, "yes with 35." Wong said, "35 may play golf tomorrow, he said for me to meet w u first, what time tomorrow is good for u."

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Mayor Lee was known to be a frequent golf player, particularly on Sundays, as a way to wind down from his hectic schedule.

This is by no means the end of the investigation, as both the U.S. attorney's office and City Attorney Dennis Herrera have indicated there is more to come.

"Our internal investigation into Mr. Kelly and others continues, including those not charged criminally," Herrera said in a statement. "We continue to follow the facts wherever they lead and root out those who abuse the public trust."

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KQED reporter Alice Woelfle contributed to this report.