Former city real estate adviser Jason Hughes is expected to plead guilty Thursday to a criminal conflict-of-interest violation, and per a settlement approved by a City Council majority on Wednesday, must essentially repay the $9.4 million he received from the city’s former 101 Ash St. landlord.
In exchange, the city will drop civil actions accusing Hughes – who had publicly been considered a volunteer – of violating Government Code Section 1090, which bars government officials from having financial interests in contracts they broker in their official capacities.
Hughes, 55, is now expected to plead guilty to a misdemeanor violation of that state law, the District Attorney’s Office announced Thursday.
It was also not immediately clear if Hughes might face other penalties as part of the plea agreement.
The debacle surrounding the city’s controversial 101 Ash St. acquisition metastasized in 2021 with the revelation that Hughes received $9.4 million from the city’s now-former landlord for his work on the city’s 101 Ash lease and the virtually identical, earlier Civic Center Plaza deal. City Attorney Mara Elliott’s office responded by filing civil conflict-of-interest actions that the city ended with Wednesday’s vote.
The City Council vote and expected plea follow orders from Superior Court Judge Kenneth So, who has overseen evidence issues in the criminal case and is set to retire March 26.
The District Attorney’s Office said Judge So sought a “global resolution that would serve the interests of justice.”
“In many cases, conflict-of-interest cases result in only civil or administrative remedies,” District Attorney Summer Stephan wrote in a statement. “But in this egregious case, it was important to attain a measure of criminal liability and make certain that restitution be required via a criminal case and not left to chance in civil court. The message we are sending is clear: whether you are in an elected position, a public employee, a contractor, or an appointed volunteer, if you personally profit from contracts related to a government position, you will be held accountable for violating this public integrity law.”
Elliott also cheered the settlement before the Wednesday City Council vote. She described the situation as a textbook conflict-of-interest case and the Wednesday settlement as an “indisputable” win for the city.
“We are 100 percent confident in presenting this to you as a good deal for San Diego taxpayers,” Elliott told the City Council, noting that a trial could cost taxpayers an additional $1 million with less certain results. The city’s civil cases had been set to go to trial late next month.
A 7-2 majority of the Council ultimately voted to approve the settlement.
Councilwomen Marni von Wilpert and Vivian Moreno voted against it, with von Wilpert arguing the city should have demanded that Hughes and his company agree not to do any future business with the city. Bill O’Connor, an attorney for Hughes, told the Council his client would not add that language to the settlement after von Wilpert asked him to address her request.
Moreno, meanwhile, argued the city should take the matter to trial.
“In my experience, allowing all the information to become public through a trial is what truly puts something like this behind us,” Moreno said. “As we all know, sunshine is the best disinfectant on this issue. We are lacking the illumination of the full depth of the corruption in this matter that the public deserves to see.”
Most council members, including Council President Sean Elo-Rivera, described the settlement as a positive outcome amid a horrendous scandal.
“There’s nothing about this entire saga here that I feel good about, but I feel a responsibility to do the best we can with a bad situation,” Elo-Rivera said. “Getting every single dollar back that was wrongfully gained from the city is a positive and I’m not willing to gamble that $9.4 million on a previous administration that I view as inept and don’t trust on the witness stand.”
Elliott had pushed back last year as the Council voted to settle with ex-landlord Cisterra Development and its lenders, citing the strength of the city’s legal case among other arguments. The city attorney rallied behind the proposed settlement with Hughes on Wednesday and noted that, unlike the deal with Cisterra, Hughes will pay back his profits on both the 101 Ash and Civic Center Plaza leases.
Hughes’ attorney Michael Attanasio previously argued that his client, who did not have a formal contract with the city, was not covered by state conflict-of-interest law.
Hughes, who in 2013 volunteered to advise then-mayor Bob Filner on real estate issues, has also said he told multiple city officials he wanted to be paid by someone other than the city. Hughes has also produced a letter he says the city’s former real estate director signed giving him the go-ahead to seek compensation for complex city lease deals. Yet the former real estate official and other former city officials have said that they didn’t know the city’s landlord paid Hughes.
A Wednesday statement Hughes’ attorney sent on his behalf emphasized that letter and the real estate broker’s past comments to city officials – and said Wednesday’s events would provide finality for Hughes.
“While Jason was prepared to put forth a vigorous defense at trial, he has concluded it is in his best interest to settle all claims against him in order to avoid the heavy cost and ongoing distraction of protracted litigation, Jason looks forward to being able to fully focus his time and resources on Hughes Marino’s continued national success, his family, and the San Diego community,” the statement said.
Los Angeles-based white collar defense attorney Kenneth White, who has litigated multiple conflict-of-interest cases including in state appellate courts, said the ultimate result – particularly Hughes’ decision to pay back the $9.4 million – wasn’t surprising.
“California’s conflict-of-interest laws, embodied in Section 1090, are quite unforgiving and can have a draconian effect,” White wrote in an email to Voice of San Diego. “Good faith and good intent — and even acting based on legal advice — are not defenses. It’s a trap for the unwary that can unwind transactions and even expose independent contractors to civil and criminal liability years later.”
The settlement deal with Hughes delivers a remedy commonly sought in 1090 challenges: disgorgement, a requirement that the party accused of the conflict-of-interest repay any profits received as a result of those acts.
A settlement that the City Council last summer approved with Cisterra and its lenders called for Cisterra to pay the city the equivalent of the $7.45 million in net profits it received in the 2017 101 Ash transaction. It did not include an additional $6.4 million Cisterra received via the Civic Center deal. Investors who provided upfront cash to facilitate both leases, meanwhile, agreed to waive an estimated $11.7 million in penalties associated with paying off lenders’ debts before the planned 20-year leases concluded.
The arrangement helped facilitate the city’s controversial $132 million buyout of the two city leases and the end to its legal fight with the landlord and lender behind the 101 Ash and Civic Center Plaza deals.
At the time, Mayor Todd Gloria and other city leaders emphasized that the deal wouldn’t stop the city or criminal investigators from going after Hughes.
Now those efforts appear to be coming to a close.
It wasn’t just the $9.4 million that caused the conflict. Hughes had a deal with Cisterra that paid him a bonus percentage if the sale to the City went through, and conversely fined him a percentage if the sale did not go through. This is why he pushed for the City to purchase – he was on the hook for money if they didn’t. There’s simply no way to remain an objective “counselor” on a deal like this if you will lose money if the sale does not go through.
It appears this could have been charged as a felony per Government Code 1097. If so, why did the DA go with a light touch?
Because….San Diego! Corruption rules within the city government.
Looks like it may rule in the County District Attorney’s office too. Why else would the DA let Hughes off with a misdemeanor conviction, one year probation, and a slap on the wrist fine of only $400? Why did this DA pull her punches in what was a clear felony violation of state law? And wait until she was safely reelected before doing so?
Most likely because Hughes agreed to turn over the $9.4 million. Faced with a harsher penalty he may have fought turning over the money.