How a group of Chinese developers found their way to City Councilman José Huizar, made over L.A.’s downtown, and caused the city’s biggest corruption scandal in decades.

BY DAVID BARBOZA — SEPTEMBER 6, 2020

It all began in February 2013, at a dinner in Los Angeles organized by Raymond Chan, an official in charge of the city’s building and safety inspection agency. Attending that evening was City Councilman José Huizar, who at age 44 was a rising star in the Democratic Party, and perhaps the future mayor of Los Angeles. A graduate of Berkeley and Princeton, Huizar had championed the redevelopment of downtown Los Angeles, and he chaired the city’s powerful PLUM committee, which gave him oversight of land and property developments.

They were joined that evening by Huang Wei, a 54-year-old Chinese billionaire who was eager to build in downtown Los Angeles, which was part of Huizar’s district, the 14th. Although he resided in China, Huang made frequent trips to L.A., and had acquired two sizable pieces of property in the city in 2010 and 2011. On one plot, he planned to build a 77-story tower, which promised to be the country’s tallest building west of the Mississippi
River.

The two power brokers apparently hit it off, because several weeks later, on March 22, Huizar and his 26-year-old aide, George Esparza, secretly boarded Huang’s private jet to travel to Las Vegas for a weekend of fun and gambling. Huang put the men up in a fivebedroom villa and, while gambling at a casino, handed Huizar $10,000 worth of gambling chips. Huang also paid the group’s weekend tab: $56,704.

Over the next four years, there would be at least 19 more trips with Chairman Huang to casinos in Las Vegas and Australia, as well as more meals, alcohol, spas, prostitutes, “escorts” and gambling chips that Huizar could cash out and take home, worth nearly $250,000. All told, Chairman Huang spent $890,388 with Huizar and Esparza, just visiting casinos.

Little did they know, the F.B.I. was watching — and sometimes listening in — on the conspiracy. The authorities used surveillance camera footage to identify some of the crimes, as they took place. They read emails, wiretapped phones and had bugs planted in downtown offices. The authorities also relied on informants to explain the unfolding “pay-to-play” scheme, which would turn out to be the biggest corruption scandal to rock the city of Los Angeles in decades.

In Las Vegas, Huizar was caught on video cashing out casino chips handed to him by Chairman Huang. In Australia, the authorities intercepted text messages of Huizar and his aide, Esparza, discussing how to convert cash bribes from Australian dollars into American greenbacks and evade alerting the tax authorities. (“They are asking me for my drivers license and social security [number] for IRS record. Do you think it’s fine to leave my info?”

Esparza asked in a text. To which Huizar responded, “No. Maybe we can change a little at a time… under 10k in the future.”) Investigators also obtained photographs Huizar and his co-conspirators giddily took with their iPhones after receiving massive bribes: pictures of stacks of $100 bills lined up on a carpet or tucked into a liquor box.

Federal investigators dubbed the case “Operation Casino Loyale” — because of how it began, and how Huizar masterminded things, playing the role of “the boss,” while a group of loyal city officials, lobbyists and consultants executed his “pay-to-play” scheme. (The group referred to themselves by many names, among them the “Friends of the Office,” the “City family,” and the “CD-14 stakeholders,” a reference to City Council District 14.) Prosecutors laid out the charges last June in a 172-page complaint that reads like an episode of the HBO Series, “The Wire.”

Chairman Huang (identified in court filings only as “Chairman E”) even put up $600,000 to help Huizar settle a sexual harassment lawsuit brought by a former aide. And after Huizar arranged to have his wife, Richelle Huizar, campaign to succeed him in the City Council, Huang organized a fundraiser at one of his hotels and pledged to raise $100,000 for her campaign. About $130,000 in cash — some of it from Chairman Huang — was later recovered by the F.B.I., stuffed in a closet at Huizar’s home, along with red envelopes bearing Chinese characters.

Though Huizar was likely unaware, Chairman Huang, a former Communist Party official, had been accused of bribery back in China, but apparently faced no jail time, according to Caixin, the Chinese business magazine. (The case cited by Caixin led to an 11 year prisonterm for a Chinese official.) Still, Huizar became so deeply indebted to Huang that his own aides began to joke about it. According to a wiretap, one Huizar staffer said Chairman
Huang “should have all the leverage in the world ’cause of what” Huizar owed the businessman.

In exchange for cash and gifts, Councilman Huizar helped fast-track approvals for Huang’s property company, Shenzhen New World, to build a skyscraper in central L.A. Huizar also helped Huang with other matters — labor union negotiations, U.S. visas, and assistance with a relative seeking to gain admission to a college in southern California. (Huizar, prosecutors said, appealed to a “high-ranking” administrator at the university.) Chairman Huang was not the only developer on the City Councilman’s speed dial. Prosecutors say he and his network also accepted bribes from other property developers, including a Chinese property firm identified as “Company D,” in federal filings. The Wire believes the government description fits Shenzhen Hazens, a Chinese property firm that also has an interest in finance and hospitals.

According to the Justice Department, Hazens paid for Huizar and his family to secretly traveled to China to meet the company’s boss, and in exchange Huizar agreed to back the company’s projects in L.A. Hazens (or Company D) responded, the authorities said, by arranging to have an affiliated company buy fake “real estate reports” from a family member for $11,000 a month. The company also agreed to donate $100,000 to her budding political campaign.

When Huizar was arrested, in June, Nick Hanna, the U.S. Attorney for the Justice Department in Los Angeles, was blunt in his description of the enterprise. “The case pulled back the curtain on rampant corruption at City Hall,” he said. “Councilman Huizar violated the public trust to a staggering degree.”

Hanna added: “Using the power of his office to approve all large building projects, Huizar worked through a web of other corrupt city officials, lobbyists, consultants and developers to line his pockets and maintain his hold on Council District 14, which he turned into a moneymaking criminal enterprise that shaped the development landscape in Los Angeles.”

Analysts say that with America’s big cities awash in Chinese money and desperate for redevelopment funds, it was inevitable that American politicians would be eager, or pressed, to form alliances and trade favors with wealthy
businessmen, from here and overseas. Despite ethics, disclosure laws and conflict of interest rules, many big city politicians have learned togame the system — and milk it.

“Huizar was doing what the system allowed him to do,” says Adrian Riskin, an L.A.-based municipal politics blogger and transparency advocate who operates www.Michaelkohlhaas.org. “It’s normal here. The entire city of
L.A. zoning and permitting process is designed to encourage this type of bribery. Think about it: we only have 15 City Council members for four million residents.”

Before his resignation from the City Council and his arrest in June on bribery and racketeering charges, José Luis Huizar’s story was inspiring and filled with promise. He was born in Zacatecas, Mexico, the son of a migrant farmer and meat-packing plant worker, and as a young boy moved to East Los Angeles, a poor, heavily Latino neighborhood where nearly 96 percent of the residents have roots in either Mexico or El Salvador. He graduated near the top of his class from Bishop Mora Salesian High, a Catholic school, earned a bachelor’s degree from Berkeley, a master’s in public policy from Princeton, and a law degree from U.C.L.A.

It was while serving as board president of the L.A. Unified School District (which oversaw 730,000 students and an $8 billion budget) that Huizar began to gain national attention. He was named one of the 100 most influential Hispanics by Hispanic Business Magazine. And in 2004, Princeton invited him to join the university’s board of trustees, alongside future Supreme Court Justice Sonia Sotomayor and Sen. Paul Sarbanes, the Maryland Democrat.

A year later, in a special election to fill a seat vacated by Antonio Villaraigosa, the city’s new mayor, Huizar became the first Latino immigrant ever to win a seat on the Los Angeles City Council. The district he represented, the 14th, encompasses much of East L.A., where he grew up. But it also includes some of the city’s most valuable real estate, in downtown Los Angeles, which provided Huizar with a front row seat to the city’s ongoing revitalization efforts, following the opening of Frank Gehry’s Walt Disney Concert Hall, the $2.5 billion L.A. Live entertainment complex, and the Staples Center, where the NBA’s Lakers and Clippers and the NHL’s Kings play their home games.

L.A. was getting a makeover, fueled in part by an economic boom taking shape on the other side of Pacific — in China. Wealthy tourists and immigrants from China were flocking to the City of Angels, generating new business and lifting housing prices. The city’s universities, like colleges elsewhere, began welcoming more international students from China. And technology startups in the state were being aggressively courted by Chinese investors.

One measure of the money flow was foreign direct investment in the region. According to Thilo Hanemann, author of a special report! released in November 2017 by the Asia Society and the Rhodium Group, the state of California took in $16 billion of F.D.I. in 2016, up from $700 million in 2011. And much of that money flowed into two key sectors: technology and real estate. A good chunk of that money was used to revitalize downtown L.A.

“The Chinese were incredibly important in remaking the downtown area,” says Alan X. Reay, president of the Atlas Hospitality Group, a Los Angeles based advisory firm. “The transformation has been incredible. It used to be that at 5 o’clock everything closed. Now it’s really a 24-hour area. Without the Chinese developers in the downtown, we wouldn’t have seen anywhere near this type of development.”

In 2012 and 2013, Xi Jinping visited L.A. just as he was making his ascent to the position of China’s supreme leader. He visited the set of DreamWorks studios and took in a Lakers game at the Staples Center. Soon after, Chinese investors began snapping up stakes in Hollywood movie studios. The Dalian Wanda Group bought Dick Clark Productions, the TV production group that produces the Golden Globes, and paid $3.5 billion to buy a film studio, Legendary Entertainment. The company also donated $20 million to the city’s new Academy Museum of Motion Pictures, which runs the Academy Awards.

By then, China’s property tycoons were already eyeing huge plots of land in central L.A., to build a presence in what is now, demographically at least, the most Chinese of America’s big cities. Oceanwide Holdings, a Beijing-based firm controlled by the billionaire Lu Zhiqiang, acquired property adjacent to the Staples Center to build condominiums and a Park Hyatt hotel. Greenland, a state firm, bought a huge site to build Metropolis, a complex with retail space, 1,500 residential units and an 18-story boutique hotel. And Huang Wei, the billionaire from southern China, acquired the Los Angeles Marriott Hotel and the Sheraton Universal Hotel, near Universal Studios, for his Shenzhen New World Group.

The two Chinese firms most closely identified with Huizar in the indictment are major players in China. Chairman Huang, the billionaire developer, grew up in southern China, served as a government official and then went into business, building a small property firm into one of Shenzhen’s biggest developers. And Yuan Fu’er runs Shenzhen Hazens, which has property development and asset management firms, a Hong Kong listed company (Legend Strategy International 1355.HK), and partnerships with Starwood Hotels and a division of the China Nuclear Group. (According to the Hazens website, the company also has a partnership with a hospital in East Los Angeles and the company has an “investment immigration program” that connects to the US EB-5 program, or what the company calls a “service platform for Chinese citizens to settle overseas.”)

Neither businessman had much experience in the U.S. market before 2013, when the F.B.I. says the conspiracy got under way.

Securing approval to build commercial developments in a city like L.A. can be a difficult process, involving environmental and economic impact studies, public hearings and the necessary permits and government approvals. And typically, developers pay consultants and lobbyists to expedite the process. Since projects in downtown L.A. can involve investments in the hundreds of millions of dollars — even billions — analysts say developers are often willing to pay hefty consulting and lobbying fees. That’s how a group of Chinese developers found their way to Huizar, who served on the economic development committee and chaired the City Council’s powerful Planning and Land Use Management Committee, or PLUM. In 2011, during his second term in office, Huizar’s 14th district was restructured to absorb “Little Tokyo” and other parts of downtown L.A., instantly upgrading his influence over the city’s most lucrative commercial district.

According to prosecutors, a small group of lobbyists and consultants built a “criminal enterprise” around Huizar, an organization that facilitated bribes, payoffs and kickbacks. They set up meetings, delivered cash, recorded favors, and funneled “donations” to favored political action committees. The pitch was straightforward. The group effectively told developers that their man in the City Council could get things done. “If Huizar does not put you on the agenda, then your project will not see the light of day,” one of his aides told a developer, according to an F.B.I. wiretap.

This is how things got started with Chairman Huang, government investigators say. Raymond Chan, then the interim head of the city’s buildings and inspection agency, was about to lose his post in an agency revamp and appealed to Huizar, who managed to save his job. In return, investigators say, Chan set the table for Huizar and Huang to engage in a “pay-to-play scheme” — the developers pay bribes, and the officials permit them to play in the city’s big property sandbox.

After meeting Huizar for dinner in February 2013, Chairman Huang wasted little time. A month later, he invited Huizar aboard his private jet for the hour-long flight to Las Vegas. By the end of the weekend, Huizar walked away with a bundle of cash and, it would seem, hints that there was much more to come — cash, gifts, trips to the Wynn casino and other gambling halls, prostitutes, golf outings and political donations.

A year after the first casino outing, Huizar returned one favor in public. On April 14, 2014, with Huang’s projects before the PLUM committee, he issued a lengthy written resolution about the life of Chairman Huang! that the City Council adopted, honoring the Chairman, who Huizar said “became very successful in real estate due to the popularity of home owning at the time and was able to earn lots of agency fees making that the very first profit in his life.”

How did this happen in L.A.? California, after all, is a state that would appear to be well inoculated from the worst forms of political corruption. The state and the city of Los Angeles have ethics rules, financial disclosure requirements for public servants, and a lifetime ban on certain forms of lobbying after an individual has held public office. The state has also adopted a far-reaching government transparency law similar to the federal Freedom of Information Act. The law allows citizens to make detailed requests, even for the emails and text messages of public officials.

And yet, according to the F.B.I., for at least seven years, Huizar and Friends ran a “criminal enterprise” that engaged in fraud, bribery, kick backs and money laundering, all the while perverting the zoning and permitting process for developers and coming up with tactics to disguise their activities and obstruct justice.

The rules, analysts say, were too easy to get around. Money, for example, was not typically funneled through ordinary campaign donations, but through law firms, lobbyists and even fundraisers at Huizar’s Catholic high school, where his wife worked at the time; some cash was also directed at community organizations or political action committees, and stuffed in envelopes and liquor boxes — not to mention gambling chips that could easily be converted into cash.

Tom Hogan-Esch, who teaches political science at California State University, Northridge, says the system tends to give too much power to the officials. “When big things happen, it’s really the city council member who makes the decision, and his colleagues defer to him with the expectation that when something happens in their district, they will get the same level of deference from the other colleagues,” he told The Wire. “That’s another kind of institutional aspect of corruption in real estate in Los Angeles that goes back a long while.”

The F.B.I. says the tipoff came in August 2015, when it got word that Huizar had accepted travel and gifts from Chairman Huang during a gambling trip to Las Vegas. At the time, Huizar was running for his third and final term as a City Councilman because of term limits.

The federal authorities used considerable resources to carry out the investigation, according to the criminal complaint. They issued search warrants for his personal email account, casino and airline records and GPS location information from his phone. Agents planted audio and video bugs at key locations and deployed surveillance and vehicle tracking devices. A federal court authorized the F.B.I. to intercept CCTV images around the city, and the agency used a Chinese linguist to translate Chinese conversations. In November 2018, after a nearly five year investigation, federal investigators carried out raids on Huizar’s Los Angeles home and his office at City Hall, hauling away documents and electronic devices. After the authorities arrested him, on June 23, other city officials broke with him in disgust.

For the past two years, there have been a string of guilty pleas in the case. In May of this year, for instance, Huizar’s longtime aide, George Esparza, became a cooperating witness and agreed to plead guilty to taking part in the “criminal enterprise.” Of course, the hammer has not yet fallen on the Chinese developers accused of bribing Huizar and his associates. But the Justice Department says the “Casino Loyale” investigation is ongoing, which leaves open the possibility that the developers and their top executives, who are accused of paying bribes to public servants, could still be charged. Such a move could also call into question the validity of their licenses, permits and projects in central L.A., experts say.

Shenzhen New World and Shenzhen Hazens could not be reached for comment. And yet in April 2020, despite the Justice Department’s bribery allegations, Shenzhen New World managed to receive two loans of between $2 million and $5 million each, from the federal government under the Payment Protection Plan to help aid the company during Covid- 19, according to a search of filings listed on the ProPublica website.

Shanghai Greenland, a big state-owned property developer that was named in an F.B.I. document seeking information about any dealings it may have had with Huizar and his associates, issued a statement in June 2019. “As for the FBI’s investigation of certain government officials at the City of Los Angeles including Jose Huizar, council member of the 14th District of the City of Los Angeles, Greenland USA is not a target of that investigation. No one is alleging that Greenland USA or any of our employees has done anything illegal or improper.”

The impact on L.A. could be severe. Downtown L.A. is already reeling from the Covid-19 pandemic and could soon take another blow from a scandal that has tainted one of the city’s glittering showcases: the massive, new hotel and entertainment district built around the Staples Center and the L.A. Live complex.

Analysts say some other projects have halted construction in the downtown area, and there have been a rash of lawsuits tied to the EB-5 program (see The Wire story), whereby investors — typically Chinese — invested $500,000 apiece to help create American jobs in exchange for a green card. Chinese firms often favored the program as a way to raise funds from investors in China, rather than rely on U.S. banks for financing.

“I think we’ll see an exodus of the Chinese,” says Reay, at Atlas Hospitality, noting that financing has been difficult during Covid-19. “The scandal doesn’t help. Right now, we’re seeing a tremendous number of foreclosures. This is going to be the worst year in history for hotel sales. A lot of hotels have closed down.”

This is all playing out against a backdrop of growing hostilities between the U.S. and China over human rights, intellectual property theft, the new national security law in Hong Kong, and even allegations of foreign influence in U.S. elections. And those tensions have already put a damper on cross-border investment from China. Both the U.S. and China have put restrictions on cross border deals and approvals, experts say.

If there are lessons to be learned from “Operation Casino Loyale” (indictment here) analysts say it may have less to do with the specific allegations against Huizar and his associates and more to do with America’s hunger for capital. Eager for private investment, the American system has often ignored the risks of blindly embracing new capital and the potential for it to corrupt its politicians and institutions.

Today, that capital just happens to be from China.

Huizar is now awaiting trial in Los Angeles. If convicted, he could face up to 20 years in prison. His wife Richelle has dropped her bid to succeed him in the City Council, and his mother has been questioned about helping him launder cash.

Sam Sharpe and Hannah Reale contributed research and reporting for this story.

David Barboza is the co-founder and a staff writer at The Wire. Previously, he was a longtime business reporter and foreign correspondent at The New York Times. @DavidBarboza2

atlashospitalitygroup hospitalityindustry hotelnews