Follow the Money

Some familiar faces get subpoenaed in the investigation of an alleged kickback scheme

It's old home week at the federal grand jury room, with a panel taking testimony about unusual -- and possibly illegal -- campaign activities from some very familiar faces.

Mary L. Castilloand Elizabeth Zermeno,the wife and chief of staff, respectively, of District I Councilman John Castillo, have been subpoenaed to produce documents. Castillo is the official who weathered two hung juries on federal charges of bribery and conspiracy in the "Hotel Six" FBI sting in 1996. Fund-raiser Sue Walden also has been called to appear in her capacity as custodian for financial records of several political action committees under scrutiny. She played the same role in the previous case and is not a target in the probe.

According to Insider sources, prosecutor Melissa Annis is investigating an alleged kickback scheme in which at least one low-level staffer in Castillo's office received large checks for get-out-the-vote (GOTV) efforts directly from a local corporation. The feds are seeking records for various campaigns, including 1997's Proposition A, a measure by conservatives to limit the city's ability to raise taxes and fees without voter approval. The government has subpoenaed records for Houstonians for Common Sense, a business PAC that supported Prop A. Other PAC expenditures under investigation include the 1999 affirmative action referendum and both basketball arena ballot measures.

A high-profile figure listed in the subpoenas is Raul Romero, CEO of S&B Infrastructure and a group of related companies. Romero is a prominent supporter of President George W. Bush.

Another firm listed in the subpoenas is Carreno-Miranda Inc., a defunct political consultancy involving Hector Carreno. He's an executive with CMGV, a consulting company involved in various current Houston municipal races, including Orlando Sanchez's mayoral bid.

Carreno says his former company created a Spanish-language radio spot for a bond election in 1997. "We produced the radio commercial. I believe we bought some radio time, and that was it," he recalls. A political action committee paid Carreno's firm for the work.

Among the names on the subpoena list for documents is Johnny Soto. This former Castillo chief of staff had a bitter falling-out with his boss that culminated in his firing several months ago. Soto flirted with the idea of running for Castillo's term-limited seat but did not file for the position.

At the time, Soto e-mailed a blast at Castillo, saying, "the reality is that I resigned of my own free will leaving an office that was suffering from hoof-and-mouth decease [sic]."

Soto is now employed by PPI, a government consulting firm with branches in New York, Chicago and Houston. The feds reportedly are looking for Soto so they can subpoena him.

Contacted by The Insider, Soto claims the investigation centers on a GOTV effort in the Hispanic community just before the 1997 mayoral election that pitted Republican Rob Mosbacher against eventual winner Lee Brown. By Soto's account, Castillo's staff was doing the work along with the National Association of Latino Elected Officials. The Houston Hispanic Coalition, including then-councilwoman Gracie Saenz and Carreno, was also involved.

Soto says Romero decided to partially fund the effort because he supported Mosbacher and thought a high Hispanic turnout would boost his chances. Romero's S&B Infrastructure Inc. wrote checks totaling about $10,000 to Karla Sanchez, who was working in Castillo's office at the time. She cashed the checks at S&B's bank and gave the money to people running the campaign to pay workers, including groups of University of Houston students, to go door to door on Election Day "flushing" voters to the polls.

Soto claims problems began when S&B's accountant sent a 1099 tax form to Sanchez designating her as a contract employee and making her responsible for the $10,000 in income. She was making less than $17,000 a year in Castillo's office. Sanchez notified the IRS that she had not received the money, sparking the investigation that eventually wound up with the FBI. Sanchez, an immigrant, has not fared well as a result.

"I hear the poor girl was applying for [U.S.] citizenship and they've denied it to her because of this," says Soto. "She's about to get foreclosed on a house she bought."

Romero confirms that his company wrote four checks directly to Sanchez to fund a voter turnout effort in Hispanic precincts for the 1997 mayoral runoff between Mosbacher and Brown. The request, says the executive, came from Councilman Castillo. Since the effort was in heavily Democratic areas, Romero says, he gave the money to help stimulate a respectable Hispanic showing at the polls, rather than with the expectation it would assist Republican Mosbacher. "It wasn't helping anybody," he insists. "It was a neutral thing."

Romero says that before the checks went to Sanchez, his officials got a budget from Soto on how the money would be spent.

According to Romero, S&B had no choice but to report the checks as income to the IRS, creating a tax liability for Sanchez of $326. When she protested, there was no way to retract the action, which resulted in the investigation.

"We could not withdraw the 1099, because that would be illegal," explains Romero. "And we could not pay her taxes, because that would have been laundering the money. We wanted to do everything legal and above the table."

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