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The state of California filed criminal charges against two former top San Diego redevelopment officials today, accusing them of embezzlement and misappropriation of public funds nearly three years after a voiceofsandiego.org investigation uncovered their clandestine bonus scheme.

Carolyn Y. Smith and Dante Dayacap face a maximum of seven years and four months in prison if convicted of the charges brought against them by State Attorney General Kamala Harris. They were president and finance director, respectively, at the city’s Southeastern Economic Development Corp., an organization that oversees taxpayer-sponsored development in San Diego’s southeastern neighborhoods.

Law enforcement officials arrested Dayacap today. Smith wasn’t immediately taken into custody.

Each was charged with five felony counts: conspiracy to commit a crime, three counts of embezzlement of public funds and one count of misappropriation of public funds.

In 2008, VOSD revealed that Smith and Dayacap paid themselves and other SEDC employees significantly more than they had reported to their board, the City Council and the public. By keeping key positions unfilled and obscuring budget documents, they funneled more than $1 million over five years to themselves and others without authorization.

Smith and Dayacap were the largest recipients of the bonuses. In fiscal year 2007, for example, SEDC paid Smith nearly $95,000 more than the salary it reported publicly.

The charges against the pair allege 42 “overt criminal acts,” listing in detail the different ways that Smith and Dayacap worked around the City Council-imposed budget limits. They gave out checks for things such as “year end acknowledgement,” “COLA” (cost of living allowance), “holiday bonus,” and “incentive pay.” Court documents said Dayacap would have an accountant project SEDC’s salary costs during the fiscal year in order to figure out how much unused salary could be distributed for bonuses.

On March 3, 2008, Smith and Dayacap signed checks giving themselves bonuses worth more than $20,000 each for “incentive pay,” according to court documents. Two months later, on May 7, they signed checks giving each other more than $22,000. The payments, again, were labeled as “incentive pay.”

According to court documents, Smith told the mayor’s former director of communications that the City Council had denied pay increases, so she found a way around that. In a later deposition, the court documents say, Smith said she felt SEDC employees weren’t paid enough compared to those at their sister agency, the Centre City Development Corp., “so we found ways to compensate them.”

Smith, SEDC’s longtime head, was quickly ousted from her job under fire from the mayor and City Council. It was a rapid and startling fall from grace for the daughter of one of San Diego’s most prominent civic leaders, the Rev. George Walker Smith.

For his part, Dayacap had a history of personal financial troubles, having filed for bankruptcy three times.

A majority of SEDC’s board was soon replaced. And although City Hall sprang to action following the bonus revelation, its leaders had sufficient warning signs about SEDC’s activities under Smith, but either missed or ignored them.

An audit later found that the bonus scheme rose “to the level of fraud.” The FBI seized SEDC’s computers and spoke with its board members. However, as years passed, it looked like the case had dropped off prosecutors’ radars.

SEDC, whose basic survival was thrown into question by the bonus scandal, appears to have recovered from the scandal. It began connecting more with the community under interim leader Brian Trotier, who recently gave way to new President Jerry Groomes. However, with taxpayer-sponsored redevelopment a target of Gov. Jerry Brown, its long-term existence is in question along with all other redevelopment agencies.

Attempts to reach attorneys for Smith and Dayacap weren’t successful.

Check back for more later.

Contact the reporters directly at andrew.donohue@voiceofsandiego.org or 619.325.0526 and will.carless@voiceofsandiego.org. Follow them on Twitter: @AndrewDonohue @WillCarless.

Will Carless

Will Carless was formerly the head of investigations at Voice of San Diego.

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