Carolyn Y. Smith and Dante Dayacap, the former city of San Diego redevelopment officials charged yesterday with five criminal felonies, both pleaded not guilty in a joint arraignment in Superior Court this afternoon.

Looking shaken, Smith, flanked by her lawyer Jerry Coughlan, was led from the courtroom in handcuffs at the end of the hearing. She and Dayacap addressed Judge David Szumowski only once, both saying “yes” when asked if they understood that they had a right to a hearing within 60 days.

Szumowski granted the defendants bail at $25,000 apiece, far lower than the initial $130,000 that the state Attorney General’s Office, which is prosecuting the case, had requested for Dayacap.

Coughlan asked that the judge allow Smith’s bail to be processed immediately at the courthouse, meaning that his client would walk free from the court, but the judge declined the request. She will be transported to Las Colinas Detention Facility, but is scheduled to be free on bail shortly.

The defendants’ attorneys both told the judge that their clients were upstanding, long-term residents of San Diego and didn’t pose a flight risk. Coughlan pointed out that Smith lives with her 82-year old father, who is in ill health.

“She’s been here all of these years, she’s not going anywhere,” Coughlan said,

In interviews after the arraignment, both Coughlan and Dayacap’s attorney, Marc Carlos, expressed surprise at the sudden announcement of the charges against their clients.

Carlos said Dayacap had known for a long time that he was under investigation. His client was sent a “target letter” by the U.S. Attorney’s Office in Washington, D.C., almost a year ago, informing him that he was the subject of an investigation, Carlos said. But Carlos added that neither he, nor Dayacap, knew the state Attorney General’s Office was involved in the case until Dayacap was arrested yesterday afternoon.

Coughlan concurred. He said he had no idea the state was investigating Smith until yesterday afternoon.

“Normally, you work with the prosecutors to try and talk to them about the case and you’ve come to an agreement about what the bail will be and surrender and those sorts of things, you don’t usually get surprised,” Coughlan said.

“It’s a little unusual,” he added.

Smith and Dayacap are charged with conspiracy to commit a crime, three counts of embezzlement and one count of misappropriation of public funds. A investigation in 2008 uncovered a clandestine bonus scheme overseen by the two while they were the two top officials at the Southeastern Economic Development Corp., a city agency tasked with redeveloping some of San Diego’s poorest neighborhoods.

They paid themselves hundreds of thousands of dollars in bonuses over several years, which prosecutors allege violated the law. The bonuses were never approved by SEDC’s board or by the City Council, which oversees the agency.

Coughlan said Smith has also known for several years that she was under investigation. He said his client steadfastly denies all charges.

“We will look forward to finding out, through the discovery process, what the attorney general believes happened and then presenting our side of the case to them,” he said.

Carlos expanded on his client’s not guilty plea.

“Everything he did was on the up-and-up. He complied with all the rules and regulations.”

The charges have taken a toll on Dayacap, Carlos said.

“He’s been called an embezzler, a thief and it’s really wearing on him,” he said.

Please contact Will Carless directly at or at 619.550.5670 and follow him on Twitter:

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

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