On April 23, 2007, two San Diego investigators, Gerald Cook of the Federal Bureau of Investigation and Dan Vile of the San Diego Police Department, turned in a criminal investigation of wrongdoing in a local business improvement district. The report was submitted to the district attorney’s office, which ultimately did nothing about it.

Business improvement districts provide landscaping, marketing plans, and parking improvements, among other services, to older areas of town. Businesses pick up the bulk of the tab through assessments, but local governments authorize expenditures and can also award contracts and federal community development block grants to the districts.

The focus of the investigators’ report was the North Bay Association, a business improvement district in the Sports Arena area, and two entrepreneurs, Paul Mannino and the politically powerful Marco Li Mandri, executive director of the nonprofit Little Italy Association and also head of his own company, the for-profit New City America, which specializes in contracts with business improvement districts. (The Reader offices are within the Little Italy business improvement district.) Scott Kessler, who has spent much of his life working with such districts, has for several years had questions about Li Mandri’s possible conflicts of interest — for just one thing, Li Mandri’s for-profit operation getting fat contracts from the nonprofit he runs. Li Mandri has been involved in several business improvement districts in San Diego and is active in such districts around the country.

In 2006, Kessler got a job with the City riding herd on the districts. And according to a lawsuit in superior court, he lost that job because he refused a direct order from his superior to discontinue further contact with the investigators, supplied their criminal report to the Ethics Commission, and would not go along with Li Mandri’s attempts to shortcut municipal regulations.

View Kessler’s suit

The joint FBI/police investigation got under way in April of 2005, when Kessler, then head of the nongovernmental San Diego Business Improvement District Council, told the police about alleged conflict-of-interest violations in the North Bay Association. The first conflict of interest occurred, the report says, when Li Mandri, who was hired as a consultant to set up the district, became the district’s executive director, with a $50,000 salary. On a similar note, the investigators say, “Although not a focus of this investigation, Li Mandri had been hired by the City to form the Little Italy [business improvement district] and subsequently, after the [district] was formed, was hired by the organization that received the [district] administration contract.”

In 2001 Paul Mannino held the unpaid position of president of the North Bay Association and Li Mandri was its paid executive director. According to the joint FBI/police report, Mannino wanted to award a $50,000-a-year subcontract for security work to a company that Mannino would set up. Kessler told Mannino that it was an obvious conflict of interest. So, according to the report, Mannino then took over Li Mandri’s position as executive director of the North Bay Association under a subcontract from Li Mandri. Lo and behold, Li Mandri’s New City America then got two community development block grant subcontracts from North Bay. Kessler cocked an eyebrow at that nifty exchange too. So did the two investigators, who then began their exhaustive report, which is 65 pages in length, single-spaced. Li Mandri and Mannino were never interviewed because they would not talk without certain assurances and conditions, according to the report.

The investigators gathered copious documents from such places as New City America and the homes of Li Mandri and Mannino. The documents indicate that there’d been a quid pro quo arrangement between the two men. Conclusion: Li Mandri and Mannino were guilty of violating many laws.

The investigative report found that “fraudulent procurement processes” had been used when the grants were awarded to Li Mandri. Additionally, when the City asked North Bay for documentation, Mannino submitted false information.

In 2002, the North Bay Association got a block grant from the city worth $20,000 to conduct a study of vagrant-related activity. The association was to gather crime statistics and to survey businesses. In July 2004, North Bay requested payment from the City for the work. However, the investigators concluded that work had never been done, according to the report.

A year later, the City asked North Bay for the study, and after three weeks Mannino supplied a purported study. Evidence obtained through the search warrant indicates that it was written just days before it was sent in. Among that evidence were the surveys. The investigators got in touch with the people who supposedly had filled them out. One after another said they had never been contacted for the association’s so-called survey and the handwriting supposedly displaying their answers was not theirs. For just one example, Joey DeSanti, a friend of Mannino’s, “advised that he had never filled out such a survey, did not recall ever being contacted and asked the questions found in the survey, and did not recall ever giving permission to use his name in association with such a survey,” according to the investigative report.

Lynn Ammons “advised that the handwriting on the survey was not hers,” says the report. “She further advised that she never completed such a survey in person, nor was she ever called by anyone and asked the survey questions over the phone.”

Using handwriting analysis, the investigators concluded that the names and answers were written by Mannino, according to the report. The vagrant study was fabricated and fraudulent, say the investigators.

The FBI/police report’s final allegation involves “a bribery and attempt[ed] extortion scheme.” On September 17, 2004, Mannino, two other North Bay Association boardmembers, and a local developer, Bill Kenton, held a meeting. At this time, Mannino chaired the North Bay Redevelopment Project Area Committee. The investigators learned that Mannino and his associates suggested that Kenton pay $100,000 in exchange for North Bay’s support for a Midway development project. The North Bay Association would supposedly provide vision, subsidy and land acquisition assistance, strategy development, and community support. Kenton said the suggestion was “outrageous.” He told the FBI/police investigators “the lever was put” to him and that the North Bay offer constituted “extortion.” The investigators concluded that Mannino and his associates violated state law in making the request. (Kenton remembered the sum as $10,000, not $100,000, but still considered the proposal an outrage.)

But even in the face of such evidence — and much more — District Attorney Bonnie Dumanis did not pursue the case.

Why? There may be answers in the civil suit that Kessler has filed against the City for wrongful termination and retaliation. After spending many years working with business improvement districts, Kessler was brought into City government in April of 2006 as deputy director of the Economic Development Division. One of his duties was to monitor these districts. Among many things, he continued to find fault with Li Mandri’s activities. In one case, Kessler found that Li Mandri had taken in more money than his contract allowed.

Another time, Li Mandri proposed that the City jettison its long-standing practice of conducting monthly audits of contract expenditures and have a particular bank do a yearly audit instead. In early 2007, Kessler was summoned to a meeting in Mayor Jerry Sanders’s office. Legislative director Julie Dubick told Kessler he was to meet with Li Mandri, Little Italy Association boardmembers, and the association’s attorney, Theresa McAteer. Li Mandri’s people presented their once-a-year audit proposal. Dubick liked the idea, according to Kessler’s suit. But the branch manager of the suggested bank was a Little Italy Association boardmember, according to Kessler’s suit. Kessler objected, and the proposal was shelved.

Kessler made it known that Li Mandri’s role at the Little Italy Association was leading to a lack of competitive procurement practices, and he placed new conditions on contracts among the association, the city, and New City America. Li Mandri complained to Sanders, and the mayor’s staff enthusiastically sided with Li Mandri, according to the suit. The mayor’s office instructed Kessler to “bend contracting rules” in favor of Li Mandri, according to the suit. Kessler refused. Dubick allegedly asked why the Little Italy Association was not reimbursed for McAteer’s legal expenses. When Kessler said this was not permissible, Dubick said, “Find a way to pay for it,” according to the Kessler suit.

Kessler testified in front of a grand jury about the alleged illegal activities brought out in the FBI/police report. After Dumanis refused to prosecute — against her subordinates’ recommendation — Kessler argued that the report’s revelations were severe enough for Li Mandri to be banned from getting further City contracts.

In early October 2008, Kessler supplied copies of the police/FBI report to his supervisors. The Ethics Commission requested a copy, which Kessler provided. But he was told that “all hell had broken loose in the mayor’s office” when it got word that Kessler had turned over the report to the Ethics Commission. Kessler was instructed to stop talking with the FBI/police probers and to turn over all copies of their reports to Jay Goldstone, the City’s bean counter and chief operating officer.

A few days later, Kessler learned that the mayor’s office supported a proposal whereby Li Mandri would get a $20,000 no-bid/sole-source contract to do work that Centre City Development Corporation was already doing for free, according to the suit. “Regardless of Li Mandri’s proposal being illegitimate, Mayor Sanders’s office supported the proposal,” says the suit. (Although Li Mandri didn’t end up getting that contract, he got a big contract for valet parking services in Little Italy.)

Around this time, Kessler experienced a Hemingway-like Moment of Truth: he realized why the mayor’s office had been so upset about his providing the report to the Ethics Commission. In fighting what he believed to be Li Mandri’s questionable contracts, Kessler was on the wrong team. The mayor was on the pro–Li Mandri team, explains the suit. Dubick and the mayor’s chief of staff, Kris Michell, were particularly angry with Kessler for being the skunk at the mayor’s garden party, says the suit.

In late October and into November 2008, the axe began to fall in stages. First, Kessler was told that one-third of his staff would be reporting directly to the mayor. Then Kessler heard a rumor that his own head would be in the guillotine. When he questioned his boss William Anderson, he initially acted surprised, but finally Anderson admitted it was true: Kessler would be gone. Another employee was being demoted into his position. His job was to train her before he packed up his papers and departed.

According to the suit, Kessler asked his supervisor if his (Kessler’s) cooperation with the investigators and Ethics Commission had cooked his goose. Anderson said, “It certainly ruined [Kessler’s] relationship with Mayor Sanders’s office, and Mayor Sanders’s office lost their trust in [Kessler].” Therefore, Kessler alleges in the suit that the cause of his termination, which occurred on November 21, was his cooperation with the two investigators and the Ethics Commission, as well as his attempts to rein in Li Mandri’s abuses. (The Ethics Commission later concluded that it had no jurisdiction in the matter.)

Judge John S. Meyer has already dismissed parts of Kessler’s lawsuit, “but we still have the guts of our case,” says Joshua Gruenberg, Kessler’s lawyer, who has made a settlement offer. The city attorney’s office will only say that last Friday it filed for dismissal of Kessler’s suit. Gruenberg is confident this summary judgment motion attempt won’t get anywhere. Unless the schedule is changed for some reason, the trial is set to begin June 10.

Another key matter is not discussed in the FBI/police investigation. Kessler initially went to law enforcement because a police officer told him that Mannino, who was on the board of the business improvement district council, had been convicted of a felony. In July of 1979 in New York City, undercover agents of the Drug Enforcement Administration traced Quaalude sales to a Paul Mannino and ultimately found boxes of the drugs in his car, according to federal records. Mannino was indicted in February of 1980; a jury convicted him of violation of federal drug, firearms, and racketeering laws. He lost his appeal and went to prison. Li Mandri met Mannino around 2000.

Mannino, who was ultimately fired from the North Bay Association, now heads Throwdown Elite Training Center, a Midway-area facility that teaches such skills as kickboxing and jujitsu. He did not return three calls.

Li Mandri says he didn’t know about a Mannino conviction until quite recently. However, his wife, Laura Li Mandri, says, “We found out through our attorneys” in the course of the FBI/police investigation. She and her husband claim they have never seen the final investigative report. She laments that critics see “some kind of mob connection” through Mannino. “If Italians are involved, they assume Mafia.”

Marco Li Mandri says his critics “believe there is some kind of mob connection and underworld connection. That is disgusting to me.”

The Li Mandri family is known for past organized crime ties. “There are definitely family ties to organized crime from two generations ago,” Laura Li Mandri allows.

Marco Li Mandri concedes that his family had mob ties two generations ago. But he says that is irrelevant. “No one has any evidence that I ever had anything to do with organized crime,” he says. “Isn’t it like the Kennedys?” (The patriarch of the Kennedy clan, Joe Kennedy, had close business and financial ties with rum-running hoodlums during Prohibition. His son, President Jack Kennedy, had a mistress in the White House who was a communications cipher between the President and Chicago hoodlum Sam “Momo” Giancana.)

Marco Li Mandri is also not perturbed by anyone’s offenses 30 years ago. “You are not the same person you were 30 years ago. Scott Kessler is not the same person he was 30 years ago,” Li Mandri says.

Marco Li Mandri bitterly denounces Kessler and the FBI/police report. Kessler, who had been a friend since their 1970s days at the University of California San Diego, has a vendetta, insists Li Mandri. Li Mandri sent a transcription of a voice mail that Kessler allegedly left on his phone during the heat of their battle. Li Mandri stresses that it ends with Kessler saying, “I’m going for the jugular, dude.”

Here is the transcription of Kessler’s full message. “I’m not going to be intimidated by you and you know a couple of months ago I told you I wasn’t goin’ to pay you until the end of the…until the contract was finished. Everything is always somebody else’s fault. Marco, there’s…you’ve got a lot of stuff riding…so if you want to go to war…you’re going to lose and if you want to talk to me and work this out, that’s fine but, uh, if you continue to lobby and try to disparage my character I’m going for the jugular, dude.”

“I don’t want to relive this turmoil all over again,” says Li Mandri. “It consumed my life for five to six years, was very costly, and made me consistently defend my reputation. I have gone out of my way to clear my name against these charges. The lawsuit, which in essence blames me for [Kessler’s] firing, is all speculation. The allegations he [Kessler] made against me have no substance.” Li Mandri says he has lost a lot of business because of the battles.

“This cockamamie idea floating around has no basis in legal reality,” Li Mandri complains. He says the police and FBI are clumsy. “They have turned my life around, raiding my house” in front of his children. “How can you raid someone’s house for documents when you already have possession of them?”

Li Mandri argues that a 2005 decision by the attorney general’s office got him off the hook. The office put forward the question, “Is a person who was hired by a city as a consultant in the process of forming a business improvement district precluded from being hired after formation of the district by a nonprofit corporation that is under contract with the city to manage the district?” In a six-page report, the attorney general’s office basically concludes that the consultant is not precluded from being hired after the district is formed. This was a reversal of a previous stance by the attorney general’s office.

However, this decision addressed only some of the conflicts of interest that Kessler was pointing out, says his lawyer, Gruenberg. It didn’t touch on other instances of Li Mandri’s violations of open and competitive procurement laws. Mike Aguirre, who was city attorney while the battle was going on, disagreed with the attorney general and took Kessler’s side.

In late 2007, Aguirre wrote the Little Italy Association, “The municipal code requires the nonprofit to advertise for sealed proposals when contracting for goods and services where the expenditures will be greater than $50,000. At present, we conclude that the association has not complied with these requirements. A sole-source agreement with [New City America] under these circumstances would be inappropriate.”

Li Mandri has always argued (indeed, argued to the Reader) that he is only the administrator of the Little Italy Association and not a voting boardmember. Therefore, there is no conflict when the association gives a fat contract to New City. But Aguirre’s office came up with letters in which a boardmember suggested that Li Mandri serve as president of the association and another reference in which Li Mandri is named as chairman. (Laura Li Mandri says that only means he chairs meetings.)

The local office of the Federal Bureau of Investigation said it couldn’t comment on why the report that its agent coauthored was not acted upon. The district attorney’s office would not address that topic. The mayor’s office was asked specifically about the roles of various administration personnel in the Kessler matter, but there was no response.

“Scott Kessler is a man of credibility,” says Aguirre. “His issues should not be dismissed and should be resolved by a fair-minded, neutral judge. Why Li Mandri would be allowed to do business with the City is beyond understanding.”

“This is a story about Bonnie Dumanis, [who] protects people in power,” says Aguirre.

Li Mandri, who has been a big political donor to a number of officeholders since the early 1990s, concedes he gave money to Dumanis, but he says he hasn’t seen her for a year and a half. “I certainly have no control over Bonnie Dumanis because I gave her a donation,” he says. And he says he does not have the power to get any City official fired, although he admits he complained about Kessler to the mayor.

As to the charge that Kessler is waging a vendetta, his lawyer Gruenberg points out that the FBI and police agents say that everyone they nail accuses them of having a vendetta.