Jurisprudence

The 2022 Big City Mayoral Candidate With Trump-Level Conflicts of Interest

Caruso in a suit shouting with a GAP sign in the background.
Los Angeles Democratic Mayoral candidate Rick Caruso hosts a primary night event on June 7, 2022 in Los Angeles, California. Apu Gomes/Getty Images

We’ve seen this before.

A billionaire real estate developer seeks high public office. He says he will fight corruption and have no conflicts of interest himself because he will put his assets in a “blind trust”—but one run by his hand-picked leadership to whom he is close. He will not focus on his business but will bring a business person’s common sense to government and solve problems despite having never run for office before.

Almost six years later, we know how this turned out with President Donald Trump—the former president had virtually unrestrained ethics conflicts with his businesses that created the appearance and reality of government corruption at an unprecedented level. We spoke out at the time Trump was first running, articulating ethics best practices from our experience as the ethics advisors to a pair of presidents, Republican George W. Bush and Democrat Barack Obama, respectively. And we warned in 2016 immediately after Trump was elected of the risks of his business conflicts, as well as offering solutions.

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Now we are doing the same with respect to an ethics proposal offered by Rick Caruso, a candidate for mayor of America’s second largest city, Los Angeles. As before, we are writing solely in our individual capacities as ethics experts. (We have also reached out to Caruso’s opponent in the race, Rep. Karen Bass, and offered to advise her campaign on the significance of these ethics issues.) Like President Trump did, Caruso promises to set up a “blind trust” for his company, which owns and operates extensive L.A. and Southern California real estate holdings. He says he will put his company into the trust, others will run it, and he won’t be involved.

But unfortunately that’s not a true blind trust. That term is reserved for one in which the beneficiary does not know what is held in the trust and other key criteria are met. Whether it is Caruso or any other federal, state, or local office holder, there are a set of best practices that must be followed for a blind trust or the equivalent to be effective in actually resolving the sort of ethics conflicts presented by interests like Caruso’s real estate holdings.

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A Blind Trust Must Be Blind. Typically, the way a blind trust works is that assets are placed in trust and then sold and replaced with other holdings—that way, the beneficiary doesn’t know what they are. If there’s one public office that poses the most conflicts of interest for a real estate investor it’s being mayor of the city where he owns most of his properties.

Here, Caruso can’t unlearn what his properties are. They would inevitably be on his mind as mayor as he makes his daily decisions—many of which would affect his property values.

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As far as we know, he is a beneficiary of the “blind” trust and as such he would continue to profit from anything that affects the value of his real estate holdings. They span nine retail centers including the locally famous shopping center The Grove, multiple high-end apartments, a high-rise office building in Glendale, and a beach resort in Montecito. Two more residential developments in L.A. are planned.

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City Hall must deal with a constant flow of issues that could directly impact the value of Caruso’s or any major real estate developer’s holdings. Should the approval process for developments be streamlined? How much money should the city budget allocate to affordable housing? Should businesses be closed if another severe wave of Covid-19 cases hits? These are all important questions that could affect Caruso financially and which he would have to make decisions on if elected mayor.

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A Blind Trust Should Limit Ethics Risks. Like any other ethics structure, a blind trust should be sensitive to the context in which it is being created to be effective. It is no secret that Los Angeles is facing a challenging corruption climate with multiple scandals, investigations, and prosecutions.

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Some in L.A. who want to curry favor with the mayor’s office also will know what’s in the “blind” trust and may try to do business with it on terms favorable to Caruso. They may and likely will find ways to let him know it. That’s what such political actors did with President Trump, including patronizing his D.C. hotel, which became notorious as a result.

The challenge here is underlined by the fact that the company will apparently continue to bear the Caruso name and that he will eventually return as executive chair.

An Independent Trustee Is Preferred. Our experience strongly counsels in favor of an arms-length independent trustee to avoid even the appearance of continued entanglement and so, conflict. Caruso has appointed his company’s current chief development officer Corinne Verdery to head the trust. President Trump did something similar, appointing close associates. In that case, it was his adult sons, Donald Jr. and Eric Trump, and a longtime Trump executive Allen Weisselberg. It did not turn out well. There were reports that Trump discussed business matters with his sons and numerous controversies relating to the properties held in trust.

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What a True Blind Trust Would Look Like. There is a solution to the ethics issues posed by Caruso’s holdings: a true blind trust. That means Caruso should promise, if elected mayor, to appoint an independent trustee—not one who has ties to him. And Caruso should sign a binding agreement that if he wins, the trustee must sell as expeditiously as possible all of Mr. Caruso ‘s real estate within city limits, as well as those properties close enough to city limits to be affected by his decisions or to compete with businesses within city limits. The trustee would then put the funds in diversified mutual funds or in other investments that are conflict free and unknown to Caruso.

That would comport with best practices and effectively address the situation. We have just seen the consequences in D.C. when that does not happen. That should be a lesson to all of us and is not something Angelenos should be eager to see repeated in their own city.

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