LOS ANGELES — The Association of Bay Area Governments plans to reimburse San Francisco the $1.3 million missing from a city redevelopment fund after an alleged theft by one of its finance officials.

The executive committee of the ABAG Finance Authority for Nonprofit Corporations voted on Tuesday to give the city $1.3 million from the authority's reserve funds to make the city whole, according to ABAG Deputy Executive Director Brad Paul, while the regional planning agency works to recover the money.

The authority's director of financial services, Clarke Howatt, who has been named as the only suspect in the theft, resigned via email on Thursday, Paul said.

The organization plans to conduct a comprehensive forensic audit to review all of the transactions that Howatt worked on, said Charles Lomeli, chair of the finance authority's executive committee. A firm hasn't been selected yet to conduct the audit.

The finance authority, also known by the acronym FAN, acted quickly to make San Francisco whole because it wanted to ensure that the South of Market Community Stabilization Committee can continue its work, Lomeli said in a prepared statement.

"We are deeply shocked that FAN's longtime Director, Clarke Howatt, appears to have embezzled $1.3 million from funds designated for public improvements in San Francisco," Lomeli said.

Howatt, a former public finance banker, had worked for ABAG since 1995.

San Francisco City Attorney Dennis Herrera and City Controller Ben Rosenfield had sent a letter to ABAG on Jan. 28 demanding the immediate return of the missing money.

"The misuse of public funds for private gain is among the worst betrayals of public trust in government, and I applaud ABAG for doing the right thing by acting quickly to restore funds that were apparently embezzled from the City's account," Herrera said in a statement.

ABAG officials confirmed that it has been working with the FBI as well as the San Francisco City Attorney's office on an investigation into the missing funds. Calls to the FBI were not returned.

The money was in a fund intended to pay for infrastructure improvements in San Francisco's South of Market Street neighborhood. The money stolen was the remaining $1.3 million of a $5.7 million Mello-Roos community facilities district bond issued a decade ago, Paul said.

ABAG's connection to the money was that its finance authority acted as a conduit issuer for the city on the original bond issue.

According to ABAG, the situation played out as follows: Howatt created a fake limited liability corporation using a legitimate developer's name, Urban West for Rincon Developers, but using a fake contact name. He opened an account in the name of the fake LLC at a Citibank in San Diego's La Jolla neighborhood. He then mislead underwriting counsel Jones Hall by directing it to create a second indenture, a staff report and FAN resolution.

He then presented the documents to the board saying it must act immediately to disburse the bond proceeds to the developer before the timeframe for using the bond proceeds expired. The board passed a resolution based on Howatt's alleged recommendation and the documents from Jones Hall prepared at Howatt's direction. He then submitted an eligible list of public improvements and obtained the approval of the ABAG finance director.

The final step came when he used FAN board's resolution, the approval of the ABAG finance director, and the Jones Hall documents to convince Union Bank trustees to wire $1.3 million to the fake limited liability corporation.

ABAG has been working with the city attorney's office since Monday when it realized that Howatt, who was in New York for an investment banker's conference, was the likely suspect, Paul said.

"All of the hard working employees of ABAG and FAN feel betrayed by the corrupt and reckless actions of one man," said ABAG Executive Director Ezra Rapport.

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