durkee [EDITOR'S NOTE: JAMES NASH WROTE THIS STORY FOR BLOOMBERG BUSINESSWEEK MAGAZINE, WHICH PUBLISHED IT TODAY.]

To neighborhood kids, the cream-colored stucco house near Hughes Middle School was known as the site of an annual Halloween party. To neighbors in Bixby Knolls, Kinde Durkee’s two-bedroom ranch was notable for its chipped paint and overgrown shrubbery.

In Democratic circles, the 58-year-old bookkeeper with at least 398 bank accounts for political campaigns and nonprofit groups had a reputation for being prompt and responsive.

Neighbors and associates say there’s nothing in Durkee’s background, demeanor or lifestyle to suggest that she “masterminded a multimillion dollar fraudulent scheme,” as U.S. Senator Dianne Feinstein charged in a Sept. 23 lawsuit.

“She’s a warm, accessible person,” said Eric Bauman, chairman of the Los Angeles County Democratic Party, who said he’s known Durkee since the early 1990s. “At best, you would describe her attire as frumpy. Drove a beat-up old car. Lived in a plain home in Long Beach. You don’t look at this person and say, ‘This person doesn’t look right.’”

But according to court documents, of the $5 million in cash that Feinstein reported to the Federal Election Commission as of June 30, the bank found only $662,100 on Sept. 21.

Durkee, who hasn’t replied to Feinstein or entered a plea in a related criminal case, didn’t respond to requests for comment in telephone calls and notes left at her home and office. Neither did her husband and business partner, John Forgy, or client-accounts manager, Matthew Lemcke. Her lawyer, Daniel Nixon, didn’t respond to a message left at his office.

Embezzlement’s Scope

The scope of the alleged embezzlements from Durkee-controlled funds for federal politicians is the largest at least since the Federal Election Campaign Act became law in 1972, said Kent Cooper, a former Federal Election Commission official.

“There’s been no one else who even comes close,” Cooper, who now runs the money-in-politics database Capitol Hill Access, said by telephone from Washington.

Feinstein’s campaign also sued First California Bank, the operating unit of Westlake Village, California-based First California Financial Group Inc., where Durkee had 398 accounts. Chief Executive Officer Chong Guk Kum didn’t respond to voice mail messages requesting comment. Gary Horgan, a company lawyer, said in an e-mail that the bank would not comment.

Things Unravel

Things started to unravel for Durkee in 2010, when the California Fair Political Practices Commission found irregularities while auditing the political finances of Jerome Horton, the chairman of the Board of Equalization, the state’s tax administrator. Horton said Durkee “acknowledged her mistakes” during the audit and agreed to pay the commission’s $13,000 fine and his legal bills.

“I had no knowledge of the magnitude of her fraud or the extent to which others were involved until I read it in the paper,” Horton wrote in an e-mail message to Bloomberg News.

After auditing another Durkee-managed account, the commission in November 2010 called the Federal Bureau of Investigation’s Public Corruption Squad in Sacramento, according to court documents. In an affidavit, FBI Special Agent Reginald Coleman said it appeared that Durkee moved money from campaign accounts to her company’s bank accounts and then transferred other candidates’ funds to cover shortfalls. She covered up her actions by filing false disclosure forms, according to the affidavit.

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