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Originally published July 25, 2011 at 10:35 PM | Page modified July 25, 2011 at 10:59 PM

Bellevue official had no conflict of interest, investigator finds

An outside investigator has exonerated Bellevue City Councilmember Kevin Wallace of an alleged conflict of interest between his business dealings and his attempts to reroute Sound Transit's future light-rail line in South Bellevue.

Seattle Times staff reporter

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An outside investigator has exonerated Bellevue City Councilmember Kevin Wallace of an alleged conflict of interest between his business dealings and his attempts to reroute Sound Transit's future light-rail line in South Bellevue.

Jeffrey B. Coopersmith, an attorney hired by the city to investigate Wallace, presented highlights of his 25-page report to the City Council at Monday night's meeting.

Coopersmith wrote that Wallace "has not violated any applicable provision of law" by negotiating a business deal with GNP Railway, a freight carrier that hoped to run trains on the same abandoned rail corridor where Wallace proposed to run light-rail trains alongside Interstate 405.

"It's been a challenging time, obviously, for the past six months or so, but I'm really grateful to have been vindicated or fully exonerated by the conclusions of Mr. Coopersmith," Wallace said in an interview.

"Mr. Coopersmith recognized there were no conflicts of interest, and we're getting on to doing what we were elected to do — representing the citizens of the city of Bellevue. There are a number of important issues on our plate, not the least of which is light rail," Wallace said.

Wallace has maintained for months that there was no conflict of interest, and he pledged to cooperate with Coopersmith's investigation. Coopersmith said in his report that Wallace was cooperative and provided all the records the investigator sought.

Coopersmith concluded that Wallace had not attempted to profit from City Council decisions either through increased values of his family's downtown properties or through a partnership with GNP Railway.

Last year, Wallace and his father, Bob Wallace, were quietly negotiating a deal with GNP at the same time that Councilmember Wallace was prodding the City Council to authorize a $670,000 study of a light-rail route along the old rail corridor between Mercer Slough and I-405.

The Wallaces and GNP executives signed a December 2010 memorandum of understanding in which Wallace Properties Development was to help sell $30 million of railway stock, invest $500,000 in the venture, and manage property acquisition and development of passenger stations.

The deal was subject to Kevin Wallace receiving legal advice that it wouldn't conflict with his council duties. Before he obtained a legal opinion, the Wallaces backed out of the partnership.

GNP's top executives split early this year, and creditors filed an involuntary bankruptcy petition against the company. Last month, a U.S. Bankruptcy Court judge found GNP was insolvent, and the U.S. Surface Transportation Board rejected its request for rights to run freight trains between Woodinville and Redmond on track whose owners opposed freight operations.

Coopersmith noted that Wallace first promoted his "Vision Line" light-rail route in 2009, long before he began discussing a deal with GNP Railway.

Although the Wallaces and GNP owners hoped eventually to run trains on the Bellevue portion of the abandoned rail corridor — and even talked about carrying Highway 520 construction debris on trains — they had no expectation they would use that line in the near future, and it was "highly unlikely" GNP would receive any money from Sound Transit, Coopersmith said.

Coopersmith reported last month that two other council members, Claudia Balducci and Grant Degginger, had no conflicts of interest related to their outside activities. However, Coopersmith warned that Balduccci, a Sound Transit board member, could have a future conflict if she engaged in discussions by both the City Council and the transit board about possible litigation between the jurisdictions. Balducci has recused herself from participating in Sound Transit board discussions about possible litigation with Bellevue.

Degginger had no conflict between his council duties and his past representation of Sound Transit in a Tacoma-based dispute or in his law firm's continuing representation of Sound Transit on issues outside Bellevue, Coopersmith told the council.

City Council members plan to consider adopting a council ethics policy — something it doesn't now have.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com

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