Chamber Keeps Control of Hollywood Sign : Landmarks: State settles suit that charged mismanagement of sign and Walk of Fame. Two trusts will be repaid $224,464.

The state quietly settled its lawsuit against the Hollywood Chamber of Commerce late Wednesday, allowing the group to keep control of the Hollywood sign and Walk of Fame even though it had accused the group of financial mismanagement.

For the last two years, the state attorney general’s office had been investigating the financially strapped civic booster organization, saying it misappropriated as much as $700,000 in royalty money from trusts set up for the two landmarks.

The state’s efforts to recover the allegedly misused money embroiled Atty. Gen. Dan Lungren in a accusations of political favoritism after he met privately with chamber board members--including Johnny Grant, a friend and political ally--in an effort to settle the case last year.

Under the settlement, the chamber has agreed to repay $224,464 to the trusts over the next 10 years. And even though it has agreed to resign as the sole manager of the trusts, the chamber will appoint seven of the nine trustees on each of the boards that will manage the financial affairs of the sign and walkway.

In addition, over the initial objections of the state and the city of Los Angeles, the chamber can retain control of lucrative trademarks to the sign atop Mt. Lee and the walkway along Hollywood Boulevard. The trademarks have enabled the chamber to bring in as much as $100,000 a year from the sale of souvenirs and from royalties for use of the landmarks in films and commercials.

State and city officials had argued that the chamber should not be allowed to profit from the sign and the walkway, since both are public entities. Fearing that the state would allow the chamber to retain such control, the city intervened in a lawsuit filed late last year by the state to recover the allegedly misused funds.

But on Wednesday, the settlement--which earlier had won the endorsement of Lungren--was approved in executive session by the Los Angeles City Council.

“These famous and historic landmarks deserve to be protected,” Lungren said, “and with today’s agreement, we believe the trusts will be available for that purpose well into the future.”

The settlement drew immediate criticism from local activists, who long have criticized the chamber’s management of the sign.

“This is outrageous,” said Christine O’Brien, former president of the city’s Hollywood Sign Advisory Board. “Slimy politics has paid off.”

O’Brien said the agreement will rob taxpayers of much-needed city control of the Hollywood sign and of the revenue needed to protect and improve it.

“Why does the chamber have these privileges now when they have been so dishonest?” O’Brien asked.

Brooke Knapp, president of the chamber, was pleased with the settlement. She called it a “win-win-win result for the city, the chamber and the state.”

Knapp and chamber lawyer Jeffrey Briggs said the group never intentionally misused money to be set aside for the sign and walkway, and that any mistakes were the result of simple accounting errors. She stressed that the chamber had settled the case without admitting wrongdoing.

On Wednesday, City Council President John Ferraro said he was “very pleased with the agreement and glad that the process is over with.”

Mayor Tom Bradley, who took an interest in ensuring that the city would play a central role in management of the two landmarks, had no immediate comment, aides said.

City recreation and parks officials have long wanted to take over control of the Hollywood sign and possibly the Walk of Fame as part of settlement of the case. They said they wanted to use the royalty money to make much-needed improvements in the two landmarks and to give sightseers better access to the sign.

Some city officials became concerned that the agreement might not go their way when--just as the state and the chamber were said to be putting the finishing touches on a settlement last summer--Grant, known as the honorary mayor of Hollywood, Knapp and another chamber leader met privately with Lungren in his Sacramento office. Grant admitted that he had asked Lungren for leniency, but the attorney general said he would show no favoritism toward the group.

In a partial concession, the chamber has agreed to pay 30% of its net revenues from the trademarks whenever the trusts’ balances fall below $150,000 in the case of the sign and $100,000 in the case of the walkway.