LOS ANGELES (AP) _ The entrepreneur who founded the City of Industry and was later convicted of racketeering paid $1.3 million in restitution and a $25,000 fine, and a judge Monday reduced his 10-year prison term by two years.

''Because the defendant has paid the restitution in full and the fine in full, the court will modify the sentence,'' U.S. District Judge Edward Rafeedie said in reducing the sentence for James Marty Stafford.

Stafford, who has been in a federal prison hospital in Fort Worth, Texas, will be eligible for parole in 32 months, said defense attorney James Duff.

Assistant U.S. Attorney Gary Feess had opposed reduction of the sentence, saying the stiff term convinced many people to cooperate with federal authorities.

Stafford pleaded guilty Oct. 2 to mail fraud, conspiracy, interstate travel in aid of racketeering and obstruction of justice. He was charged with receiving kickbacks from contractors on city projects.

The City of Industry was a redevelopment project in which various businesses and factories in an area 11 miles east of Los Angeles consolidated into a municipality and upgraded their facilities.

Stafford was considered instrumental in putting the deals together, facilitating creation of the industrial suburb.