Raabe Guilty in Bankruptcy Case

SANTA ANA — Matthew R. Raabe, the former assistant county treasurer briefly hailed as a hero and then quickly labeled a villain after Orange County’s 1994 financial collapse, was convicted Friday of misappropriating public funds and securities fraud related to the county’s bankruptcy.

His conviction on five separate felony counts could make Raabe the first Orange County official to face a prison sentence for crimes arising from the county’s record-setting bankruptcy.

Raabe, 41, sat stoically as each guilty verdict was announced, and walked out of court two hours later after posting $25,000 bail.

The jury that had heard the case against him had deliberated for a little more than two days before returning the guilty verdicts, which could put Raabe behind bars for up to 13 years and subject him to fines of up to $10 million.

Raabe’s attorneys said they will appeal the verdict.

The verdicts represented a rare victory for Dist. Atty. Michael R. Capizzi, who vowed to hold former county officials accountable for crimes contributing to the bankruptcy, the largest municipal collapse in the nation’s history.

County officials decided to declare bankruptcy on Dec. 6, 1994, after discovering that the county-run investment pool managed by longtime Treasurer Robert L. Citron had lost $1.64 billion on highly risky Wall Street securities Citron had purchased for the county and the 187 cities, school and special districts with deposits in the pool.

On Friday, Capizzi, who is planning a run for state attorney general next year, trumpeted the jury’s verdict.

“There is a sense of satisfaction of a job well done for those attorneys and investigators who worked so hard,” Capizzi said. “I don’t feel any vindication is required. We were doing what we were required to do and investigating criminal conduct.”

Assistant Dist. Atty. Jan J. Nolan, who stepped in to finish prosecution of the case when the lead prosecutor had a family emergency, said she was pleased but not altogether surprised by the verdict.

“There was extremely strong evidence against Mr. Raabe,” Nolan said. “I feel there was no doubt how this jury would go down, but I’m very glad they did.”

The district attorney’s office has not decided whether it will seek the full 13-year prison term for Raabe or agree to a lesser punishment. But Nolan said it’s “a little late” now for Raabe to admit his crimes and seek leniency from the court.

Nolan also rejected defense attorneys’ claims that Raabe was being singled out for harsh punishment, while other more guilty parties were getting off.

“Mr. Raabe is not a scapegoat of anything,” Nolan said.

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While Citron pleaded guilty to the same felony charges soon after the bankruptcy and cooperated fully with authorities, “Mr. Raabe has none of those things going for him. . . . He put the county though this for 2 1/2 years. Now, he is paying the price.”

But defense attorney Gary M. Pohlson said his client is indeed being made a scapegoat.

“I’m shocked that they could find this man guilty,” Pohlson said. “This was a very good man who did nothing but work hard for this county for so many years.”

At the county’s Hall of Administration, reaction to the guilty verdicts was mixed.

County Treasurer-Tax Collector John M.W. Moorlach, who raised questions about his predecessor’s investment practices before the bankruptcy, said the jury made the right decision.

“At least we have held the two key individuals accountable,” he said, referring to Raabe and Citron. “You can’t be deceptive. You can’t be arrogant. You can’t be patronizing. That’s what they did, and there has to be a penalty for that.”

But others expressed a more compassionate view.

“While I cannot dismiss Matt’s involvement, it seems that a disproportionately heavy weight has fallen on his shoulders,” said Clerk-Recorder Gary L. Granville. “Whatever he did, he didn’t act alone. Others share responsibility. We all share responsibility for this.”

Board of Supervisors Chairman William G. Steiner, the only bankruptcy-era supervisor still in office, expressed hope that Raabe’s punishment would be tempered.

“I never felt Matt’s motivation was for personal gain,” Steiner said. “I hope that whatever penalty he faces will take that into consideration.”

Despite the verdict, defense attorneys said they did not regret the decision to keep Raabe from taking the stand during the trial, and insisted that their client was unfairly singled out by overzealous prosecutors eager to hold someone accountable for the bankruptcy.

“He didn’t expect to be convicted,” said defense attorney Pohlson. “He truly believed that he would be acquitted. He’s a strong person. He’s obviously been through a lot. All he said to me was, ‘You did everything that you could’ and ‘I’ll be OK.’ ”

Some jurors had tears in their eyes as the verdicts were read and none looked at Raabe.

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Afterward, some admitted that it had been a difficult decision, because Raabe seemed to be a decent person who was well-thought of by co-workers, who seemed uncomfortable testifying against him.

“It would have made it easier for some of us to feel good about this decision if some of the dollars had ended up in Mr. Raabe’s pocket,” said juror Scott Hall, a resident of Orange. “The jury wanted very much to find a way to make this all right and find a way not to convict Mr. Raabe. Ultimately, it was clear that there was none.”

Although Raabe was accused of skimming $90 million from the investment pool accounts of outside investors, he was never suspected of taking anything for himself. All of the money was put in an account for the benefit of Orange County.

A female juror, who declined to give her name, said the deliberations were difficult.

“It was easy in the sense that the evidence was there,” she said. “It was hard because he seemed like a nice guy. We felt badly for him. But a crime was committed.”

She and other jurors said they had mixed feelings about Raabe facing the possibility of a lengthy prison sentence.

Judge Everett W. Dickey, who presided over a trial spanning five weeks, ordered Raabe to return to court on Monday to discuss which county should be asked to prepare Raabe’s probation report.

In previous cases, the Orange County Probation Department had been disqualified from preparing the probation reports, because it was thought to have a conflict of interest.

Nolan asked that Raabe be taken into custody or that bail be set--a motion that the judge granted. In making her case for a bail requirement, Nolan reminded the judge of a bizarre 1995 incident in which a distraught Raabe led authorities on an afternoon chase in a mall parking lot before surrendering later at a bail hearing.

“This is a state prison case,” Nolan said to the judge.

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In the immediate aftermath of the bankruptcy, Raabe was temporarily promoted to acting treasurer, and was hailed for helping the county begin repairing the bankruptcy’s damage. After some weeks, however, the interest-skimming scheme was uncovered, and Raabe was fired and later indicted.

The chase that Nolan mentioned occurred as investigators tried to make sure he was surrendering to authorities as promised following his indictment.

Raabe, his attorneys and family members huddled in the back of the courtroom for two hours Friday until he was able to post bail and walk out of court.

“There’s nothing I have to say,” Raabe said as he departed the courthouse.

Raabe, who has moved to Northern California, will be staying with his mother in Orange County over the weekend, said Richard Schwartzberg, one of his attorneys.

Schwartzberg said the family stands behind Raabe.

“They all know he has a good heart,” Schwartzberg said. “I think they’re hurting, they’re scared. They don’t know what the judge is going to do.”

He said prosecutor Nolan is “going for the jugular” in trying to obtain the toughest sentence possible.

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Legal experts say Raabe can almost certainly expect the harshest sentence yet to be handed in connection with the bankruptcy.

Unlike Citron, who publicly expressed remorse and agreed to plead guilty even before he was charged, Raabe has vigorously fought the charges against him from the outset, causing the county to incur heavy defense and prosecution costs.

In addition to the prosecution’s investigative costs and those of the court, Raabe’s attorney had billed county taxpayers $550,000 by the end of October 1996, the latest date such figures were available to the public.

Capizzi disclosed late last year that his office had spent at least $2.5 million on its criminal investigation into the county bankruptcy. In addition, the Board of Supervisors has doled out more than $2 million to defend those charged with bankruptcy-related crimes.

Robert Pugsley, a law professor at Southwestern University School of Law in Los Angeles, said Raabe’s decision to take the prosecution through an expensive trial “shows a degree of obstinacy. The judge can interpret it as non-contrition and accordingly hand out a harsh sentence.”

Two of Raabe’s former county colleagues have escaped jail time by cooperating or striking a deal with the district attorney’s office.

Citron was sentenced to a year in county jail and fined $100,000, but is serving his sentence in a work-release program that has him doing clerical work in the county jail by day and spending his nights at home.

And in a plea bargain, former Budget Director Ronald S. Rubino was sentenced to two years’ unsupervised probation and 100 hours of community service after pleading no contest to one count of violating a public records law. The deal was struck after a jury deadlocked 9 to 3 in favor of acquittal.

Jurors in the Raabe case said that after following the legal instructions, they had little choice but to convict the former assistant treasurer.

“It was pretty straightforward for all of us,” said juror Hall, an attorney. “I think we were all in agreement that everything that took place was undisputed. The question was, ‘Could you find justification for the actions that were taken?’ You could not.”

The jurors said they were not influenced by the testimony of Citron, who they said was a convicted felon with a faulty memory.

“We largely tried as best we could to ignore his testimony,” Hall said.

Nolan said she didn’t think there was a single witness or piece of evidence that clinched the case. She said she wasn’t surprised by a juror’s comment that Citron’s testimony was not entirely credible.

“I can understand that,” Nolan said. “But the juror had to look at the evidence as a whole. Documents don’t lie. Documents don’t forget.”

Raabe was charged with maintaining false entries in a public record, failure to transfer public funds and making “untrue” material statements in connection with the sale of securities.

The crimes involved the operation of the $7-billion investment pool that Citron managed.

Citron, who was a key prosecution witness at the trial, testified that Raabe concocted the scheme to skim for the county’s benefit nearly $90 million in interest earnings due outside investors in the county’s investment pool.

Citron said Raabe proposed the scheme in April 1993, the same month he was promoted to assistant treasurer. He said Raabe feared that the 187 cities, school and special districts with money in the pool might begin withdrawing their funds and create a run on the bank, so to speak, if they suspected that Citron was earning inordinately high yields with risky investments.

Raabe did not testify at his trial, and his defense attorneys completed his defense in a single day.

They argued that Raabe was under no obligation to distribute all of the interest earnings to the pool participants, because the county--not the pool investors--took the entire risk of borrowing the money that for a time brought the higher profits.

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At one point during the trial, however, the judge rejected that argument, ruling that Raabe was obligated to make sure that pool investors were paid interest in direct proportion to their average daily balances. The law required him to do so, Dickey said.

Raabe’s conviction is seen as a tragedy for the Iowa native who moved to Orange County with his family in 1960.

Raabe joined the county auditor-controller’s office in 1984, the same year he graduated from Cal State Fullerton with a degree in business administration.

He accepted Citron’s offer to become a key official in the treasurer’s office a few years later, and was widely viewed as the heir-apparent to Citron, the longest-serving and best-entrenched county official.

To many colleagues, Raabe already was the de facto treasurer. Because Citron had a speech impediment and shied away from public events, it was Raabe who gave the pitches to potential pool investors, assuring them that the county’s investment fund was a sound, safe place for their cash.

Also contributing to this report were Times staff writer Anna Cekola and correspondent Jeff Kass.

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The Full Story

* BIG WIN FOR D.A.--Dist. Atty. Michael R. Capizzi needed this conviction for many reasons, personally and professionally. A26

* CRUX OF THE CASE--Raabe’s fate was all but sealed when the judge overruled his key argument, that he had the right to skim. A26

* NEXT ON THE DOCKET--Taking notes were attorneys for the county and Merrill Lynch, the Wall Street broker it is suing. A27

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

How They Fared

The conviction of former Assistant Treasurer Matthew R. Raabe marked the end of “Operation Noah’s Ark,” the code name Dist. Atty. Michael R. Capizzi’s investigators gave the initial probe arising from Orange County’s bankruptcy. Three county officials, including Raabe, faced criminal charges, and three top elected officials were hit with civil accusations of willful misconduct in office. So far, no one has been jailed. What happened to the six:

CRIMINAL CHARGES

Matthew R. Raabe

Title: Former assistant treasurer; appointed treasurer after Robert L. Citron was forced to resign in December 1994; fired a few months later after discovery of interest skimming

Accusations: Five felony counts of misappropriating public funds, lying to investors and keeping false county records

Faces: 13 years in prison, $10 million in fines

Outcome: Convicted on all five counts. Sentencing date not yet set.

Robert L. Citron

Title: Former treasurer-tax collector

Accusations: Six felony counts of misappropriating public funds, lying to investors and keeping false county records

Faced: 14 years in prison, $10 million in fines

Outcome: Sentenced to a year in jail and fined $100,000; qualified for work-release program, so instead of a conventional jail term he does clerical work at the county jail during the day and spends nights at his Santa Ana home

Ronald S. Rubino

Title: Former county budget director; resigned months before bankruptcy to work for Leifer Capital in Santa Monica

Accusations: Two felony counts of aiding and abetting misappropriation of more than $60 million in public funds

Faced: Possible nine years in prison

Outcome: After jury deadlocked 9 to 3 last summer in favor of acquittal, Rubino pleaded no contest to a single felony charge of violating a public records law. Trial judge found him guilty and sentenced him to two years of unsupervised probation and 100 hours of community service. Record may be wiped clean if he successfully completes probation. Has since worked as a financial consultant for Orange County Transportation Authority and is offering consulting services to cities.

CIVIL ACCUSATIONS

Roger R. Stanton

Title: County supervisor for 16 years

Accusations: Civil charges of willful misconduct for failure to oversee and keep a check on Citron’s operations

Faced: Removal from office

Outcome: 4th District Court of Appeal in Santa Ana dismissed charges against him, saying district attorney had overstepped authority; ruling was upheld by state Supreme Court. Stanton, who did not run for reelection last year, has since returned to his job as a business professor at Cal State Long Beach.

William G. Steiner

Title: County supervisor, appointed 1993

Accusations: Civil charges of willful misconduct for failure to oversee and keep a check on Citron’s operations

Faced: Removal from office

Outcome: 4th District Court of Appeal in Santa Ana dismissed charges against him, saying district attorney had overstepped authority; ruling was upheld by state Supreme Court. Steiner has already announced he will not run for reelection in 1998. He plans to work for a children’s services organization in Arizona.

Steve E. Lewis

Title: Auditor-controller since 1984; joined county government in 1965

Accusations: Civil charges of willful misconduct for alleged failure to oversee and keep a check on Citron’s operations

Faces: Removal from office

Outcome: Undetermined; 4th District Court of Appeal removed district attorney from prosecution, ruling he had obvious conflicts of interest. State attorney general’s office, which will prosecute if Capizzi is barred, says it will appeal Capizzi’s disqualification to California Supreme Court.

Source: Times reports; Researched by DAVAN MAHARAJ / Los Angeles Times