Dixon Pleads Not Guilty to Embezzlement : Courts: The former Newport Beach utilities director is now accused of diverting $1.8 million for own use. Attorney says his ‘psychiatric condition’ will be a key factor in defense.

Former city utilities director Robert J. Dixon pleaded not guilty Friday to embezzling up to $1.8 million in municipal funds.

His attorney, Stephan A. DeSales, told reporters that Dixon’s “psychiatric condition” would be a major point in defending him.

Dixon, 47, is accused of diverting Newport Beach municipal funds for his own private use. He was arrested Jan. 13 and has been in the Orange County Jail ever since.

Dixon, looking pale and haggard, briefly appeared before Harbor Municipal Court Judge Susanne S. Shaw for arraignment. He was returned to jail after entering his plea.

DeSales told reporters that Dixon’s plea “very possibly” could change, but he did not elaborate. However, DeSales added about the plea, “It’s way premature to say what it will be down the road apiece.”

DeSales answered reporters’ questions about the case in a hallway outside the court. He said the mental state of Dixon will be an important legal defense.

“We’re developing sources of psychiatric information about him,” DeSales said. “We’ve come up with information from at least three other sources relative to his psychiatric condition, which goes back 20 years, and which we believe we’ll be able to document. We think this will go a long way to perhaps explaining some of the allegations in this particular case.”

Asked whether Dixon might later change his plea to not guilty by reason of insanity, DeSales responded: “It’s premature to say. . . . The law on insanity has changed dramatically in California. But there is very clearly a deep psychiatric problem which has been going on with Mr. Dixon for a number of years. There’s no question about that.”

In response to other questions, DeSales confirmed that officials are now alleging that Dixon embezzled as much as $1.8 million from the city. When the case became public earlier this month, officials initially indicated that $60,000 was missing. The loss estimate later expanded to $1.2 million, and DeSales said Friday that it now is $1.8 million.

“That’s the high figure,” De Sales said. “I think we’ve now reached the heights as far as allegations go.”

DeSales said Dixon will not attempt to raise the $500,000 the court set as bail.

“We honestly think with respect to Mr. Dixon’s personal emotional situation and with the body of psychiatric information which we’ve developed and are developing on him that it would be much better if he remained where he is,” DeSales said. “It’s a very hard choice, but I’ve discussed that with him.”