Newport School Board Moves to Fire Official : Investigation: District finance chief facing criminal probe by D.A. over $57,000 diverted to firm he co-owns.

Trustees for Newport Beach and Costa Mesa schools moved Tuesday night to fire Stephen A. Wagner, the chief finance officer who is under criminal investigation in connection with the diversion of at least $57,000 in funds to a company he co-owns.

Wagner may appeal the dismissal to the school district’s personnel commission, which could overturn the board’s decision. Otherwise the Newport-Mesa Unified board will take a final vote to fire him Nov. 10.

“As far as I’m concerned, the drafting of a ($57,000) check against the district’s health insurance fund to a company with whom we do not do business is a flagrant violation of rules and regulations and is worthy of suspension and termination,” Supt. John W. Nicoll said.

Wagner, 40, was suspended without pay Friday from his job with the Newport-Mesa Unified School District after Nicoll learned of the check. Wagner and his wife, Linda S. Wagner, 37, also were hit last July with federal liens of nearly $2.4 million for unpaid income taxes. The couple filed for bankruptcy a few days later.

On Tuesday, the seven-member Newport-Mesa board of trustees ratified the suspension after a briefing on investigations into improper diversion of school funds that is being conducted by the Orange County district attorney’s office and the school district.

Board President Forrest Werner said trustees acted “with the intent to move toward the immediate dismissal of Mr. Wagner. . . . “

Werner said many questions remain, but the employee health benefits fund is “solvent.” He also promised that all necessary changes would be made to prevent such a diversion in the future. Thomas Godley, assistant superintendent for budget, was named to take over Wagner’s job temporarily.

Wagner, who could not be reached for comment Tuesday, was invited to appear before the board with an attorney, but he did not.

Nicoll said that in his “21 years as district supervisor, there’s never been a question of handling of district finances until this issue. I went through feeling distressed and disappointed and hurt. Now, I am just mad.”

Added Werner: “There is going to have to be some overhaul of the system and how it works; we have got to find out how this occurred and where we have to close the loopholes.”

The $57,000 check was written in July, 1991, to Cobbler Express Corp., a shoe repair business that Wagner co-owns. The check drawn on a health insurance fund bore only Wagner’s signature, a violation of policy requiring signatures of two district officials.

Other questionable checks from that period have turned up in the district’s own inquiry, and a check-by-check audit of the health insurance fund has been commissioned. A source familiar with the investigations said Tuesday that the tally of diverted funds could eventually exceed $100,000.

Wagner has not been charged with any criminal offense. Deputy Dist. Atty. Carl Biggs, who is supervising the investigation, said: “We really don’t have anything to say right now about whether charges will or will not be filed. It would compromise our investigation to say anything more, except that an investigation is continuing.”

School district officials have said the case came to light when an unidentified district employee noticed the check made out to Cobbler Express, a Victorville-based company Nicoll said the district has never done business with. The employee in the district’s fiscal office gave the information to the district attorney’s office, which launched an investigation several weeks ago. School officials learned of the law enforcement investigation on Oct. 13.

Wagner, who rose through the ranks at the district after starting as an accountant 20 years ago, had a reputation as a savvy investor, who in his off-duty hours spun off businesses and acquired real estate that enabled him to buy a $975,000 home near Upper Newport Bay, drive luxury cars, dress expensively and contribute to arts groups.

Friends and former district employees said he talked about owning a Costa Mesa theater, which he sold for a profit to a theater chain, and about starting Wagner Limousine Service. Such charter businesses are required to register with the state Public Utilities Commission. But a spokeswoman for the commission said this week that there is no record of such a company or any other held in Wagner’s or his wife’s name.

A number of years ago, friends said, Wagner returned from Europe eager to duplicate an “instant” shoe repair business he saw there. Cobblers Express Corp. was born about six years ago.

Its president, Edward D. Golden, told The Times on Monday that Wagner was a personal friend of long standing who had no connection to the company. However, in an interview Tuesday, Golden said Wagner owns 50% of the company and is its chief financial officer.

“He’s the one (who) pays the bills and so forth,” said Golden, who added that they opened the business with one store in Palmdale, then opened a second store in San Bernardino in 1988. On occasion, he said, both he and Wagner have supported the shoe repair company with personal assets.

Golden said Tuesday that he has no knowledge of the $57,000 check Wagner allegedly wrote to the company. “To me that’s hearsay unless somebody has produced it,” said the 57-year-old Victorville resident. “I don’t believe that.”

Golden said he met Wagner more than 20 years ago, when Wagner worked as a bookkeeper for California Cinema Circuit, a chain of movie theaters in Orange County that Golden once owned. The two have remained friends and business associates since then, talking regularly on the telephone and meeting occasionally.

Records at the San Bernardino County recorder’s office show that the IRS placed a lien against Cobblers Express and its parent corporation on Jan. 3 of this year for $3,591 in unpaid taxes. Golden said that IRS lien, which was lifted on Feb. 24, was unrelated to Wagner’s tax problems with the IRS.

The IRS filed liens for $2.39 million in unpaid income taxes against the Wagners in Orange and Riverside counties July 28, according to IRS documents that were subsequently recorded at the Orange County recorder’s office on Aug. 4.

The IRS claims that Stephen Wagner owes $633,542.29 in back taxes from 1986. The liens also claim that Stephen and Linda Wagner owe more than $1.7 million in unpaid taxes in 1987-89.

However, the couple’s attorney in the tax matter said Tuesday that the disputed $2.4 million owed the IRS is “vastly overstated.”

Two days after the IRS lien was lodged, the Wagners filed for bankruptcy in U.S. Bankruptcy Court in Santa Ana. They listed debts of more than $1.4 million, mostly owed to mortgage holders on rental properties, including First Federal Bank of California, Great Western Bank, Midland Mortgage and others. Smaller sums were owed to Discover Card, Nordstrom and Mervyn’s.

The couple listed total assets of $2.5 million--mostly in the form of their million-dollar Dover Shores home, a Rancho Mirage condominium and five other residential properties, including one in Texas. They also have issued personal loans totaling $80,000, including a $50,000 loan to Wagner’s twin brother, Thomas A. Wagner of Costa Mesa, a $25,000 loan to a doctor in Maine and a $5,000 loan to a Rancho Santa Margarita man.

Other assets listed in the bankruptcy filings included books and artwork valued at $36,080; furniture and a computer valued at $17,500, and three vehicles, including a 1964 Rolls-Royce Silver Cloud, valued at $26,000.

Since the tax lien was filed, the couple have tried to sell some property to help pay legal fees. On Monday, a federal bankruptcy judge approved the sale of a three-bedroom home they owned in Fullerton and ruled that the proceeds could be released to pay attorneys.

Times staff writers Jodi Wilgoren and Mark I. Pinsky contributed to this story.