Wagner Pleads Not Guilty to Grand Theft : Courts: Former chief fiscal officer of Newport-Mesa school district is accused of embezzling nearly $1.2 million in funds. The defendant’s attorney reaffirms that his client wants to make restitution.

Stephen A. Wagner, accused of embezzling nearly $1.2 million from the Newport-Mesa Unified School District, pleaded not guilty Monday as prosecutors began investigating whether state tax laws were violated by the former school executive.

Wagner pleaded not guilty at Harbor Municipal Court to grand theft and misappropriation of public funds, even though his attorney reaffirmed that the 40-year-old Newport Beach man wants to cooperate with authorities and return as much money as possible to the financially strapped district.

Estimates vary about how much money is missing from school coffers, but prosecutors with the Orange County district attorney’s office believe it exceeds $2 million.

Deputy Dist. Atty. Carlton P. Biggs said his office will not accept any plea bargain from Wagner, but added that a judge could take Wagner’s offer of restitution into account during future proceedings.

“From our perspective, there (are) going to be no plea bargains in the case,” Biggs said.

Wagner, the district’s former chief fiscal officer, is facing up to six years in jail if convicted on the charges.

Sources, however, told The Times on Monday that prosecutors are researching state tax laws to see if they might have any bearing on the case. Tax law violations carry penalties of up to two years in jail.

Wagner is already experiencing troubles with the Internal Revenue Service, which filed $2.4 million in liens against his estate in July. The Newport-Mesa district paid Wagner about $78,000 a year, and court documents indicate that he received an additional $7,325 a month in rental and investment income.

The IRS liens date back to 1986, but so far the district attorney’s investigation dates only to 1988, because investigators are still receiving records from the school district’s various bank accounts.

The IRS levied its biggest liens against Wagner and his wife, Linda, for the years 1986 and 1987. The two were the subjects of a $633,542 estate lien in 1986 and a $676,732 lien in 1987.

Wagner became a signatory to the district’s health fund savings account--the principal account in question--in 1983.

Newport-Mesa Assistant Supt. Thomas A. Godley said the school district’s auditors have thoroughly reviewed Wagner transactions from 1988 and are awaiting bank records to audit earlier years.

Wagner’s attorney, Paul S. Meyer, would not say Monday how much of the money would be returned to the school district.

“How much is missing at this point is just conjecture,” Meyer said, adding that Wagner is suffering from an “emotional paralysis” over the alleged embezzlement. “The school restitution is a bigger priority for Mr. Wagner than his own welfare.”

Meyer said his client’s plea of not guilty Monday was aimed at protecting Wagner’s legal rights during the early stages of the prosecution. But he indicated that the plea decision was not at odds with his client’s desire to make full restitution to the school district, and did not preclude a change in plea at a later date.

Meanwhile, federal agents and the district attorney were still debating Monday whether the FBI should join in the state’s investigation of Wagner. Some officials suspect that federal lunch money meant to go to disadvantaged children may be among the missing funds.

The district attorney’s office, however, indicated it was unlikely that federal agents would be asked to intervene in the Wagner case.

“Though we encourage assistance from any other investigative agency, I’m not so sure it will be needed in this case,” said Guy Ormes, supervising deputy district attorney. “That does not prevent the FBI or U.S. attorney from looking at this and potentially prosecuting it on their own.”

However, some officials speculated that federal agents might be better equipped to seek restitution for the school district in light of accusations that Wagner transferred funds to accounts in Canada, the Caribbean and Florida.

“I think any discussion of restitution is premature until we all better understand what assets are available to the defendant,” Ormes said.