Former School Official Pleads Not Guilty in Embezzlement

Stephen A. Wagner, accused of embezzling nearly $1.2 million from the Newport-Mesa Unified School District, pleaded not guilty Monday as the Orange County district attorney’s office indicated it may file additional charges this week against the former school executive.

Wagner pleaded not guilty 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 of the amount missing from school coffers vary, but prosecutors believe it exceeds $2 million. About $3 million worth of questionable district checks have been found but it is unclear if all of those were converted to cash, sources close to the investigation said.

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 prison if convicted.

However, sources told The Times on Monday that prosecutors may file state tax violation charges against Wagner as early as Wednesday. The alleged violations, which would cover unreported income, carry penalties of up to two years in prison, sources said.

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

The IRS began investigating Wagner after determining that deposits far exceeding his income were regularly being made to his bank accounts, sources said.

“They (the IRS), in some fashion, got into this bank account and found hundreds of thousands of dollars deposited,” a source said.

The IRS liens date to 1986 but the district attorney’s probe goes only to 1988 because investigators are still obtaining 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 liens were for $633,542 in 1986 and $676,732 in 1987, possibly indicating that even more money was taken from Newport-Mesa in those years, sources said.

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’s 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 might 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 entered the not-guilty plea as part of an early defense strategy, anticipating that there could be additional charges filed in the case. Meyer also indicated that the plea could be reconsidered during future proceedings.