Newport-Mesa Sues Bank Over Missing Funds : Scandal: As school district accuses Wells Fargo of negligence in permitting the alleged embezzlement by its ex-fiscal chief, teachers issue vote of no : confidence in top administrators.

The Newport-Mesa Unified School District filed suit Monday against Wells Fargo Bank, alleging that the bank failed to protect district funds and negligently allowed the district’s former top fiscal officer to embezzle at least $3 million in school money.

The legal action came as the district’s teachers cast an overwhelming vote of no confidence in Newport-Mesa’s top three administrators and called on the district’s Board of Education to launch a search for new leadership.

In the civil suit filed in Orange County Superior Court in Santa Ana, the district alleges that the Wells Fargo Bank branch in Costa Mesa was negligent when it allowed Stephen A. Wagner to write improper checks and make unauthorized wire transfers on two employee health insurance accounts from as early as April, 1987, through April, 1992.

The bank breached its contract with the school district and failed to carry out its fiduciary duty to properly supervise the Newport-Mesa accounts and to notify the district of repeated unauthorized and improper withdrawals from the health accounts, according to the suit.

“These were trust accounts, and this was just a very unusual way of letting money go out of a trust account,” said Clayton H. Parker, an attorney representing the 17,500-student Newport-Mesa district.

Wells Fargo Bank officials declined comment Monday. “We’re not able to comment since we haven’t yet seen the suit,” corporate spokeswoman Kathleen Shilkret said.

Wagner, 40, who maintained an opulent lifestyle that included expensive cars, a fur-lined bathrobe and investments in gems, property and stocks, has pleaded not guilty to charges of misappropriating school district funds. At the same time, his attorney, Paul S. Meyer of Costa Mesa, has said his client is cooperating with authorities in an effort to make full restitution to Newport-Mesa.

The former director of business services for the school district was suspended Oct. 23 when information first surfaced about a $57,861 check Wagner allegedly wrote on district funds to a shoe repair company he co-owns. He was fired Nov. 10 as an internal audit and investigation by the Orange County district attorney’s office began to unravel millions of dollars in cashier’s checks, wire transfers and counter checks that Wagner allegedly drew from school accounts.

School district officials said the total missing is expected to reach at least $3.5 million when the ongoing audit and criminal investigation are completed. Wagner remains in Orange County Jail in lieu of $1.2-million bail. He faces up to eight years in state prison on charges that include evasion of state taxes.

“We obviously are looking to any source to try to get our money returned,” said Board of Education President Forrest K. Werner. “(Wells Fargo officials) weren’t paying attention when he wrote the checks to himself, and that’s a form of negligence.”

The district is bonded and insured for thefts such as the alleged embezzlement but only up to $250,000, according to Thomas A. Godley, assistant superintendent for budget, personnel and facilities.

Meanwhile, the district’s teachers on Monday announced an overwhelming vote of no confidence in ailing Supt. John W. Nicoll, who is recuperating from heart bypass surgery; Deputy Supt. Carol A. Berg, and Assistant Supt. Godley. Of 640 votes cast, 614, or 95.9%, expressed no confidence in the top administrators.

The Newport-Mesa Federation of Teachers chapter has been locked in a heated contract battle for more than a year with the financially troubled district over increased class sizes, teacher preparation time and a negotiated cost-of-living increase. News of Wagner’s alleged embezzlement has further galvanized teachers and parents.

On a separate ballot question, 83.3% of the voting teachers--including 11 employees who had expressed confidence in the current superintendents--called for “an outside search for competent new leadership.”

“We do need to have a fresh feeling from the leadership in this district, and (the teachers) are convinced they’re not going to get it from these same people,” said Maya Decker, president of the Newport-Mesa teachers’ union, which has about 450 members. However, all 765 certificated employees--teachers, nurses, counselors and librarians--were eligible to vote.

“We’re talking about the key people who do the most important work in the schools,” Decker said. “How they feel about how they’re being managed ought to count for something.”

But school board President Werner on Monday evening brushed off the results of the vote and said district decision-makers would not take any action because of the teachers’ outcry.

“The school board hires people, fires people and conducts searches,” Werner said. “Thank you for the vote, but we will really have to do this ourselves. The employees never hire the manager or the boss; that doesn’t happen anywhere.”

Godley, one of the three officials targeted by the teachers, called the vote premature.

“People should give us a little bit of time to fix the problem and not jump to conclusions before the investigation is completed,” he said. “They don’t even have all the information, and they’re reaching conclusions.”