School District Sues Bank Over Alleged Embezzlement : Education: Newport-Mesa charges that Wells Fargo failed to protect its funds and allowed a former fiscal officer to loot at least $3 million from its accounts.

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 loot 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 Trustees to launch a search for new leadership.

In the civil suit filed in Orange County Superior Court in Santa Ana, the district alleged 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 or 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. “We’re not able to comment since we haven’t yet seen the suit,” corporate spokeswoman Kathleen Shilkret said.

Wagner, 40, who lived 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 21-year former director of business services for the school district was suspended Oct. 23 when information first surfaced about a $57,861 check that 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 counterchecks that Wagner allegedly drew from school accounts.

School district officials say the total missing is expected to reach at least $3.5 million, and possibly more when the audit and criminal investigation is completed. Wagner remains in the 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.