Justice Dept. Opens Inquiry of Wagner Case : Embezzlement: The U.S. attorney cites the amount of federal money the Newport- Mesa school district receives.

The U.S. Justice Department on Monday opened an investigation into allegations of embezzlement of federal funds by Stephen Wagner, the former school district executive who pleaded guilty to state charges of stealing more than $3.5 million from district accounts.

Wagner already faces up to eight years and eight months in state prison for misappropriating public funds and filing false state income tax returns. Conviction on federal charges could add significantly to his prison term.

U.S. Atty. Terry Bowers said in a statement that the accusations against Wagner, the former chief fiscal officer for the Newport-Mesa Unified School District, are so egregious as to warrant a separate inquiry.

“We are pursuing federal charges in this case because of the large amount of federal funds that were received by the school district,” Bowers said. “There is a substantial federal interest in maintaining the integrity of our federal school programs.”

Federal officials have said in the past that some of the missing money may include federal funds intended to provide lunches for disadvantaged children.

Assistant U.S. Atty. Paul L. Seave said Wagner could face a variety of charges, among them money-laundering, theft of federal funds, mail and wire fraud and bank fraud.

“That doesn’t mean we would bring all of those charges if we found the evidence,” Seave said. “But those are possible charges.”

Some of those federal statutes impose long prison terms, heavy fines or both. The law regulating theft of federal funds, for instance, carries with it punishment of up to 10 years in jail.

Wagner’s attorney, Paul S. Meyer, criticized the start of a second investigation.

“We think the scope of the district attorney’s inquiry in this case covers the waterfront,” Meyer said. “I don’t think it’s in the best interest of justice in this case to have parallel prosecutions.”

Meyer added that Wagner has cooperated with district attorney’s investigators and is doing everything he can to help make “full and complete restitution.”

“It’s one thing if Mr. Wagner has not taken responsibility for the conduct, but it’s quite another when he has openly taken responsibility and directed me to work closely with the district attorney’s office,” Meyer said.

Newport-Mesa officials, however, were happy to learn of the federal investigation.

“I have no sympathy for Mr. Wagner. The deeper hole he gets in, the more time he has to serve and the more satisfied I might feel,” said acting school board President Roderick H. MacMillian.

“I’m glad to hear it,” Assistant Supt. Thomas A. Godley said. “There were federal monies involved, and I think he needs to be accountable at that level as well.”

Because federal funds are mixed in with other revenues in Newport-Mesa accounts, it is unclear how much, if any, of the more than $3.5 million taken from school coffers was from federal sources.

The U.S. attorney, however, does not have to prove that the missing money came directly from the federal government. Rather, that office needs only to show that the money in question came from an account that contained at least $10,000 in federal funds.

In November, officials said Wagner had diverted more than $786,000 from the school district’s food services account into a secret slush fund he had set up. Newport-Mesa’s fiscal 1992 report shows that the food services account received $3.2 million in revenue, including $1.3 million in federal lunch money for disadvantaged children.