U.S. Files Fraud Charges Against Embezzler Wagner

The U.S. government filed mail and wire fraud charges Wednesday against former Newport-Mesa school finance officer Stephen A. Wagner, exposing him to a 10-year prison term and up to $1 million in fines.

The charges had been expected since Wagner’s guilty plea in December to state embezzlement charges. Wagner was subsequently sentenced to six years in prison on the state charges. With credit for good behavior and other factors, he could be released after serving about 2 1/2 years of his sentence.

The federal charges--three counts of wire fraud and one count of mail fraud--cover some of the same state crimes to which Wagner has already pleaded guilty.

But federal statutes hold Wagner responsible for the entire $3.7 million he is accused of stealing from the Newport-Mesa Unified School District. In state court, there is no penalty enhancement for white-collar criminals who steal more than $100,000.

“This is just fantastic news from our perspective,” said Cloyde McKinley (Mac) Bernd, the district’s superintendent, who was hired six months after Wagner pleaded guilty.

“I think anything that has the potential of lengthening the time Mr. Wagner spends behind bars is good news to the people of this school district,” he said. “There is a strong feeling that he be held properly accountable for his crimes.”

Wagner, 41, the district’s former chief financial officer, diverted school district money into his personal accounts between 1986 and 1992. He bought expensive cars, real estate, gems, even mink-lined bathrobes, until an anonymous district employee contacted the county grand jury about a district check that had only Wagner’s signature rather than the required two.

The federal government has long been interested in the Wagner case because federal money goes to the school district under the national school lunch program for disadvantaged students and in other assistance, said Asst. U.S. Attorney Paul L. Seave, the chief of the Santa Ana branch office.

“By our action, Mr. Wagner stands exposed to a potentially greater sentence than he would have had in the state system,” Seave said.

The wire fraud charges cover three instances--twice in 1990 and once in 1991--in which money was transferred from the school district’s account into out-of-state bank accounts to cover Wagner’s investments. One mail fraud count involves Wagner’s use of $35,503 in district funds to pay his personal American Express bill in 1989.

If Wagner is convicted on federal charges, he faces a sentence of between five and 10 years in federal prison plus $250,000 for each of the four counts filed against him, according to federal sentencing guidelines.

Wagner’s attorney, Paul S. Meyer, issued a press release Wednesday afternoon expressing confidence that the federal charges can be resolved.

“While it does not seem cost-effective to spend tax dollars in a prosecution already covered by state charges, the charges presently filed are ones that we will certainly be able to resolve,” he said.

In his press release, however, Meyer appeared to criticize the district for not detecting the embezzlement sooner.

“Some may feel that if Stephen Wagner is attacked loudly enough, people will ignore how the losses came to continue for such a lengthy period of time without detection,” Meyer said. “However, if appropriate safeguards had been in place, this matter would have been uncovered and Stephen Wagner able to receive help at a much earlier stage.”

Wagner, who is serving his sentence in state prison at Vacaville, is expected to be transported back to Santa Ana to face arraignment in about three weeks, Seave said. At that time, a trial date will be set.

If he is convicted of federal charges, Wagner will likely receive credit for his time in state prison.

Parents of children who attend the schools of the Newport-Mesa Unified School District were infuriated by Wagner’s sentence, calling it too lenient for the largest embezzlement of school funds in California’s history.

But they were also angry with the district, which they believed did not have the necessary internal controls to prevent the embezzlement. The district has since put new safeguards in place, school officials said.