Orange County D.A. Indicts 2 Former Water Officials : Scandal: The pair face 38 charges, including failure to report gifts from firms that benefited from their actions.

A year after scandal shook the Santa Margarita Water District out of obscurity, prosecutors charged two former top managers Monday with illegally taking thousands of dollars in gifts from companies that relied on their help in securing government contracts.

The Orange County district attorney’s office brought a total of 38 misdemeanor charges against Walter W. (Bill) Knitz, 62, former general manager of the district, and Michael P. Lord, 51, former assistant general manager, alleging that the two repeatedly failed to disclose gifts from business people and took action on their behalf despite conflicts of interest.

Neither man could be reached for comment, but in the past each has maintained his innocence.

The district attorney’s office opened its investigation last March, a day after The Times reported that Knitz and Lord had accepted tens of thousands of dollars in gifts from local business people--from pheasant hunting and fishing trips to theater tickets and golf outings.

The charges came as something of a respite for a new water district board that came into office in November, when most of the old board was swept out in the wake of the scandal.

“I guess everybody got what they deserved,” said board member Bob Lay, chairman of the district’s finance committee. “I initially went into this thinking this was all trumped up. But it wasn’t. Those guys were feathering their nest pretty good.”

All of the charges filed Monday center on gifts allegedly provided to Knitz and Lord by two Orange County engineering firms--Robert Bein, William Frost & Associates of Irvine and MacDonald-Stephens Engineering of Mission Viejo.

Prosecutors allege that Knitz illegally took part in Santa Margarita Water District decisions worth more than $1.1 million in government contracts to the two companies from 1990 to 1992, while Lord allegedly influenced about $250,000 in Bein, Frost contracts during that same time at the water district.

The furor over the reports of lavish trips and gifts prompted a newfound public scrutiny for a $28-million-a-year special district that has operated for 29 years in relative obscurity, providing water and sewer service for 84,000 people in South County.

Within weeks of disclosure of the payments, the district adopted a strict ethics code banning employees from accepting gifts of any amount, and it suspended Knitz and Lord with pay from their six-figure salaries. Each later resigned.

Lord’s attorney, Gary Pohlson, said the yearlong investigation has taken an emotional and financial toll on his client and that Lord is considering filing for bankruptcy.

Knitz’s attorney, Marshall Schulman, said: “I have to see what they’re charging and see what they’ve got. If they don’t have anything, then you’ll expect us to fight it.”

Knitz and Lord face possible jail time and fines if convicted, although prosecutors said they were uncertain what the most severe sentences could be. Arraignments have been scheduled for April 12 in Orange County Municipal Court in Laguna Niguel.

Officials at MacDonald-Stephens and Bein, Frost did not return calls seeking comment. Although officials at MacDonald-Stephens have refused to discuss the investigation, Bein, Frost officials say they never sought to influence contracts through gifts to anyone at the water district.

The counts listed in the complaint are broken down into two types of violations: failure by each man to disclose repeated gifts from local business executives in state-required filings, and attempts by each to use “his official position to influence a governmental decision in which he knew or had reason to know he had a financial interest.”

It is against state law for most government officials to take part in a decision affecting anyone who has provided $250 or more in gifts during the previous 12 months.

The complaint gives few details about the gifts the two men allegedly received, but it does break down the contracts that came into question as a result.

Prosecutors alleged that Knitz, despite an apparent conflict-of-interest created by the gifts, improperly influenced five MacDonald-Stephens contracts between 1990 and 1992, totaling $662,620, and influenced 10 Bein, Frost contracts worth $495,380.

Since 1989, Bein, Frost has been paid about $13 million for a variety of engineering projects; MacDonald-Stephens has been paid more than $4 million.

One conflict-of-interest count against Lord involved a $2-million certificate of deposit that the water district purchased from Mission Viejo National Bank in 1991, even though the bank was on the verge of financial collapse.

Though the district incurred no loss and redeemed the certificate of deposit when it matured, the transaction raised questions about Lord’s handling of customer funds and proceeds from the public sale of bonds--in particular, the relationship between the district, Lord and banker Charles D. Maranto.

Documents reviewed by The Times showed that the water district’s multimillion-dollar general operating fund followed Maranto as he went from bank to bank over a five-year period. Lord had obtained at least a $50,000 loan, a $45,000 line of credit and another $3,000 line of credit from the banks involved with Maranto, who was with Mission Viejo National when the district purchased the $2-million certificate of deposit.

Times staff writer Mark Platte contributed to this story.