Ex-O.C. Treasurer Pleads Guilty to Six Felonies : Bankruptcy: Plea agreement implicates former assistant. Citron faces up to 14 years in prison.

In a stunning admission that implicated his once-loyal assistant, former Orange County Treasurer-Tax Collector Robert L. Citron pleaded guilty Thursday to misappropriating public funds, falsifying documents and misleading nearly 200 government agencies that trusted him to invest their money.

Citron, 70, faces a maximum of 14 years in prison and a $10-million fine but remains free while he cooperates with investigators conducting an ongoing criminal investigation into the Orange County bankruptcy.

The former treasurer pleaded guilty to six felony counts, two that involve making untrue “material” statements in connection with the sale of securities, a violation of the state corporations code.

Four other counts involve violations of the penal code dealing with misappropriation of public funds, failure to transfer public funds and maintaining false entries in a public record.

Dist. Atty. Michael R. Capizzi said investigators “have not found any evidence of personal gain by Mr. Citron.” The misappropriation charges involve Citron’s transfer of $80 million of interest earnings out of the entire investment pool for the benefit of the county.

The surprise plea followed weeks of negotiations between Citron’s attorney and the county district attorney’s office. It completes a dizzying fall for the reclusive ex-money manager, who had been reelected handily 11 months ago to the job that he had held since 1970.

The swiftness of the plea agreement stunned most county officials, who were expecting the complicated case to drag on for months. The Orange County Grand Jury had opened a criminal inquiry into the county’s financial collapse but apparently was weeks away from a conclusion, sources said. A federal investigation is still pending.

David W. Wiechert, Citron’s attorney, said his client “pleaded guilty because he’s guilty. Mr. Citron didn’t want to put the county to the expense of a lengthy trial. He’s guilty, and he wants to cooperate and make amends.”

Citron directly implicated his chief assistant in many of his crimes.

“With the assistance of Matthew Raabe . . . I misappropriated in excess of $80 million of earned interest belonging to participants in the Orange County Treasury Pool to and for the benefit of the County of Orange,” Citron acknowledged in his guilty plea.

Furthermore, he admitted that he and Raabe “improperly transferred securities from the Orange County General Fund to the Orange County Treasury Investment Pool.”

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Raabe has not been charged with any crime, and his lawyer said Thursday that Citron’s former assistant would be vindicated.

“We fully expect that when all the facts come out and when Matt has a chance to explain himself, he will be proven to have acted honestly and in accordance with his responsibilities,” said Terry W. Bird, an attorney for Raabe. “He was not responsible for the sale of securities in the treasurer’s office. That was Citron’s job.”

Citron entered his guilty plea at 5:40 p.m. in Orange County Superior Court before Judge David O. Carter after a 15-minute arraignment. When Carter asked the former treasurer whether he had enough time to study his plea agreement with prosecutors, Citron responded in a quiet voice, “More than enough time, sir.”

After the hearing, he was taken in handcuffs to the County Jail, where he was booked and then released on his own recognizance. Citron was ordered to come up with $25,000 bail by May 19. He will remain free under the terms of the agreement he signed--so long as he cooperates with the district attorney’s investigators.

As part of the agreement, Citron asked that sentencing be held in a court outside Orange County, a condition that prosecutors say they will not oppose. A status conference is scheduled for Aug. 4.

Capizzi said Citron was being offered nothing in return for his guilty plea.

“This was not a plea bargain; this was a straight-up plea,” he said. “There have been no concessions.”

Capizzi characterized Citron’s action as “throwing himself at the mercy of the court.”

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Citron faces up to 10 years in state prison for the six felony counts and up to four more years because three of the counts involved financial losses that exceeded $2.5 million.

In the written agreement, Citron said he and Raabe misrepresented the condition of the county’s investment pool to participants in several documents--the “statement of investment policy” and the pool’s annual financial summaries for 1992-93 and 1993-94. Citron acknowledged knowing that the documents “were false and misleading.”

In addition, Citron admitted making false representations in documents describing various county bond issues last year.

Citron stated in his guilty plea that he prepared financial statements, “which I knew were false and misleading and contained untrue statements of material facts regarding the true condition and historical earnings of the Orange County treasury and its investment pool.”

The once nationally recognized treasurer resigned from office Dec. 4, two days before the county filed for bankruptcy protection in federal court, precipitating the worst local government financial meltdown in American history.

The fund that Citron managed for nearly 200 schools, cities, special districts and other public entities lost $1.7 billion in the collapse of his investment scheme, which involved borrowing heavily to boost pool earnings.

Citron leveraged $7.8 billion worth of securities into a portfolio valued at nearly three times that amount. While interest rates were falling, Citron brought in big yields and was celebrated as a fiscal folk hero for coming up with extra interest income that could be used to balance the county’s budget year after year.

But when interest rates rose repeatedly during 1994, the former treasurer had to put up more and more cash as collateral to guarantee loans from various securities firms that had allowed Citron to borrow money short-term to invest in longer-term bonds.

Citron’s admission that he lied to bond investors when selling Orange County bonds could send shock waves through the municipal bond industry and have wide-ranging implications for the dozens of class-action lawsuits filed by investors who bought Orange County bonds, sources said.

His guilty plea also could have a strong effect on a suit filed by the county against Merrill Lynch & Co., the nation’s largest investment banking firm. The county alleges that Merrill Lynch sold Citron risky securities in violation of state law. The company denies the allegations.

Sources said they thought that Citron’s cooperation with prosecutors would help the county’s case against Merrill Lynch. Tim Gilles, a spokesman for Merrill Lynch, said, however, that the company had no comment. The firm’s lawyers will discuss the issue today.

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Because Citron admitted to violating state laws by selling securities under false or misleading statements, he clearly violated federal securities laws as well, sources said. Normally, Citron would settle the federal investigation before a local investigation, sources said.

Meanwhile, most of the county supervisors greeted Citron’s guilty plea with a sense of grim victory.

The admission in court papers that he gave them “false and misleading” statements about the health of the county pool, they said, bolsters their oft-repeated contention that they made good policy based on bad information.

“I hope that those who have written to us placing blame on the supervisors--often in harsh terms--will take a step or two back and say that maybe they will reconsider,” Board Chairman Gaddi H. Vasquez said.

“I don’t think there’s any question that some people will stop blaming the supervisors,” Supervisor Roger R. Stanton said. “I think most people realize that you have a right to rely on the information that’s provided to you--and he lied to us.”

Vasquez praised the swift work of the district attorney’s office, saying that if other phases of the county’s recovery move as quickly, the public may regain some of its lost faith in their government.

“The core of our government is based on trust, integrity, confidence and the belief that those who choose to pursue public office will see that the best interests of the public are served,” he said. “Our very core was shaken by this.”

Supervisor Marian Bergeson said that although Citron’s guilty plea does nothing to improve the county’s financial plight, she hoped that his admission would help the public’s wounded confidence begin to heal.

“It’s not the question of finally placing the blame,” Bergeson said. “But it helps the public have an understanding that illegal acts brought this about.”

Times staff writers Jodi Wilgoren, Michael G. Wagner, Lisa Richardson and Lee Romney contributed to this report.