Citron's Action Hands Weapon to Investigators

By JODI WILGOREN

April 28, 1995 12 AM PT

TIMES STAFF WRITER

SANTA ANA —

In admitting to virtually every allegation made against him over the past five months and promising his cooperation, former Orange County Treasurer-Tax Collector Robert L. Citron on Thursday handed officials perhaps the most powerful tool they will need in their ongoing criminal investigations and preparations for civil litigation.

Citron, the 70-year-old architect of the county’s complex investment scheme, stood alone at the nexus of county finance officials and Wall Street brokers for more than two decades.

Now, his vow of cooperation could trigger indictments of his subordinates and colleagues in county government--especially his former deputy--and bolster the county’s case in its $2.4-billion lawsuit against investment giant Merrill Lynch & Co. Citron will begin meeting with investigators from the district attorney’s office next week, sources said.

“I think it’s going to be of enormous significance. It could be critical,” said one attorney involved in the county’s massive financial crisis, speaking on the condition of anonymity. “He’s the one that had the one-on-one conversations. He’s right in the center of it.”

Citron’s attorney, David W. Wiechert, echoed that point: “His cooperation is going to be helpful in giving every interested law enforcement agency an insight into the workings of the treasurer’s office.”

Sources said Citron could tell authorities of his dealings with Auditor-Controller Steve E. Lewis; former county budget director Ronald S. Rubino; Merrill Lynch securities salesman Michael G. Stamenson, and financial adviser Jeff Leifer, all of whom have been questioned in the ongoing criminal probes by the district attorney’s office, federal prosecutors or securities regulators. None could not be reached for comment late Thursday.

“This is a very significant step, but it’s the first of presumably many more steps,” Dist. Atty. Michael R. Capizzi said Thursday as he promised to keep pressing the wide-ranging investigation. “We’re going to take all the steps that are necessary.”

The next prime target appears to be former Assistant Treasurer Matthew Raabe, who was fired from his No. 2 spot in March. “He totally hung Raabe out to dry,” said one top-ranking county official.

In the plea agreement, Citron said repeatedly that he committed the felony crimes “with the assistance of” Raabe, his handpicked deputy.

The Orange County Grand Jury has been hearing testimony for weeks, sources said. But Raabe’s attorneys said Thursday they have not yet been offered any kind of deal by Capizzi’s office or told that an indictment could be imminent.

“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.”

In his plea agreement, Citron admitted to having abused his job by lying, falsifying records and effectively stealing money from the 200 schools, cities and special districts whose investments he handled, funneling the funds instead to Orange County itself.

Citron also admitted failing to divide interest among pool participants accurately for 18 months before the pool’s collapse, and to maintaining and mailing out false reports to pool investors about how much interest they had earned.

And in separate counts that could send shock waves through the municipal finance market, he acknowledged lying to potential investors in offering documents for nine bond issues last summer, as well as in his own annual financial reports and investment policy statements.

“Anybody that’s associated with those offering documents has to be concerned about potential criminal or civil liability,” said one top official involved in the legal wrangling.

Christopher Taylor, executive director of the Municipal Securities Rulemaking Board, said Thursday that the guilty plea highlights the need for complete and accurate disclosure in bond offerings. He and others said the admission that the bond documents were bogus could also impact pending class-action lawsuits by bondholders.

“We want these securities rules enforced, and investors can take comfort from the fact that they know someone is going to (jail) for lying in bond documents,” Taylor said. “That’s what we’ve been saying all along, these documents are important.”

Sources said they expect Citron not only to cooperate with the criminal probes, but also to help the county in its lawsuit against Merrill Lynch. The county contends the investment giant actually designed the county’s faulty investment strategy and sold the county illegal financial instruments.

Citron was the primary, and often sole, contact with Wall Street, and therefore could be the crucial witness in that civil litigation. Knowledge of his cooperation could help pressure Merrill in settlement talks, according to those close to the case.

“One has to realize that it takes two to tango,” said Wylie A. Aitken, a Santa Ana attorney representing several bondholders, referring to Merrill’s role as a bond underwriter. Merrill officials declined comment Thursday night.

While Citron’s plea arrangement may help the county recoup losses from brokerages and nail others who were responsible, it leaves him open to further action by federal authorities, including the Securities and Exchange Commission, experts said.

“He’s put his head in the noose for the SEC,” Taylor said. “Normally they do all these things at once. I’m very surprised he didn’t settle with the SEC.”

Investigators from the SEC and the U.S. attorney’s office have lagged behind the district attorney’s probe, and are further from taking action, sources said. Thursday’s plea agreement makes no mention of federal prosecution, and Capizzi and Wiechert both said that no deal has been cut on that level.

Attorney Jack M. Earley said the guilty plea could help stave off a federal prosecution that would spell a longer prison sentence. “It may help him resolve the whole case,” he said.

Western State University College of Law Prof. Ron Talmo, who teaches criminal and constitutional law, said Citron and Wiechert cut a good deal.

“It’s virtually always best to get it over with for the client, but so few lawyers do it that way,” Talmo said. “The obvious down side, whenever a deal is cut behind closed doors, the public never learns of the information. One of the things we would have learned in a criminal trial is what the hell happened.”

Times staff writers Debora Vrana, Ken Ellingwood, Anna Cekola, Chris Woodyard, Matt Lait and Lee Romney and correspondent Shelby Grad contributed to this report.

Contributing to today’s coverage of former County Treasurer-Tax Collector Robert L. Citron’s guilty pleas were staff writers Eric Bailey, Anna Cekola, Ken Ellingwood, Matt Lait, Mark Platte, H.G. Reza, Lisa Richardson, Diane Seo, Debora Vrana, Michael G. Wagner, Peter M. Warren, Jodi Wilgoren, Chris Woodyard and correspondents Shelby Grad and Steve Scheibal. Also contributing were photographers Robert Lachman, Al Schaben, Geraldine Wilkins, Don Bartletti and Craig Wallace Chapman and researcher April Jackson.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Citron Admits . . .

Count 1: Using “false and misleading” financial statements to sell securities between April, 1993, and December, 1994.

Maximum penalty: Nine years in prison because losses exceeded $2.5 million.

Count 2: Using false statements about the condition and earnings of county pool to sell $1.392 billion worth of bonds and notes between May 24, 1994, and Sept. 28, 1994.