Citron Pleads Guilty to Felonies : Former O.C. Treasurer Implicates Aide Raabe

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 $10 million in fines but remains free while he cooperates with investigators who are conducting a criminal investigation of 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.

Orange County 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 common investment pool for the benefit of the county.

The surprise plea followed weeks of negotiations between Citron’s attorney and the district attorney’s office. It completes a dizzying fall for the reclusive ex-money manager, who was reelected handily just 11 months ago to the job 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 has opened a criminal inquiry into the county’s financial collapse but apparently is weeks away from reaching 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 Matthew Raabe, 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.”

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

“Just the fact that Bob Citron tried to implicate my client and spread the blame to get himself a better deal doesn’t mean it’s true,” said attorney Gary Pohlson. “All Bob Citron wants to do is get a better deal. Bob Citron is responsible for the Orange County bankruptcy, not Matt Raabe.”

To Jail in Handcuffs

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 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 County Jail, where he was booked and then released on his own recognizance. Citron was ordered to post $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.”

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 former Assistant Treasurer Raabe misrepresented the condition of the county’s investment pool 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 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.

Suit May Be Affected

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 could also have a strong effect on a lawsuit 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 Citron’s cooperation with prosecutors would help the county’s case against Merrill Lynch.

Tim Gilles, a spokesman for Merrill Lynch, said the company had no comment. The firm’s lawyers will be discussing the issue today.

Because Citron admitted to violating state laws by selling securities through 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 Orange County supervisors greeted the news of 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 that was 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,” said Board Chairman Gaddi H. Vasquez.

Supervisor Roger R. Stanton agreed.

“I don’t think there’s any question that some people will stop blaming the supervisors,” he 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 lauded 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 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 even though Citron’s guilty plea does nothing to improve the county’s financial plight, she too 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.”

Nonetheless, the mood was far from cheerful on the fifth floor of the Hall of Administration, where the supervisors have their offices.

Citron’s guilty plea was similar to news that a burning house is no longer on fire--even though the blaze is out, the house is still in ruins.

As for Citron himself, supervisors said that any pity they may have for him is offset by the calls and letters from anguished residents whose trust was violated, who have lost their jobs, who may lose homes and who will suffer uncounted hardships because of the county’s financial disaster.

“In a personal sense, in a Christian sense, I feel for him,” Stanton said. “But tens of thousands of people are going through major disruptions in their lives because of his actions.”

As for whether Citron should go to prison for his crimes, Vasquez, a former police officer, said that would best be left to a judge to determine. But he added, “If you break the law, you should suffer the consequences.”

The criminal charges against Citron were presaged by a scathing report last month by state Auditor Kurt R. Sjoberg, who confirmed earlier findings that the former treasurer had violated trust relationships with investors by siphoning $93 million in interest income to the county that was owed to other pool investors and transferring $271 million in county losses to the investment pool.

Sjoberg also found that Citron guaranteed school districts against losses and then transferred some $27 million of their losses into the entire pool.

In his report, Sjoberg said he was baffled as to why Citron made such a costly gamble, concluding that “he needed to be recognized” by investors “as special--to have them recognize him as a savior.”

Sjoberg’s report chronicled Citron’s dramatic shift away from low-risk U.S. Treasury securities to high-risk, floating-rate notes between 1991 and 1994, noting that the riskier instruments had risen to 32% of the portfolio over those three years while the treasury notes fell from 11% to 2% during that same time.

Just before the county filed for bankruptcy, Sjoberg noted, Citron’s portfolio had been leveraged nearly 3 to 1, and more than 40% of the portfolio was invested in high-risk securities sensitive to interest rate hikes.

Documents Collected

District attorney’s investigators raided the treasurer’s office on Dec. 19, carting away a van load of boxes and computers, apparently looking for evidence of exactly what promises were made to those with investments in the fund. On Jan. 6, a team of 10 investigators armed with search warrants arrived at Citron’s home and spent 75 minutes collecting documents and photos.

Throughout the probe, investigators have collected more than 1 million documents, according to Capizzi.

“We are not stopping here, though,” he said.

The district attorney declined to indicate who else may be charged with crimes.

“We don’t give out road maps,” Capizzi said.

Capizzi said he thought Citron had a “recognition that the charges were indefensible.” The plea, he said, appeared to be a move on Citron’s part “to show some remorse.”

He declined to speculate how much prison time Citron actually may serve and said prosecutors’ recommendation on his sentencing would be based on the longtime Democratic officeholder’s cooperation in future investigations.

He said Citron does not face additional charges from his office but could face federal charges.

Capizzi also said Citron contacted his office “a couple of weeks ago,” indicating that he was willing to plead guilty.

Sources close to the case said the district attorney’s office made its offer to Citron and his attorney Thursday sometime after lunch.

By 3:30 p.m., they were headed to the courthouse for some fine-tuning to the agreement before entering the guilty plea. For nearly two hours, they negotiated with prosecutors and met with Judge Carter in his chambers.

“He is throwing himself on the mercy of the court,” Capizzi said of Citron. “We can’t stop someone from pleading guilty. He wants to tell what he knows.”

In the courtroom, scores of reporters joined lawyers and investigators from the district attorney’s office--many of them not involved in the case but simply lured by its high profile--in a vigil awaiting Citron’s arrival. Several youngsters had accompanied court personnel during “Take Your Children to Work Day” and watched the proceedings.

The heavy chatter came to an abrupt halt when Citron, wearing a dull gray suit, and Wiechert entered through the judge’s private doors. The courtroom remained silent for several minutes before Carter entered.

As Carter read in detail each of Citron’s rights and asked whether he waived them, the former treasurer said solemnly, “I understand,” and then, “I do.” Later, when Carter asked how he pleaded to each of the six counts, Citron simply repeated the same one-word answer: “Guilty.”

After the hearing, a phalanx of investigators and attorneys from the prosecution team gathered in a first-floor conference room for a news conference. A color portrait of a smiling Citron beamed from the front of the room, flanked by two full-color charts showing how Citron illegally skimmed interest and lied about his fund’s performance.

Capizzi stood at the center, congratulating his team, particularly Chief Assistant Dist. Atty. Maury Evans; Assistant Dist. Atty. Loren W. Duchesne, chief of the bureau of investigations; and Assistant Dist. Atty. Wallace J. Wade, director of special operations. Capizzi also lauded the work of Jan J. Nolan, assistant district attorney in charge of the Superior Court, Deputy Dist. Atty. Guy Ormes and investigator Jerry (Rusty) Hodges.

“Each of these individuals has played a key role,” Capizzi said.

Wiechert, Citron’s attorney, wouldn’t comment on the negotiations with the district attorney’s office that led to Citron’s guilty pleas, but said that “the time for (Thursday’s) hearing was pretty much finalized this morning.”

Wiechert added: “This is an outcome that I think is in everyone’s best interest; the county’s, law enforcement. . . . (Citron’s) cooperation is going to be helpful in giving every interested law enforcement agency an insight into the workings of the treasurer’s office.”

Commenting on the 14-year sentence that Citron is facing, Wiechert said, “It’s a long time for someone his age.

“It’s a very dark time . . . a very stressful time” for Citron and his wife, Terry, Wiechert said. “But they’ve received a lot of support from their friends and neighbors. That’s a real blessing.”

Citron emerged from the Intake Release Center at 8 p.m., a little more than two hours after he was driven handcuffed into the facility to be booked as a felon.

Looking shaky and worn, he conferred briefly with his attorney in the deserted jail waiting room as media cameras pressed against the windows.

He slowly put on his belt, which he had been forced to remove, took his watch and car keys from his attorney, and turned to a pay phone to call his wife.

“Terry,” he said, “I’m just leaving the jail now.”

Then he walked outside to face the glare of camera lights and the rapid-fire questions of a tight circle of reporters.

“I have no statement whatsoever. I have nothing to say,” he repeated as Wiechert guided him to his maroon Chrysler New Yorker with the vanity plates “Lov-USC.”

Times staff writers Jodi Wilgoren, Michael G. Wagner, Lisa Richardson and Lee Romney 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.

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Citron’s Fall

Key developments in the Orange County financial crisis and the criminal investigation that led to former Treasurer-Tax Collector Robert L. Citron’s guilty plea Thursday:

* Dec. 2, 1994: After stock market closes, local officials verify rumors that the county’s investment portfolio has lost nearly $1.5 billion of its value.

* Dec. 4: Citron resigns from the treasurer-tax collector post he held for 24 years.

* Dec. 6: Orange County files the largest municipal bankruptcy in U.S. history, freezing the assets of the county investment pool.

* Dec. 8: Internal audit is released showing county auditor warned officials more than a year earlier that the investment pool was not adequately supervised.

* Dec. 19: Orange County district attorney investigators raid Citron’s office, confiscating boxes of documents and files.

* Dec. 27: Municipalities with investments in a more risky county portfolio say Citron led them to believe their money was in “safer” investments.

* Jan. 21, 1995: County audit discloses possible falsification in bookkeeping records; $85 million in interest was diverted from pool participants to an account managed by Citron.

* Jan. 27: Officials announce Citron or his office transferred securities that had lost value from a county fund into an investment account shared by pool investors.

* Feb. 2: State auditor questions diversion of more than $200 million from the investment pool to a general fund.

* April 27: Citron pleads guilty to six felony charges relating to the county bankruptcy.

Source: Times files