By speaking at meetings that were tape-recorded, Orange County's former assistant treasurer, Matthew Raabe, inadvertently provided the district attorney's office with a key piece of evidence prosecutors could use to prove he knowingly deceived county investment pool participants about the safety of their deposits.
At two meetings last year of the Orange County Water District's investment committee, Raabe tried to dispel any suggestions that the pool might incur any real losses, and made specific comments about the liquidity and average maturity of its holdings, according to transcripts obtained by The Times under the California Public Records Act.
"This last year was, we believe, a very successful year for our investment fund. . . . We don't anticipate right now that we're ever going to have to liquidate anything," Raabe told the committee Oct. 31, 1994--more than a week after he warned higher-ups that the pool was in grave trouble, and just one month before publicly announcing a staggering $1.5-billion plunge in the pool's value.
While several pool participants have previously said that Raabe lied to them or failed to disclose crucial facts about the pool, the 39-year-old assistant treasurer's comments to the water district could be prosecutors' strongest proof for the first count in the six-felony indictment of Raabe because they are on tape and come directly from the accused's mouth.
When water district Treasurer Andrew Czorny turned over the tapes and transcripts to investigators in mid-April, Assistant Dist. Atty. Wallace J. Wade told him they had "struck gold."
"Specific conversations between Raabe and others [are] going to be the turning issue," said a white-collar crime specialist who spoke on the condition of anonymity because he represents someone else in this case. "The acts are all there, but it's intent you need to show. And intent is going to be determined on what he knew and what he said."
Raabe's attorney, Gary M. Pohlson, agreed that the OCWD tapes are strong evidence--but for the defense, not the prosecution.
"I think it shows that Matt was disclosing everything he did know at the time and was not speaking any falsehoods," Pohlson said Wednesday after reviewing the transcripts and discussing them with his client. "I think Matt Raabe was telling the truth as best he could at all points. This could be a good piece of defense evidence because it verifies what Matt's always said--that he was telling the truth."
The charge in count one--that Raabe made a false statement, or failed to disclose a material fact, in connection with the sale of securities to pool investors--is a violation of the state Corporations Code that carries a maximum penalty of two years in prison.
For all six counts of misappropriating funds, improperly transferring securities within the pool, falsifying government documents and lying in connection with more than half a dozen debt issuances, Raabe faces 14 years in prison and a $10-million fine, if convicted. He is free on $200,000 bond and plans to plead not guilty at his arraignment next week.
His former boss, resigned Treasurer-Tax Collector Robert L. Citron, has pleaded guilty to the same charges, saying he committed the crimes with Raabe's help and promising to cooperate with law enforcement efforts.
Assistant Dist. Atty. Maury Evans declined to comment on the tapes and transcripts, other than to say: "It's information we received and it's information we have reviewed and it's information that might be used in a trial."
But William Mills, the water district's general manager, said prosecutors "were extremely interested in the tape."
As Citron's right-hand man and public spokesman, Raabe was invited to the water district meetings because officials were weighing whether to withdraw some or all of the $115 million the agency had in the county treasury.
"We were trying very hard to find out more about the pool," Board President Phil Anthony said recently. "We were asking all the right questions, but we got very misleading answers."
During presentations May 31 and Oct. 31 last year, Raabe answered questions about specific transactions in the pool, general investment strategy and long-term economic outlook. Contrary to the image Raabe has sought to create since the bankruptcy--that he was simply a Citron deputy who lacked expertise in high finance--Raabe exhibited facility when discussing complex investment transactions, and spoke of the office's investment strategy as though it were his own.
Still, Pohlson noted, "in neither of these meetings does he ever say that it's his strategy. Just because he understands what's going on doesn't mean he's making the decisions."
Though he gave overall assurances to the board members, Raabe did acknowledge that rising interest rates placed the investment portfolio in a precarious position, and warned the water district that yield in the current fiscal year would almost certainly pale compared to previous successes.
"We were as caught off-guard these past eight or nine months as anybody else was with what's happened with short-term [interest] rates," Raabe said at the October meeting. "And what that means going forward is that this year is not going to be one of our very best years."
But Raabe nevertheless exuded confidence about the fund, and his presentations were a key factor in convincing the water district to keep its money in the pool, according to several officials who were at the investment committee meetings.
The district still faces the possible loss of more than $20 million, depending on what the county recovers in bankruptcy litigation and whether voters approve a half-cent increase in the sales tax in a special June 27 election.
"He was very good at calming the board and had responses for virtually every question that was put to him," said Czorny, one of about 50 witnesses who testified before the Orange County Grand Jury in connection with the Raabe indictment.
"He always talked about the vibrancy of the fund, the health of the fund, and made the board and myself believe that it was very safe," Czorny said.
"I'm not a judge and jury, but it appears as though there were misstatements. I believe that he knew more than he was letting on," he added.
In terms of the criminal prosecution, perhaps most important in the transcripts are Raabe's comments about liquidity at the October meeting.
He told board members then that the fund had "about a billion dollars" in cash and cash-equivalents; earlier this spring, Raabe said he knew by mid-October the pool had only about $450 million in available cash.
Lack of liquidity was a crucial factor plunging the county and its pool into bankruptcy Dec. 6, as the treasury found itself short of cash to meet collateral calls or fulfill investors' withdrawal requests.
By the end of November, Raabe told a group of the fund's largest participants--including Czorny--that there was just $200 million left.
In an interview this week, Czorny said that when he asked Raabe at that November meeting why he had told the water district just a month before that there was $1 billion available, "he denied making the statement that he made on tape."
Pohlson declined to deal specifically with those discrepancies, saying only: "At the time he spoke to them, he did believe that there was still $1 billion."
Also at the October meeting, Raabe said the average maturity of the fund's securities was "about two and a quarter years." At the time of the bankruptcy filing, the average maturity was approximately four years, meaning it would be four years before the county treasury could count on converting its holdings into cash at face value.
Selling the securities before maturity meant the county would get less than face value.
Asked at the October meeting what would happen if several large investors wanted to withdraw their money on short notice, Raabe joked that "if [several investors] did it on the same day, I'd quit." Then, he added: "That's part of the reason we are keeping these higher levels of cash. We recognize that there may be people who will want to start moving money and doing some of their own investing."
Raabe said in May, 1994, that the pool had doubled in size since 1993, and that the treasury was rejecting large clients from outside Orange County.
"We were growing at a rate that we couldn't control," he explained, adding that the pool had been growing so fast that "we would like to put the brakes on a bit."
"I'm not sure I know how to run a $15-billion pool. . . . It's a lot different from seven years ago, when I came there; we were $1.5 billion. We had a party the day we hit $2 billion--we thought we were big time."
The transcripts also provide some insight into the operations of the treasurer's office in the year before the financial meltdown and the relationship between Raabe and his boss. The No. 2 man poked fun at Citron on several occasions, and made some self-deprecating remarks as well.
He joked about Citron's interminable, dense prose, and at one point during the October meeting said Citron "has one of those special kinds of minds."
Five months earlier, Raabe had shrugged off suggestions that he would succeed Citron, but said he thought the investment pool would change drastically upon the retirement of the man who had been its shepherd since 1973.
"I'm slightly more conservative than he is," Raabe said, adding that if he were in charge, the pool would have less leverage. "I like to take risks in slightly different areas, and I like to hedge a bit more than the boss does."
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