Jury Heard 48 Witnesses Before Indicting Raabe : Courts: Officials say they were assured of investment pool’s soundness by the then-O.C. assistant treasurer, scheduled for arraignment today on six fraud charges.

A parade of 48 witnesses convinced the Orange County Grand Jury to indict former Assistant Treasurer Matthew Raabe with testimony that he repeatedly misled investors about the soundness of their investments in the ill-fated county pool while saddling them with the county’s losses and skimming interest from their accounts.

Transcripts of previously secret grand jury testimony portray the 39-year-old accountant as an active participant in a scheme to defraud pool participants--not merely a faithful employee following the orders of former Treasurer-Tax Collector Robert L. Citron.

Raabe, indicted last month on six counts of securities fraud and misappropriation, was scheduled to be arraigned today in Orange County Superior Court.

“Matt Raabe appeared at seminars,” Assistant Dist. Atty. Jan Nolan told the grand jury. “He appeared at city council meetings. He made telephone calls. He had personal meetings with various . . . pool investors, always talking about the status of the . . . pool.”

Although there was no testimony suggesting that Raabe personally profited in any way or skimmed interest without Citron’s knowledge, witnesses said he repeatedly misrepresented the pool’s financial soundness last year.

Raabe’s defense attorney is certain to latch onto some testimony that Raabe was a financial neophyte, merely carrying out Citron’s orders.

Former County Administrative Officer Ernie Schneider, for example, said Raabe told him in early November that Citron “did all of the [investment] transactions himself, that nobody really knew what he was doing.”

Raabe’s attorney, Gary Pohlson, declined to discuss details of the transcript but said his client will be vindicated.

“Matt Raabe was doing what he was told. He had nothing to do with the investments or the policies of the office,” Pohlson said. “The only difference between him and other people in the office is that he is being prosecuted.”

But several witnesses testified that Raabe reassured them in person that the pool had ample liquidity to ride out rising interest rates.

“Matt at that time . . . seemed to be on a professional speaking circuit,” said Andrew Czorny, treasurer of the Orange County Water District.

The Costa Mesa city treasurer testified that as late as November, Raabe told her the pool had $1 billion dollars in cash, when in fact it was teetering on the edge of collapse. The county filed for bankruptcy Dec. 6 after suffering trading losses of nearly $1.7 billion.

“Interest [diversion] is the one thread that runs through every single count and connects it altogether,” Nolan told the jurors on May 16, the day Raabe was indicted.

“It certainly wasn’t a mistake,” Nolan said. “He didn’t do it once. He manipulated that interest through the year of 1994 on a monthly basis. . . . Matt Raabe could not tell [pool investors] what the true interest was because he was afraid there would be a run on the bank. So he knowingly lied to them.”

According to the testimony, Raabe helped divert $99 million to the county at the expense of investors while saddling them with $306 million in losses--larger amounts than those revealed by the California state auditor earlier this year. The $99 million in interest was later repaid to pool participants as part of the negotiated settlement approved May 2.

Witnesses from throughout the county recounted Raabe’s conversations, often providing vivid details. Joy Cubbin, a former senior accountant in the treasurer’s office, testified that Raabe actually showed her how to make false interest entries, giving her an amount every month by which to adjust the pool’s interest earnings.

The practice “struck me as both odd and unusual,” Cubbin said, adding that Raabe explained the adjustment as needed to “smooth” the earnings of the pool participants because of the fluctuations in interest rates, and to create a reserve pool. But she said pool investors were not told.

She said she didn’t believe the interest adjustment was illegal and that an official in the county auditor’s office, whose name she could not recall, was aware of the practice.

“That gave me some comfort because it was like, well, I don’t think that they’re taking this . . . and putting it in their Grand Cayman bank account,” Cubbin said. “There’s a lot of people a lot higher up than I aware of it.”

One of those was Citron, Cubbin told the grand jury. She said Raabe told her the idea came from Citron and former county budget director Ronald Rubino. “I was told it was a Citron-Rubino deal,” she said. Rubino has denied any involvement in the wrongdoing that surfaced almost a year after he left county government.

Raabe was out of town one month and instructed Cubbin by telephone to reduce the pool’s interest earnings by $5 million, telling her to “make sure you tell the boss.”

Cubbin, who dealt with Citron infrequently, said: “I went into Mr. Citron’s office, and I said something to the effect, ‘Mr. Citron, Matt told me to let you know that the interest rate was this percent before the adjustment, and this is the percent after the adjustment.’ And his response was something like, ‘Don’t tell me that.’ Or, ‘I don’t want to know’ . . . “

Citron was normally gruff, Cubbin said, but “the impression that I got was he knew what I was talking about, but chose not to talk about it with me. . . . It wasn’t like, ‘Why in the world are you coming in here telling me that,’ you know.”

In other testimony:

* Schneider said he thought Supervisors Roger R. Stanton and Gaddi H. Vasquez should lose their jobs because of their involvement in the bankruptcy crisis. Schneider also testified that he was visited more than a month before the bankruptcy by Gary Hunt, executive vice president of the Irvine Co., who asked him to look into Citron’s portfolio because he had heard of problems.

* Costa Mesa Treasurer Susan Lane Temple said Raabe told her just two weeks before the bankruptcy filing that the pool had $1 billion in cash, that there had been no collateral calls and that no agency had withdrawn from the fund. In reality, the pool had less than $400 million in cash and had been receiving collateral calls since October, while county officials were fighting off an attempt by the Irvine Ranch Water District to withdraw from the pool.

Additionally, Raabe tried to get Temple to postpone taking Costa Mesa’s funds out Nov. 23 until the county held a meeting of investors. She declined and the city’s money was wired to it. At the investors’ meeting, the pool participants were told that they would suffer losses of at least 20 cents on the dollar if they withdrew money.

“I feel I was misled by Mr. Raabe because I asked him specific questions that I don’t believe he gave correct answers to,” Temple testified.

In summarizing the case to the grand jury, Deputy Dist. Atty. William Overtoom said: “Remember whose money this is. It is not Mr. Raabe’s. It is not the county’s. It belongs to over 190 pool participants. . . . Was this a mistake? Was this an error? I submit to you it was neither. It was . . . done with the intent to try and withhold the income, the interest, from the pool participants.”

But not all witnesses were angry with Raabe.

Despite her seemingly damaging testimony, Cubbin said she still respected Raabe for telling her to be candid when she met with investigators for the U.S. Securities and Exchange Commission. She said Raabe told her:

“Everything you’ve done has been at my direction. And you go ahead and you tell them the truth.”