School Embezzler Dies in Prison : Death: Stephen A. Wagner, 43, succumbs to AIDS complications. He stole $3.7 million from Newport-Mesa as its finance officer.

Stephen A. Wagner, the former finance officer who was convicted of embezzling $3.7 million from the Newport-Mesa Unified School District nearly three years ago, died over the weekend from an AIDS-related illness in a medical facility at Vacaville prison, authorities said Monday.

Wagner, 43, died Saturday at 8:25 a.m. He had been transferred from Vacaville’s general prison population and was being treated in the California Medical Facility, the hospital unit of the Vacaville prison. An autopsy by the Solano County coroner’s office showed that he died of AIDS-related pneumonia.

Bill Loveless, an investigator with the coroner’s office, said he did not know when Wagner had entered the medical facility or how Wagner had contracted HIV, the AIDS virus.

“We know he was under constant care in the unit,” Loveless said. “The unit is used to incarcerate prisoners who require constant or long-term care.”

The embezzlement of district funds was the largest such theft in California school history. The crime’s much-publicized disclosure shocked administrators, teachers and parents and prompted school districts throughout the state to take a closer look at their own books.

In the embezzlement’s wake, the Newport-Mesa superintendent resigned, a new financial officer was selected and new financial controls were instituted.

At an meeting Monday night of the Newport-Unified School District audit committee, formed in the aftermath of the embezzlement scandal, committee members and teachers gasped when school board member Jim de Boom announced Wagner’s death to the others.

After the meeting, they gathered and recounted the awful days after the embezzlement was discovered. One Wagner co-worker spoke in detail about the notorious episode and how slowly she came to realize that her colleague was stealing district money.

“There was just a lot of disbelief,” De Boom said. “The whole episode was just so sad. What a disappointing life he had. He disappointed his parents, his wife, his children all for self-pleasure. He hurt a lot of people and left a lot of bloodied bodies in his wake.”

Paul S. Meyer, Wagner’s criminal attorney, had been informed of Wagner’s death but out of respect to Wagner and his family, refused to discuss medical questions surrounding Wagner’s death.

“He was very concerned about privacy for his family and young son,” Meyer said, “and, I want to continue to respect that. At this point, his family is coping as best they can.”

Meyer said that Wagner’s widow had made frequent visits to the former district officer.

“This was a close-knit family,” he said.

News of Wagner’s death surprised many in Newport Beach. Some were saddened. Yet others who recalled the pain and anguish Wagner’s actions had caused the district--and eventually its 17,000 students--struggled to say the right things.

“Needless to say, he left his mark on the district,” said Maya Decker, president of the 800-member Newport-Mesa Federation of Teachers, AFL-CIO. “By his actions, he put many people in grief. There was a lot of distrust when this happened and a certain amount of frustration too. We were climbing out of this in the way of teacher’s salaries, when the [Orange County] bankruptcy hit and tied us into a Gordian knot.”

John W. Nicoll, the superintendent of the Newport-Mesa Unified School District at the time the scandal broke, said he felt sorry to hear about the conditions under which Wagner died.

“The only person I was ever happy to hear dying was Adolf Hitler,” said Nicoll, who resigned weeks after the embezzlement was discovered. “I don’t like to hear about any man dying in prison.”

Still, said Nicoll, who spent more than 20 years as the district’s top administrator, “it’s easy to forgive him but impossible to forget the harm he did.”

“He has affected the lives of a lot of students, even the ones that go there today,” said Thomas S. Godley, the former budget superintendent for the district who is now superintendent for the San Marino Unified School District. “But I’m not the kind of person to say that it serves him right. It’s sad for anyone to die.”

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Judith A. Franco, president of the Newport-Mesa school board, expressed sadness for Wagner’s family but offered a haunting comment about a man whose destiny became entangled in greed.

“Here was a man who had a promising career but allowed himself to succumb to a weakness, if you will, and take money that was intended for the education of children,” Franco said.

Before the embezzlement, Wagner enjoyed a reputation as a financial wizard, but less well known were his expensive tastes. His opulent lifestyle included a rare-art collection, seven properties, luxury cars, a fur-lined bathrobe and a collection of gems--all on a $79,800 salary.

In fact, it was an unidentified district employee who contacted the Orange County Grand Jury about a questionable district check having only one signature--Wagner’s--instead of the required two that led to Wagner’s downfall.

The district attorney’s investigation revealed that Wagner diverted nearly $4 million from the district’s accounts to his many personal accounts between 1985 and 1992.

Wagner pleaded guilty to theft and failure to pay taxes on the stolen income in December, 1992, and was sentenced to six years at Vacaville. He also was ordered to pay back the money he took, but it was not immediately known how much, if any, he had returned to the district.

After Wagner filed for bankruptcy, the district was able to recoup $1.7 million from the sale of Wagner’s assets, leaving about $2.3 million that Wagner had not paid the district.

He also was convicted of federal mail and wire fraud charges in March, 1994. But a federal judge ordered that the sentence be served concurrently with the six-year prison term he received from a state judge.

As a result of the embezzlement, the school district was forced to reduce the number of classroom aides by 50% and lay off 59 teachers and 150 other employees, according to a comprehensive Orange County Grand Jury report. In addition, some physical education programs were also eliminated at some elementary schools.

School trustee De Boom said that besides forming the audit committee and slicing budgets and programs, the Wagner affair caused school boards throughout the state to look more closely at the practices and policies that govern finance.

“People looked around Monday night and said, ‘Well, Stephen Wagner is the reason the audit committee is here,’ ” De Boom said.