ORANGE COUNTY IN BANKRUPTCY : County Will Pay the Price, but Will Anyone Be Punished?
One key question will linger long after the recent scramble to craft a recovery program for bankrupt Orange County: Will anyone be punished for the financial catastrophe?
In 10 months since the bankruptcy, the crisis has spawned a dizzying array of criminal and regulatory investigations, civil lawsuits and whispers of additional criminal action against everyone from the county’s auditor to its outside financial advisers.
Former Treasurer-Tax Collector Robert L. Citron, who ran the county’s investment pool into the ground and prompted the bankruptcy last year, has pleaded guilty to misleading investors and misappropriating public funds--charges that could land him in state prison for up to 14 years.
Citron’s lieutenant, former Assistant Treasurer Matthew Raabe, was indicted on similar charges. He steadfastly maintains his innocence and intends to fight it out in court.
And the county’s auditor-controller, Steve E. Lewis, is under investigation for his role in monitoring some of the transactions for which Citron was convicted. Lewis has repeatedly denied any wrongdoing and his attorney has said Lewis is cooperating with authorities. Separate probes involve Merrill Lynch & Co. and Michael Stamenson, a key salesman for the brokerage who handled much of the county’s business.
In addition, U.S. Securities and Exchange Commission and federal prosecutors have issued subpoenas and interviewed various officials. Investigators have inquired about relationships between county officials and current and past members of the Board of Supervisors, and the Wall Street and other financial firms that did business with the county.
But even as wrangling politicians settled on a way to rescue the county from the worst municipal bankruptcy in U.S. history, it remains to be decided exactly who was to blame--and whether anyone will ever be punished.
It may take years to answer those questions.
Citron, who remains free until sentencing, will not be sentenced until he has finished helping prosecutors in their criminal probes. The start of Raabe’s criminal trial could be more than a year away.
The county’s civil lawsuit against Merrill Lynch, which has the wherewithal for a protracted battle, could take years to get off the ground. The county alleges that the Wall Street giant sold Citron risky securities in violation of state law. The company denies the allegations and contends that Citron was a savvy investor who alone was responsible for the county’s investment scheme.
Some critics of the county government express frustration at the protracted legal battles. But they say there is little they can do about that and are instead pressing for county government reform.
“The timetable is disturbing,” said Bruce Whitaker, spokesman for the Committees of Correspondence, which has tangled fiercely with the county’s political Establishment since the crisis began. “All of us in the public are frustrated with the glacial speed we see in the court system . . . but I’m not sure that’s anything we can impact.”
A spokesman for the district attorney said Citron would be sentenced as soon as his help is no longer needed in the massive probe into the roots of the bankruptcy. Citron’s risky investment strategy resulted in the loss of nearly $1.7 billion by the county investment pool he managed for 200 schools, cities and other local government agencies.
“This is one of the most complex major fraud cases that this office has ever handled,” said Chief Assistant Dist. Atty. Maury Evans. “I personally feel the case has moved forward much faster than I anticipated it would.”
Evans disputed reports that Citron’s sentencing would await the county’s civil lawsuit against Merrill Lynch. A private attorney representing the county in that case has said Citron is expected to testify and will not be sentenced until the civil case is over.
“There is no agreement that he will not be sentenced until after the Merrill Lynch civil case,” Evans said.
Civilian watchdogs say they care less what happens to Citron and Raabe than to remake what they see as an insular and wrongheaded local government.
“If they did the crime they should do the punishment. At this point, we’re more interested that county operations are corrected so that no future similar problems occur,” said Patrick Quaney, an activist in the local chapter of United We Stand America.
“Whether [Citron] goes to prison or doesn’t, I don’t think it’ll be anything more than conversation over coffee for two or three days.”
Legal experts said it is unlikely that Citron, who is 70, will receive a severe sentence--if he is sent to prison at all. Citron did not personally profit from his misdeeds--the victims were taxpayers and the agencies that trusted him with their money--and he seems to pose little danger to society.
Nonetheless, “when something blows up in our face we look for a scapegoat,” said Butler D. Shaffer, who teaches at Southwestern University School of Law in Los Angeles. “Somebody’s got to be to blamed. It’s part of our mentality.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
LEGENDS OF THE FALL
Top officials and others involved with the county’s investments have come under intense legal scrutiny in the wake of Orange County’s financial debacle. They include:
Robert L. Citron: Former treasurer-tax collector pleaded guilty in April to six felony charges stemming from management of county’s collapsed investment pool. Faces up to 14 years in state prison and $10-million fine.
Matthew Raabe: Former assistant treasurer indicted in May on same six counts as Citron, including misappropriating funds and misleading investors. Also facing up to 14 years in prison and $10-million fine.
Steve E. Lewis: Auditor-controller approved money transfers within Citron’s investment pool that investigators contend were illegal. Reportedly under investigation by Orange County Grand Jury for his role in bankruptcy.
