O.C. Grand Jury, D.A. Each Accused Other of Conflict

The Orange County Grand Jury and Dist. Atty. Michael R. Capizzi once accused each other of conflicts of interest that would hinder their ability to conduct separate civil and criminal investigations into the county’s bankruptcy, according to documents unsealed Thursday by Superior Court Judge David O. Carter.

The issue came to a head during a closed courtroom hearing in June, after the district attorney threatened to take his criminal cases to a different grand jury, and the grand jury asked permission to hire its own special counsel to conduct a civil investigation that would also touch on the district attorney’s office.

It is unclear from the newly unsealed records, but it appears the grand jury reached a compromise with the district attorney shortly after the June hearing, which apparently ended in an impasse.

Presiding Superior Court Judge James L. Smith, who conducted the closed hearing, opined that granting the grand jury’s request for a special counsel would be damaging in the eyes of the public.

“It is bound to be viewed from a public relations point of view as a negative reflection upon the district attorney’s office if private counsel is appointed,” Smith told those at the hearing. “You can’t avoid it. You don’t have to be a rocket scientist to figure out the dynamics of the situation.”

But, the judge continued, “I don’t have a practical solution to the problem.”

The matter was ultimately resolved when the grand jury withdrew its request to hire Richard A. Stavin, a former prosecutor, as special counsel.

The record of the closed hearing had been sought by Supervisor William G. Steiner, who last week asked Carter to rule that Capizzi has a conflict of interest that should prevent him from presenting charges against Steiner to the grand jury.

Steiner’s attorney, Allan H. Stokke, has argued that Capizzi had been informed--just as the county supervisors had--of the “questionable or unlawful” investments of former Treasurer Robert L. Citron in a 1993 letter from Auditor-Controller Steve E. Lewis that was quietly circulated to the district attorney and members of the Board of Supervisors.

Learning for the first time what transpired in the June hearing, Stokke said, “I think it’s amazing. I can’t see how they all avoided the problem by somehow just sweeping it under the rug.”

Stokke said the unsealed documents clearly support his contention that a conflict exists with both the grand jury and the district attorney, and the released records indicate that both were aware of the problem.

Said Steiner: “It looks like this is going to a new level of legal sparring.”

Assistant Dist. Atty. Wallace J. Wade said, “I can’t comment with the grand jury still in session.”

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In the court documents unsealed Thursday, Capizzi warned that if the grand jury proceeded to conduct a civil investigation at the same time he presented the 19-member panel with evidence of criminal wrongdoing, it might “jeopardize” any criminal indictments because a defendant could later argue that information the grand jurors had gathered in their civil investigation could taint the information presented by prosecutors.

The squabble between Capizzi and the grand jury had its origins in an exchange of correspondence shortly after the county filed for bankruptcy.

Six days after the bankruptcy, grand jury foreman Mario Lazo informed Capizzi by letter that the panel had decided, by a majority vote, to pursue its own civil investigation into the collapse of the investment pool managed by Citron.

“The investigation . . . would require the use of expert investigators, and it would involve the reconstruction of the [investment] portfolio,” Lazo wrote Capizzi.

Lazo asked Capizzi in the letter if he saw a conflict in helping it perform its civil oversight duties.

“We see no conflict whatsoever in advising the jury in this matter,” Capizzi replied.

But, Capizzi added, “We do see a significant conflict on behalf of grand jury members between the criminal inquiry already underway and a possible civil investigation, however. If grand jurors become familiar with specific facts and details of this matter outside the parameters of a criminal hearing, it could be argued that the jury would be tainted by the process.”

Before the hearing, Capizzi threatened to impanel a second grand jury to hear the criminal cases. That would have left Lazo’s grand jury, which by then had obtained a six-month extension of its normal one-year term, with only its civil investigation to conduct.

Stokke said he believed the district attorney’s threat to impanel a second grand jury was intended to force their jurors to forget their conflict of interest concerns.

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Although the grand jury continued to hear testimony in the criminal matter, the only person it has indicted thus far in connection with the bankruptcy has been former assistant treasurer Matthew Raabe. Raabe faces trial on six felony counts of securities fraud and misappropriation of funds.

Citron was not indicted by the grand jury, and was instead charged directly by the district attorney’s office, which announced both the charges and Citron’s guilty plea the same day. Citron faced the same charges as Raabe.

Steiner’s motion suggests that the grand jury is about to take action against him and other county officials.

Having been turned down by the appeals court in his bid to disqualify the district attorney and grand jury from handling the case, Stokke has now asked that the district attorney present the panel with “exculpatory” evidence on behalf of his client.

Among the evidence he wants presented is a transcript between Merrill Lynch broker Michael Stamenson and Treasurer Tax-Collector Robert L. Citron “showing both parties were actively engaged in deceiving the Board of Supervisors.”

He also wants the jurors to hear Steiner’s testimony to the U.S. Securities and Exchange Commission, as well as letters and documents from the county’s bond counsel and financial experts.

On Thursday, Stavin said he still believes it was an appropriate request by grand jurors.

“As prospective independent counsel, it was my opinion that . . . there were inherent conflicts,” he said. “Had all the facts been brought to the court’s attention, it is my belief that the court would have also determined that [those conflicts] required the appointment of an independent counsel.”