4 Officials Accused by Grand Jury in O.C. Bankruptcy : Finance: Two supervisors and county auditor face civil charges. Former budget director is indicted on criminal counts, which could lead to nine years in prison.

Concluding a yearlong probe into the nation’s worst municipal bankruptcy, the Orange County Grand Jury accused two county supervisors and the auditor-controller of official misconduct and indicted the county’s former budget director on criminal charges.

The civil accusations filed Wednesday against Supervisors Roger R. Stanton and William G. Steiner, the only pre-bankruptcy members still on the board, and Auditor-Controller Steven E. Lewis could lead to their removal from office and complete a dramatic leadership turnover at the county Hall of Administration.

The three other supervisors who presided over the fiscal collapse--Thomas F. Riley, Harriett M. Wieder, and Gaddi H. Vasquez--either retired or resigned in the bankruptcy’s wake, and escaped charges because the only penalty for misconduct is removal from office.

The three elected officials still in office--Stanton, Steiner and Lewis--were charged with “willful misconduct” for failing to oversee and keep a check on the actions of former Treasurer Robert L. Citron, whose risky investment practices caused $1.64 billion in losses to the county-run investment pool, forcing the county into bankruptcy Dec. 6, 1994.

Former County Budget Director Ronald Rubino, who was said to have pushed Citron and his top deputy, Matthew R. Raabe, to skim money from the accounts of other pool investors to satisfy the county’s appetite for funds, surrendered Wednesday on two felony counts of aiding and abetting Citron in the misappropriation of “a sum in excess of $60 million.” If convicted of the charges against him, Rubino, 44, faces a maximum possible sentence of nine years in prison.

Citron, facing a possible 14 years in prison and $10 million in fines, has pleaded guilty to six felonies involving fraud and misappropriation of public money. Raabe, indicted by the grand jury in May, has pleaded not guilty to the same charges Citron faced, and has yet to go on trial.

The grand jury’s action Wednesday came just 18 days before the end of its term, which was extended from one year to 18 months to give it more time to investigate the bankruptcy.

District attorney’s officials say the investigation into the bankruptcy-related activities of people inside and outside county government will continue with a new grand jury that will be impaneled in January. The next grand jury will focus on alleged wrongdoing by municipal finance firms whose actions purportedly contributed to the collapse of the county’s investment pool.

The grand jury issued the indictment and civil accusations after reviewing parts of more than 1.5 million documents and hearing testimony from more than 100 witnesses.

District attorney’s investigators went to Steiner’s office to serve him personally with the grand jury’s accusation. They were unable to contact either Stanton or Lewis, so they left the documents at those men’s offices.

Elected officials accused of misconduct in office have the same right to a jury trial as do criminal defendants. Furthermore, the charges against the supervisors hinge on whether it can be proved that they had both “knowledge and intent” to violate state laws, attorneys said. A verdict of 12-0 must be reached to convict. If the accusation is upheld, the penalty is removal from office.

According to the grand jury’s accusation, the two supervisors failed to “safeguard the financial health of the county” by allowing Citron to engage in risky investments.

Specifically, the civil accusations allege that over the past two years the supervisors willfully failed to:

* Make adequate inquiries into the county’s borrowing of nearly $2 billion.

* “Supervise the official conduct” of Citron, Raabe, Lewis and former County Administrative Officer Ernie Schneider.

* Require monthly reports of the treasurer’s investments.

* Question the county’s budgetary reliance on interest earnings.

* Investigate allegations from Citron’s political foe John M.W. Moorlach and a water district official regarding the risk and possible market losses in the county’s investment pool.

* Monitor the county investment practices and policy that involved heavy leveraging and highly volatile securities.

Furthermore, the supervisors were accused of failing to “offer assistance to the county staff in analyzing or solving the problems” in the treasurer’s office and with the investment pool after the bankruptcy declaration.

Lewis was accused of not doing his job by failing to “accurately compute, compile, calculate and report the cash flow projections for the county” and “failing . . . to determine the source, the existence and the misallocation of earned interest” when he learned the county treasurer was stockpiling excess interest for misappropriation.

All three elected officials denied any wrongdoing through their attorneys and vowed to fight the charges. Attorneys for the supervisors attacked the district attorney and the grand jury, accusing them of having political agendas.

“As a resident of this county, Roger [Stanton] is embarrassed and ashamed that a small group of people have chosen to incur an incredible waste of taxpayer funds in a county that is already in a terrible financial position,” said attorney Wylie A. Aitken, who represents Stanton. “They’re advancing an absurd position. A ridiculous proposition. This type of Monday morning quarterbacking will have a chilling effect on politicians.”

Aitken added that the accusations against the supervisors may have the serious consequence of undermining the county’s $2-billion lawsuit against Merrill Lynch & Co.--the firm the county holds responsible for its bankruptcy.

Merrill Lynch, which denies any wrongdoing, declined to comment on the grand jury’s actions.

“The champagne corks must be popping in the corporate office of Merrill Lynch and others,” Aitken said.

Attorney Allan H. Stokke, who is representing Steiner, said his client “has no intention of resigning. He’s extremely disappointed the grand jury would even consider following this recommendation by the district attorney. . . . He’s ready to do battle and fight this accusation.”

Stokke added that he was “amazed” that the district attorney would attempt “to remove someone from office for not listening to a political candidate” in Citron’s reelection campaign.

“This is not personal, but I sincerely believe that the district attorney’s office is dead wrong,” said Brian Sun, who represents Lewis. “He obviously vigorously denies [the accusation] and will defend himself.”

In a brief statement, Lewis said, “I’ve served Orange County for over 30 years. My work with the county represents my entire professional career. I am proud of that career and the reputation of my office.”

He went on to say, “My staff and I performed our duties as best as we understood them. . . . I believe the auditor-controller’s office did its job and is not responsible for the county bankruptcy.”

Sources said the panel originally considered issuing accusations against Vasquez, Wieder and Riley. But once it decided to seek civil accusations instead of criminal charges, the sources said, plans to proceed against the former supervisors were dropped because they were already out of office, rendering the penalty for willful misconduct moot.

The accusations against the three elected officials had been expected for several weeks and came as no surprise.

Both supervisors and the auditor had hired defense attorneys in anticipation of the grand jury’s action. Steiner has been the most outspoken in defense of himself. The former director of the Orangewood Home for abused and neglected children has repeatedly said he was only on the board for about 18 months before the county’s bankruptcy.

In a preemptive strike against the grand jury and the district, Steiner’s attorney unsuccessfully attempted to halt the panel’s secret proceedings because of conflict-of-interest issues.

Stokke said he will renew those motions when the supervisors appear in court Dec. 28 to face arraignment on the accusations. Rubino is scheduled to be arraigned Dec. 27.

The conflict motions are certain to shine a spotlight on District Attorney Michael R. Capizzi. The supervisors contend that Capizzi received nearly as much information about the condition of the county’s investment pool and is as culpable as they are in any wrongdoing.

Capizzi supposedly received a copy of a 1991 audit from Lewis warning that Citron’s practices violated the law.

About the repeated charges that the district attorney has a conflict of interest and should not be prosecuting Lewis or the supervisors, Chief Assistant Dist. Atty. Maurice Evans said, “It’s still our position that there is no conflict of interest.”

Reaction to the grand jury’s action was mixed Wednesday. Some praised the development, saying it fixes blames on those responsible for the county’s financial disaster, while others questioned the purpose of going after two supervisors who already have vowed not to run for reelection.

Stanton, whose term expires in December 1996, may even be out of office before his case could go to trial. Steiner’s term ends in December 1998.

Capizzi said the accusations against the three elected officials are quasi-criminal. “We felt that this was the most serious charge that could be sustained by the evidence,” he said, adding that he did not foresee further charges against the supervisors and hopes there will be a “speedy resolution” to the matter.

The most serious action was taken against Rubino, who left his $95,500-a-year county job in April 1994--eight months before the county declared bankruptcy--to enter the municipal finance business. He is widely credited with developing the county’s plan to replace lost state funds--shifted away from cities and counties by the Legislature--by issuing bonds and investing the proceeds in the county pool administered by Citron.

Rubino walked into the Santa Ana courthouse Wednesday unaccompanied by an attorney but surrounded by half a dozen prosecutors and investigators. Wearing a gray suit, he stood silently throughout his appearance, except for muttering “yes” when asked by Superior Court Judge John Ryan if he understood the charges against him.

Rubino was led out of the courtroom, fingerprinted and booked into the Orange County Jail. He was expected to be released on his own recognizance later Wednesday evening.

Assistant Dist. Atty. Jan Nolan declined to discuss the case against Rubino in detail, but suggested that she thought the evidence against him was strong: “I wouldn’t file a case unless I thought I could prove it beyond a reasonable doubt.”

This story was reported by Times staff writers Dexter Filkins, Mark Platte, Michael G. Wagner, Tracy Weber and Matt Lait, and was written by Lait.