O.C. Grand Jury Accuses 4 : 3 Face Misconduct Charges; 1 Indicted on Felonies : Bankruptcy: Stanton, Steiner and Lewis could lose office if they get maximum penalty. Ex-budget chief Rubino is arrested on criminal counts as probe ends.

Concluding its 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 Board of Supervisors Chairman Roger R. Stanton, Supervisor William G. Steiner and Auditor-Controller Steve E. Lewis could lead to their removal from office, and complete a sweep of the elected officials who presided over the county’s loss of $1.64 billion in taxpayer money, forcing the county into bankruptcy on Dec. 6 of last year.

Former County Budget Director Ronald S. Rubino was indicted on two felony counts for aiding and abetting then-Treasurer Robert L. Citron’s skimming of more than $60 million from the accounts of other pool investors to satisfy the county’s appetite for funds. Rubino, who surrendered to authorities Wednesday, could face nine years in state prison if convicted.

Citron already has pleaded guilty to six felonies involving fraud and misappropriation of public money and faces a maximum possible sentence of 14 years in prison and $10 million in fines when he is sentenced later this month. Citron’s top assistant, Matthew Raabe, has pleaded not guilty to the same charges that were brought against his boss, and has yet to go on trial.

None of those charged with misappropriating public funds is suspected of profiting personally from the alleged crimes.

The grand jury’s actions against Stanton, Steiner and Lewis involved “willful misconduct” for their failure to oversee and keep a check on Citron’s operations.

Three other supervisors who held office in the critical months before 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 civil accusations and lone criminal indictment announced Wednesday came just 18 days before the end of the grand jury’s term, which was extended from one year to 18 months to give it more time to investigate the bankruptcy.

District attorney officials say the investigation into the bankruptcy-related activities of those both in and outside county government will continue with a new grand jury that will be impaneled in January. That 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 current grand jury’s actions came after jurors had reviewed parts of more than 1.5 million documents and heard testimony from more than 100 witnesses, including supervisors, lobbyists and county bureaucrats from all levels of government.

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 proven that they had both “knowledge and intent” to violate state laws, attorneys said. A verdict of 12 to 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 inquir[ies]” into the county’s borrowing of more than $1.7 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’s investment practices and policy that involved heavy leveraging and investment in 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.

Stanton alone was accused of making “deliberate attempts to distance himself from responsibility for the pool and urg[ing] others to do so. . . . “

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.

The accusation filed against Lewis also contends that he “willfully approved of . . . and encouraged” the county to borrow more than $750 million, knowing the county would have less than $500 million to repay it.

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

Attorney Wylie A. Aitken, who represents Stanton, said the district attorney “manipulated the grand jury” into “advancing an absurd position. This type of Monday morning quarterbacking will have a chilling effect” on people who might consider public service.

Aitken added that the accusations against the supervisors might also 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 offices of Merrill Lynch and others,” Aitken said, because it places blame on the supervisors instead of Wall Street.

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.”

Referring to the accusation that both supervisors failed to investigate Moorlach’s campaign charges against Citron, Stokke said he was “amazed” that the district attorney would attempt “to remove someone from office for not listening to a political candidate.”

Brian Sun, the attorney representing Lewis, said, “I sincerely believe that the district attorney’s office is dead wrong,” adding that Lewis “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.”

Lewis 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.”

Prosecutors said they originally considered recommending charges against Vasquez, Wieder and Riley. But once they settled on civil accusations, instead of criminal charges, plans to proceed against the former supervisors were dropped, since they were already out of office, rendering the penalty for willful misconduct moot.

The civil charges 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 Orangewood Children’s Home for abused and neglected youths has repeatedly said he was only on the board for about 18 months prior to the county’s bankruptcy.

In a preemptive strike against the grand jury and the district attorney, 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 accusation. Rubino is scheduled to be arraigned Dec. 27.

The conflict motions are certain to shine a spotlight on Dist. Atty. Michael R. Capizzi. The supervisors contend that Capizzi has many conflicts and had nearly as much information about the condition of the county’s investment pool as they did. If they are guilty of wrongdoing, the supervisors contend, so is Capizzi.

For example, they said, Capizzi recently had his office’s budget cut by the board, and did nothing about the 1993 internal audit--sent to his office as well as to the supervisors--warning that Citron’s practices violated state law.

“This is a crass political attempt by the district attorney to remove people from office to advance his own career,” Aitken said. “I suspect that when the truth comes out, there will be a shattered career, and it’s not going to be Roger Stanton’s.”

Steiner agreed, saying, “It seems to me the D.A. is trying to take the heat off his own failure to act.”

Maurice Evans, Capizzi’s chief assistant, disputed accusations that the district attorney was as culpable as the supervisors, and added: “It’s still our position that there is no conflict of interest.”

Reaction to the grand jury’s action was mixed. 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 December 1996, may even be out of office before his case could go to trial. Steiner’s term expires December 1998.

“I think this could lead to some short-term uncertainty,” said Bruce Whitaker, a founding member of the Committees of Correspondence, a grass-roots organization that sprang into being in the bankruptcy’s wake to lobby for government reform. “I think with all the changes in the county over the last year, there is a need for leadership. To some degree, Steiner and Stanton have been stabilizing forces on the board. . . . But in the long term, I think this will probably be cathartic for the county.”

Wayne Wedin, president of the Orange County Business Council said the grand jury’s action should help the county heal from the wounds of the bankruptcy.

“I don’t know why they chose who they did and not other people. There’s still a certain amount of anger and hurt here in the county and maybe these indictments will help us get past that,” Wedin said.

Capizzi said the charges against the elected officials are quasi-criminal charges. “We felt that this was the most serious charge that could be sustained by the evidence.” He said he did not at this time foresee further charges against the supervisors, and said his office will push to get cases resolved long before the supervisors’ terms expire, hopefully “right after the first of the year.”

The most serious action was taken against Rubino, who left his $95,500-a-year county job in April 1994--five 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 a half-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 J. Ryan if he understood the charges against him.

Rubino was led out of 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.”

In an interview late Wednesday, Capizzi stressed that his office pursued the county supervisors to the limits of the law, pooh-poohing the suggestion that he might have gone easy on them because of his close working relationships with some of them and perceived conflicts, including a $30,000 loan Stanton made to his 1990 election campaign.

“Certainly, the action that has been taken indicates that it has been a thorough and aggressive presentation,” Capizzi said. “There certainly are a lot of people that have supported me in election efforts . . . but I think they have supported me because they know that I’m fair and impartial, and I’m going to enforce the law. They don’t support me anticipating or expecting any favorable treatment.”

Times staff writers Mark Platte and Michael G. Wagner contributed to this report.

More Coverage

* NEW CAN OF WORMS: The tired halls of government greet the legal moves with sadness--and a nagging dread of what’s to come. A28

* PROFILE OF PRINCIPALS: All four men targeted have a lengthy history of public service. A28

* OUT WITH A BANG: The grand jury wraps ups its extended session Dec. 31 having both left its mark and proven its independence. A29

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bankruptcy Fallout Continues

Former Orange County Budget Director Ronald S. Rubino has been indicted by the grand jury and three other officials are accused of official misconduct but were not indicted. A summary of the activity:

Indicted

Ronald S. Rubino

Age: 44

Charge: Two felony counts of aiding and abetting misappropriation of more than $60 million in public funds

Maximum penalty: 9 years in prison

****

Accused but Not Indicted

Three county officials, including the only pre-bankruptcy members of the Board of Supervisors, are charged with willful misconduct and face possible removal from office if they are unsuccessful at contesting the civil accusations:

Roger R. Stanton

Age: 58

Office: County supervisor for 15 years

****

William G. Steiner

Age: 58

Office: County supervisor, appointed 1993

****

Steve E. Lewis

Age: 52

Office: Joined county government in 1965, auditor-controller since 1984

Source: Orange County Grand Jury, Los Angeles Times reports

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Subjects of Scrutiny

Two Orange County supervisors and the county auditor-controller stand accused by the grand jury of official misconduct in connection with the nation’s worst municipal bankruptcy. Also, the county’s former budget director was indicted on criminal charges for his role in the financial disaster. Profiles of the principals:

ROGER R. STANTON

A 15-year veteran of the Board of Supervisors, Roger R. Stanton announced in October that he would not seek reelection to the board when his term ends next December.

Neither the bankruptcy nor the criticism directed his way following the financial crisis had anything to do with his decision, Stanton said. Rather, his mother’s death made him think twice about continuing his political career.

“Politics can be a career, but you shouldn’t make a career out of one office,” he said.

Stanton, 58, was the first supervisor targeted for recall in the bankruptcy’s wake, but the drive fizzled when organizers couldn’t collect enough signatures on their petitions.

Stanton also attracted unwelcome attention for his close ties to the financial services industry. Among the supervisors, Stanton had received more in political contributions from the public finance community than any other member of the board, and was said to have had a major influence in the selection of underwriters, financial advisors and attorneys for county’s lucrative bond work.

A college professor and former Fountain Valley mayor, Stanton was elected to the Board of Supervisors in 1980 in an upset victory over incumbent Philip Anthony. He and his wife, Karen, have four children.

The grand jury accused Stanton of willful misconduct, and he faces possible removal from office if he is unsuccessful in contesting the accusation.

****

WILLIAM G. STEINER

A former director of the Orangewood Children’s Home, William G. Steiner accepted a gubernatorial appointment to the Board of Supervisors two years ago, hoping he would be able to further the children’s causes he had championed for more than two decades.

It hasn’t worked out that way.

Last month, the 58-year-old Steiner announced he would not seek reelection when his term ends in 1998 and said his reputation had been unjustly sullied by the county’s bankruptcy.

The only supervisor to hire a criminal defense attorney to head off any charges stemming from his role as a supervisor, Steiner considered quitting outright several times but believed he had an obligation to serve out his term.

“I love public service,” he said. “But the bankruptcy has just cast a cloud over everything. I came to the board with the best of intentions. This has been a huge disappointment, obviously.”

The divorced father of three adult daughters and two adult sons has said that he will return to the field of children’s advocacy, either teaching classes on child abuse detection or organizing what he hopes would be a major charity benefiting children in Orange County. Steiner also has three grandchildren.

In 1978, Steiner became director of the Albert Sitton Home, which inspired him to help build Orangewood, a model facility that has raised millions of dollars for abused children.

The grand jury accused Steiner of willful misconduct, and he faces possible removal from office if he is unsuccessful in contesting the accusation.

****

STEVE E. LEWIS

Before the county’s financial meltdown last December, Auditor-Controller Steve E. Lewis was virtually unknown to most Orange Countians. Respected and deliberate, Lewis, 52, had audited the county’s books for 30 years--his entire career--without a whisper of scandal.

When the bankruptcy hit, Lewis initially was hailed as a hero for warning of problems in the treasurer’s office in two internal audits. But critics soon branded him as incompetent for failing to highlight those warnings and for approving improper transfers within the now-failed investment pool.

Popejoy tried to pressure Lewis into resigning for failing to uncover former Treasurer-Tax Collector Robert L. Citron’s risky investments. When Lewis, an elected official, refused, a deal was cut that allowed him to keep his job but surrender his auditing responsibilities. Lewis also agreed to cut his $104,582 salary by 7.5%.

Earlier this year, Lewis and several of his employees were questioned by the grand jury about their duties and fund transfers that skimmed into county coffers $93 million belonging to other pool investors. Lewis reportedly refused requests that he return for more grand jury questioning.

Lewis was hired on as an entry-level accountant fresh out of San Diego State University in 1965, worked his way into the top job in 1984 and has run unopposed in three elections since.

The grand jury accused Lewis of willful misconduct, and he faces possible removal from office if he is unsuccessful in contesting the accusation.

****

RONALD S. RUBINO

Ronald S. Rubino was a 20-year employee of the county until he left in early 1994 to take a position with Leifer Capital, the Santa Monica-based financial firm that was Citron’s financial advisor.

At the time he departed, Rubino was the budget director and chiefly responsible for helping get the county through tough financial times, with the help of Citron. He also worked for eight years with the county auditor-controller’s office and eight more with the county’s General Services Agency.

Know for his tireless devotion to his job, Rubino was praised by keeping the county’s finances afloat when faced with continual state budget shortfalls. But unable to gain a hold of the county’s top administrative job held by his close friend, Ernie Schneider, and turned down for a city manager’s post in Orange, he looked to private industry for a change.

Rubino’s decision to walk away from his $99,500-a-year job with the county and join Leifer struck many as odd, in that he had little experience in dealing with municipal finance. When he joined Leifer’s team as vice president, he was assigned to municipal clients in Northern California.

But he lasted only six months, saying “it didn’t work out,” and joined the accounting firm of Ernst & Young.

The grand jury indicted Rubino on two felony counts of aiding and abetting in the misappropriation of more than $60 million in public money that was skimmed into a county account from the accounts of other investment pool participants. If convicted, he faces a maximum possible sentence of nine years in prison.

Source: Times reports

Researched by MARK PLATTE and TRACY WEBER / Los Angeles Times