Citron Used Astrologer, Psychic, O.C. Jury Told : Bankruptcy: Transcripts show ex-official said she was told treasurer relied on them for interest rate predictions.

In the frantic days just before Orange County declared bankruptcy because of its disastrous investment practices, top officials were told that then-Treasurer-Tax Collector Robert L. Citron relied upon a mail order astrologer and a psychic for interest rate predictions, according to testimony before the county grand jury.

Matthew Raabe, then assistant treasurer and Citron’s chief aide, made the disclosure in a secret meeting with county officials in December 1994 as they struggled to cope with a horrifying $1.64-billion collapse in the value of the county’s investment portfolio, former county Finance Director Eileen Walsh testified.

“Matt said, ‘Bob had a mail order astrologist that gave him interest rate predictions and a psychic he consulted.’ ” Walsh told grand jurors.

The disclosure made her think that the county was “in a lot deeper problem than anyone could possibly imagine,” Walsh testified.

According to Walsh, Raabe’s comments came after Jean Costanza, an outside attorney frequently employed by the county, interrupted the assistant treasurer to warn him against talking about the psychic: “Matt, you can’t say that. Don’t talk about it. It’s hearsay. You are not allowed to say it.”

After hearing Raabe’s account of the mail order astrologer, Walsh said she asked the county counsel whether Citron “was competent to be doing what he was doing.”

The meeting concluded with the participants deciding to pressure Citron to resign.

Details of the secret meeting and the events that led up to Orange County’s unprecedented bankruptcy are contained in more than 9,000 pages of testimony heard by the county grand jury during its months-long probe into the financial crisis. A transcript of the testimony was obtained Wednesday by The Times.

The grand jury spent months reviewing more than 1.5 million documents and listening to hundreds of hours of testimony from more than 100 witnesses, including supervisors, lobbyists and county bureaucrats.

The transcripts detail the scope of evidence that the 19 grand jurors weighed before accusing Supervisors Roger R. Stanton and William G. Steiner and Auditor-Controller Steve E. Lewis of willful misconduct and indicting former County Budget Director Ronald S. Rubino on charges of fraud and misappropriation.

The transcripts indicate a good deal of bureaucratic finger-pointing.

The volumes of testimony revealed a lack of oversight on the issuance of hundreds of millions of dollars in taxpayer debt. Several county officials could not answer basic questions about county finances. They also conceded that they never asked where money was coming from, what it was to be used for and what the risks of borrowings entailed, according to the transcripts.

But perhaps the most unusual contention was that Citron depended on an astrologer and psychic for financial guidance.

Citron’s attorney could not be reached for comment late Wednesday. Citron, who pleaded guilty to six felony counts of fraud and misappropriation of public funds, faces a maximum punishment of 14 years in prison when he is sentenced in February.

Raabe is facing trial on six felony counts in connection with his role in the bankruptcy. His attorney could not be reached for comment late Wednesday.

Contacted Wednesday, Walsh elaborated on her testimony to the grand jury, stating that Citron told his top assistant that his astrologer said December 1994 “would be a bad month for him.” As it turns out, the county declared bankruptcy Dec. 6, 1994.

Walsh said Raabe told her that Citron often met personally with the psychic and corresponded with the astrologer through the mail. According to Walsh, Raabe said the psychic gave Citron prophetic advice just before the county filed for bankruptcy:

“The psychic said that December would be a bad month, but that his money worries would be over after that.”

The grand jury transcripts also revealed that in their probe of the bankruptcy, district attorney’s investigators focused sharply on “pay to play” issues in which financial firms were awarded lucrative contracts in exchange for campaign donations to county supervisors. Investigators were particularly interested in the relationship between Wall Street brokers and current board Chairman Stanton.

Lobbyists Dave Ellis and Scott Hart began advising their client, Merrill Lynch & Co., in 1992 that in order to curry favor with Stanton and then-Supervisor Gaddi H. Vasquez, they needed to hold fund-raisers for them and donate substantially to their campaigns.

Merrill Lynch “must spend the next few months developing a relationship with Vasquez. . . . He is up for reelection in June. Although well-funded with over $200,000 in his account he is always looking for more,” Ellis wrote in a February 1992 letter to Merrill Lynch that was given to the grand jury as an exhibit.

Ellis also recommended that Merrill Lynch hold a fund-raising luncheon for Vasquez and detailed campaign contribution limits.

The letter goes on to emphasize that Stanton “must be turned around. The best way to show that there are no hard feelings is to show a token of support. You have made a $500 contribution to him in 1991. 1992 is a new year and he is up for reelection.” Ellis again recommended that Merrill Lynch hold a fund-raiser for Stanton. “Merrill Lynch must be involved in a significant way,” the letter stated.

In his appearance before the grand jury, Hart acknowledged that “pay-to-play” system was at work in Orange County.

“There are a variety of ways that you could have a relationship with anybody, whether they’re an elected official or not, and I think that certainly there is the financial aspect of the pay to play,” Hart testified.

How it works, Hart continued, “depends on the individual, the elected official. . . . Some might be more accessible, and that relationship may be built rather quickly if there [are] campaign contributions made.”

Vasquez had turned down Merrill Lynch’s fund-raising offer, but Stanton did not, Hart said.

The testimony from Hart, Ellis and other lobbyists depict Orange County government as a place where business is controlled by a small group of longtime politicos, government officials and lobbyists.

Prosecutors contend that the testimony given by the witnesses supports their claims that Steiner, Stanton and Lewis willfully failed to do their jobs and oversee the Citron’s actions. And that Rubino aided and abetted Citron in skimming more than $60 million of interest earnings belonging to schools, special districts and cities into a county-held investment account.

Walsh testified that she was told by Raabe that the alleged interest skimming was “cooked up” by Rubino.

In response to the issue of interest allocation, Rubino testified that Citron did not want to report excessively high interest earnings to pool participants because “if the interest earnings are too high, it would actually scare everybody.”

Furthermore, Rubino said he did not see anything amiss in Citron’s interest allocation practices: “He borrowed the money, he reinvested the money, and he made a profit.”

Times staff writer Michael G. Wagner contributed to this report.