Psychic, Astrologer Influenced Citron, Grand Jury Told : Bankruptcy: Former Orange County finance director cites account given by assistant treasurer at secret meeting. Testimony also illuminates lobbyists’ practices.

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 for ways to cope with a horrifying $1.64-billion collapse in the value of the county’s investment portfolio, former County Finance Director Eileen T. Walsh testified.

“Matt said, ‘Bob had a mail-order astrologist that gave him interest rate predictions and a psychic he consulted.’ I thought we were in a lot deeper problem than anyone could possibly imagine,” Walsh told grand jurors.

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

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 grand jury during its months-long probe into the financial debacle. A transcript of the testimony was obtain by The Times on Wednesday.

The grand jury reviewed more than 1.5 million documents and listened to hundreds of hours of testimony from more than 100 witnesses, including supervisors, lobbyists and county bureaucrats from all levels of government.

The transcripts detail the wide-ranging scope of evidence that the 19 grand jurors mulled over before accusing Board of Supervisors Chairman Roger R. Stanton, Supervisor William G. Steiner and Auditor-Controller Steve E. Lewis of willful misconduct and indicting former County Budget Director Ronald S. Rubino of fraud and misappropriation.

The transcripts also show that:

* A lobbyist alleged that a “pay-to-play” system exists in Orange County in which supervisors’ votes can be influenced by campaign contributions.

* Several witnesses testified that Stanton tried to distance himself and the board from the bankruptcy debacle.

* The county’s former finance director testified she was pressured by Stanton to choose a financial advisor of his liking, even though the advisor was deemed by the county staff to be less qualified for the job than other candidates.

* A Steiner aide in charge of reviewing financial deals for the supervisor testified that he had no idea why the county was borrowing nearly $1 billion in the summer of 1993 and didn’t “have the knowledge” to ask questions about the deals.

A good portion of the transcripts reveal a high degree of bureaucratic finger-pointing and scapegoating.

The volumes of testimony revealed a startling lack of oversight over 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 disclosure was that Citron consulted an astrologer and psychic for financial guidance.

Contacted late Wednesday, Walsh elaborated on her testimony to the grand jury, stating that Citron apparently told his top assistant that his psychic said December 1994 “would be a bad month for him.”

As it turns out, the county declared the nation’s largest municipal bankruptcy Dec. 6, 1994.

Walsh said in an interview that Raabe told her 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.”

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. Raabe’s attorney could not be reached for comment.

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 allegedly 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 Roger R. Stanton.

Prominent Orange County political consultants Dave Ellis and Scott Hart, hired by Merrill Lynch & Co. to serve as lobbyists, began advising their client in 1992 that in order to curry favor with Stanton and then-Supervisor Gaddi H. Vasquez, brokerage officials 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 investigators obtained and read to the grand jury.

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

The letter goes on to stress that Stanton “must be turned around,” an apparent reference to the brokerage’s not having contributed money to the Measure M transportation sales tax campaign that Stanton supported. “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.”

Attorney Wylie A. Aitken, who represents Stanton, said late Wednesday that there is no evidence Stanton ever solicited a contribution from Merrill Lynch, or any other firm, in exchange for the awarding of a bond contract.

“Whatever they fantasized was in their own minds,” Aitken said of Merrill Lynch’s lobbyists. “There is no evidence that Roger Stanton was ever influenced.”

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.

In his appearance before the grand jury, however, Hart alleged that a “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.

Prosecutors contend that the testimony given by the witnesses supports their charges that Steiner, Stanton and Lewis “willfully” failed to do their jobs and oversee the actions of Citron. 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, who seems positioned to be a star witness for the district attorney, 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 didn’t 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 remiss with Citron’s interest allocation practices. “He borrowed the money, he reinvested the money and he made a profit. But he borrowed the money. It was not someone else’s money,” he said.

Another witness, Kathleen Freed, an aide to Stanton, testified that in 1993, Rubino told her that a $400-million borrowing he and Citron were putting together should stay on the consent agenda when it went before the supervisors.

The consent agenda contains routine items that are not discussed in detail by supervisors. Freed testified that Stanton had concerns about the $400-million borrowing, but decided to support it after talking with Rubino and Citron.

Walsh, however, was less supportive of Stanton’s involvement in county financial matters. She alleges that Stanton tried to exert pressure on her to select a financial advisor that he favored even though county staff had determined that the advisor was not as good as others.

Walsh testified that she was called into a “very humiliating” special meeting with Stanton by her former boss, Murry Cable, because Jeff Leifer, a Santa Monica financial advisor, was left off a “short list” of firms qualified to do municipal finance work for the county.

“Eileen, we are here to explain to Supervisor Stanton why Jeff is not on the short list,” she quoted Cable as saying. “Eileen, is Jeff stupid?”

“No sir, he is not stupid,” Walsh testified she replied, adding that every time Cable would ask a question, Stanton “would laugh.” Finally, Walsh testified, Stanton said, “So why isn’t Jeff on the short list?”

Not long after, Leifer was added to the list and chosen as the financial advisor on a large county project.

Walsh also alleges that Stanton tried to distance himself for the bankruptcy crisis, while Steiner didn’t seem to grasp the gravity of the situation.

Walsh said Stanton tried to obtain a legal opinion that the board was not legally to blame for the collapse of the county’s pool. But Walsh quoted then-County Counsel Terry C. Andrus as saying, “I hate to tell you this, but I can’t write that opinion. You do have oversight authority of the treasurer, and, in fact, really to be receiving monthly reports.”

Stanton responded, according to Walsh’s testimony, “Terry, we need the opinion. We need to make this problem very clear that it’s [Citron’s] problem.”

Ernie Schneider, the former county administrative officer, told the grand jury that shortly after the bankruptcy Stanton and then-Board of Supervisors Chairman Vasquez talked of avoiding responsibility for the debacle.

“I just recall Roger saying that, ‘We need to put some distance between us. This is Citron’s problem. We can’t take the hit. . . . We can’t take the hit for this,” Schneider testified. “I recall Supervisor Vasquez maybe not using the exact same words, but the same thrust, that we need to focus the attention on Citron.”

Aitken said the assertion that Stanton sought to legally distance the board from Citron by asking Andrus to write a legal opinion to that effect was a misinterpretation of Stanton’s intent.

“I think that was a legitimate inquiry for Roger to make,” Aitken said. “Citron was a separately elected official who was sitting not at the grace of the board but at the grace of the electorate.”