State Senator Seeks to Reopen O.C. Hearings

Charging that recently disclosed grand jury testimony exposes massive “fraud and deceit,” a leading state senator said Tuesday that he will move to reopen hearings into Orange County’s bankruptcy.

Sen. Quentin L. Kopp (I-San Francisco) said testimony before the grand jury and the federal Securities and Exchange Commission contradicted what Orange County officials and their advisors told a special Senate committee early last year during its investigation of the bankruptcy.

“With the grand jury transcripts, the level of fraud and deceit that has surfaced in this Orange County case is unparalleled in my 25 years in public service,” Kopp said. “The integrity of the Senate depends on [the reopening of these hearings]. Otherwise, witnesses in the future will obstruct, mislead and practice guile without consequences.”

Kopp said he was assured by other members of the Special Committee on Local Government Investments that they would endorse the hearings.

The witnesses Kopp plans to recall include Orange County Supervisor Roger R. Stanton, bond lawyer Jean M. Costanza, Merrill Lynch salesman Michael Stamenson and securities dealer Jeff Leifer.

Kopp described Stanton’s conduct, as detailed in the grand jury’s transcripts, as “particularly egregious.”

He said Stanton was a “four-carat fraud in front of our committee,” when he appeared “indignant” that anyone would question his actions.

“Now the grand jury transcripts show that he was a major actor in the cover-up” of the problems preceding the county’s decision to file for bankruptcy, Kopp said. Grand jury witnesses portray Stanton as going to great lengths to avoid blame for the collapse of the county’s investment pool.

Wylie A. Aitken, the Santa Ana lawyer who is defending Stanton against accusations of “willful misconduct,” lambasted Kopp for relying on accounts contained in grand jury transcripts. Aitken accused Kopp of “grandstanding to advance his own political career.”

“What we have seen in the grand jury transcripts is a one-sided, lopsided view of what occurred, manipulated by the district attorney who brought in the testimonies of malcontents to fit their view of the world,” Aitken said. “I have no doubt that when the statements are compared to the true facts, Stanton was not a fraud by any stretch of the imagination.”

Asked if Stanton would testify before the committee, Aitken said: “We’ll cross that bridge when we get to it.”

Kopp said he now takes particular exception to the testimony of Costanza, a lawyer with LeBoeuf, Lamb, Greene & MacRae, who crafted several of the county’s bond deals.

“She deceived and misled our committee,” Kopp said. “She led us to believe her services were perfunctory, non-policy, technical and legal in nature. The grand jury transcripts reveal that they were substantive. I don’t like being misled.”

Last month, the grand jury accused Stanton, Supervisor William G. Steiner and Auditor-Controller Steve E. Lewis of willful misconduct in office and indicted former Budget Director Ronald S. Rubino, accusing him of helping the county’s former treasurer misappropriate public funds.

Meanwhile, the SEC is conducting a federal investigation into the financial crisis, which caused the county to lose $1.64 billion invested by the county and nearly 200 cities, schools and special districts.

Stanton refused to testify before the grand jury, but in a sworn deposition before the SEC, the veteran supervisor shifted blame for the crisis to his chief administrative officer, the two rating agencies that had declared the investment pool sound, and even the SEC, which inquired about the fund seven months before the bankruptcy.

Members of the Senate’s special committee, which called dozens of witnesses to Sacramento last year, grilled the principals involved in the county’s financial mess, including its investment bankers, its auditors and the pool’s beleaguered investors.

They heard former Treasurer-Tax Collector Robert L. Citron declare himself a financial neophyte, listened to then-Assistant Treasurer Matthew Raabe confess that he didn’t fully understand the investment fund’s complexity, and saw a parade of other witnesses fix blame elsewhere. Citron has pleaded guilty to the same six counts of securities fraud that Raabe is attempting to fight. Each faces 14 years in state prison.

Stanton and then-Supervisor Gaddi H. Vasquez testified in Sacramento that they had relied on the bad advice of others, even though Citron’s election opponent in 1994 made his risky investment practices a recurring campaign theme.

Merrill Lynch broker Stamenson, who dealt almost exclusively with Citron in helping sell billions of dollars in risky securities, testified that Citron designed his own investment strategy. Citron said he dealt almost daily with Stamenson and considered him the county’s de facto financial advisor.

Merrill Lynch’s spokesman Timothy Gilles said the investment firm would be happy to discuss any requests the committee may have, but not in the newspaper.

“Nothing that we have seen out of the grand jury contradicts testimony given by Stamenson,” Gilles said.

Leifer, head of a Santa Monica company that served as the financial advisor to Citron and Orange County on many of its massive borrowings and has earned millions in fees, sought to distance himself from Citron during the state Senate hearings. But recent grand jury testimony suggested that Stanton favored using Leifer for financial work.

After reading reports about grand jury and SEC testimony, Kopp said Stamenson and Leifer appeared to be much more heavily involved in Citron’s day-to-day investment scheme than their testimony in Sacramento indicated.

Costanza, who had been advising Citron since the late 1980s, reacted angrily when one senator suggested that she had helped defraud investors.

“There was absolutely no conspiracy here whatsoever,” she told the Senate committee.

Costanza, who accompanied several county officials to a meeting with SEC officials in early 1994, testified before legislators that she didn’t disclose that inquiry to bondholders because it was not significant enough.

Although the Senate committee severely criticized Orange County officials for their actions that led to the bankruptcy, they approved a number of bills that helped the county recover from its financial crisis and put in place measures that would keep the investment debacle from recurring.