Judge Denies Raabe Plea to Force D.A. Off Case

A judge on Wednesday rejected a request to disqualify the Orange County district attorney’s office from prosecuting former Assistant Treasurer Matthew Raabe in connection with the county’s bankruptcy.

Raabe’s attorneys argued that the district attorney’s office and its individual prosecutors suffered losses when the county declared bankruptcy in December 1994, making it impossible for the agency to fairly handle Raabe’s case.

But Orange County Superior Court Judge Everett W. Dickey said there was no evidence prosecutors reasonably could be considered victims of the bankruptcy. And even if the agency or prosecutors suffered losses, Dickey wrote in his ruling, there is no evidence the district attorney’s office could not handle the case evenhandedly.

Raabe has pleaded not guilty to six felony counts of fraud and misappropriation of public funds.

Assistant Dist. Atty. Jan Nolan hailed the ruling, but defense attorney Gary M. Pohlson said he will consider asking an appellate court to reconsider it.

Meanwhile, the county’s bankruptcy attorneys this week began aggressive action to widen the probe into brokerages and professional firms that may have helped--or failed to prevent--the county’s slide into insolvency. Since Monday, they have served subpoenas on 21 potential targets of litigation, and on Wednesday they requested permission from U.S. Bankruptcy Court Judge John E. Ryan to serve subpoenas on 15 more.

Those served include Bank of America, Wall Street investment banks such as PaineWebber Inc., Smith Barney Inc., CS First Boston and others.

“Things are heating up now,” one county official said.

So far, the county has filed only two lawsuits: one against Merrill Lynch & Co. accusing it of duping former Treasurer-Tax Collector Robert L. Citron into gambling on risky investments, and one against KMPG Peat Marwick alleging the auditing firm failed to detect irregularities that could have helped to prevent the bankruptcy.

Merrill Lynch and Peat Marwick deny wrongdoing.

Citron’s risky investment strategy ultimately lost $1.64 billion. And the county, looking to litigation to recoup its losses, has made no secret that more lawsuits are on the way.

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In a recent document updating Ryan on its bankruptcy recovery efforts, the county acknowledges the likelihood of litigation against another firm that was served, LeBoeuf, Lamb, Greene & MacRae.

A partner at LeBoeuf, Jean M. Costanza, was bond counsel for the county. Among other things, the county alleges that Costanza was aware of problems with the county’s investment portfolio but failed to do anything about it. LeBoeuf and Costanza have denied wrongdoing.

The document also points out that officials believe Nomura Securities, also subpoenaed, illegally liquidated $1.07 billion in securities after learning of the county’s problem, worsening the county’s losses.

Efforts to reach firms served with subpoenas were unsuccessful late Wednesday.

Peter J. Most, a lawyer with Hennigan, Mercer & Bennett, the county’s bankruptcy counsel, stressed Wednesday that not all the parties being subpoenaed were likely targets of a lawsuit.

“The county will leave no stone unturned in investigating its claims against all culpable parties,” Most said, but he added that many of the firms or businesses are being subpoenaed for records that could help the county’s lawsuits against others.

In other developments Wednesday, Ryan spent much of the afternoon scrutinizing fee requests by a handful of attorneys and other professionals charging millions to guide the county through its bankruptcy.

Going down the list, Ryan frequently stopped to quiz parties as to why more than $5,000 had been spent on air fare, and whether the attorneys flew first class or coach.

“He reads it all,” said attorney Richard Marshack, who is representing vendors who were owed money at the time of the bankruptcy. “There’s no rubber-stamping in this court.”

Attorneys said that taxpayers pay only for coach fares.