Judge Raises Questions on SEC Deal With Citron, Raabe

In an unusual hearing, a federal judge on Thursday questioned whether the federal Securities and Exchange Commission was too lenient in dealing with former Orange County Treasurer-Tax Collector Robert L. Citron and his deputy, Matthew Raabe.

Under an agreement reached with the SEC earlier this year, Citron and Raabe did not admit or deny any wrongdoing but promised not to violate any federal securities laws in the future. The SEC did not impose any additional sanctions on either of the two, who have also agreed to cooperate with agency officials investigating Orange County’s 1994 financial collapse.

U.S. District Judge Gary L. Taylor, who was expected to routinely approve the agreement, instead questioned whether the federal agency was too light on Citron and Raabe, who were separately charged by local authorities with six felonies in connection with the largest municipal bankruptcy in U.S. history.

On Thursday, Taylor grilled SEC lawyers about the “appropriateness of not seeking additional remedies” and whether the agreement was in the public’s best interest. The judge postponed making a ruling on the agreement until after he reviews a confidential SEC report.

Throughout the 90-minute hearing, Taylor asked SEC lawyers to show that the agreement was not “illusory” or “an empty gesture,” and “whether [it] really has meaning.”

“The bottom-line question is what good are we doing here today,” Taylor said.

The federal agency reached the agreement with Citron and Raabe in January after they were charged with making false and misleading statements in the county’s sale of $2.1 billion worth of municipal bonds in 1993 and 1994. The county and five elected members of its Board of Supervisors agreed to similar settlements in January.

SEC lawyer James A. Howell defended the agreement, saying the agency didn’t seek stiffer penalties against Citron or Raabe because each faces possible criminal fines of $10 million, and neither profited from his actions. By negotiating the agreement, the SEC hoped to deter similar action from other public officials, Howell said.

On Thursday, Taylor ordered SEC lawyers to provide him within 10 days a confidential report on the SEC’s ongoing investigation into the Orange County bankruptcy. The judge did not indicate whether he would approve the judgment. Approval by a federal judge is needed to make the agreement official and binding.

In separate actions, both Citron and Raabe have been charged with six felony counts in Orange County Superior Court. Citron has pleaded guilty and is awaiting sentencing. Raabe has denied wrongdoing and is awaiting trial.

The criminal charges arose from a $1.64-billion loss in Orange County’s investments that in December 1994 triggered the county’s bankruptcy.

Howell said Citron and Raabe committed “monstrous violations of securities laws,” but he told the judge that the proposed punishment puts the two men on “equal footing with hundreds of individuals and entities that settle up with the SEC each year.”

Howell said he understood the judge’s frustration with the proposed penalties, but he added that other agencies and the voters of Orange County needed to take other action to bring justice in the county’s bankruptcy debacle.

“The SEC has done what it can do and needs to bow out,” Howell said. The remainder should be left to other agencies and voters of the county, he said.