Orange County D.A. Can Stay on Bankruptcy Case

In a legal setback to the three elected officials facing charges for their role in Orange County’s bankruptcy, a judge ruled Friday that Dist. Atty. Michael R. Capizzi has no conflict of interest and will remain the prosecutor in their misconduct cases.

During a lengthy court hearing on the matter, Los Angeles Superior Court Judge John W. Ouderkirk, who is presiding over the case in Santa Ana, rejected every argument advanced by attorneys for Auditor-Controller Steve E. Lewis and Supervisors Roger R. Stanton and William G. Steiner. The officials had sought to have Capizzi disqualified.

“There is no conflict so grave that the defendants would not receive a fair trial,” said Ouderkirk, who added that “the defendants have failed to meet their burden” of proving that Capizzi’s office could not be evenhanded.

Since early December, only days before the grand jury issued charges against the three for “willful misconduct” in office, the defendants have accused Capizzi of being as much to blame as anyone for failing to act on a 1993 report by Lewis.

In that report, Lewis drew attention to illegal investments being made by then-Treasurer Robert L. Citron and a lack of adequate controls in Citron’s office, which ran the county investment pool that lost $1.64 billion, plunging the county into bankruptcy.

The cover letter on Lewis’ report indicated that it had been sent to the five sitting supervisors, as well as to Capizzi’s office. The report was transmitted to the Board of Supervisors in a way that would keep it off the public agenda.

Citing what he called the “credible” testimony of Capizzi and Assistant Dist. Atty. Wallace J. Wade, Ouderkirk concluded that Capizzi “did not receive or know of the report or its contents prior to December of 1994,” when the full extent of Citron’s investment losses was first made public.

“It may well be that the report was never sent to the office of the district attorney,” the judge continued, adding that the “format” and the way the report was transmitted “seemed . . . designed to obscure its contents.”

Lewis has said he provided adequate warning to top county officials in the audit of the treasurer’s 1991 operations, because it disclosed that Citron’s investment practices often violated state law.

During the hearing, Capizzi testified that he never received the audit and didn’t even hear of it until it was described in an article published by The Times after the county filed for bankruptcy in December 1994.

The judge also rejected defense claims that Capizzi had interfered with the Orange County Grand Jury that charged Lewis and the supervisors in order to thwart its civil investigation of the bankruptcy, including questions grand jurors might have had about why Capizzi did not look into Citron’s investments sooner.

The defense said Capizzi threatened to impanel a second grand jury to consider criminal charges related to the bankruptcy if the panel proceeded with its civil investigation.

Court documents show that prosecutors did mention the possibility of convening a second grand jury because they feared that information gathered during a civil probe might “taint” the outcome of the grand jury’s consideration of criminality.