Rubino Insists He Knew Nothing About Scheme

Former County Budget Director Ronald S. Rubino testified in his own defense Wednesday and insisted that he knew nothing of the scheme to steal nearly $100 million in investment pool earnings belonging to cities, school districts and other agencies.

Rubino said it never occurred to him to question then-Treasurer-Tax Collector Robert L. Citron about the money transferred into the county’s Economic Uncertainty Fund, which provided a new source of revenue to help fill a shortfall in the county government’s budget.

“I trusted him,” Rubino said of Citron. “I would not want to be second-guessing an elected official. I had total confidence in Mr. Citron.”

Rubino, 44, testified that if he had suspected any wrongdoing, he would have reported it to his boss, then-former Chief Administrative Officer Ernie Schneider.

But Rubino said he “didn’t think [Citron] was doing anything wrong,” even after the treasurer reported an unexpected 400% increase in the county’s 1993 investment pool earnings. Instead of the $25 million he had previously estimated, Citron subsequently reported that the county treasury would receive $125 million that year.

Prosecutors contend that the surprise $100-million windfall was credited to the county after Citron and Rubino agreed to distribute 7.85% in earnings to the 200 outside agencies with money in the county-run investment pool--not the 11.5% the $7-billion pool was actually earning at the time.

Citron’s wrong-way bets on interest rates caused the investment pool to suffer a $1.64-billion loss in the fall of 1994, triggering the largest municipal bankruptcy in U.S. history. The diversions were unearthed in an ensuing investigation.

Rubino’s is the first criminal trial stemming from the bankruptcy. Citron is awaiting sentencing after pleading guilty to six felony counts of misappropriation and fraud.

Rubino, who spent the entire day on the witness stand, was repeatedly quizzed about some of his handwritten notes. Prosecutors contend the notes show that he knew--perhaps even masterminded--the illegal diversion scheme to boost his career prospects by solving a seemingly intractable budgetary problem.

One such note read: “Moving 7.85% to avoid 10% yield.” Prosecutors contend this shows Rubino knew, when he made that notation in September 1993, that Citron was shortchanging the cities and local agencies in the investment pool and skimming the difference into the county’s Economic Uncertainty Fund. But Rubino testified Wednesday that he made that notation after Citron told him that his goal was to achieve a 7.85% interest for pool participants because a “10% yield would be too much.”

Rubino quoted Citron as telling him that his benchmark was the earnings rate of the state’s investment pool, which in 1993 was paying only 4% to its investors.

According to Rubino, Citron said “if he had a rate [that was] too high, it would cause people to [think] that he was taking too much risk. He didn’t want that [10% yield] . . . to scare investors,” especially those who were not required under state law to deposit their money in the pool.

Nevertheless, Rubino said he never thought that the interest Citron deposited in the county treasury was the “product of money stolen from the commingled pool.”

Rubino’s testimony ended the defense case. Today, prosecutors and defense attorneys plan to argue over legal instructions the jury should receive. Closing arguments will begin Tuesday morning, meaning the jury of 11 women and one man could begin deliberations Tuesday afternoon.

Rubino’s explanation of the handwritten notes is important for the defense.

The Orange County Grand Jury indicted the former budget director on two counts of aiding and abetting Citron in the illegal diversions largely on testimony by Citron’s top assistant, Matthew Raabe, that Rubino masterminded the scheme.

But Raabe, who has yet to go on trial, has declined to testify at Rubino’s trial, citing his 5th Amendment right against self-incrimination.

And Citron, who was called as a prosecution witness, didn’t help much when he testified that he never told Rubino about the illegal diversions.

Without any direct testimony linking Rubino to the scheme, the prosecution is hoping jurors will believe that Rubino’s handwritten notes prove that he had deep knowledge about it. Prosecutors have also elicited testimony from two former Rubino aides, Steve Franks and Pamela Leaning, that Rubino rebuffed them when they asked if Citron’s unusually high interest earnings were achieved through legal means.

Rubino testified that he recalled telling Franks “not to worry about it. If Citron was doing something wrong, there were a number of checks and balances in the county. They would catch it. It was none of our business.”

It was Auditor-Controller Steve E. Lewis’ job to review the treasurer’s records, Rubino said.

The prosecutor, Assistant Dist. Atty. Jan J. Nolan, questioned Rubino closely about why he thought that it was “none of our business.”

Rubino said he did not want “to second-guess the elected treasurer.”

As Rubino testified, his wife, a daughter and a small band of supporters watched from the public gallery. The former budget director spoke slowly and calmly. He began his testimony with a detailed explanation about his 17-year career with the county, which ended in 1994 when he left to work for an investment firm in Los Angeles.

Under questioning by his own attorney, Rodney M. Perlman, Rubino testified that Citron told him he had earned unexpectedly high returns in 1993 by dealing in investments known as reverse repurchase agreements. According to Rubino, Citron said he had generated extra interest for the county--not other investors--by investing county money alone in “specific investments.”

Citron said that “things were looking up” and that the treasurer’s office was taking advantage of a “unique market” to rake in extra profits, according to the former budget director.

Rubino said he and Jim McConnell, a manager in the auditor-controller’s office, proposed putting the extra money Citron was earning in an “endowment fund,” later called the Economic Uncertainty Fund. The idea, he said, was comparable to what colleges do in using one year’s surplus to build giant reserves that would earn interest for leaner years.

Rubino said he advised against spending Citron’s windfall on a county project that would require an “ongoing revenue stream,” since this would cause budget problems in future years when windfalls might not be available.

Perlman also introduced evidence that the five members of the Board of Supervisors and heads of county departments received notice about Citron’s increased earnings.

The prosecutor peppered Rubino with questions about a phrase--”maintaining even interest”--that his aide scribbled on a spreadsheet explaining how pool participant earnings would be capped at 7.85%.

Rubino replied that he thought the 7.85% was merely Citron’s goal.

In their bid to impeach Rubino, prosecutors are using handwritten notes from documents that Rubino voluntarily handed over to the county’s budget office when he resigned two years ago. The defense introduced that fact into evidence to show that Rubino could have destroyed the notes if he felt they showed any wrongdoing on his part.

After his testimony, Rubino received hugs, kisses and handshakes from his wife, Sharon Easterley, and his supporters.