Citron Testifies Against Former Assistant

In their first face-to-face confrontation since Orange County declared bankruptcy 2 1/2 years ago, ex-Treasurer Robert L. Citron accused his former protege in court Monday of concocting the scheme to skim nearly $90 million in interest earnings from outside investors in the county’s ill-fated investment pool.

Citron was called as a prosecution witness against his former top assistant, Matthew R. Raabe, who is charged with misappropriating public funds and with securities law violations for allegedly lying to investors about the pool’s soundness.

Citron, who pleaded guilty to the same charges and is serving a one-year jail sentence that allows him to spend his nights at home, occupied the witness stand for the entire day, answering questions about Raabe’s role in the diversion scheme.

Citron said Raabe proposed the scheme in April 1993, the month he was promoted to assistant treasurer. He said Raabe feared that the nearly 200 cities, school districts and state agencies with money in the pool would withdraw their money if they suspected that Citron was earning high yields with inordinately risky securities.

“Raabe said something to the effect, ‘Bob, you know we are paying extremely high interest rates of 10% to 11%, which is way above what other agencies are paying. . . . I am concerned that investors in the commingled pool will become concerned that there was something wrong in what we’re doing that is creating such high interest returns. They could withdraw their money and cause what is termed as a run on the bank.’ ”

If the outside investors withdrew their billions from the pool, “we would not be able to recover,” Citron quoted Raabe as saying.

According to Citron, Raabe recommended that in order to pay interest rates that were more in line with other government investment pools, the treasurer’s office should skim a portion of the interest earnings and place it in a treasury account for the county’s benefit.

Citron recalled telling Raabe that “he should go and do what he recommended.”

“I trusted Mr. Raabe,” Citron said when asked why he approved the diversion scheme. “He was a certified public accountant.”

Under cross-examination, Citron acknowledged that at the time he approved the diversion scheme, “I didn’t believe I did anything illegal or unethical.”

It was a long day on the witness stand for Citron, 71, who was escorted into Judge Everett Dickey’s courtroom by a district attorney’s investigator. He sat alone in an empty row for an hour until the proceedings began.

Citron was noticeably deliberate in his answers. At times, he took long pauses before responding to questions by the prosecutor, Deputy Dist. Atty. Matthew Anderson.

As Citron quietly leveled his accusations, Raabe, 40, focused his gaze on the witness stand, and at times scribbled notes to his attorney, Gary Pohlson.

Raabe’s trial has boiled down to a blame game between Citron and the former assistant treasurer.

While Citron has consistently accused his former assistant of being the mastermind of the scheme, Raabe’s attorneys have responded that their client was only following his boss’ orders and well-established county policies.

During the last week, Citron has benefited from unplanned rehearsal of his testimony by giving a lengthy deposition to lawyers handling the county’s $2-billion damage suit against Merrill Lynch and other firms that the county blames for its bankruptcy.

On Monday, Citron was asked to provide details of the diversion scheme for the jury of six men and six women.

After Citron approved the diversion scheme, Raabe determined the yields that were paid to pool participants and the amounts that would be skimmed to the county’s general fund, Citron testified.

Under cross-examination, Pohlson continued to make a point he has driven home throughout the trial: that the treasurer’s office had routinely “smoothed” or “spread” interest over a quarterly period to avoid highs and lows in the yields paid to investors. That practice, according to the defense, occurred before Raabe took the job as assistant treasurer and was not deemed improper.

The defense appeared to be using a two-pronged strategy in its cross-examination of Citron. Despite scolding him for not remembering some key details, Pohlson tried to portray him as an earnest official who simply wanted to do a good job for the county.

“You tried to do good things for the county?’ Pohlson said.

“Yes,” Citron replied.

“You never thought you were doing anything wrong?”

“Not in my mind.”

“You never thought you were committing a crime?”

“In my mind, no.”

During some portions of his testimony, Citron said he could not recall certain dates and events, saying that “a psychological problem I have been diagnosed with” prevented him from recalling all events in the 1990s. Citron’s lawyer has said Citron is suffering dementia.

Citron will resume his testimony when the trial continues today.