Raabe Tapes Highlight Prosecutor’s Parting Shot

Former assistant treasurer Matthew R. Raabe has not yet taken the witness stand in his defense, but the prosecution is trying to use his spoken words to show his culpability in a scheme to skim nearly $90 million from the accounts of outside investors in the county’s ill-fated investment pool.

On Thursday, Deputy Dist. Atty. Matthew Anderson played tape recordings of a presentation Raabe made to some pool investors in 1994. In the tape recordings, the jury of six men and six women heard Raabe’s description of how the treasurer’s office calculated interest earnings for depositors.

According to a transcript of the tape, Raabe told directors of the Coastal Municipal Water District in Dana Point that the treasurer’s office apportions interest to pool investors by calculating yields on “every security” in the pool, then determining each agency’s average balance in the portfolio before distributing the payments.

The decision to play Raabe’s own explanation of how interest was distributed to pool investors is an apparent attempt to undercut the defense’s suggestion that the county was under no obligation to distribute all of the interest earned by the pool.

Raabe, 40, is charged with five felony counts of misappropriating public funds and violating securities law for allegedly lying to investors about the pool’s soundness.

The prosecution contends that Raabe diverted interest earnings from the pool into the county treasury to hide former Treasurer-Tax Collector Robert L. Citron’s risky but sometimes lucrative investment strategy.

Cities, schools and other government agencies might have withdrawn their savings from the county’s $7-billion municipal investment pool had they known about the risks, Anderson has asserted.

Raabe and his attorneys have contended that the treasurer’s office had “smoothed” or “spread” interest for years to avoid highs and lows in the yields, and that the procedure was not deemed improper. In addition, the defense is arguing that the investment pool operated like a mutual fund and Citron, acting as the fund’s manager, had the authority to determine yields paid to pool investors because the county was responsible for all the borrowing in the pool.

Anderson closed the prosecution’s case Thursday after calling his 22nd witness.

Defense attorneys Gary Pohlson and Richard Schwartzberg plan to file on Monday a motion claiming the case should be dismissed before it goes to a jury because the prosecution presented insufficient evidence. Such motions are common and are rarely granted.

In a portion of the tape Anderson played Thursday, Raabe defended Citron’s strategy to leverage his portfolio even as the investment pool tottered toward collapse.

Responding to criticisms by then defeated treasurer candidate John W. Moorlach that Citron was making casino-type bets with investors’ money, Raabe said: “And the criticisms are that we do too much of this [leveraging] and that government entities should not be in the business of trying to make extra money on investments but should settle for what are very low rates. . . .”

“We very strongly disagree with that strategy and we believe the fact that people invest in our pool is indicative that they think we should be doing generally what we’re doing,” Raabe said.

The pool eventually plunged $1.6 billion.