Raabe Seeks Dismissal of Charges, Says Funds Not Misappropriated

Attorneys for former Assistant Treasurer Matthew R. Raabe asked a judge Monday to dismiss a five-count indictment accusing their client of lying to investors and skimming nearly $90 million in interest earnings from participants in Orange County’s ill-fated investment pool.

In a 29-page motion, attorney Richard Schwartzberg argued that his client could not have illegally misappropriated the interest earnings of other pool investors, because the county had an exclusive right to determine yields.

The funds deposited in the pool by 187 cities, school districts and other agencies became “the exclusive assets and liability of the county and thus entitled the county to earnings derived therefrom,” Schwartzberg argued.

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.

During the last two weeks, the prosecution has contended that Raabe diverted interest earnings from the pool into the county treasury to conceal from outside investors 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Cities, schools and other government agencies might have withdrawn their savings from the county’s $7-billion municipal investment pool had they known about the risks, Deputy Dist. Atty. Matthew Anderson has asserted.

Anderson rested the prosecution’s case against Raabe last week, and the trial has been recessed to give lawyers and Superior Court Judge Everett W. Dickey enough time to deal with the defense’s motion to dismiss.

Anderson is expected to respond to the motion before Dickey sets a hearing on the matter. The judge has told the jury to report to his courtroom Thursday.

In their brief, Raabe’s attorneys contended that the county was under no obligation to distribute all of the interest earned by the county-run pool.

In addition, Schwartzberg argued that any alleged failure to report or transfer interest to investors was not in violation of state law, because earnings “were lawfully to be set by the fund manager, [former treasurer] Citron, and that after the percentage return was set by the fund manager, the funds were properly distributed by the treasurer according to the law.”

Raabe could not have violated any laws because “the interest yields were entirely authorized and consented to” by the pool investors.

Earlier in the trial, Citron said that Raabe was the official who concocted the scheme to divert excessive interest earnings into a county treasury account. Citron said he approved Raabe’s idea, and under cross-examination said he did not think he was doing anything illegal at the time.

Raabe has not yet taken the witness stand in his defense, but last week the prosecution played tape recordings of a presentation Raabe made to some pool investors in 1994 in an attempt to show that Raabe knew the interest diversion was illegal.

In the recordings, 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.

Raabe’s 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.