Raabe Trial Judge Rejects Defense’s Key Argument

Former Assistant Treasurer Matthew Raabe was handed a significant setback in his defense of interest skimming and securities violations charges when his trial judge ruled Thursday that nearly 200 cities, school districts and local agencies were entitled to all of the interest their deposits earned for the county’s ill-fated investment pool.

The ruling by Superior Court Judge Everett W. Dickey guts Raabe’s central defense that he could not have illegally misappropriated some $90 million in interest earnings of other pool investors, because the county had the right to determine yields.

Dickey made the ruling in denying a motion by Raabe’s attorneys to dismiss the five felony counts against him. The lawyers filed the request--a routine legal maneuver--after the prosecution closed its case last week.

Announcing his decision, Dickey said he agreed with the position of Deputy Dist. Atty. Matthew Anderson that “all of these agencies should be allowed to share [in the pool’s interest earnings] in proportion to their deposits,” the judge said.

Dickey said that from the evidence presented by the prosecution, Raabe and others had decided that the county “was going to receive a larger portion of the interest than it was entitled to . . . to the detriment of those other agencies.”

The judge’s ruling clears the way for the case to proceed before the jury of six men and six women. The defense will begin to present its case on Monday.

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.

Before the trial was recessed to deal with the motion, the prosecution called 22 witnesses to make its case that Raabe diverted interest earnings from the pool into the county treasury.

One of his motives, prosecutors argued, was to conceal from from the outside investors the highly risky--and sometimes highly lucrative--investment strategy that his boss, then-Treasurer Robert L. Citron, pursued in managing the pool’s $7-billion portfolio.

During cross-examination, the defense hammered at a central theme: The county was the legal owner of the investment pool and therefore had the right to determine the yields paid to pool investors.

The county--not the pool investors--was liable for the billions of dollars Citron borrowed, the defense argued.

In his request for a dismissal filed earlier this week, defense attorney Richard Schwartzberg argued that the funds deposited by the pool investors became “the exclusive assets and liability of the county, and thus entitled the county to earnings derived therefrom.”

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, 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.”

In a written response filed Wednesday, Anderson called the defense’s contentions “disingenuous,” “astounding” and absurd, saying if Raabe’s lawyers’ interpretation of the law was accurate, the county would be entitled to earn interest on deposits of school districts--which by law must deposit their money in the county treasury--and keep the earnings for itself.

Anderson said the law which permits state agencies to deposit their funds in a county-run investment pool specified that the county treasurer shall “apportion any interest or other increment derived from the investment of funds . . . in an amount proportionate to the average daily balance” of their deposits.

Dickey said he agreed with Anderson’s interpretation of the law, adding that if the authors of the law had so desired, they could “easily have said the county could keep a portion of the interest” earned by the commingled pool.

Dickey said the law clearly stated that the treasurer had to distribute interest “in an amount proportionate to the deposits of local agencies.”

A county official who decides otherwise “is subject to criminal liability,” Dickey said, adding that the case should go to the jury.

After the judge delivered his ruling, Gary Pohlson, one of Raabe’s attorneys, gave his client a comforting pat on the back before heading to the judge’s chambers for a conference between Dickey and lawyers in the case.