No Testimony From Raabe; Defense Rests

Former Orange County Assistant Treasurer Matthew Raabe, on trial for alleged interest skimming and securities law violations, opted not to testify Monday as his defense team quickly completed its case.

Presenting a whirlwind defense, Raabe’s attorneys called only six witnesses and wrapped up their presentation in one day. The prosecution, by way of contrast, took more than two weeks to present its case against Raabe.

Most defense witnesses described Raabe as a dedicated and hard-working government employee who labored in the shadow of a domineering boss, former Treasurer-Tax Collector Robert L. Citron, who pleaded guilty to the same felony charges that Raabe faces.

Defense attorneys also sought to use their witnesses to hammer home the idea that the county ran the investment pool like a mutual fund and enjoyed the right to set interest rates as it pleased.

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.

In presenting their case, prosecutors offered witnesses who contended that Raabe masterminded the scheme to skim nearly $90 million in interest earnings belonging to 187 cities, school districts and agencies that had entrusted their savings to the county’s investment pool.

Raabe diverted the money to a county account, purportedly to conceal from outside investors the highly risky--and sometimes highly lucrative--investment strategy that Citron pursued in managing the pool’s $7-billion portfolio, prosecutors contend.

If convicted, Raabe could be sentenced to 14 years in state prison and $10 million in fines.

Lawyers in the case will hash out jury instructions over the next few days. Jurors will return next Tuesday to hear closing arguments before beginning their deliberations.

If jurors had hopes of hearing Raabe testify, those hopes were dashed when defense attorney Gary Michael Pohlson announced during brief opening arguments that the former assistant treasurer would not take the stand.

“You are not going to hear from Mr. Raabe,” Pohlson told the jury of six men and six women.

Pohlson told the jurors that they had already heard most of the defense evidence through his cross-examination of 22 prosecution witnesses.

Under law, Raabe is not required to testify in his own defense and prosecutors are barred from pointing out to the jury that the defendant opted to remain silent.

Robert Pugsley, a law professor at Southwestern University School of Law in Los Angeles, said that from all appearances Raabe’s attorneys made a “cost-benefit analysis” and decided it was “more dangerous for him to take the stand, [deciding instead] to let [jurors] come to their own conclusion.”

But there is “a price to pay” for this strategy, Pugsley said.

“The jury will obviously look to the fact the centerpiece of the case did not take the stand or have the fortitude or candor to come forward and explain why he did nothing wrong. He probably anticipated a blistering cross-examination and backed down from the prosecution’s challenge.”

Among the defense witnesses was former Orange County Chief Administrative Officer Ernie Schneider, who testified that in the days leading up to the county’s bankruptcy, Raabe expressed concern about the manner in which Citron was investing depositors’ money. At that time, Citron was engaged in leveraging investments in the county’s investment pool, which which was beginning to experience severe cash flow problems, Schneider said.

“Mr. Citron wasn’t doing what Matt thought was appropriate,” Schneider said.

Recalling the hectic weeks preceding the county’s declaration of bankruptcy on Dec. 6, 1994, Schneider recounted how a New York firm hired by the county to value the investment pool determined that it had suffered “a paper loss” of an estimated $1.5 billion.

Schneider was also asked about the so-called “Prego dinner,” when a few top county officials and their hired professionals gathered at the posh Irvine restaurant of that name to discuss the investment pool’s condition and the risk that the outside investors might stage a run on the bank, so to speak, if they learned about its true condition.

At the dinner, Schneider said, Raabe revealed that some of the $140 million in a county reserve account, known as the Economic Uncertainty Fund, was not available for use by the cash-strapped county.

In his opening arguments, Pohlson promised jurors that Schneider would testify that Raabe told him some of the money in the Economic Uncertainty Fund belonged to outside pool investors, not the county.

But under direct examination, Schneider told Pohlson: “I don’t believe Matt ever said whose money it was.”

Under cross-examination by Assistant Dist. Atty. Jan J. Nolan, Schneider acknowledged that Raabe was unwilling to say how much of the $140 million actually belonged to the county. Instead, Raabe said he “would write it on a piece of paper and give it to his lawyer,” Schneider testified.

Asked if he thought Raabe’s response was unusual, Schneider said, “It was out of the ordinary.”

The prosecution contends that Raabe funneled the skimmed interest earnings into the Economic Uncertainty Fund account for the county’s benefit. The defense has argued that the money was merely sitting in a reserve fund for pool investors, and would have been used only if the pool suffered losses.

The most heated testimony of the trial occurred after Schneider described being fired after refusing to resign.

Asked by Pohlson if he had become a scapegoat, Schneider said, “Absolutely.”

When the prosecutor successfully objected to the question, the former CAO responded testily, “It’s the truth.”

Asked by Nolan if he was “still bitter” about his firing and the fact that the diversion of funds “happened on your watch,” Schneider said, “I’m past that.”

Schneider and other witnesses described Raabe as an official who worked long hours and as a man who had an impeccable reputation among his peers.

Joy Cubbin, a former accountant in the treasurer’s office, said Raabe “worked like a dog.”

On Monday, the defense continued to use witnesses to paint a portrait of Citron as a domineering boss.

Cubbin testified that employees in the treasurer’s office “didn’t dare” pick out a fabric or wood finish without Citron’s approval.

“He wanted to have [furnishings with] Trojan colors,” Cubbin said, referring to the colors of the University of Southern California, where Citron was a student but never graduated. “There was a lot of burgundy in the office.”