Raabe Sentenced to Prison for Manipulating O.C. Pool Funds

Former Assistant Treasurer Matthew R. Raabe was handed a stinging three-year prison term Friday for his role in Orange County’s 1994 financial collapse, making him the only person sent to prison for crimes arising from the largest governmental bankruptcy in U.S. history.

Rejecting a recommendation by state prison authorities that Raabe be punished with probation and community service, Superior Court Judge Everett W. Dickey said he wanted to send a message to public officials that they would go to prison if they abused their positions.

“When you handle public money, you are held to a higher standard than a businessperson with private funds,” Dickey told Raabe, who sat erect in his chair as his sentence was pronounced.

Some of Raabe’s supporters, including relatives and friends, appeared stunned by the sentence. Others sobbed softly after the punishment was read.

The judge said he had no doubt that Raabe helped craft a nefarious scheme to conceal longtime Treasurer-Tax Collector Robert L. Citron’s risky but enormously lucrative investment strategy, by siphoning nearly $90 million in excessive interest earnings from the county-run investment pool.

Raabe feared that if the nearly 200 cities, schools and special districts with deposits in the county-run pool were paid their actual earnings, they would soon figure out that Citron was gambling with their money and perhaps withdraw their funds.

Citron’s high-flying Wall Street investments started taking a nose dive when interest rates began climbing in 1994, and the exotic securities he had purchased lost $1.64 billion in value, prompting the county to file for bankruptcy in December that year.

Raabe, who did not testify at his own trial, read from a prepared statement, expressing remorse for not being “more sensitive” and “more diligent” in overseeing the manner in which interest was allocated to the pool investors.

“I was not as careful as I should have been and for that I’m truly sorry,” said Raabe, who insisted that he never intended to break any laws.

He apologized for “my lack of judgment,” saying, “I wish I could undo it. I hope some day [the residents of Orange County] will ultimately find it in their hearts to forgive me.”

Dickey’s three-year prison sentence fell almost midway between the probation recommendation of the California Department of Corrections and the eight years of confinement sought by the district attorney.

“I believe a short state prison sentence achieves the objective of letting other public officials who mishandle public money know that they can go to prison,” Dickey said.

The judge also told Raabe, a 41-year-old certified public accountant, that he could not benefit from the same leniency shown Citron, who pleaded guilty only a few months after the county’s bankruptcy filing and threw himself on the mercy of the court.

Unlike Raabe, who will serve his sentence in a state prison, Citron received a one-year jail term that he is serving in a program that allows him to work in the county jail commissary during the day and to spend his nights at home. But Citron was fined $100,000, while Raabe’s fine was set at $10,000.

Dickey allowed Raabe to remain free on $25,000 bail pending an appeal of his conviction to the 4th District Court of Appeal in Santa Ana.

Dressed in a navy blue suit and wearing a pained expression, Raabe declined to comment on the judge’s sentence.

Gary M. Pohlson, a Laguna Hills attorney being paid more than $1 million from an indigent defense fund to represent Raabe, said he found it “ironic that Mr. Raabe received more punishment than anyone else. This [sentence] is really off base in light of how Mr. Citron was sentenced.”

But Senior Deputy Dist. Atty. Matthew Anderson, who prosecuted Raabe, said that “to compare the two [sentences] is improper and misinformed. I thought Mr. Citron should have gone to prison. But he cooperated early on and I didn’t find him to be untruthful in the least.”

Although the judge did not sentence Raabe to the eight-year prison term prosecutors had sought, Anderson nonetheless said “this was a just resolution” of the matter.

Raabe’s other attorney, Richard Schwartzberg, said his client was expecting the worst when he entered court. “There is always a certain fatalistic feeling in these situations,” Schwartzberg said.

Anderson’s boss, Dist. Atty. Michael R. Capizzi trumpeted the punishment as a fitting end to his office’s 30-month criminal investigation.

“We think justice has been served by the sentence,” said Capizzi, an all-but-declared candidate for state attorney general in 1998.

Raabe’s prison sentence represents Capizzi’s biggest victory in his bankruptcy-related prosecutions.

Besides Citron, the only other official to face criminal charges, former county Budget Director Ronald S. Rubino, was sentenced to two years’ probation and community service after agreeing to plead no contest to violating a public records law.

Rubino’s attorneys worked out the plea bargain with Capizzi after the former budget director’s trial on misappropriation charges ended with a jury deadlocked 9 to 3 in favor of acquittal.

An appeals court threw out the charges Capizzi brought against Supervisors William G. Steiner and Roger R. Stanton, who were accused of willful misconduct in office for failing to adequately supervise Citron’s operations and prevent the bankruptcy. A similar accusation is still pending against Auditor-Controller Steve E. Lewis, who faces removal from office--but no fines or jail time--if he is convicted.

Earlier this year, Capizzi accepted a $30-million settlement from Merrill Lynch & Co.--the Wall Street brokerage firm the county blames for selling Citron inappropriately risky securities--in return for dropping a criminal investigation into the firm’s conduct.

County prosecutors and attorneys for Merrill have waged a vigorous court fight to block release of grand jury transcripts relating to that investigation, although Capizzi has since given up the fight and has left Merrill’s attorneys to battle alone at the California Supreme Court level.

Friday, Dickey mentioned some of the other bankruptcy-related prosecutions as he weighed Raabe’s fate.

During the last few weeks, the judge had been presented with a report from Chino prison officials that found Raabe a solid candidate for probation. He was also bombarded with pleas for leniency in 115 letters from the former official’s friends and relatives.

But Dickey rejected the pleas for leniency.

The judge explained in detail each aspect of his sentence, noting that public officials who misappropriate funds in California “or on a national basis” receive state prison sentences.

Raabe’s crimes are serious enough to justify a “severe sentence,” Dickey said.

The judge suggested that Raabe’s actions in the diversion scheme were motivated by his desire to become the next treasurer of Orange County, and said he apparently felt the diversion scheme would enhance his career prospects.

“You blinded yourself to what you were doing,” Dickey told Raabe. “You were not doing it for financial gain but for your own personal gain.”

Neither Raabe nor Citron were ever accused of personally benefiting from the interest-skimming.

Dickey told Raabe he would have imposed a stiffer sentence if “you had lined your own pockets with this.”

The judge also told Raabe that his actions caused a loss of public confidence in government.

Still, some said the former assistant treasurer should have received a harsher sentence.

“I think he deserved more time in prison based on the magnitude of the deceit he perpetrated on the taxpayers of Orange County,” said Treasurer-Tax Collector John M.W. Moorlach, who--then a private citizen--raised questions about the soundness of the investment pool months before the financial calamity.

“I agree with Judge Dickey that he needed to make this an example to other public officials that incompetence and gambling cannot be tolerated,” Moorlach said.

Anderson said Raabe’s three-year prison term could be reduced by almost half if he gets time off for good behavior.

But it will be a long time before Raabe sees a prison cell. An appeal of his conviction could take up to 18 months before it’s decided, Schwartzberg said.

More Coverage:

* Contrasting comments on the sentence by the judge, defense, prosecutors, county officials and activists. A29

* What has happened to the six county officials who faced bankruptcy-related criminal or civil allegations. A30

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

How They Fared

The sentencing of former Assistant Treasurer Matthew R. Raabe to three years in prison brings the county another step closer to resolving all of the criminal and civil charges related to the 1994 bankruptcy. Three county officials, including Raabe, faced criminal charges, and three top elected officials were hit with civil accusations of willful misconduct in office. Raabe is the only one who faces a prison term. What happened to the six:

CRIMINAL CHARGES

Matthew R. Raabe

Title: Former assistant treasurer; appointed treasurer after Robert L. Citron was forced to resign in December 1994; fired a few months later after discovery of interest skimming Accusations: Five felony counts of misappropriating public funds, lying to investors and keeping false county records

Faced: 13 years in prison, $10 million in fines

Outcome: Convicted on all five counts; sentenced to three years in prison and fined $10,000.

****

Robert L. Citron

Title: Former treasurer-tax collector

Accusations: Six felony counts of misappropriating public funds, lying to investors and keeping false county records

Faced: 14 years in prison, $10 million in fines

Outcome: Sentenced to a year in jail and fined $100,000; qualified for work-release program, so instead of a conventional jail term he does clerical work at the county jail during the day and spends nights at his Santa Ana home. His sentence will be completed later this month.

****

Ronald S. Rubino

Title: Former county budget director; resigned months before bankruptcy to work for Leifer Capital in Santa Monica

Accusations: Two felony counts of aiding and abetting misappropriation of more than $60 million in public funds

Faced: Possible nine years in prison

Outcome: After jury deadlocked 9 to 3 last year in favor of acquittal, Rubino pleaded no contest to a single felony charge of violating a public records law. Trial judge found him guilty and sentenced him to two years of unsupervised probation and 100 hours of community service. Record may be wiped clean if he successfully completes probation. Has since worked as a financial consultant for Orange County Transportation Authority and is offering consulting services to cities.

****

CIVIL ACCUSATIONS

Roger R. Stanton

Title: County supervisor for 16 years

Accusations: Civil charges of willful misconduct for failure to oversee and keep a check on Citron’s operations

Faced: Removal from office

Outcome: 4th District Court of Appeal in Santa Ana dismissed charges against him, saying district attorney had overstepped authority; ruling was upheld by state Supreme Court. Stanton, who did not run for reelection last year, has since returned to his job as a business professor at Cal State Long Beach.

****

William G. Steiner

Title: County supervisor, appointed 1993

Accusations: Civil charges of willful misconduct for failure to oversee and keep a check on Citron’s operations

Faced: Removal from office

Outcome: 4th District Court of Appeal in Santa Ana dismissed charges against him, saying district attorney had overstepped authority; ruling was upheld by state Supreme Court. Steiner has already announced he will not run for reelection in 1998. He plans to work for a children’s services organization in Arizona.

****

Steve E. Lewis

Title: Auditor-controller since 1984; joined county government in 1965

Accusations: Civil charges of willful misconduct for alleged failure to oversee and keep a check on Citron’s operations

Faces: Removal from office

Outcome: Undetermined; 4th District Court of Appeal removed district attorney from prosecution, ruling he had obvious conflicts of interest. State attorney general’s office, which will prosecute if Capizzi’s disqualification is upheld, says it is appealing the decision removing Capizzi to the California Supreme Court.

Source: Times reports

Researched by DAVAN MAHARAJ / Los Angeles Times