6-Year Term for O.C. School Thief : Sentencing: Stephen A. Wagner, who stole $3.5 million from Newport district in largest embezzlement of its kind in state history, could serve just 2 1/2 years.

Stephen A. Wagner, who gained a lavish lifestyle of fancy cars and fur-lined bathrobes by committing the largest embezzlement of school funds in California history, was sentenced Friday to six years in prison for stealing $3.5 million from the Newport-Mesa Unified School District.

Wagner, 41, the district’s former chief financial officer, will spend about 2 1/2 years in prison if he earns the maximum credit for work, good behavior and time already served in jail. School officials who wanted the maximum penalty of eight years and eight months in prison denounced the sentence as too lenient.

In a sentencing report made public Friday, Wagner said he had probably harbored a secret desire to be caught and felt relief when it happened. He had often considered confessing but could not bring himself to do it, he said.

“Being caught was in some way a relief for me,” Wagner said. “It is hard to understand, but since I did not hide the money and used it openly to invest in the gem accounts, I now see that I must have had some psychological reason to do such a blatant and open act. All of my problems, however, do not erase one single cent from the money that I took.”

Wagner pleaded guilty in December to diverting school district funds to his personal accounts between 1986 and 1992 and failing to report the income on his tax returns.

He used the money to buy real estate, cars, gems and other luxuries.

Wagner said he started siphoning funds as early as 1985, first taking $50,000 for a down payment on a Santa Ana home. He later told a probation officer that at first, he fully intended to repay the money. But soon he “crossed over” that line and began stealing money he knew he would never return, Wagner said.

He said the thefts began at a time when he was suffering from depression and when his twin brother, Tom, had just left the state.

“It is hard for me to understand how I got involved in taking money from the school district in the first place,” Wagner said, adding that there were “emotional and psychological” aspects to his motives.

He once tried to cover up a $2-million loss by blaming a fellow bookkeeper for making a $1-million error.

He was adept at “cooking” the books to make it appear that the district had a surplus when, in reality, money was missing, the sentencing report says. In fact, he found it was easy.

Wagner thought he had taken about $2 million, he said, and was surprised to learn just how much he had really stolen.

Wagner, who had a salary of about $79,000 when he was fired last year, admitted that he continued stealing money because he “liked nice things.”

His undoing began when a district employee informed law enforcement that Wagner was “living beyond his means.”

“I know that I have completely disgraced my family and that my son will suffer a lot for what I have done,” Wagner said in the sentencing report, adding that he fears the day when his 5-year-old son “is old enough to really know just what his dad has done.”

Wagner’s mother and wife said in the report that they had “no inkling” of the thefts and had believed Wagner was just a savvy businessman. His wife, Linda, now works for a plumber to support herself and her son, the report says.

Edward Golden, Wagner’s partner in a shoe repair enterprise, said in the report that he considers himself Wagner’s closest friend but also noted that Wagner had embezzled at least $100,000 from their business.

Before they went into business together, Golden said, Wagner had worked for him at a local movie theater and had tried to embezzle about $2,500. Golden intercepted a check made out to Wagner but declined to file charges and fired Wagner, the report says.

In addition to the six-year prison sentence, Orange County Superior Court Judge John J. Ryan placed Wagner on three years’ probation and ordered him to pay back $3.5 million to the district, although most officials say there is little chance of full restitution.

The Wagners filed for bankruptcy last July. They face $2.4 million in Internal Revenue Service liens for unpaid taxes. And the FBI is investigating whether any of the stolen school funds included federal money.

Wagner claims that he is also a victim--of gem dealers who defrauded him out of large sums of money. But many law enforcement officials are concerned that Wagner might still have money stashed in hidden assets and bank accounts, because the amount of money stolen does not match the value of recovered assets. Much of the couple’s assets have been auctioned, but the properties were heavily mortgaged and worth less than Wagner claimed.

Deputy Dist. Atty. Carlton P. Biggs said he requested the maximum sentence because Wagner has not cooperated fully with law enforcement officials seeking assets for restitution.

Biggs said he believes Ryan imposed the harshest sentence he could under current state laws, which he called “wimpy” on the issue of white-collar crime. For example, Biggs said, there is no penalty enhancement for people who steal more than $100,000.

“That sends the message, wrongly, that if you’ve stolen $100,000, you might as well keep going,” Biggs said.

Defense attorney Paul S. Meyer said there is no evidence that Wagner has hidden funds. Meyer, who called the judge’s sentence “fair,” said his client is suffering from severe depression but is remorseful and willing to help investigators in any way.

Investigators believe Wagner may be responsible for as much as $500,000 in additional district losses.

Newport-Mesa Unified School District officials on Friday criticized the sentence.

“I would like to have seen the maximum sentence,” said Tom Godley, assistant superintendent.

District President Forrest K. Werner told the judge Friday that the theft has caused layoffs, increases in class size, cuts in student programs and other financial woes for the district. Werner said that efforts to track down the stolen money have cost the district almost $250,000.

District board member Martha Fluor said she is concerned that Wagner still has school money.

“He should be under probation until he has paid back every last dime,” she said. “My fear is that he will take off after three years (on probation) and find the money he has hidden and have a grand old lifestyle on the backs of the children.”