Raabe Says ‘Slander’ Spurred Him to Testify : Bankruptcy: Former official told O.C. Grand Jury he doesn’t want others to go free. He named board members, brokers and others he says should share blame.

There were no deals. No promises of leniency. And, really no good reason for Matthew R. Raabe to voluntarily testify before the same grand jury that only months earlier had indicted him on charges of fraud and misappropriation of funds for his role in Orange County’s bankruptcy.

Even the prosecutor seemed baffled that the former assistant treasurer would testify when his own words might later be used against him.

“Why?” was Assistant Dist. Atty. Jan Nolan’s first question to Raabe when he appeared before the Orange County Grand Jury last month and gave his most detailed account yet of the events that led up to and followed the county’s bankruptcy. “There’s curiosity as to why you would agree to do this.”

Raabe, who faces a costly criminal trial and the specter of 14 years in state prison, said the answer was simple: “I’ve seen myself slandered in the newspapers,” he said, according to grand jury transcripts obtained by The Times.

“I believe there are people who committed acts who, for whatever reason, would prefer to see that this case end with an indictment and conviction of [former Treasurer Robert L.] Citron and myself so that they can go free.”

Raabe proceeded to name all the county officials, Wall Street brokers and financial advisors he said should share the blame for the crisis.

Raabe described his former boss as an eccentric, overbearing man who consulted psychics and refused to acknowledge that the county’s finances were on the verge on the collapsing even days before the bankruptcy.

Next, he was critical of board members, saying that when disaster struck, one sought to distance himself from the crisis, another was too old to care, a third was only concerned about her pension losing money and a fourth just buried his head in his hands.

And he accused financial experts, including Merrill Lynch officials, of taking advantage of the county’s “odd,” hapless treasurer. Nonetheless, Raabe said it is Citron who should be held responsible for the county’s Dec. 6, 1994, bankruptcy.

“He plotted and developed the investment strategy,” Raabe testified.

Citron has pleaded guilty to the same six felony counts that Raabe is now fighting and is cooperating with prosecutors. The former treasurer also faces the possibility of 14 years in state prison when he is sentenced in February.

During his appearance before the grand jury Nov. 28 and 29, Raabe portrayed himself as a financial novice who was trying to learn his job from a boss who rarely interacted with his staff.

“He almost never took vacations. He rambled. He was very boastful. He dressed odd. He had this loud affectation for turquoise jewelry. He had the USC fight song on his car horn. He was not the picture of someone you would think of if you said ‘describe to me a banker,’ ” Raabe said of Citron.

Raabe also revealed that Citron used psychics. He told the grand jury that Citron confided in May or June 1994 that he had been consulting psychics to get insights on his personal and professional life. Raabe told the grand jury that he passed this information to the county’s bond counsel, Jean Costanza.

Other high county officials said they didn’t learn of Citron’s practices until three days before the bankruptcy, when Raabe broke the news at a private gathering. The supervisors were never told.

Citron “had a psychic friend . . . who lived locally that he talked to, and there was a psychic in the Central California region that he was . . . using,” Raabe testified.

Ernie Schneider, who was then the county’s administrative officer, “practically fell off his chair when I told him that,” Raabe said.

According to Raabe, Citron used the psychic to predict such important developments as which investors would withdraw money from the county pool, and his own election results. The psychic advisor predicted that Citron would have money worries in the beginning of November, but that they would be over by the end of the month, Raabe said. Citron was forced to resign Dec. 4.

Raabe testified he did not bother telling anyone about the psychic at first because Citron insisted he wasn’t asking her about investments.

Later, however, then-Finance Director Eileen Walsh testified that Raabe told her and others that Citron had used a psychic and an astrologer to predict interest rates.

During his testimony to the grand jury, Raabe sought to blame Citron for orchestrating the crimes that he is now charged with.

For example, Raabe told the panel that it was Citron’s idea in late 1989 to have Raabe go out and persuade local agencies to invest in the county pool. About 200 municipalities ultimately shared in the county’s loss of $1.64 billion.

“He gave me a brief outline of the general comments that he would want me to pass along to those people,” he testified. “I became what I would call the spokesman for the fund.”

Prosecutors allege that Raabe lured local agencies into the county’s investment pool by misrepresenting it with fraudulent claims of risk and security.

But Raabe said he and another former assistant treasurer, Ray Wells, argued with Citron over the legality of accepting funds from other local agencies.

“Mr. Citron insisted that since he wrote the [governing section of the] Government Code, he knew what [it] meant to say,” Raabe testified. “And Mr. Wells and I both had some discussions with him on that topic because . . . the actual wording . . . tended to be somewhat different.”

Raabe also told the jurors that Michael G. Stamenson, a broker with Merrill Lynch & Co., had considerable influence on Citron. He said he saw Stamenson in Citron’s office 20 to 50 times.