Raabe: List of Those at Fault Is a Long One

There were no deals. No promises of leniency. And, really no good reason for Matthew 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-Tax Collector Robert L.] Citron and myself so that they can go free.”

Raabe then 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 with psychics and refused to acknowledge that the county’s finances were on the verge of collapse 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 get involved, 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.

Raabe who has portrayed himself as a financial novice, told the grand jury during his appearances Nov. 28 and 29 that he 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 of 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 top officials learned of the practices at a secret dinner days before the bankruptcy declaration, when Raabe told them Citron was using a mail-order astrologer and a psychic to make investment decisions, according to then-Finance Director Eileen T. Walsh.

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.

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.

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.

In July 1994, Raabe said, he had dinner with Stamenson at the broker’s request. “He said that he and Merrill Lynch were concerned . . . about the amount of leverage Mr. Citron was continuing to increase in the investment fund,” Raabe said.

But Citron ignored Stamenson’s advice, Raabe testified, and continued to leverage the pool even more.

By September 1994, Raabe said, he was concerned enough to call Stamenson and ask the broker to have Merrill Lynch “put pressure on [Citron] to curtail some of the investment activities. I thought that the leveraging was getting out of hand at that point.”

About a week later, Raabe said, Citron told him that “he did in fact buy $600 million [in federal securities], and that he did buy them from Merrill Lynch, that he worked out a deal that was absolutely foolproof.”

Raabe continued, “He promised me at that point that that would be the very last time the he would leverage any securities.”

The former assistant treasurer said he figured out later that perhaps Stamenson hadn’t been truthful with him about his concerns about Citron’s risky strategy.

“You know, when you’re a brokerage firm and you’re making a lot of money on securities, every hundred million dollars . . . yields, I’m told, approximately $200,000 in profit to the broker. So I think it would have been extremely difficult for Merrill Lynch to walk away from $1.2 million in profits by selling these securities,” Raabe said.

When his efforts with Stamenson failed, Raabe said he shared his concerns about Citron with Schneider and members of Schneider’s staff in October 1994. He said they all decided to hire a New York firm to analyze the pool and prevent Citron from making any more investment decisions.

For weeks, the New York firm analyzed the pool, Raabe testified, and it appeared, at first blush, that Citron had caused only a half-billion dollar trading loss.

Led by Schneider, an emergency committee of Walsh, former County Counsel Terry C. Andrus, Auditor-Controller Steve E. Lewis, and Raabe, “would meet regularly after Mr. Citron went home.”

Raabe continued: “Ernie Schneider told us in one of our meetings that he had received a call from one of the higher-ups in the Irvine Co. saying that they had heard that there were . . . problems in the Orange County portfolio.”

As the emergency committee formulated contingency plans, Raabe testified, eventually the Board of Supervisors was told.

“Do you recall the reaction of any particular supervisor when the news was given to them?” prosecutors asked Raabe.

“I remember the reaction of just about every one of them,” Raabe said. “We walked into Supervisor [Roger R.] Stanton’s office and before any of us said a word, he said, [jokingly]: ‘What’s the matter, Bob? Did you lose all of the money?’ And I was very much taken aback [because] his comment was exactly what we had come to talk about.”

Citron “looked down at his feet and said, ‘Well, we have something serious to talk to you about.’ ”

He recalled that former Supervisor Harriett M. Wieder “was more concerned about the effect on her [county] deferred compensation account,” Raabe said, adding that “she had one of my staff come over at least three times to change her deferred compensation deductions so that she would stop putting money into the [plan].”

Raabe said Stanton tried to distance himself, Supervisor William G. Steiner allied with Stanton and then-Board Chairman Thomas F. Riley was too old and in too much pain to become very involved.

Supervisor Gaddi H. Vasquez, he said, just buried his head in his hands. “He was the only one who fully understood the implications that it was a serious matter.”