Ex-O.C. Official Won’t Face SEC Charges, Sources Say

In exchange for a pledge not to break securities laws in the future, regulators have agreed to settle all federal charges against Orange County’s former assistant treasurer, and similar settlements are being offered to all county officials targeted in the worst municipal bankruptcy in U.S. history.

Several sources familiar with the ongoing investigation by the U. S. Securities and Exchange Commission said no county official will be hit with any federal criminal charges, nor will they face fines--the two more serious actions that conceivably could have resulted from the agency’s yearlong probe.

Instead, they will be asked to sign what amounts to a consent decree--a formal court document in which the officials do not admit any wrongdoing but promise not to do anything wrong in the future.

Former Assistant Treasurer Matthew R. Raabe still faces six felony charges of fraud and misrepresentation in connection with the bankruptcy. He is charged with helping illegally skim millions of dollars in interest from accounts that the county managed for other public agencies.

Raabe’s former boss, Robert L. Citron, pleaded guilty in April to six felony counts of securities fraud and misappropriation of funds. He is scheduled to be sentenced in February.

Although members of the Board of Supervisors escaped any criminal charges that might have been filed by the local grand jury that investigated them last year, two of them--Chairman Roger R. Stanton and William G. Steiner--have been charged with “willful misconduct” and face removal from office if they are convicted in a jury trial.

The grand jury also indicted former county budget director Ronald S. Rubino on two felony counts of aiding and abetting Citron in the skimming of interest. Rubino has pleaded not guilty to the charges.

After the SEC’s planned action against the public officials is concluded, the agency is expected to turn its attention to financial and legal firms that sold the county’s massive note and bond issues and advised county supervisors about disclosures required to be made to investors.

According to an attorney for Raabe, the settlement agreement between Raabe and the SEC will be finalized this week. Sources said the settlements with Citron and the five county supervisors in office at the time of the bankruptcy will be resolved within the next few weeks.

William McLucas, the agency’s enforcement chief, said he could not “discuss what we may or may not be doing” in connection with the investigation--reported to be the most extensive ever undertaken by the SEC, and launched with much fanfare and some saber-rattling by the agency’s chairman, Arthur Levitt.

McLucas added, however, that “within the next few weeks, I would hope to put some of the Orange County issues behind us.”

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Raabe’s attorney, Gary Pohlson, said Monday that his client would not admit to any wrongdoing under the terms of the settlement agreement. “We’re just agreeing to an injunction that he will not violate any laws” in the future, Pohlson said.

Sources said the SEC will file a complaint in U.S. District Court and simultaneously file the settlements.

“I had gotten the impression that [the SEC] was going to go easy on them, but I think that’s outrageous, really,” said Bruce Whitaker, a spokesman for the Committees of Correspondence, a grass-roots political watchdog group formed in the wake of the bankruptcy. “It’s like writing a traffic ticket for grand larceny.

“With all the problems we have with municipal finance, it’s a mistake,” Whitaker added. “Not that I’m bloodthirsty, but I think there has to be a consequence that’s proportionate to the crime.”

Late last year, the supervisors who presided over the county’s loss of $1.64 billion on risky investments and who subsequently voted to declare bankruptcy on Dec. 6, 1994, were served with “Wells notifications” by the SEC, which informed them that the agency staff intended to charge them with violating securities laws.

Subsequent negotiations with SEC staffers apparently led to the proposed settlements, in which the supervisors would not be named individually or subjected to any fines, the sources said.

Instead, Orange County, one of the largest issuers of municipal notes and bonds in the country, would be cited for failing to abide by securities laws, and enjoined from future securities violations.

Gerald Boltz, a former SEC attorney who represents the supervisors, could not be reached for comment. He had said in late November, however, that efforts were being made to settle the case against the public officials.

James Mercer, who represents the county in the SEC actions, said he would not comment on SEC matters.

Pohlson, Raabe’s attorney, said that in opting for one of the more lenient forms of punishment, “the SEC recognized [Raabe] wasn’t a big player.”

Raabe still faces trial in state court on six felony charges for allegedly skimming interest from investment funds that the county managed for other public agencies. If convicted, he faces a possible sentence of 14 years in state prison and $10 million in fines.

David Wiechert, who represents Citron, also declined to comment Monday.

At his sentencing in February, Citron, like Raabe, faces a possible 14 years in state prison and $10 million in fines. A probation report prepared in advance of his sentencing, however, is said to recommend that Citron be spared state prison altogether, and serve a year or less in a local jail.

Of the five supervisors in office when the financial debacle occurred, two retired only weeks after the county declared bankruptcy and a third resigned under pressure in August.

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Sources said the SEC will continue to examine the roles that financial and legal firms played in the $1.64-billion investment loss that triggered the bankruptcy.

The charges against Orange County officials will be the first issued by the SEC in a large-scale investigation of public officials involved in a municipal finance scandal.

Last spring, the agency issued subpoenas to dozens of Orange County officials, including the supervisors and their aides, to testify before the SEC staff in Los Angeles.

Several financial firms, as well as four school agencies, acknowledged last fall that they received Wells notices from the SEC. Most are in the midst of responding to the notices, according to lawyers involved in the negotiations.

The Irvine Unified School District, the Newport-Mesa Unified School District, the North Orange County Community College District and the Orange County Department of Education received notices in November indicating that they may be charged with fraud and deceptive practices for raising nearly $500 million simply to boost their stakes in the county’s investment pool.

After issuing these so-called “casino bonds,” the school agencies each earned about $1 million in extra interest in 1993 and 1994 by borrowing about $50 million apiece. Each agency assumed that Citron’s investment pool was safe and would continue to earn about 2% more in interest than the cost of issuing and repaying the taxable notes.

Since last September, several financial firms also have acknowledged receiving Wells notices, including C.S. First Boston, the underwriter of pension bonds issued by the county, and Rauscher Pierce Refsnes Inc. of Dallas, a financial advisor and underwriter for various school and government agencies in the county.

Rauscher Pierce, which has declined to comment on the SEC matter, was the financial advisor on a $299-million note issue sold by the Orange County Department of Education on behalf of 27 local school districts in 1994.

Raabe did not testify before the SEC. But he provided critical testimony to the Orange County Grand Jury, implicating Rubino in the interest-skimming scheme.

Pohlson said Raabe probably would agree to cooperate with the SEC in the future.

“He has nothing to hide,” Pohlson said. “He didn’t do anything wrong, and anything he did, he did at the direction of Citron.”