Skimming Scheme Was Raabe’s, Citron Testifies

SANTA ANA —  In their first face-to-face confrontation since Orange County declared bankruptcy nearly 2 1/2 years ago, ex-Treasurer-Tax Collector Robert L. Citron accused his former protege in court Monday of concocting the scheme to skim nearly $90 million in interest earnings from outside investors in the county’s ill-fated investment pool.

Citron was called as a prosecution witness against his former top assistant, Matthew Raabe, who is charged with misappropriating public funds and violating securities laws for allegedly lying to investors about the pool’s soundness.

Citron, who has pleaded guilty to the same charges and is serving a one-year jail sentence that allows him to spend his nights at home, occupied the witness stand for the entire day, answering questions about Raabe’s role in the diversion scheme.

Citron said Raabe proposed the scheme in April 1993, the same month he was promoted to assistant treasurer. He said Raabe feared that the nearly 200 cities, school districts and state agencies with money in the pool would withdraw their money if they suspected that Citron was earning high yields with inordinately risky securities.

“Raabe said something to the effect, ‘Bob, you know we are paying extremely high interest rates of 10% to 11%, which is way above what other agencies are paying. . . . I am concerned that investors in the commingled pool will become concerned that there was something wrong in what we’re doing that is creating such high interest returns. They could withdraw their money and cause what is termed as a ‘run on the bank.’ ”

If the outside investors withdrew their billions from the pool, “We would not be able to recover,” Citron quoted Raabe as saying.

According to Citron, Raabe recommended that in order to pay interest rates that were more in line with other government investment pools, the treasurer’s office should skim a portion of the interest earnings and place it in a treasury account for the county’s benefit.

Citron recalled telling Raabe that “he should go and do what he recommended.”

“I trusted Mr. Raabe,” Citron said, when asked why he approved the diversion scheme. “He was a certified public accountant.”

Under cross-examination, Citron acknowledged that at the time he approved the diversion scheme, “I didn’t believe I did anything illegal or unethical.”

It was a long day on the witness stand for Citron, 71, who was escorted into Judge Everett W. Dickey’s courtroom by a district attorney’s investigator at 8:50 a.m. He sat alone in an empty row until the proceedings began one hour later.

Citron was noticeably deliberate in his answers. At times, he took long pauses before responding to questions by the prosecutor, Deputy Dist. Atty. Matthew S. Anderson.

As Citron quietly leveled his accusations, Raabe, 40, focused his gaze on the witness stand and at times scribbled notes to his attorney, Gary M. Pohlson.

Raabe’s trial has boiled down to a blame game between Citron and the former assistant treasurer.

While Citron has consistently fingered his former assistant as the mastermind of the scheme, Raabe’s attorneys have responded that their client was only following his boss’ orders and well-established county policies.

During the last week, Citron has benefited from unplanned rehearsal of his testimony by giving a lengthy deposition to lawyers handling the county’s $2-billion damage suit against Merrill Lynch and other firms which the county blames for its bankruptcy.

On Monday, Citron was asked to provide details of the diversion scheme for the jury of six men and six women.

After Citron approved the diversion scheme, Raabe determined the yields that were paid to pool participants and the amounts that would be skimmed to the county’s general fund, Citron testified.

Raabe even prepared a chart with those figures, Citron testified. On it, he said, Raabe scribbled in his own handwriting, “Extra interest we moved from the commingled pool.”

The handwriting was later covered with whiteout, but district attorney’s investigators who seized thousands of documents following the bankruptcy were able to recover the scrawled notes, according to the prosecutor.

In his testimony, Citron described Raabe as deeply involved in the operations of the treasurer’s office. Citron recalled that when the office raked in “tons of interest” that was eventually used to plug a budget shortfall in 1993, he wrote a letter to the Board of Supervisors giving Raabe some credit for the office’s success. Citron, who was contemplating retirement then, said he wanted to boost Raabe’s chances to become his successor.

Under cross-examination, Pohlson continued to make a point he has driven home throughout the trial: that the treasurer’s office had routinely “smoothed” or “spread” interest over a quarterly period to avoid highs and lows in the yields paid to investors. That practice, according to the defense, occurred before Raabe took the job as assistant treasurer and was not deemed improper.

Citron’s cross-examination became contentious when Pohlson asked him why he had given different accounts of his explanation to former Budget Director Ronald Rubino regarding the source of funds being deposited in the county treasury.

Pohlson read an interview Citron gave a few months after the bankruptcy to district attorney’s investigators, saying he had told Rubino the interest was being skimmed from other pool participants.

But Pohlson noted that Citron had testified at Rubino’s trial that he had never told the former budget director that the money was coming from specific investments he was making on behalf of the county.

“Which one of these is a lie, Mr. Citron?” Pohlson asked.

Citron replied: “In my mind, Mr. Pohlson, I truly believe that I never told Mr. Rubino that the additional monies were coming from the commingled pool participants, but that the money was coming from some specific investments.”

Rubino was sentenced last year to two years of unsupervised probation and 100 hours of community service after pleading no contest to one count of falsifying public records. Prosecutors worked out a plea bargain with Rubino after his trial in September ended with the jury deadlocked, 9 to 3, in favor of acquittal.

The defense appeared to be using a two-pronged strategy in its cross-examination of Citron. Despite scolding him for not remembering some key details, Pohlson tried to portray him as an earnest official who simply wanted to do a good job for the county.

“You tried to do good things for the county?’ Pohlson said.

“Yes,” Citron replied.

“You never thought you were doing anything wrong?”

“Not in my mind.”

“You never thought you were committing a crime?”

“In my mind, no.”

During some portions of his testimony, Citron said he could not recall certain dates and events, saying that “a psychological problem I have been diagnosed with” prevented him from recalling all events in the 1990s. Citron’s lawyer has said Citron is suffering dementia.

Citron will resume his testimony when the trial continues today.