Rubino Rebuffed Fund Questions, Ex-Aides Say

SANTA ANA —  Ex-Budget Director Ronald S. Rubino told two top aides they were better off not knowing too much about a multimillion-dollar account that began appearing in the Orange County treasury, the aides testified in court Wednesday.

The testimony was the strongest that prosecutors have yet elicited against Rubino, who is charged with helping then-county Treasurer Robert L. Citron illegally skim $91 million belonging to nearly 200 cities and schools to solve the county’s budget problems.

Testifying at Rubino’s ongoing criminal trial, former budget manager Steven A. Franks said that when he asked Rubino why the county’s projected interest earnings had unexpectedly surged more than $75 million in 1993, he was told: “This is the kind of thing, if the grand jury ever asks, you don’t want to know.”

Franks acknowledged that Rubino made the statement about the grand jury “jokingly. Rubino was always joking and he had a quick wit,” he said.

But Franks said he recalled telling his boss: “That doesn’t cut it, Ron”--a remark that he said Rubino “didn’t really answer.”

Franks testified that on another occasion he asked Rubino if the county’s investment earnings were correct, and whether the earnings of other agencies with money in the county-run investment pool were being siphoned off for the county’s benefit.

According to Franks, Rubino responded: “That is the kind of thing you don’t want to get involved in.”

Another Rubino assistant, former budget coordinator Pamela Leaning, recalled during her testimony that Rubino said “you don’t want to know about that” when she and Franks asked about unexpected interest earnings.

But Rubino’s attorney blunted the impact of this testimony when both Franks and Leaning, under cross-examination, said they felt “absolutely” certain that nothing illegal was going when they attended a Sept. 28, 1993, meeting at which the higher-than-expected earnings were discussed.

Prosecutors contend that Rubino, 44, helped skim millions into a reserve account where it could earn an additional $13 million in annual interest for the county. Rubino, the prosecutors say, aided the diversion to enhance his career.

Rubino’s attorney, Rodney M. Perlman, has argued during the trial that his client was a mid-level county employee who was simply following county policies and his bosses’ orders. Rubino was not aware of any illegal skimming operation and even doubts that it occurred, Perlman has said.

Rubino’s is the first criminal trial stemming from the Orange County bankruptcy. Citron has pleaded guilty to the skimming and other fraud charges. But when he was called as a prosecution witness earlier this week, Citron denied ever telling Rubino about the illegal diversions.

Instead, Citron said, the idea came from then-Assistant Treasurer Matthew Raabe, who came to him in April 1993 to warn that some 200 governmental agencies with money in the investment pool might suspect that their reserves were being used for risky investments, if the county distributed all the money being earned on their deposits.

At the time, the county’s investment pool was raking in 11.5% in annual earnings, while the state of California’s investment pool was earning only about 4%.

Raabe said that if the outside pool participants learned about Orange County’s risky investment strategy, they might stage a run on the county treasury, Citron testified.

The county eventually paid its pool participants 7.85% interest and siphoned the rest to its newly created Economic Uncertainty Fund, he added.

In testimony before the Orange County Grand Jury, Raabe identified Rubino as an architect of the diversion scheme. But citing his 5th Amendment right against self-incrimination, Raabe has refused to testify in Rubino’s trial. Raabe himself is scheduled to go on trial next month.

Without Raabe’s testimony, the prosecution is attempting to link Rubino to the scheme through his aides’ testimony, and handwritten notes he allegedly made on a spreadsheet that Raabe distributed at a meeting of a few mid-level county managers on Sept. 28, 1993. Raabe’s spreadsheet showed the new interest earnings that would be available to help balance the county’s budget, Franks said.

Franks, who is now chief of staff for Supervisor Jim Silva, said Raabe announced at that meeting that the county would receive $116.9 million from the investment pool instead of the budgeted $42 million. Rubino, Franks said, was present for part of that meeting. The announcement came at a time when the county was experiencing an unprecedented shortfall in its budget.

Raabe’s announcement was “very good news. [I was] very excited, and it was a great thing,” Franks testified.

Under cross-examination, Franks said that when he asked Rubino if “everything is all right with this stuff,” his boss replied: “If they’re doing something, this is the thing we honestly don’t want to know about.”

On yet another occasion when he asked Rubino about the high earnings, Franks testified that Rubino said he would have to “investigate with Mr. Citron and tell you what this is about.”

He said Rubino later explained that the county was earning additional interest through the treasurer’s “aggressive investment practices.”

Franks also said that Jim McConnell, a manager in the county auditor’s office, told him that he had checked into the county’s high earnings “and everything was fine.” Officials with the county counsel’s office had also stated that “everything was fine,” Franks said.

Franks appeared nervous, and his voice cracked when Perlman questioned him about being interviewed five times by district attorney’s investigators since the county filed the largest municipal bankruptcy in U.S. history in December 1994.

Perlman asked if the investigators had badgered him during questioning by constantly remarking, “Your answers don’t fit.”

“It was a very difficult conversation,” Franks recalled. “They told me, ‘You don’t want to go to jail for this.’ I’ll never forget that comment.”

Franks also acknowledged that when he testified before the grand jury last year he could not recall the meeting at which the additional interest earnings were discussed.

In her testimony, Leaning said she was present at that meeting but did not recall seeing Rubino there.

Unlike Franks, Leaning said she didn’t remember Rubino making any reference to the grand jury when he said they didn’t want to know too much.

The prosecution is expected to close its case today after hearing testimony from district attorney’s Investigator Larry Lambert.

* AWAITING FINAL WORD: O.C. welfare agency is making no projections as yet. A20