Trial to Weigh Role of Orange County Official

SANTA ANA —  Mastermind or scapegoat?

The outcome of the People vs. Matthew R. Raabe will hinge on that question.

When Raabe’s trial opens here today, a jury of six men and six women will hear sharply different depictions of the role he played more than two years ago in the Orange County treasurer’s office as the county careened toward the nation’s largest municipal bankruptcy.

Raabe, prosecutors contend, was among the architects of a nefarious scheme to conceal his boss’ exceedingly risky but sometimes enormously lucrative investment strategy, by skimming $100 million in excess interest earnings that might have alarmed the cities, schools and other government agencies that kept their savings in the county’s $7-billion municipal investment pool.

His defense attorneys, however, will portray Raabe as the unsuspecting underling of convicted Treasurer Robert L. Citron who only carried out his boss instructions.

If the prosecution’s view prevails, Raabe, who is so broke that his attorneys are being paid with taxpayers’ money, faces the possibility of $10 million in fines and 14 years in prison.

Any prison sentence for Raabe would be the first--as well as the last--meted out to any of the officials caught up in a $2.5-million bankruptcy investigation conducted by the office of Orange County Dist. Atty. Michael R. Capizzi. An additional $2 million in taxpayers’ money has gone to hiring defense attorneys.

The other two officials who faced the possibility of prison--Citron and former budget director Ronald S. Rubino--have avoided spending any time behind bars. Citron was sentenced to a year in jail, but is serving that sentence in a work-release program that lets him spend his nights at home. Rubino got two years of unsupervised probation and must perform 100 hours of community service.

Citron pleaded guilty last year to the same six felony counts that Raabe faces--including misappropriation of public funds, and lying to investors in the county pool.

Rubino pleaded no contest to one count of falsifying public records. Prosecutors were forced to work out a plea bargain with Rubino after his trial in September ended with the jury deadlocked 9 to 3 in favor of acquittal.

Robert Pugsley, a professor at Southwestern University School of Law, suggests that Capizzi’s prosecutors “will be looking for a more hard-hitting result this time.”

The trial that begins today is a far cry from the future that the assistant treasurer had envisioned. To many colleagues, he already was the de facto treasurer. Because Citron had a speech impediment and shied away from public events, it was Raabe who gave the pitches to potential pool investors, assuring them that the county’s investment fund was a sound, safe place for their cash.

And when the investment pool suffered $1.64 billion in losses in December 1994, forcing the county into bankruptcy, it was to Raabe that desperate county officials turned for help in sorting out the financial mess.

When Citron was forced to resign Dec. 4, 1994, Raabe was appointed by the county Board of Supervisors to take Citron’s place. Only three months later, however, he was fired by then-county Chief Executive William J. Popejoy, after the county’s outside financial advisors discovered the misappropriation of millions of dollars in interest belonging to pool investors.

In May 1995, Raabe was hit with a grand jury indictment, charging him with multiple felonies--embezzlement for his part in the interest-skimming operation, and violations of securities laws for misrepresentations he allegedly made to outside pool investors.

Since then, Raabe’s life has been in shambles. His lawyers say that at one time he was seeing a psychiatrist four times a week and has been taking medication for depression.

Prosecutors secured the indictment against Raabe after several witnesses testified that he repeatedly misled investors about the soundness of their pooled investments while helping to skim some of their interest earnings into a county account.

Prosecutors have alleged that it was Raabe, a certified public accountant, who created new accounts to receive the stolen interest. Raabe devised the scheme, the prosecutors say, because he couldn’t tell investors about the high interest, fearing they would realize their money was being gambled on risky securities.

“Raabe could not tell [pool investors] what the true interest was because he was afraid there would be a run on the bank. So he knowingly lied to them,” said Assistant Dist. Atty. Jan J. Nolan when she asked county grand jurors to return an indictment against Raabe.

Prosecutors plan to call several of Raabe’s former colleagues to testify against him.

Among them is Joy Cubbin, a former senior accountant in the treasurer’s office, who told the grand jury that Raabe showed her how to make false interest entries, giving her an amount every month by which to adjust the pool’s interest earnings.

Prosecutors won’t comment on their trial strategy, but it is likely that Citron will take the stand to confront his former assistant.

Raabe’s attorneys have kept their trial strategy a closely guarded secret, but they consistently portray their client as a financial neophyte who was simply following Citron’s orders.

“Matt Raabe was doing what he was told. He had nothing to do with the investments or the policies of the office,” said Gary Pohlson, one of Raabe’s attorneys. “The only difference between him and other people in the office is that he is being prosecuted.”

In testimony before the grand jury, Raabe described himself as an innocent scapegoat. “I think the fact that I was the spokesperson for the investment fund, and people suffered losses, I think it made me an easy target for people to say I lied to them,” Raabe told the grand jury. “It certainly makes it easy for some of those people to keep their jobs.”