Prosecutors Scorn Raabe’s Fund-Diversion Rationale

SANTA ANA — Prosecutors on Wednesday dismissed as “disingenuous” the arguments advanced by former County Assistant Treasurer Matthew Raabe that nearly 200 cities, school districts and local agencies were not entitled to all of the interest their deposits earned for the county-run investment pool.

Raabe’s “rather astounding claim that the county is entitled to the interest earnings derived from the investments of other public agencies’ money is contrary to the evidence before the court, including statements of the defendant himself,” said Senior Deputy Dist. Atty. Matthew Anderson.

Anderson’s comments were contained in a written response to a motion by Raabe’s attorneys seeking a dismissal of charges against their client.

Raabe, 40, is on trial on five felony charges that he misappropriated public funds and violated securities laws by misrepresenting the investment pool’s condition in presentations to outside investors.

It was the sudden and unexpected discovery that the pool had lost $1.6 billion and had run out of cash that pushed the county into bankruptcy in late 1994.

In arguing their case against Raabe, the prosecution claims that the former official helped skim nearly $90 million in excess interest earnings due other pool investors into the county treasury.

The interest diversion scheme was hatched, prosecutors claim, to conceal from outside investors former Treasurer Robert L. Citron’s risky, but sometimes lucrative, investment strategy. If the investors had known of the risks being taken, they might have sought to withdraw their deposits, causing a run on the bank, Citron has testified.

In a motion filed earlier this week, the defense argued that Raabe could not have illegally misappropriated the interest earnings of other pool investors because the county had an exclusive right to determine yields. Such motions to dismiss are commonly filed at the end of a prosecution’s case, but are rarely granted.

Judge Everett W. Dickey is expected to hold a hearing on the motion today.

In his 31-page response to Raabe’s motion, Anderson said the evidence was strong enough to sustain a conviction in the case. He recounted how two of Raabe’s subordinates had testified that Raabe taught them how to move interest earnings of outside pool investors into the county treasury, and how tape-recordings played in the case suggested that Raabe knew the interest diversions were illegal.

In a tape-recorded presentation to the Coastal Municipal Water District in Dana Point, Raabe told the district’s directors that the treasurer’s office apportioned interest to outside pool investors by calculating yields on “every security” in the pool, then determining each agency’s average balance in the portfolio, before distributing the payments.

Responding to the defense motion, Anderson noted that “even though school districts are required by [law] to place all their money with the county, the defendant claims the law permits him to use school deposits for investments, derive interest income from the investments, and then give the county the interest earned,” Anderson wrote.

“The absurdity of the argument--that school deposits become an income-generating tool for the county--underscores the unreasonable interpretation of the law upon which [Raabe] relies.”