Ex-O.C. School Official Pleads Guilty to Theft : Embezzlement: Stephen Wagner renews restitution pledge, could go to prison for stealing $3.5 million.
SANTA ANA — Fired school finance officer Stephen A. Wagner pleaded guilty Tuesday to embezzling more than $3.5 million from the Newport-Mesa Unified School District over at least six years, and renewed his pledge to make restitution of the looted funds.
Wagner, who entered the guilty plea in a barely audible voice at his arraignment in Superior Court, faces a possible sentence of eight years and eight months in state prison on five counts of misappropriating public funds and filing false state income tax returns.
The Wagner case, believed to be the largest school embezzlement in state history, has rocked the Newport-Mesa Unified School District, once one of the richest in the state but now balancing several years of deficits with layoffs, crowded classrooms and supply shortages. It has inspired angry teachers and parents to demand the ouster of top administrators, and has prompted school districts up and down the state to rethink their own security procedures against such inside thievery.
Court documents filed Tuesday showed that Wagner siphoned $3,534,343.67 from Nov. 26, 1986, through April 10, 1992, mostly in cashier’s checks he had issued to himself or others from a secret employee health fund bank account that was supposed to have been closed by 1986.
Deputy Dist. Atty. Carlton P. Biggs emphasized that the criminal investigation of the extent of the embezzlement is continuing and that the amount of missing funds could grow. Biggs also revealed in court that federal officials are strongly considering prosecuting Wagner separately. Such a move could expose the 40-year-old Newport Beach man to substantially more prison time and severe fines.
Wagner’s lawyer decried a possible federal investigation and trial as a waste of public resources.
“Mr. Wagner is completely devastated by all the events that have occurred,†attorney Paul S. Meyer said outside the courtroom. “He is not seeking sympathy; he doesn’t want sympathy. He simply wants to make things right with the school district. . . . It would seem to be a terrible waste of time to prosecute another case alongside this one.â€
News of Wagner’s guilty plea surprised hardly anyone in the 17,500-student Newport-Mesa district.
“What else could he do except throw himself at the mercy of the court?†asked Assistant Supt. Thomas A. Godley. “I think the evidence is pretty clear-cut.â€
There was grumbling that the punishment Wagner faces is not equal to the crime.
“Right now, the employees feel they couldn’t think of an adequate penalty for the amount of misery (suffered by) the people who have had to pay the price for his greed,†said Donald Evans, president of the union representing the district’s non-teaching employees.
But many parents--angered about overcrowded classes, run-down campuses and supply shortages--were more concerned about what the Wagner case says about management at the district.
“I’m not worried about the Wagner situation as much as I am about getting competent management on board,†said Greg Wohl, who is part of a coalition of parents calling for the replacement of longtime Supt. John W. Nicoll, as well as Godley and Deputy Supt. Carol A. Berg. “That’s our sole focus right now.â€
Wagner, a 21-year district employee, was known for his fine clothes, expensive cars and lavish lifestyle, which included matching full-length mink coats that he and his wife, Linda, wore to society events. He had a large home in the most expensive neighborhood in north Santa Ana, and without selling it, he was able to buy a five-bedroom, four-bath home for $975,000 in the exclusive Newport Beach area of Dover Shores.
No one questioned how a bookkeeper who rose to be the district’s top numbers cruncher could afford such opulence on a salary that topped out at $78,000 in 1992. Wagner had impressed everyone with tales of his myriad business schemes and investments in gems and real estate. A former boss explained to top district officials that Wagner just had “the Midas touch.â€
What he touched turned out to be a secret district bank account, where he stashed improperly diverted health insurance reimbursements, cafeteria funds and developer fees. He tapped that secret slush fund through cashier’s checks made out to himself.
Beginning with an $18,780 withdrawal on Nov. 26, 1986, Wagner averaged about six to eight checks every three months or so, for a quarterly haul that initially ranged from $78,146.52 to $226,164.05, according to court records. By late 1989, however, the quarterly tally began to exceed $300,000, growing to more than $380,000 by May, 1990.
Wagner remains in Orange County Jail. He will not seek release on bail, which has been set at $1.2 million.
“Certainly his family could try to raise the money,†Meyer said. “But he is not interested in bail. He wants to commit every resource to making restitution in this case. His concern is to get the property back to the school district. I think he’s taking a realistic, responsible view of what has occurred. You can’t turn back the clock.â€
Meyer declined to say how much money Wagner could return to the district.
Sources close to the investigation say Wagner is confident that he could return most of the missing money, but others are unsure about his ability to recoup the full amount he is believed to have invested in gems, real estate and other valuables.
“I haven’t seen the gems yet,†said Theodor Albert, bankruptcy trustee of the Wagner estate. “Until I do, I’m in no position to say it’s going to be a lot of money or not.â€
Albert said Wagner has estimated the assorted gem collection--including rubies, diamonds and a large emerald--to be worth about $1 million. The gems are believed to be held at sites in Toronto and Hollywood, Fla.
“It’s premature for me to say how much, if any, restitution can be gotten from them,†he said.
Albert is also preparing to liquidate the Wagners’ seven houses and condominiums, including the home he bought in Dover Shores in July, 1990.
“We’re getting geared up to list all of the properties for sale,†Albert said.
Albert was appointed to oversee Wagner’s estate because Wagner and his wife failed to list substantial assets, including a shoe repair business and gems, when they filed for bankruptcy last July. The couple sought Chapter 11 protection of their estate just days after the Internal Revenue Service filed nearly $2.4 million in liens against them for unpaid taxes from 1986 through 1989.
The IRS liens are believed to cover income that Wagner and his wife allegedly have not reported. Sources close to the investigation believe the unreported income targeted by the IRS may well be looted school district funds.
Meanwhile, Deputy Dist. Atty. Biggs confirmed that the FBI and the U.S. attorney’s office have been in contact with him about the Wagner case.
Sources over the last month have said that Wagner could be investigated under a variety of federal statutes, including wire fraud, mail fraud, making false statements to a bank, theft from a program receiving federal funds and money laundering. Many of those statutes impose severe prison terms, steep fines or both.
Times staff writer Jodi Wilgoren contributed to this report.
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