Ex-School Official Admits Theft : Crime: Stephen Wagner pleads guilty to embezzling $3.5 million from Newport-Mesa district. He faces more than eight years in state prison.

By KRISTINA LINDGREN and GREGORY CROUCH

Dec. 16, 1992 12 AM PT

TIMES STAFF WRITERS

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 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 wealthy Newport-Mesa school district, once one of the richest in the state but now balancing several years of deficits with layoffs, classroom crowding and supply shortages. It has inspired angry teachers and parents to demand the ouster of top administrators and prompted school districts up and down the state to rethink their security procedures.

Court documents filed Tuesday showed that Wagner siphoned off more than $3.5 million between Nov. 26, 1986, and April 10, 1992, mostly in cashier’s checks he issued to himself or others from a secret employee health fund that was supposed to have been closed by 1986. Some of the stolen money is believed to have included federal lunch program funds for disadvantaged children.

Deputy Dist. Atty. Carlton P. Biggs emphasized that the criminal investigation of the extent of the embezzlement is continuing. Biggs also revealed in court that federal officials are strongly considering prosecuting the case separately. Such a move could mean substantially more prison time and severe fines for the 40-year-old Newport Beach man, who used school funds to finance an opulent lifestyle, investments in real estate and dubious investments in gems and speculative business endeavors.

Wagner’s lawyer, Paul S. Meyer, 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,” Meyer said. “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.”

News of Wagner’s guilty plea surprised hardly anyone in the 17,500-student school district.

“What else could he do except throw himself at the mercy of the court?” said Assistant Supt. Thomas A. Godley. “I think the evidence is pretty clear-cut.”

Some grumbled 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 lax district management.

“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.”

Wagner remains at the 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 (Wagner) 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. Today (with his guilty plea) is the strongest statement of that.”

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 doubtful of his ability to recoup the full amount he is believed to have invested in gems, real estate and other valuables.

“He (Wagner) has identified certain assets which we are now endeavoring to take possession of, including gems,” said Theodor Albert, bankruptcy trustee of the Wagner estate. “I haven’t seen the gems yet. Until I do, I’m in no position to say it’s going to be a lot of money or not.”

Albert said Wagner has estimated the gem collection--including rubies, diamonds and a large emerald--to be worth about $1 million. The gems are believed to be held 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 a $1-million, five-bedroom, four-bath home Wagner bought in the exclusive Dover Shores area of Newport Beach in July, 1990.

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.

Times staff writer Jodi Wilgoren contributed to this report.