Reopening of Bankruptcy Probe Sought

Contending that recently disclosed grand jury testimony exposes massive “fraud and deceit,” a state senator said Tuesday that he will move to reopen hearings into Orange County’s bankruptcy.

Sen. Quentin L. Kopp (I-San Francisco) said testimony before the grand jury and the Securities and Exchange Commission contradicted what Orange County officials and their advisors told a special senate committee early last year during its investigation of the bankruptcy.

“With the grand jury transcripts, the level of fraud and deceit that has surfaced in this Orange County case is unparalleled in my 25 years in public service,” Kopp said. “The integrity of the Senate depends on [the reopening of these hearings].”

Kopp said he was assured by other members of the Special Committee on Local Government Investments that they would endorse the hearings.

The witnesses Kopp plans to recall include Orange County Supervisor Roger R. Stanton, bond lawyer Jean M. Costanza, Merrill Lynch salesman Michael G. Stamenson and securities dealer Jeffrey R. Leifer.

Kopp said Stanton was a “four-carat fraud in front of our committee,” when he appeared indignant that anyone would question his actions.

“Now the grand jury transcripts show that he was a major actor in the cover-up” of the problems preceding the county’s decision to file for bankruptcy, Kopp said.

Wylie Aitken, the Santa Ana lawyer who is defending Stanton against accusations of willful misconduct, criticized Kopp for relying on accounts contained in grand jury transcripts.

Asked if Stanton would testify before the committee, Aitken said: “We’ll cross that bridge when we get to it.”

Kopp said he takes particular exception to the testimony of Costanza, a lawyer with with LeBoeuf, Lamb, Greene & MacCrae, who drafted several of the county’s bond deals.

“She led us to believe her services were perfunctory, non-policy, technical and legal in nature,” Kopp said. “The grand jury transcripts reveal that they were substantive.”

The grand jury has accused Stanton, Supervisor William G. Steiner and Auditor-Controller Steve E. Lewis of willful misconduct in office and indicted former budget director Ronald S. Rubino on allegations that he helped the county’s former treasurer misappropriate public funds.

Meanwhile, the SEC is conducting a federal investigation into the financial crisis, which caused the county to lose $1.64 billion invested by the county and nearly 200 cities, schools and special districts.

Stanton refused to testify before the grand jury, but in a sworn deposition before the SEC, he shifted blame for the crisis to his chief administrative officer, the two rating agencies that had declared the investment pool sound, and the SEC, which inquired about the fund seven months before the bankruptcy.

Members of the Senate’s special committee, which called dozens of witnesses to Sacramento last year, grilled the principals involved in the county’s financial mess.

They heard former Treasurer-Tax Collector Robert L. Citron declare himself a financial neophyte, listened to then-assistant Matthew R. Raabe confess that he did not fully understand the investment fund’s complexity, and saw a parade of other witnesses fix blame elsewhere. Citron has pleaded guilty to the same six counts of securities fraud that Raabe is attempting to fight. Each faces 14 years in state prison.