Ex-school official who embezzled millions draws a
sentence of six years in prison // COURTS: Stephen
Wagner could be free in 2 1/2 years. His victims
believe he is hiding money.
DATE 06/26/93
NEWSPAPER THE ORANGE COUNTY REGISTER
SECTION NEWS
EDITION MORNING
PAGE a01
STORY LENGTH 49 INCHES
HEADLINE Ex-school official who embezzled millions draws a
sentence of six years in prison // COURTS: Stephen
Wagner could be free in 2 1/2 years. His victims
believe he is hiding money.
BYLINE/CREDIT DAN FROOMKIN:The Orange County Register
SUBJECT TERMS OC:SCHOOLS:OFFICIALS:MONEY:THEFT:FRAUD:SENTENCE
Stephen Wagner, the former Newport Beach school official who
embezzled millions from his district, was sentenced to six years in
prison Friday -- though he could end up spending as little as 2 1/2
years behind bars.
And even as the gaunt and somber former school budget chief was
led out of the courtroom in handcuffs, many of the people who came
to watch him get punished worried that Wagner is hiding money.
Wagner, 40, has confessed to stealing at least $3.5 million from
the Newport-Mesa Unified School District over an eight-year period,
largely by siphoning money out of a secret slush fund. District
officials say the total theft is about $4 million.
But it is not clear where the bulk of the money went.
In a statement made public Friday, Wagner said he lost most of
it -- defrauded by Canadian gem dealers who sold him stones worth
little more than glass.
But Wagner's critics say they think the money is just
well-hidden.
Attorneys liquidating Wagner's assets have come up with scant
leavings of his fortune: used luxury cars, mortgaged homes, worn
furs, bogus lithographs and low-grade gemstones, with a total value
of less than $500,000.
Wagner reportedly told investigators he thought he was making a
killing in the gemstone business and realized only recently that
"the gem dealers were defrauding me."
"There is no more money out there," he is quoted as saying.
But Jim deBoom, a Newport-Mesa school board member, said he
thinks Wagner is the perpetrator -- not the victim -- of a con job.
"If he was smart enough to embezzle, he was smart enough to hide
it," deBoom said.
Fellow board member Rod McMillian said Wagner's thefts were the
real cause of class-size increases and staff layoffs earlier
attributed to tax shortfalls.
Wagner covered up his thefts with elaborate financial juggling,
and a recent audit found a $2.1 million deficit the district didn't
know about.
Prosecutors asked Orange County Superior Court Judge John Ryan
to sentence Wagner to eight years and eight months in prison. They
argued that it was the maximum sentence for the crimes to which
Wagner pleaded guilty: one count of embezzlement and four counts of
tax fraud.
Deputy District Attorney Carl Biggs wrote that Wagner's
"callous, calculated and premeditated crime" was committed to
finance his lavish lifestyle.
"The burden of this lifestyle is now passed on to the
Newport-Mesa school district children who share classrooms with
more kids, fewer teachers and less supplies."
Ryan said he agreed that Wagner deserved a maximum sentence.
He noted that Wagner committed a crime that was "quite
sophisticated and planned." And he said Wagner's lack of a previous
criminal record was offset by the fact that he was stealing for at
least eight years and "just hadn't been caught."
But Ryan said his reading of sentencing guidelines established
six years as the maximum. He also ordered Wagner to make full
restitution to the school district.
Biggs said that with a variety of credits, including time served
in Orange County Jail, Wagner could be out of prison in as little
as 2 1/2 to 3 years.
Biggs and many others close to the case say they hope Wagner
will face federal charges, with stiffer penalties.
Ted Albert, the bankruptcy trustee who was in charge of
liquidating Wagner's assets, said Friday that he has recommended
that the U.S. Attorney's Office file criminal charges of bankruptcy
fraud against both Wagner and his wife, Linda.
Albert said the Wagners repeatedly omitted significant assets
from their bankruptcy filings.
The couple first filed for bankruptcy in August 1992, after the
Internal Revenue Service -- noticing the flow of millions of dollars
through their bank accounts -- placed a $2.4 million lien for back
taxes on their property.
Assistant U.S. Attorney Paul Seave said Friday that his office
will consider Albert's recommendation.
Federal investigators already are looking into possible charges
of theft, bank fraud and money laundering against Wagner, Seave
said.
Linda Wagner could not be reached for comment Friday. She
reportedly told investigators she knew nothing about her husband's
crimes until just before his arrest.
Paul Meyer, Wagner's attorney, repeated his claim that Wagner
has been extremely cooperative with investigators, and he noted
that Wagner has consistently promised to make full restitution to
the district.
Wagner started working for the school district in 1971 as an
account clerk and worked his way up to become its top financial
officer in charge of budgets.
The court records released Friday say Wagner told investigators
his first theft took place in 1984, when he stole $50,000 to make a
down payment on a house in Santa Ana.
He told investigators he then began speculating in gemstones in
an attempt to make back the money he had stolen and return it. But
instead, he said, he kept sending gem dealers more and more money
to protect his investment.
Wagner stole from the district by diverting money to an old
health-insurance account that nobody else knew was still open, and
using that account to write himself checks and send wire transfers.
He was tripped up in July 1991, when his attempt to steal money
from the district's active health-insurance account was noticed by
a district employee.
When Tom Stewart, an investigator for the Orange County District
Attorney's Office, called Wagner to ask him about theft allegations
in April 1992 -- seven months before he was arrested -- Wagner
attempted to liquidate some of his holdings, but was unable to do
so, according to the records.
District officials said Wagner often worked on district accounts
from his computer at home. And according to the records, Wagner
attempted to erase many files from one of his home computers just
before his arrest.
SIDEBAR: Wagner's statement released
A report the Orange County Probation Office released Friday
contains the first public statement from Stephen A. Wagner,
excerpted here:
"I do take full and complete responsibility for my crimes. ...
"It is hard for me to understand how I got involved in taking
money from the school district in the first place. I can say that I
did go through a pretty depressed period when my twin brother moved
out of the state, but I am really not clear on all of the emotional
and psychological implications of what started me taking money from
the district. ...
"I know that I have completely disgraced my family and that my
son will suffer a lot for what I have done. My wife has been very
supportive and I sometimes have trouble understanding just why she
continues to be the good and wonderful person towards me that she
has. ...
"Being caught was in some way a relief for me. It is hard to
understand but since I did not hide the money and used it openly to
invest in the gem activities, I now see that I must have had some
psychological reason to do such a blatant and open act."
SIDEBAR: Freshmen give judge their advice
Orange County Superior Court Judge John Ryan had a lot of issues
and opinions to weigh in sentencing convicted school-district
embezzler Stephen Wagner. Among the things he considered: 78
letters written to him by freshmen at Costa Mesa High School as a
class project.
Here are some excerpts from those letters:
"He should get at least 15 years for all the suffering we've had
to go through."
Caren Hopkins
"In my opinion, he is a thief and has stolen the hope of a
better future from many children and should serve a life sentence."
Suzan Nazem
"I think he should be the janitor for the district and have to
repair the lockers, desks, etc., and clean the graffiti off the
walls."
Lauren Sola
"I hope he gets the maximum sentence in the dirtiest, grungiest,
most rotted-out, worn-down prison this state can offer. ... Throw
the book at him."
Robert Kirnos