School embezzler's gems may be worthless //
Bankruptcy trustee had to pay $10,000 to look at
stones
DATE 03/06/93
NEWSPAPER THE ORANGE COUNTY REGISTER
SECTION NEWS
EDITION MORNING
PAGE A01
STORY LENGTH 40 INCHES
HEADLINE School embezzler's gems may be worthless //
Bankruptcy trustee had to pay $10,000 to look at
stones
BYLINE/CREDIT Dan Froomkin: The Orange County Register
SUBJECT TERMS OC:SCHOOLS:OFFICIALS:THEFT:BANKRUPTCY:FRAUD:BUDGET
Gems that school-district embezzler Stephen A. Wagner said were
worth more than $3 million have turned out to be worth only a
fraction of that -- or maybe nothing.
Wagner's attorneys had suggested that the gems he owned,
including a shiny blue topaz the size of a grapefruit, could go a
long way toward paying back the $3.9 million he admits stealing
from Newport-Mesa Unified School District.
But when the bankruptcy attorney in charge of liquidating
Wagner's assets tracked the gems to a Toronto jewelry dealer, the
dealer said Wagner owed him more than $500,000 in service fees.
And the dealer demanded $10,000 just for a look at the stones.
This week, bankruptcy trustee Theodor Albert dipped into the
Wagner estate's modest cash pool for the $10,000 to pay the dealer
and had the gems appraised.
It may not have been worth it.
Albert refused to disclose the amount of the appraisal, but said
Friday that "it is safe to say that the evaluations originally
given are grossly excessive."
And J. David Pittman, a private attorney working for Wagner,
said their value may not exceed the $500,000 the gem dealer is owed.
So more than two months after Wagner confessed to siphoning off
millions of school-district dollars -- many of them intended to pay
for poor children's lunches -- the principal players in the Stephen
Wagner story are still baffled about what he did with all the money.
Did he get ripped off by gem-dealing Canadian con men? Or did he
stash his ill-gotten gains somewhere else such as a Swiss bank
account?
School officials say they don't expect to see more than $300,000
or $400,000 returned when all Wagner's known assets are liquidated.
Orange County Deputy District Attorney Carl Biggs says he thinks
Wagner has a stash somewhere else.
And Albert has dipped into the estate to pay private
investigators to seek out numbered accounts or other financial
hideaways Wagner may have used in the United States and abroad.
Wagner's defense attorney said the evidence suggests that Wagner
didn't hide the money he stole -- he just lost it.
"I believe there is an emerging reality that Mr. Wagner was
victimized himself," said Paul C. Meyer. Meyer said Wagner had
transferred what he thought were "substantial assets," in gems and
cash, to Canada.
And noting that Wagner was aware of the investigation into his
embezzlement for weeks before he was arrested, Meyer said the fact
that Wagner stuck around means he doesn't have any other assets.
"If he had a cache of money somewhere else," Meyer said,
"wouldn't that be an impetus for him to flee? He just sat there."
Wagner, the top budget official in the Newport-Mesa district,
was arrested in November after investigators discovered that he had
siphoned money out of school-district accounts.
In December, Wagner pleaded guilty to stealing $3.9 million over
a six-year period by diverting money into a secret slush fund from
which he wrote himself checks and wire transfers.
Now in Orange County Jail, Wagner faces up to eight years in
prison upon sentencing April 2.
When he pleaded guilty, Wagner promised to make full restitution
to the district. His attorneys turned over a list of gems said to
be in safekeeping in Toronto.
One of the gems, an 861-carat London Blue topaz, was supposed to
be worth $689,000. The whole collection of 72 -- including opals,
rubies, sapphires and emeralds -- was supposed to be worth at least
$3 million.
But in February, Albert discovered that the gems were being held
in a "consignment agreement" with the Divine Jewellery Corp. in
Toronto.
Albert hired a Toronto lawyer, Jay Swartz, who reported that the
agreement entitled Divine to 20 percent of the gems' sale price if
sold. But if they weren't sold -- and none of them were -- Divine was
entitled to 5 percent, plus 2 percent a month after 90 days, as a
service and insurance fee.
Wagner had set the total minimum price for the sale of the gems
at $3,032,558. So according to the agreement, by February he owed
Divine $515,534.
Divine's attorney first requested a $50,000 payment to allow
anyone to see the gems -- or $100,000 to hand about half of them
over, free and clear.
A letter from Swartz to Divine's attorney called the demands
"utterly preposterous," and "a clear breach" of Albert's
responsibilities as bankruptcy trustee.
But Albert ultimately got a bankruptcy judge's permission to pay
$10,000 to see the gems.
"It was either pay what he was demanding for just a look-see, or
go into court and spend at least as much and not know where it was
going to end up."
On Tuesday, the gems were brought to the office of a Canadian
appraiser hired by Albert.
"There were definitely stones there, and some of them were quite
large," Albert said. "But just because something is big, does not
translate to value."
Gem-stone fraud is big business in Toronto, where police Friday
were closing in on 64 alleged con artists who investigators say had
ripped off US businesses and individuals to the tune of $250
million -- mostly by selling gems at wildly inflated values.
"They've got more nerve than Dick Tracy," said Metropolitan
Toronto police Detective Sgt. Allan Magda.
Wagner, whose salary as school district budget director topped
out at $76,000 a year, owned several properties, including a
million-dollar Newport Beach home, furs and artwork.
But the property was heavily mortgaged, and a planned auction of
such items as mink coats, old luxury cars and mass-produced, signed
Salvador Dali lithographs is not expected to make much of a dent in
Wagner's debt.
Last month, Wagner agreed that even after he gets out of
jail, he will continue to pay restitution -- even submitting
accounts to district officials proving that he is paying them
everything he earns above reasonable living expenses.
Newport-Mesa Assistant Superintendent Tom Godley, who was
Wagner's boss, said he is not optimistic that the district will
ever get much back. But he said Wagner's agreement is at least a
step forward.
"To have that agreed to is good, because otherwise you'd have to
go through the courts," Godley said.
Albert has asked the bankruptcy court to seal records containing
information about how many private investigators he has hired and
where they are looking for caches of Wagner cash.
"I don't want zealous reporters or bad guys to be able to figure
out who it is I've gotten and how they're finding things," he said.