Wagner talked his way out of trouble // Boss asked him
about check in '91
DATE 11/28/92
NEWSPAPER THE ORANGE COUNTY REGISTER
SECTION NEWS
EDITION MORNING
PAGE A01
STORY LENGTH 66 INCHES
HEADLINE Wagner talked his way out of trouble // Boss asked him
about check in '91
BYLINE/CREDIT Dan Froomkin: The Orange County Register
SUBJECT TERMS OC:SCHOOLS:OFFICIALS:THEFT:INVESTIGATIONS:ARRESTS:DELAY
Stephen A. Wagner, the former school budget director charged this week with
embezzlement, allegedly tripped up 16 months ago. But because of a
trusting superior and an unhurried investigation by the Orange County
District Attorney's Office, it took almost a year and a half before
officers came to his million-dollar home and arrested him.
And during that time, he allegedly stole some $265,000 from the
Newport-Mesa Unified School District's health-insurance fund,
bringing the total loss to the school district to about $2.5
million, according to the latest estimates.
Court documents and interviews with school and law-enforcement
officials describe an incident in July 1991 during which Wagner's
attempt to write himself a check off a school account was reported
to -- and stopped by -- his boss, who took no further action.
At the same time, one of Wagner's employees became suspicious,
but it took the employee eight months before he tipped
law-enforcement officials -- and eight more months before those
officials made their arrest.
Wagner's attorney said Wednesday that his client, who is being
held in Orange County Jail and will be arraigned Monday, is
depressed and wants to make full restitution to the school
district. Wagner has had no comment on the case.
Prosecutors said Wagner -- having successfully taken as much as
$2.2 million since 1986 from a secret slush fund he controlled --
made his first attempt to steal from the district's active
health-care account on July 16, 1991.
It failed.
Even as Wagner watched, the Wells-Fargo bank employee from whom
he had requested a $57,000 cashier's check in his name, drawn on
the active school account and requiring two signatures, called
school district offices to get approval.
"Steve was standing in the bank," recalled Carol Berg, the
district's deputy superintendent.
The call first went to Wagner's office and was answered by one
of his employees, who said he was not authorized to approve such a
check.
The call eventually went to Wagner's immediate supervisor,
Assistant Superintendent Tom Godley.
"He said absolutely not, that couldn't be done," school board
President Forrest Werner said Friday.
Godley said Friday that he later asked Wagner why he wanted the
check. "I said you shouldn't be having a cashier's check, and he
said that was the only way to get the money from one (school)
account to another, and it wasn't going to leave the bank."
Godley said Wagner explained that it had something to do with
Wells-Fargo's recent merger. Wagner told Godley he would find
another way to make the transaction.
The explanation satisfied Godley. "I didn't believe he was
taking it," he said.
Since at least 1989, Wagner had been living extremely well. By
1991, he had purchased a million-dollar home in Dover Shores,
where, alongside his Mercedes-Benz, he garaged a 1964 Rolls-Royce
Silver Cloud he brought home from a trip to England as a souvenir.
He and his wife, Linda, wore matching mink coats, and to some
employees at the district office it seemed as if there was a
constant flow of armored cars parking in front of the budget office
with couriers bringing Wagner shipments of gems.
Wagner explained his wealth as being the product of investments
and businesses he managed alongside his $76,000-a-year day job.
Godley said he didn't have any reason to doubt it.
For one, Godley said Friday, he wasn't that aware of Wagner's
lifestyle. They worked in different buildings, five miles apart.
And, he said, "Hindsight's always 20-20. I'm not a detective.
What do you want me to do? You don't automatically go around your
office looking for thieves. You work with people, you trust them."
Werner, the school-board president, said he does not blame
Godley for not being more suspicious.
"This guy is a highly trusted employee, he's your budget
director, and when he tells you things about money, you've got to
believe him," Werner said. "If you have three people checking up on
him, then you don't need him."
But Wagner's accusers in the school district and the District
Attorney's Office say that even before he left the bank that day in
July 1991, he had already chosen another way to get the money --
using four "counter checks," checks imprinted with account
information at the bank but carrying no check number.
"Steve left the bank with the counter checks," Berg said. And
the next day, Wagner cashed one of them, made out to "Cobbler
Express," a shoe-repair company he co-owns, for $57,861.25. His
signature appeared on both sides of the check.
Employee suspicious
Even if Godley wasn't suspicious of Wagner, someone else was:
the man who worked for Wagner and answered that phone call from
Wells-Fargo.
Neither Berg nor the District Attorney's Office has identified
the man, whom Berg said still works at the district but in another
department. She said the man told her recently that the phone call
troubled him, especially as he already had concerns that Wagner was
conducting personal business on district time.
And sometime after Wagner cashed at least one of the counter
checks, another hint slipped out.
Even though Wagner had told his superiors that he had only the
most superficial contact with the health-insurance account, Berg
said it turns out that he took a very personal interest in it.
"He went to the bank himself and always picked up those
statements," she said.
No one but Wagner saw them.
But one time -- "inadvertently," Berg said -- the bank delivered
the statement to the office. And the unnamed man had a look.
Leafing through the canceled checks, the man found one of the
counter checks, made out to a company he knew Wagner was connected
with.
For some reason, according to school and law-enforcement
officials, there apparently was a lag of several months until the
man decided to call the authorities. Sometime in early March,
without a word to his superiors, school officials said, he called
the office of the Orange County grand jury and told everything he
knew.
"I asked him what caused him to go to the district attorney, and
told him I thought he was a hero for doing it," Berg said Friday.
The man told her it wasn't just the call, the check or the
armored trucks -- "It was all of that put together that caused him
to say, `Something's wrong here.' "
Investigator delays
The call to law-enforcement officials came eight months after
the call from Wells-Fargo. It took seven months before
investigators took the allegations to Wagner's bosses, court
documents show. Six weeks after that, Wagner was arrested.
In a court document outlining why he wanted Wagner arrested,
Thomas R. Stewart, an investigator for the Orange County District
Attorney's Office, described what took so long.
Stewart said he got the case March 25 and talked to the
informant on March 31. He decided to start his investigation by
talking to Wagner, and left a message on April 13. They spoke on
April 14 and set up a meeting for April 20.
The delay between the call from Wells-Fargo and the call to the
grand jury may have cost the district $265,000 -- the sum of the
four counter checks and a $90,000 wire transfer Wagner at some
point allegedly diverted out of the health-insurance account.
Investigators said they found no evidence that Wagner diverted
any money after Stewart's first call.
The last check Wagner allegedly wrote to his shoe-repair company
was dated April 10 -- though it's not yet clear when it was actually
cashed. Investigators said they have not found any evidence that
Wagner was able to use the time to cover his tracks.
Stewart said he had to postpone the April 20 meeting because of
a police officer-involved shooting he had to investigate. He
finally met with Wagner on June 15.
"He denied any impropriety," Stewart wrote, "and promised to
provide copies of the check(s) which had been discussed in the
complaint by the citizen informant."
Stewart contacted Wagner "a number of times ... over the next
few months."
And, he wrote: "Finally, when it appeared he was stalling, on
October 13, 1992, I contacted one of his superiors, Dr. Berg."
Berg told veteran Superintendent John Nicoll. And that same
evening, Nicoll met privately with school board President Werner
and told him about the accusations against Wagner. Nicoll had
decided to launch his own investigation of the health-insurance
account, even though Wagner had been one of his proteges for 21
years.
Nicoll and Werner decided to keep the investigation a secret
even from the other six board members, figuring there was "less
likelihood of a leak" that way, Werner said.
Ten days later, on Oct. 23, Nicoll had in his hands the first
concrete evidence that something was gravely wrong. It was the
$57,861.25 check to Cobbler Express, Wagner's shoe-repair company.
Wagner was immediately suspended without pay.
In the ensuing days, the school board went through the required
steps to fire Wagner, which it did Nov. 10. Nicoll went into the
hospital for quadruple-bypass heart surgery and an ulcer operation.
And in the ensuing five weeks, the district's estimates of missing
money ballooned from $57,000 to $175,000, then to $1.2 million and
up to $2.5 million or more.
Further investigation by auditors hired by the school district
uncovered massive diversions of money -- allegedly by Wagner -- into
an old health-insurance account that, prosecutors contend, Wagner
had secretly kept open. It was supposed to have been closed in
1986, but Wagner allegedly used it to write himself and others
checks and wire-transfers until he closed the account in May 1991.
Werner said he and other district leaders were upset at how long
it took for the District Attorney's Office to contact the district.
"We were disturbed about why did it take so long," Werner said.
In an interview, Deputy District Attorney Carl Biggs said
Tuesday that sometimes investigations do take time, especially as
the office gets so many unfounded calls. He also noted that Stewart
was pulled off to investigate several violent felonies along the
way.
Werner said he holds no grudge. "There's nothing to be done
about it," he said.
But he also noted that the criminal investigation was possibly
delayed for a reason similar to why Wagner's superiors were so slow
to catch on.
"They tried, in a rather polite way, if you will, to give Steve
ample opportunity to explain," Werner said.