Attorney says Wagner is offering restitution // FBI
joins probe; Canadian officials say con possible
DATE 11/26/92
NEWSPAPER THE ORANGE COUNTY REGISTER
SECTION NEWS
EDITION MORNING
PAGE a01
STORY LENGTH 40 INCHES
HEADLINE Attorney says Wagner is offering restitution // FBI
joins probe; Canadian officials say con possible
BYLINE/CREDIT Dan Froomkin;Liz Pulliam: The Orange County Register
SUBJECT TERMS OC:SCHOOLS:OFFICIALS:BUDGET:THEFT:ARRESTS
Stephen Wagner's lawyer said Wednesday that his client is
depressed and full of remorse, and wants to make full restitution
of any money missing from the Newport-Mesa School District.
Attorney Paul Meyer's comments came as school and
law-enforcement officials dramatically upped their estimate of what
Wagner may have embezzled to $2.5 million or more -- much of it
student-lunch money -- the FBI announced it may join the battle and
Canadian officials said Wagner may have been the victim of a con
run by a Toronto gem dealer.
Wagner, the ousted budget director for the school district, was
in Orange County Jail on Wednesday night after failing to post $1.2
million in bail. He was arrested Tuesday.
Meyer refused to say if his client is guilty or will not fight
the charges. But he said Wagner is sorry for what he did.
"We are acting to cooperate with the district attorney to make
as full and complete a restitution as possible," Meyer said.
Meyer refused to discuss specifics of the case.
Newport-Mesa school officials said Wednesday that as much as
$786,000 allegedly stolen from the district by Wagner came from
lunch money -- brought to schools by students in the form of
crumpled-up dollar bills, quarters, nickels and dimes.
And officials now say they expect the total amount allegedly
taken by Wagner will turn out to be more than double the $1.2
million he was charged with embezzling on Tuesday.
Since 1989, Wagner and his wife maintained an upscale lifestyle,
with a million-dollar Newport Beach home, furs and expensive cars.
He told friends and colleagues he profited from investments he made
outside of his $76,000-a-year school district job.
Newly released court documents allege that from 1988 to '91,
Wagner allegedly diverted at least $2.1 million into a secret
account that his superiors believed was closed in 1986.
The District Attorney's Office said it has receipts proving that
Wagner wrote himself at least 25 cashier's checks worth almost $1
million from that account, and also took $266,000 from the
district's health-insurance fund.
But school board President Forrest Werner said Wednesday that he
assumes Wagner took all the money he put into the secret account.
That would raise the total of missing funds to $2.5 million, and
possibly more if diversions started as early as 1986, which
officials now suspect.
"I'm beyond being suprised anymore," Werner said. "I just keep
getting madder."
Auditors hired by the school district are trying to track where
every dime of money from that account went. Assistant
Superintendent Tom Godley said it apparently flowed out both in
checks and in wire transfers, sometimes in large amounts. Two wire
transfers to a bank in Buffalo, for instance, totaled just under
$100,000, he said.
Deputy District Attorney Carl Biggs said the allegation that
Wagner took almost $800,000 in lunch money shows that "he was
somewhat indiscriminate about where the money came from."
But, Biggs added, "I think the impact to the school district is
the same whether it came out of the cafeteria fund or some other
account. The bottom line is, they're short that amount of money."
The $2.5 million figure -- more than 3 percent of the district's
annual budget -- would pay for more than 40 teaching positions.
FBI agent John Carpenter said the bureau is investigating the
case.
Carpenter would not comment on the scope of the investigation,
but Godley said they could be involved because the district
receives federal funds.
School officials said Wagner not only diverted money intended
for legitimate programs to his secret fund, but then changed the
district's ledgers to make it seem as if the money had made it to
its intended destination -- and then been spent.
"He just ponied up the books to make it look like the money was
there, but it wasn't," Godley said.
Godley said the $786,000 diversion of cafeteria funds -- the
money that "all the little kiddies pay for their lunches" -- came
about because the food service puts its lunch proceeds in the bank,
then writes a check to the district's general fund, which pays the
cafeteria payroll.
Godley said Wagner diverted some of those checks into his secret
slush fund.
Lunch costs $1.25 to $1.95 in the 17,000-student district. It
would take about one-half million lunches to account for all the
money Wagner allegedly diverted.
Among the other diversions into the slush fund, Godley said,
were $483,000 intended for school construction projects, and as
much as $1.4 million in payments from the district's insurance
carrier. Those should have gone to the fund used to pay
health-insurance claims.
Werner, the school board president, said that the effect of the
alleged manipulations may be that there is less in the coffers than
suspected.
"I think what we're going to find is that some closing figures
that we had for year-end balances really weren't there," he said.
Wagner's arrest and the allegations against him were felt
strongly on the Newport-Mesa district's campuses. "I have never
seen the morale so low," said Jim Rogers, a chemistry teacher at
Corona del Mar High school. "We feel violated, really."
Rogers said teachers are upset that the school board and top
administrators are not taking any responsibility for the loss, just
saying Wagner betrayed their trust.
"It's their watch," Rogers said. About 100 parents echoed
similar sentiments at a school board meeting Tuesday night.
Werner said board members believe Wagner, their top budget
official from 1989 until he was fired Nov. 10, is solely to blame.
"He was the guy we went to to reconcile any differences," Werner
said. "He had it all worked out."
Werner said the district is working to accomplish two things
now: finish an audit of how much is missing in all and seek
restitution from Wagner through US Bankruptcy Court proceedings.
Wagner and his wife, Linda, filed for bankruptcy court
protection in July, after the Internal Revenue Service slapped
their assets with a $2.4 million lien for a back tax bill.
The district has asked the court to force Wagner to repay them
before paying off his other debtors.
As the district's theft insurance only covers $150,000 to
$250,000 of loss, "If we're going to get it back, it has to come
out of there," Werner said.
Register staff writer Tony Saavedra contributed to this report.