Portfolio Critic Declines to Crow ‘I Told You So’


If there was ever anyone in a position to tell Orange County’s government leaders “I told you so,” it is John M.W. Moorlach, the Costa Mesa certified public accountant and Republican Party activist who sounded the alarm last spring that the county’s investment portfolio was on financially shaky ground.

Moorlach had been rebuked by some of his own party members in his unsuccessful campaign to unseat county Treasurer-Tax Collector Robert L. Citron--the only Democrat in an elective office in county government--after publicly questioning Citron’s handling of the county’s investment portfolio.

So in awe were some Republican county officials of Citron’s performance that they feared Moorlach’s political rhetoric could itself undermine the investments.


But on Thursday, as the news broke that the county’s investment fund had plummeted by $1.5 billion this year, Moorlach said he was not taking any delight in being proven right.

Hearing earlier this week that county officials were holding meetings with investors to shore up the credibility of the investment pool, Moorlach said he suppressed the urge to trumpet the news.

“I just kind of bit my lip and said, ‘Everything I predicted is happening,’ ” Moorlach said. “I didn’t want to be proven correct this way. This is sad. This is going to be the saddest day in Orange County history. This is an embarrassment for Orange County.”

Vindicated by the latest developments, Moorlach was taking telephone calls all day Thursday: from East Coast financial writers who knew of his longstanding criticism about Citron’s investment strategy; from political allies who stuck by him when the pressure mounted for him to remain silent; and from allies-turned-foes who were now apologizing for not having listened to him sooner.

Citron won the June 8 election, but on Thursday Moorlach wondered at what cost.

As Moorlach spun his analysis to reporters by telephone, Citron remained in the background during a news conference by county officials held to discuss the fall of the county’s investment fund. Citron, usually an unabashed promoter of his own financial successes, remained low-key.

“For 15 years I have been managing the portfolio this way,” Citron said in his only comment during the meeting with reporters. “What I did was not irresponsible in any manner, shape or form.”


When Moorlach first considered running for office, he had his sight set on the 70th Assembly District race. But a crowded Republican primary field and a strong suggestion by Assemblyman Mickey Conroy (R-Orange) forced him to settle on the county treasurer’s race.

Aided by his own background as a financial planner and by a Citron critic, Chriss Street, a Corona del Mar investment banker, Moorlach did some research and found the issue that would be the basis of his campaign. Citron, in his opinion, had engaged in a risky investment strategy that counted on interest rates to go down, when in fact, the rates were beginning an upward trend.

And for the first time in his 24 years in office, Citron faced an election opponent.

At first, Citron considered Moorlach a political nuisance. He claimed Republicans were targeting his nonpartisan post as pay-back for his involvement four years ago in the bitterly fought election victory of Democratic Assemblyman Tom Umberg of Garden Grove.

But the political race meant that his investment strategy--long lauded by the Board of Supervisors and other top county officials--was about to be scrutinized by a team of financial experts assembled by Moorlach in his bid to unseat Citron.

The biggest problem for Moorlach was that while other candidates were discussing crime and illegal immigration, he was trying to get Citron to debate about esoteric investments such as derivatives and reverse repurchase agreements. The public didn’t get it, and Moorlach was increasingly being pressured to remain silent.

At one point, state Sen. Marian Bergeson (R-Newport Beach) withdrew her endorsement of Moorlach. She said that although she considered him a good candidate, she feared his harsh comments would make investors nervous and ultimately hurt the county’s financial standing.


Moorlach lost to Citron in the June election by a nearly 2-to-1 ratio.

Moorlach’s opponents “took great delight in beating up on him. They said he didn’t understand. But he did understand,” Conroy said Thursday, as he called on Citron to resign.

In the midst of the political fallout, Moorlach reserved some of his most strident comments for county supervisors, who he claims were never willing to hear him out.

Referring to Board Chairman Thomas F. Riley, who retires at the end of the year, Moorlach said, “What a sad way to go out of office, leaving the county broke.”

Moorlach also singled out Supervisor Roger S. Stanton. “He never returned my calls,” he said.

Chronology of a Crisis

* March 29: Certified public accountant and financial planner John M.W. Moorlach, Republican candidate challenging county Treasurer-Tax Collector Robert L. Citron in the June election, sends a letter to Citron demanding release of documents detailing where the county’s funds are invested and brokers’ identities.

* March 30: Bond rating agency Standard & Poor’s reviews the county’s investment portfolio and says later there are no “major concerns.”


* April 13: City of Tustin discloses it has withdrawn about $4 million from county’s investment pool. Jeffery M. Thomas, a city councilman and Moorlach political ally, cites what he called overly risky investment strategies used by Citron, saying it has nothing to do with Moorlach’s campaign.

* April 14: Citron charges that his political opponents have embarked on a “dangerous” course to undermine the county’s financial standing by telephoning an influential bond rating agency and Wall Street watchers to question the fund’s stability.

* April 19: Citron releases more than 700 pages of investment data. Around this time, rising interest rates force him to come up with $215 million in “collateral calls” to back investments. He notes the county’s $7.5-billion portfolio earned 7.8% return during the preceding nine months.

* Late April: State Sen. Marian Bergeson (R-Newport Beach), running for the Board of Supervisors, withdraws her endorsement of Moorlach. She says he is a good candidate but worries that his criticism of Citron could hurt the county.

* May 4: Acknowledging a growing climate of uncertainty about investments, county officials begin taking temporary precautions to protect those investments. An official with the Orange County Sanitation District says the controversy may have cost the district thousands of dollars.

* May 13: After completing an analysis of the county’s investment pool, Moorlach concludes “the possibility of loss is real.” He finds that since January, the county has posted an additional $300 million in collateral because the value of securities used to borrow money has declined as interest rates have increased.


* June 8: Citron is reelected by a nearly 2-to-1 ratio.

* Early October: In an annual report to 187 public agencies investing in the county fund, Citron says Moorlach’s projected losses will never be realized but concedes he did not anticipate interest rate increases. He predicts last year’s return of 7.74% will drop to 6.5% by the fiscal year’s end.

* Dec. 1: Citron announces that repeated interest rate hikes have caused value of county’s investment fund to drop nearly $1.5 billion.

Source: Times reports; Researched by GEBE MARTINEZ / Los Angeles Times

Most at Risk

The 11 largest investors in the county fund have committed more than $2.5 billion. Their investments in millions of dollars:

Agency Amount Orange County Transportation Authority $1,000 Orange County Sanitation District 450 Transportation Corridor Agencies 306 Irvine Ranch Water District 300 City of Irvine 196 City of Anaheim 169 City of Santa Ana 104 Orange County Water District 87 Moulton-Niguel Water District 60 Orange County Employees Retirement System 57 City of Huntington Beach 54