Orange County Officials Got Gifts From Bond Firms
When Orange County’s financial floor began to crumble this week, the CS First Boston investment house quickly abandoned the county, seizing $2 billion in bond collateral and prompting officials to declare bankruptcy just hours later.
But the relationship was not always so acrimonious: For years, First Boston, Merrill Lynch and a few other Wall Street powerhouses doled out thousands of dollars each year in dinners, trips, honorariums and contributions to Orange County’s political elite, cementing their status as friends of the people who control billions of dollars in government funds, records show.
Bulova clocks, Lakers tickets, Christmas salmon, sterling silver belt buckles--all have been given to Orange County elected officials and staff by the underwriters, advisers and corporate executives who vie for a piece of the county’s lucrative bond business.
These are small-ticket items in a world where an underwriter’s commission on a lucrative bond issue can soar into six figures, but politicians have savored them nonetheless.
The largess was legal under rules that governed gift-giving to county officials until 1993, when a virtual ban was enacted after the conflict-of-interest conviction of former Supervisor Don R. Roth.
But the records show that former Treasurer Robert L. Citron continued to accept gifts even after the ban went into effect in June, 1993, reporting them on gift disclosure forms that he and other elected officials are required to complete each year.
In the last half of 1993, Citron accepted meals, a picture frame, a magazine subscription, Christmas gifts and other items worth more than $400 from 14 firms after the gift ban went into effect.
Citron said in an interview that he accepted more gifts from these same groups in 1994, but officials have not yet filed disclosure statements for that period.
Citron said he believed that he could accept the gifts because they came from investment firms active in the county’s retirement fund--which is outside its main investment portfolio--and that he sought counsel on the issue from the county’s attorneys.
County lawyers refused Thursday to discuss the propriety of the gifts to Citron. The items listed on his disclosure form do not appear to fall under any of the 14 exemptions to the county gift ban ordinance. The county counsel’s guidelines prohibit the acceptance of gifts from anyone “doing business with the county. . . . It doesn’t matter whether or not it’s your agency.”
The close ties between county government and the bond world are illustrated by the gift lists filed by Citron and acting Treasurer Matthew R. Raabe, who took over the job last week after Citron resigned under pressure. Each of the more than three dozen gifts they reported over the past three years--favors that included tickets to sports events, flower vases and dinners--came from bankers and investment advisers.
Further highlighting those links, a few county administrators have moved into private sector jobs with investment firms that did business with the county.
As the county struggles to right itself from the worst financial disaster in its history, some critics are beginning to question whether officials entrusted with billions of dollars of public funds had become too cozy with the firms that profited from the county’s business.
“Clearly, the municipal bond world is a very small one where they all know each other,” said Joel Fox, president of the Howard Jarvis Taxpayers Assn., an anti-tax activist group. “The fact that they are all friends who talk to each other all the time and there’s not a lot of oversight could have contributed to Orange County’s problems.”
The issue of oversight is likely to play a key part in a federal investigation into the Orange County financial debacle. The Securities and Exchange Commission is probing whether securities disclosure laws were violated in the sale of a $600-million note issued by the county this summer.
Specifically, the investigation may look at whether the investment fund had already begun to unravel then, and if so, why that fact was not disclosed to investors by county officials and participants in the bond sales, sources said Thursday.
“What happens is that the financial adviser, together with the county and the underwriter, is responsible for disclosure in the bond statements,” said Kathleen Connell, a municipal bond underwriter and newly elected state controller. “It is clear that the responsibility for disclosure lies with these three parties.”
Merrill Lynch, the note underwriter, shows up repeatedly on lists of gifts and campaign contributions to Orange County officials. A Times computer review of campaign statements shows that the Wall Street giant and its employees had contributed more than $15,000 to Orange County supervisorial candidates from 1986 through 1992, making it the single largest contributor to county campaigns from the financial sector.
The firm’s political presence is even stronger in Los Angeles, where it has donated more than $155,000 to city and county candidates over the past decade.
The International Brotherhood of the Teamsters on Thursday asked the SEC to investigate whether Merrill Lynch violated federal securities law by contributing at least $3,000 to Citron’s 1994 reelection campaign.
The union, which represents about 1,000 county employees, charged that the contributions violate SEC regulations banning securities firms and their employees from seeking underwriting contracts after contributing $250 or more to elected officials who can affect decisions related to those contracts.
Amid charges of influence peddling, the U.S. Securities and Exchange Commission earlier this year imposed a tough new policy that generally prohibits municipal bond dealers from doing business for two years with a government if they have contributed to the campaign of any local officeholder or candidate.
Merrill Lynch spokesman James Wiggins denied any violations of SEC regulations. The three California employees who donated the money were not involved with the underwriting contracts, which were handled out of New York City, Wiggins said.
Orange County officials, under siege over this week’s bankruptcy filing, said Thursday that they were reluctant to discuss the issue of gifts and donations from Wall Street. Several others active in local government said they do not believe that contributions or gifts can effectively win a contract for a bond firm, but they can help gain access to politicians.
“The investment community has always been a strong source of gifts and contributions for public officials who are willing to send business their way,” said Dana Reed, a political finance lawyer who served until last year on the Orange County Transportation Agency--the single biggest investor in Orange County’s ill-fated bond fund.
When the OCTA or other government agencies decide who should underwrite a road construction bond, many of the key factors--such as price and experience--are largely similar among the competing firms, Reed said.
“So what’s the difference?” he asked. “It basically comes down to who you feel most comfortable with. And people that you play golf and eat lunch with, you’re by definition more comfortable with than those people you’ve never met. . . . That’s the way the system is.”
Orange County politicians have had ample opportunity to become comfortable with the bond-writing world, records show.
Tickets to sporting events are a favorite gift from Wall Street firms, along with tickets to the theater and black-tie balls, the records show. Designer pens are popular too. Shearson Lehman gave out kaleidoscopes a few years ago.
But the connections may even go beyond what is apparent on giftdisclosure forms that politicians are required to file with the state under penalty of perjury.
Former Supervisor Roth, reported that he had received a $2,500 honorarium from First Boston in 1987 for a “speech” in New York, but officials later told The Times that Roth had in fact never given a speech and that the money was designed to cover his expenses for a top-flight hotel, meals and Broadway tickets. At the time, First Boston was trying to win the job of underwriting a jail finance measure, backed by Roth.
In the community of government and private sector bond specialists, “you end up with an intricate web of close associations,” said Dennis Walters, former Los Angeles bureau chief of the Bond Buyer trade newspaper. “That’s a function of people doing their job, and it’s not abusive as long as an arm’s-length relationship is observed.”
Even after government officials leave public service, the connections sometimes continue.
In at least four instances in recent years, top administrators have left Orange County to join investment firms that did business with the county. In some cases, the officials returned to represent the firms before the county.
Some critics say the revolving door only heightens the appearance of a government that is too close to the business people it must work with.
But former county budget director Ronald S. Rubino, one of those who made the switch, said problems result only when ethical boundaries are breached. After leaving the county earlier this year, Rubino briefly joined a Santa Monica firm that has done bond work for Orange County and did finance work on some county contracts. But he said he never met with former colleagues to lobby for new contracts.
Another former county budget director, Sara Walker, left the county to become an Orange County representative for the Wall Street firm of Lehman Brothers. Walker declined to discuss the move Thursday.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Giving and Receiving
Here is a sampling of gifts given to Orange County officials by investment firms and financial advisers in recent years.
* Official: Robert L. Citron, former Orange County treasurer/tax collector
* Year: 1993
* Giver: Kennedy Associates/Investment Adviser
* Gift: Salmon as a Christmas gift
* Reported value: $31.50
* Official: Matthew R. Raabe, acting treasurer
* Year: 1992
* Giver: Leifer Capital Investment
* Gift: Rams football tickets
* Reported value: $160
* Official: Ernie Schneider, county administrative officer
* Year: 1992
* Giver: Dean Witter Investments
* Gift: Car service, dinners in New York
* Reported value: $151
* Official: Thomas F. Riley, chairman of Board of
Supervisors
* Year: 1992
* Giver: Lehman Brothers
* Gift: Lunch at Antonello’s/ dinner at Center Club
* Reported value: $55
* Official: Roger R. Stanton, Board of Supervisors
* Year: 1992
* Giver: Lehman Brothers
* Gift: Freedom Bowl ticket, other gifts
* Reported value: $63
* Official: Gaddi H. Vasquez, Board of Supervisors
* Year: 1988
* Giver: Shearson Lehman
* Gift: Kaleidoscope
* Reported value: $125
* Official: Harriett M. Wieder, Board of Supervisors
* Year: 1986
* Giver: Shearson Lehman
* Gift: Four tickets to “Nutcracker” ballet
* Reported value: $140
Sources: Economic interest statements, Orange County registrar’s office
Researched by Eric Lichtblau/ Los Angeles Times
