O.C. IN BANKRUPTCY : Federal Inquiry Focusing on 3 Merrill Lynch Brokers : Finance: Ties between O.C. officials and advisers are under scrutiny as Securities and Exchange Commission broadens its probe. Brokerage says it acted professionally.

Federal investigators have focused their attention on three brokers at Merrill Lynch, an investment bank that has handled millions of dollars worth of bond transactions for Orange County’s troubled investment fund, legal papers served Wednesday indicate.

Merrill, the nation’s largest brokerage firm, played by far the biggest role in selling derivatives and other exotic financial instruments to the county and extended $2.5 billion in credit to purchase securities.

The Securities and Exchange Commission has been investigating Merrill and broadened its probe Wednesday, issuing subpoenas for the Orange County Board of Supervisors, sources close to the supervisors said.

The SEC opened its inquiry into the Orange County fiscal fiasco last week, and officials at the New York-based brokerage were among the first to be subpoenaed.

The National Assn. of Securities Dealers is also investigating the brokerage, in response to complaints from the International Brotherhood of Teamsters about campaign contributions from three Merrill executives to former Treasurer-Tax Collector Robert L. Citron.

Merrill Lynch spokesman Richard T. Silverman defended the firm and the brokers. “We believe that Merrill Lynch acted professionally and properly in all its dealings with Orange County,” he said late Wednesday from his New Jersey home.

The three brokers named in the subpoenas were Michael G. Stamenson, Debra M. Harris and Duane J. Canaga, each of whom gave Citron $1,000 during his reelection campaign last spring. All three work at Merrill’s San Francisco office selling securities.

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 to 1992, making it the single largest contributor to county campaigns from the financial sector.

Stamenson, who has worked at Merrill Lynch since 1970, was the firm’s top broker on municipal investments in California and the lead broker on the Orange County account. He could not be reached for comment Wednesday night.

Harris, 39, lives in Lafayette, Calif., and declined to comment. Canaga, 51, who lives in San Francisco, could not be reached.

Stamenson, 54, was the broker who sold San Jose high-risk investments that nearly led the city to file for bankruptcy a decade ago. Many of the investments were similar to the ones that triggered the crash of Orange County’s investment pool.

SEC investigators appear to be focusing on the political and financial relationships between county officials and their financial advisers--and whether those ties may have influenced how county bonds were bought and sold.

Records show that Merrill Lynch played a key role in pushing for legislation that Citron supported, widening the authority of counties to put local tax money into more exotic investments. Lobbyists for the brokerage were key players in the passage of at least five bills, backed by Orange County lawmakers and approved since 1987, that steadily deregulated the investment practices of treasurers such as Citron, records show.

Since Orange County became the largest municipality to declare bankruptcy in American history, Merrill Lynch has been the only Wall Street firm that did not sell off the collateral it was holding for the county. As other brokerages dumped $11.4 billion in holdings onto the market, Merrill Lynch officials promised to stand by the county.

Times staff writers Ross Kerber and Mark Platte contributed to this story.