ORANGE COUNTY IN BANKRUPTCY : SEC Voices Concern About Money Market Pricing of Notes

The Securities and Exchange Commission said it is concerned that some money market funds are not using “appropriate” prices for the Orange County notes they hold.

“Not reflecting the fair value of these securities is illegal,” said Robert Plaze, an associate director in the SEC’s investment management division. “Some funds have to focus on pricing issues raised by continuing to hold these securities.”

Plaze declined to specify which fund companies may be using inaccurate prices.

Fund companies are battling to determine accurate prices because there is no organized market for Orange County securities. One Orange County note due in 1995, for example, is being valued anywhere from $840 to $981 per $1,000 of face value, brokers said.

J. J. Kenny Co. and Muller Data Corp., which provide municipal bond prices, said in statements last week that they adjust their evaluations of muni bond prices where appropriate on certain Orange County bonds in recognition of the irregular trading activity.

So far, no money funds have fallen below $1 a share because of the Orange County bankruptcy. Still, the SEC said, there is a distinct possibility that a fund will, in industry parlance, “break the buck.” Money funds make sure their price per share is always $1.

The SEC said it has given about 25 money funds permission to take protective steps to ensure that their net asset values stay at $1. Kemper Financial Services Inc., Alliance Capital Management, Benham Group and Calvert Group are among the companies to receive SEC approval to protect their money funds.

“We’re very confident the prices we’re using for the Orange County bonds in the California Tax-Free Fund are accurate,” said Tom Rondell, Benham spokesman.