Officials Say They’ll Comply With SEC Probe

Orange County officials, shaken by an unprecedented demand for records from federal agents, pledged Thursday to comply with this week’s subpoenas but rejected suggestions of wrongdoing involving county supervisors and Wall Street investors.

“I feel absolutely confident that, as far as I’m concerned, I can sleep very comfortably,” said Board of Supervisors Chairman Thomas F. Riley, who was issued a subpoena late Wednesday along with the county’s other four supervisors.

The subpoenas, issued by the federal Securities and Exchange Commission, demand access to a wide range of records related to the board’s financial connections to Merrill Lynch and three of its California brokers. Sources say the SEC wants to determine whether brokers were effectively giving county officials “kickbacks” in exchange for lucrative county business.

Investigators have served subpoenas on individual supervisors’ offices as part of previous probes, including the infamous county corruption cases of the 1970s and the Don R. Roth influence-peddling investigation in 1992. But longtime county observers said they cannot recall a time when all five supervisors were served.

The legal maneuver intensifies the spotlight on the supervisors, who declared the county bankrupt Dec. 6 in the wake of portfolio losses now totaling more than $2 billion, said Eileen Padberg, a prominent political consultant in Orange County.

“I haven’t heard any of the board members stand up and take any responsibility for what happened to the people of Orange County,” she said. “They’re driving the bus. They’re elected to take the responsibility . . . yet they shirk it when it comes time to pay the piper.”

Padberg said talk of recalls has already begun. Padberg said she believes Supervisors Roger R. Stanton and Gaddi H. Vasquez--who will become the board’s most senior members when Riley and Harriett M. Wieder retire next month--could be most vulnerable.

Vasquez, Stanton and Supervisor William G. Steiner refused comment on the subpoenas Thursday.

Wieder said the task of of compiling mounds of campaign reports and gift statements involving Wall Street brokers is an “onerous” one, but she said it should help show regulators the “big picture” as they try to determine how the political process works.

Wieder was confident of the outcome, saying that former Treasurer-Tax Collector Robert L. Citron was the official chiefly responsible for maintaining contact with the county’s brokers.

“There’s no implication that there were kickbacks,” Wieder said. “I don’t even know those Merrill Lynch people (named on the subpoenas). Those names are foreign to me. And another thing--they didn’t need to lobby (the supervisors on) the 5th floor. They had Citron.”

Riley, meanwhile, said he too was sure that federal investigators would not find any evidence of wrongdoing, adding that he would never do anything to “embarrass” the county.

But even as top elected officials sought to minimize fallout from the subpoenas, several staff members in the Hall of Administration said aides were clearly on edge Friday.

One staff member who asked not to be identified characterized the subpoenas as a “sober and serious concern,” adding that even the word “subpoena” carries a negative connotation. Another said: “It certainly doesn’t make (the supervisors) happy.”

County officials have until Dec. 29 to provide the SEC with income tax returns, checking and savings account statements, campaign finance forms, information on their personal securities holdings, gift and loan reports and data showing financial ties to Merrill Lynch and other brokers, among other items.

The agency is seeking specifically to review any material connected to three Merrill Lynch employees in California: Michael Stamenson, Debra Harris and Duane Canaga, each of whom donated $1,000 to Citron’s campaign on June 13--six days after he was reelected. Campaign statements show that Stamenson’s wife also gave Citron’s campaign a $1,000 donation the same day.

The next day, June 14, the Board of Supervisors approved Citron’s recommendation on the issuance of $600 million in taxable notes, with Merrill Lynch as the underwriter.

Records also show that Merrill Lynch and its employees have contributed more than $15,000 to county supervisorial candidates since 1986. A major player in Orange County’s bond market, the firm has underwritten hundreds of millions of dollars in county notes in recent years.

Investment firms have represented a substantial source of campaign income for top Orange County elected officials.

Fourteen of the biggest financial service firms that have done business with the county donated more than $15,000 to the five supervisors and Citron during 1993 and the first half of 1994, the period covered by the subpoenas, according to public records.

Merrill Lynch led the way with $4,500 in contributions. Leifer Capital, which has served for more than a decade as the county’s financial adviser on major bond issues, was second with $1,775 in contributions. Smith Barney placed third at $1,500.

The International Brotherhood of Teamsters has charged that the June 13 contributions from Merrill Lynch employees violated an SEC-approved policy banning donations to local officials from underwriters seeking contracts for two years after the contributions are made. The policy took effect earlier this year.

“When you look at the ‘pay to play’ scandals around the country,” said Bart Naylor, a national coordinator for the union, “there are other firms that are culpable. But Merrill Lynch is unavoidable. You stumble over them wherever you look, and the evidence is damning.”

But Merrill Lynch officials said Thursday the Teamsters are pursuing a vendetta against the firm because of unrelated labor tensions involving a business courier service. Spokesman Richard Silverman said Thursday that Merrill Lynch had acted “professionally and properly” in all its dealings with Orange County.

He added that the firm would “cooperate fully” with all SEC requests, but he refused to discuss any details about the Orange County investigation or to release any information on about the three employees named in the subpoenas.

Officials with several special districts and other county agencies that have done business with Merrill Lynch said Thursday that they had not been served with any subpoenas in the case. But Peer Swan, who serves on both the Irvine Ranch Water District and the Orange County Sanitation District, said he wouldn’t be surprised if they come later.

Times staff writer Leslie Berkman contributed to this report.

* BANKRUPTCY COVERAGE: Related Orange County stories inside. A28-A33, D1-D2

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Contributions to Citron and the Supervisors

SEC investigators subpoenaed county supervisor records this week, seeking--among other things--campaign contribution reports for 1993 to date. Investigators appear interested in any dealings between financial firms, the supervisors and former Treasurer-Tax Collector Robert L. Citron. Contributions from 1993 to June, 1994*:

Person/Firm Date Amount Official Bank of America 05/07/94 $750 Citron Bear Stearns 06/01/93 250 Wieder 06/30/93 250 Riley 08/11/93 250 Stanton 08/17/93 250 Vasquez Total 1,000 Dean Witter 08/03/93 250 Vasquez Douglas L. Matthews, Dean Witter 05/18/94 100 Steiner Total 350 First Boston 06/30/93 250 Riley 08/25/93 250 Vasquez 09/08/93 200 Wieder Total 700 Goldman Sachs 08/05/93 250 Stanton 08/08/93 250 Vasquez Total 500 Kidder Peabody Richard Ashworth, Kidder sales 04/06/94 250 Citron Susan Lee Miller, Kidder VP 06/25/93 250 Steiner Kidder Peabody Group 07/29/93 250 Steiner Total 750 Shearson Lehman Shearson Lehman 07/21/93 250 Vasquez 10/18/93 250 Riley Lehman Brothers 11/02/93 200 Wieder Total 700 Leifer Capital 06/15/93 250 Stanton 06/26/93 175 Vasquez 10/17/93 250 Steiner 04/01/94 100 Steiner 06/11/94 1,000 Citron Total 1,775 Merrill Lynch 06/30/93 500 Riley Debra Harris, broker 06/13/94 1,000 Citron Michael Stamenson, broker 06/13/94 1,000 Citron Duane J. Canaga, broker 06/13/94 1,000 Citron Total 3,500 Nomura Securities Don Steele, Nomura 04/13/94 1,000 Citron Prudential Securities Phil Fonfara, Prudential sales 04/16/94 500 Citron John Ott, Prudential sales 04/16/94 500 Citron Total 1,000 Seidler-Fitzgerald John C. Fitzgerald, Seidler 04/05/94 500 Citron Smith Barney Smith Barney 06/25/93 250 Stanton Douglas K. Auslander, Smith VP 06/26/93 250 Steiner Peter L. Morrison, broker 04/13/94 1,000 Citron Total 1,500 Stone & Youngberg John Gibson, Stone & Youngberg 05/14/93 200 Wieder 09/30/93 150 Steiner Total 350

* Reports for the most recent six months have not yet been filed.

Source: Campaign statements filed with the Registrar of Voters