Fiasco Makes Children Victims Again : Bankruptcy: Injury trust funds threatened by Orange County crisis.

Patty Puglise says she remembers hearing a “little voice” that told her to ask more questions when the judge “strongly advised” her in 1992 to deposit her 12-year-old son’s $9,000 accident settlement in the Orange County investment pool.

The judge raved about the 8% return that the pool was paying. But money was something that Puglise, a single mother who is raising five teen-age children, had never taken for granted.

In the end, Puglise relented and went along with the judge’s recommendation. Today, she is angry and scared because Joseph is one of 435 minors who deposited $7 million in settlements in the county pool in the last two years, largely on assurances from the courts that the fund was solid. Like the other parents, Puglise wants to know if her son’s trust fund has been wiped out in the county’s financial crisis.

“How often does a county go bankrupt?” the Brea resident wondered.

Working with a 2-year-old law that was sponsored by the Orange County Board of Supervisors and Orange County Superior Court, judges routinely recommended that minors deposit their settlements in the county investment pool rather than in federally insured accounts at a bank that paid substantially less interest. Most of the trust accounts were for out of court settlements in injury lawsuits.

Parents and guardians of the young accident victims said they agreed to deposit the money in the county pool because the judges assured them the county portfolio was a safe investment.

“It’s very difficult to say no to a judge. You can say no to a doctor and tell him you want a second opinion. You can’t do this with a judge,” said Barbara Arbour of Placentia, who said a judge intimidated her into depositing her daughter’s $37,000 settlement in the county pool. “They have a very commanding appearance when they’re sitting on the bench in their robes.”

Orange County Superior Court Judge Tully H. Seymour, who is presiding over settlement cases involving minors, said that before the county’s bankruptcy filing two weeks ago, “there was no reason for any of the judges in their wildest dreams to think that (former Treasurer-Tax Collector Robert L. Citron) was going to gamble with this money.”

Seymour and the other judges said that they had no intention of pressuring anyone to invest in the county pool, which has lost more than $2 billion in value since its collapse, dragged under by high-risk investments.

Dozens of anxious parents and lawyers complained that they received conflicting information or no information when they called Superior Court officials and the treasurer’s office to inquire about the funds when the county filed for bankruptcy.

On Friday, Superior Court executive director Alan Slater said he received assurances from the county counsel and auditor-controller that the minors’ trust accounts will be paid. But so far they are only verbal assurances, he said.

“Do I have that in writing? I don’t. I wish I had,” Slater said.

Superior Court Presiding Judge Jim Smith said he viewed concerns about the trust funds as “a tempest in a teapot.”

“No disrespect for the significance of the issue. Until I find somebody who didn’t receive a disbursement, then I know we have a problem,” Smith said.

But Smith, Slater and other county officials said they did not know if payments are being made to trust fund owners who turn 18 or if anyone has requested a court order to transfer the settlement funds from the county pool to a private financial institution.

George Urch, spokesman for former Assemblyman Tom Umberg (D-Garden Grove), said Orange County’s Board of Supervisors and Superior Court judges asked Umberg in 1991 to introduce legislation in Sacramento to allow minors to deposit settlement proceeds in the county treasury.

The measure was drafted by an Orange County legislative committee consisting of several administrators, including Citron. The bill was passed unanimously by both houses.

Until Orange County officials succeeded in changing the law, settlements received by minors had to be deposited strictly in federally insured blocked accounts--inaccessible to parents or guardians--or in annuities until the minors turned 18.

Before the law was changed, the Orange County Superior Court form that instructs parents where to deposit the funds specifically stated that the money must be deposited in a federally insured account, as required by court rules and state law. The words federally insured were written in bold type and underlined for emphasis on the form.

When the law was changed, the court added another option to the form. Parents were advised that they could also deposit the funds “with the county treasurer in an interest bearing trust fund.” The new form does not warn parents that funds deposited with the treasurer are uninsured.

An information sheet about the county pool given to parents and attorneys says that the county portfolio is not insured, but assures them that “deposits are secured by the continued stability of the county.”

Nevertheless, many parents and attorneys still assumed that minors’ deposits were insured.

“Everyone, including the attorneys, presumed that the funds were federally insured, as called for in the state Probate Code,” said attorney Lawrence Eisenberg, past president of the Orange County Trial Lawyers Assn. “The court’s own rules also specify that deposits have to be put in federally insured accounts.”

Orange County Superior Court Judge James Gray, who presided over settlement cases involving minors in 1993, said he and the other judges recommended the county pool because “the deposits were secured by the stability of the county.” The county pool was another option legally available to minors, Gray said.

Superior Court Judge James A. Jackman, who presided over minors’ settlement cases in 1992, said he did not hesitate to advise parents to deposit the settlements in the county pool because “at the time, Citron had been earning outstanding returns.”

“It was no secret, from my standpoint, that I favored the pool. When they agreed to deposit the funds in the county treasury, frankly, I thought they were being pretty smart,” Jackman said.

Like Seymour and Gray, Jackman said he had no reason to be concerned that the trust funds could be at risk.

However, Seymour, who has been presiding over the settlement calendar for most of this year, said he rarely recommended the fund after he failed to get any information about how the county portfolio was being administered.

When told that Arbour and other parents said they felt intimidated by judges’ advice to deposit settlements in the county treasury, Jackman replied: “I hope I didn’t pressure them.”

“I tried to make information available to them,” Gray said. “I didn’t mean to intimidate anybody.”

Los Angeles attorney Steve Archer, who represented Puglise’s son, said the judges probably did not know that the county portfolio was stacked on risky investments. But he said the judges engaged in a conflict of interest when they handed down financial advice from the bench.

“It’s an obvious conflict of interest. The judges are in part employed by the county of Orange,” Archer said. “They were saying, ‘Put the money in an account controlled by my employer.’ ”

Each of the judges denied there was a conflict of interest. Technically, they are state employees, but Seymour acknowledged that more than 50% of the Superior Court’s budget is county-funded, as is a portion of each Superior Court judge’s pay.

Meanwhile, the parents of Laura Small, the Lake Forest girl who was mauled by a mountain lion in Caspers Regional Park in 1986, filed a lawsuit Friday, alleging that $90,000 of Laura’s $2-million settlement with the county over the mauling is trapped in the investment pool.

Irvine attorney Frank Nunes, who filed a class-action lawsuit last week on behalf of minors and others whose trust funds are invested in the county pool, said that parents are getting the runaround from officials, including Superior Court employees.

“A parent applied to remove her child’s money and transfer it to a bank,” Nunes said. “One of the (court) clerks said she needed permission from the (county) treasurer’s office to take the money out.”

When the parent contacted the treasurer’s office, she was told that the child’s trust fund was frozen until the county counsel decides whether the minors’ settlements are part of the investment pool, said Nunes.

A parent has to obtain a court order before transferring a minor’s trust fund from the pool to a bank, Gray said. As of Friday, the judges said they had not received any requests to transfer funds.

The young accident victims who were required by state law to invest settlements in trust accounts are finding themselves victimized a second time by the county’s financial crisis, their attorneys said.

“All the money they got is now at risk,” Archer said.

Duke Miller, whose son Ryan received $9,638 from an insurance company two years ago, said he “has no idea” what to tell his son when he asks about the trust fund in the county pool. Ryan, who is 14, hopes to use the money for college, said Miller, 37, of Laguna Beach.

“I want to take the money out now and put it some place else,” Miller said. “I assume the principal is protected because the note said it has to be returned on demand. But this remains to be seen. I don’t know if he’s lost the interest. I don’t know anything.”

Fullerton resident Mike Cummings said he, too, is worried about the $4,538 settlement that his son, Robert, 14, deposited in the pool.

“God, what was I thinking when I took financial advice from a judge,” Cummings said. “Unfortunately, we assumed that the judges had expertise that they didn’t really have.”

Originally, Cummings had written on the court’s deposit form that he wanted Robert’s settlement deposited at Pioneer Bank in Fullerton. However, after “a very persuasive sales pitch” by Gray, who was “a super salesman,” he scratched out the bank’s name and instead checked the box that said he preferred to put the funds in the county pool, Cummings said.

Robin DeLeon, 12, of Huntington Beach has only $2,700 in the investment pool, but her guardian, Susan Byer, said she hoped that would have grown to $4,000 by the time Robin turned 18.

“That would be enough to at least get started in college,” said Byer. “Now, I have no idea what has happened to that money.”

Robin, who wants to become a veterinarian, is optimistic that her trust fund, however small, is safe. “I’m sure I’ll get it back,” she said.