County Hires High-Fee Help to Straighten Out Finances
Orange County, already out more than $2 billion in investment losses, is spending millions more to hire experts to straighten out its finances.
Salomon Bros. alone will receive more than $1.4 million in fees, according to county records, plus commissions and a percentage of the county’s investment pool, which the investment bank is liquidating. And it is only one of more than a dozen firms involved.
“It is a regrettable fact of life that the county can’t hope to extricate itself without the assistance of outside help,” County Counsel Terry C. Andrus told the Board of Supervisors at its regular meeting Tuesday. “There is no way we can predict how much this is going to cost.”
Besides Salomon Bros., other well-known firms now advising the county are accountants Arthur Andersen & Co. and the Los Angeles law firm of Stutman, Treister & Glatt, which has several attorneys working full time on the financial crisis.
The supervisors also have hired public relations specialists and have agreements with more than a dozen other law firms, some to defend the county against a spate of lawsuits being filed by bondholders and creditors.
Among the law firms is one representing acting Treasurer Matthew Raabe. County officials said they also expect to approve payment of legal fees for former Treasurer-Tax Collector Robert L. Citron.
Supervisor Harriett Wieder said Tuesday that the county had no choice but to bring in help from the outside.
“What are our alternatives? If we were not bringing in the top experts to deal with this, we would be criticized,” she said.
The board hired Salomon Bros., she said, “on the advice of our legal counsel.”
Salomon Bros.’ agreement with the county shows that the Wall Street giant received an immediate payment of $500,000 last week and will be paid $150,000 a month for at least six months.
The firm is also receiving commissions on sales of securities from the county’s portfolio and will bill the county for other “customary fees,” according to the agreement.
In addition, the investment bank will receive a fee for managing the county’s assets. That fee, according to the agreement, is 0.1% of the market value of the pool.
Some of those attending Tuesday’s meeting said that what Salomon is being paid is exorbitant.
“Here’s the rich New York company that comes into Orange County like a vulture, preying on all our misfortune,” said Dolores Otting, a Newport Beach resident whose family-run trash-collection business has contracts with several county school districts.
“I can’t believe that they’re getting a commission on the liquidation of the fund. I know they are trying to do the best job they can do, but I think we need to get a handle on how much this is costing,” Otting said.
Given the magnitude of the county’s problem, Salomon’s fees are “high but not outrageous,” said the principal of a Bay Area money-management firm.
“It’s a huge portfolio,” said the money manager, who asked not to be identified. “There are only a few firms that are capable of carrying any pool of that size.”
Payments to other experts are costing the county less upfront but will amount to hefty bills eventually.
For example, Bruce Bennett, the attorney who helped the county prepare its Dec. 6 bankruptcy filing and has been working full time on the case ever since, is paid $375 an hour. And several partners for his firm, Stutman, Treister & Glatt in Los Angeles, will earn $435 an hour for their work, according to the firm’s agreement with the county.
On Tuesday, the supervisors also voted to hire the Los Angeles law firm of Howrey & Simon to handle lawsuits stemming from the bankruptcy filing.
The firm will bill the county between $178 and $395 an hour for each of its eleven attorneys, according to the firm’s engagement letter to the county. The letter also sets out costs for economists and accounting specialists, some of whom are to be paid as much as $200 an hour.
Accounting firm Arthur Andersen, under the guidance of Thomas E. Daxon, is billing the county between $75 and $350 an hour for its staff, according to a letter from the company to supervisors.
Los Angeles-based Sitrick Krantz & Co., a public relations company, typically charges between $150 to $300 an hour, said Sandra Sternberg, a Sitrick Krantz senior vice president who is now the county’s spokeswoman. The rate the firm will charge Orange County has not yet been set, she said, nor does the firm know how many hours it will bill.
The fee to be paid to former state Treasurer Thomas W. Hayes, hired to be the county’s financial adviser after the bankruptcy filing, has not yet been made public.
Under Chapter 9 of the federal Bankruptcy Code, professional fees are included in a plan of adjustment submitted to the court and must eventually be approved by a judge.
Tom Beckett, the county’s risk manager, said Tuesday there is no way to estimate what the county’s total bill will be for legal and other professional services.
“It depends on how many people try to sue us,” he said. “Nothing’s normal. It’s not the kind of thing any of us anticipated.”
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The Experts
A number of companies have been or will be hired to give legal, financial and public relations advice to Orange County as it straightens out its finances. Some of those already aboard:
Company: Role Arthur Andersen & Co.: Accountants Barton, Klugman & Oetting: Securities litigation Bird, Marella, Boxer, Wolpert & Matz: Securities litigation Chapman & Cutler: Bond counsel Hawkins, Delafield & Wood: Bond counsel Howrey & Simon: Litigation counsel Jones Hall Hill & White: Bond counsel Kutak Rock: Bond counsel Metropolitan West Securities: Securities consultants Salomon Brothers Inc.: Investment bankers Sitrick Krantz & Co. Inc.: Public relations Squire, Sanders & Dempsey: Bond counsel Stutman, Treister & Glatt: Bankruptcy counsel Sources: Times reports
