ORANGE COUNTY IN BANKRUPTCY : Sergeant Joins Suit to Guard Retirement : Courts: Amendment to earlier class-action lawsuit was filed on behalf of those who made deferred retirement compensation payments to the fund.

A Fullerton police sergeant filed a lawsuit against former Orange County Treasurer-Tax Collector Robert L. Citron and others Tuesday, demanding damages for any loss to an estimated $80 million in public employees’ deferred compensation retirement funds that have been frozen by the county’s bankruptcy.

The amendment to an earlier class-action lawsuit says that Sgt. David Stanko, 46, an 18-year veteran of the Fullerton police force, deposited $22,000 worth of deferred salary payments for his retirement with the county treasurer. The treasurer, in turn, invested the funds with the Orange County investment pool, which was frozen when the county filed for bankruptcy Dec. 6.

Stanko is one of thousands of municipal and county employees who each placed up to $7,500 a year from their salaries into the county fund for retirement, said Irvine attorney Frank Nunes, who is handling the suit in Orange County Superior Court. Stanko’s complaint was filed on behalf of all public employees who made deferred compensation payments to the fund.

“What’s at stake here is everybody’s nest egg,” Nunes said. “This is the money that people are counting on to live out their retirement years.”

The deferred payment retirement fund Stanko put money into is different from the National Assn. of Counties deferred payment fund, which did not invest in the county pool, according to Orange County Auditor-Controller Steve E. Lewis, who also was named in the suit.

It is also distinct from the $2.5 billion Orange County Employees Retirement System. That fund invested 5%, or $125 million, of its money in the investment pool, said Terry Slattery, investment analyst for the retirement system.

Besides Citron and Lewis, Stanko named Merrill Lynch, former acting Treasurer Matthew Raabe and Merrill Lynch executive Michael Stamenson. The suit, which alleges breach of fiduciary duty and fraud, seeks both compensatory and punitive damages.

Stanko contends in his suit that county officials and Merrill Lynch, as the largest underwriter of Orange County’s bonds, “engaged in a reckless investment strategy.” He contends the defendants either lied about the financial health of the Orange County investment pool or failed to disclose critical information about the fund’s precarious condition, thus misleading investors into thinking their money was safe. The suit demands that the defendants make up for any losses.

Nunes said Stanko is angry that officials may have taken big risks with his retirement. “What outrages him the most is the lack of integrity on the part of the people who he entrusted with his money, the defendants in this suit,” Nunes said.

Lewis declined to comment on the suit except to say that he and other county officials are working hard to sort out and respond to everyone’s claims.

“We’re trying to get money out to people as fast as we can and in a proper way,” Lewis said.

He added that he believes all payments to retired employees will be distributed on schedule in January.

Merrill Lynch spokesman Paul Critchlow called the suit unfair, and denied that the nation’s biggest brokerage ever played the role of investment adviser for Citron. The firm acted only as Citron directed, Critchlow said. Citron’s general investment strategies were well-known in the county and applauded for 20 years by numerous public officials and entities, he said.

“These lawsuits are pretty much inevitable as the different parties search for deep pockets,” he said. “But any lawsuit in this vein is without merit and we will fight it vigorously. We are confident that we do not have any legal liability.”

Stamenson declined comment. Citron’s attorney, David Wiechert, also declined comment. Neither Raabe nor his attorney could be reached for comment.

Nunes said that whatever remains of the deferred payment retirement fund should be pulled out of the pool and put into a separate and safe trust.

“These employees didn’t do anything wrong,” Nunes said. “They didn’t think they were taking any risks. As far as they knew, they were making a sound investment. Now this has been ripped away from them.”

The filing Tuesday is an amendment to a suit Nunes filed Dec. 13 on behalf of Robin DeLeon, 14, and hundreds of minors and others who invested settlements received from car accidents in the county investment pool on the advice of Superior Court judges who heard their cases.

Times staff writer Lee Romney contributed to this report.