ORANGE COUNTY IN BANKRUPTCY : OCTA Head Praised Citron Days Before Bonds Debacle : Investments: Stan Oftelie’s letter lauded ex-treasurer’s record, strategy for high yields in tough economic times.

The head of Orange County’s Transportation Authority, touted as a possible successor if county administrator Ernie Schneider is fired, praised the investments made by former Treasurer Robert L. Citron in a letter the day before officials announced that the county portfolio had lost $1.5 billion.

Earlier that week, OCTA Chief Executive Stan Oftelie’s staff also praised Citron and his high-risk investment fund in a memo to the OCTA Board of Directors, asking the board to continue to put hundreds of millions into the pool.

“The authority fully supports the Treasurer’s investment philosophy and feels fortunate to have shared in its success over the years,” OCTA staff wrote Nov. 28, three days before the county announced a financial crisis and eight days before the failed investments triggered the largest municipal bankruptcy in American history.

Citron had disclosed some of the problems the pool was having in a meeting with investors Nov. 29, prompting Oftelie to write a letter to his longtime colleague affirming OCTA’s support.

“I personally look forward to many more productive years working with you,” Oftelie wrote to Citron Nov. 30, sending copies to other investors in the pool. “Our financial relationship has been excellent in the past and will remain strong in the future.”

In an interview Tuesday night, Oftelie brushed aside the irony of his strong compliments for Citron so close to the county’s financial collapse. He said he wrote the note to Citron in an attempt to deter other investors from pulling out of the pool because he believed that was in the OCTA’s best interest, and that the staff-written memo to the OCTA board was based on Citron’s past performance rather than the current state of the portfolio.

“The advice . . . was that if everyone held together we’d be OK, and we believed that,” Oftelie said. “We thought there was essentially a safety net and it could only fall so far.”

With $1.1 billion in the county pool, OCTA is the largest investor of the 187 agencies with money in the $7.8-billion fund, which lost at least $2 billion last year.

Oftelie, 46, chairs the Bankruptcy Court’s creditors committee that will help decide how the remaining money in the pool is divided. Two of the five county supervisors want to fire Schneider for not keeping closer watch on the investments and tap Oftelie for the top administrative post, sources said. Oftelie has said he is not seeking the job.

His letter and the staff memo raise questions about how much Oftelie understood about the portfolio and its problems.

In presenting Citron’s annual report to board members, OCTA staff praises the ex-treasurer’s staff for earning high yields in a difficult economic climate. The memo notes that rising interest rates had led to a drop in return from the county’s fund, but urges that the agency continue to invest all its money with Citron despite predictions that the yield rate would continue to fall in the coming year.

“Given the year’s unsettling market condition, the Treasurer, Robert L. Citron, and his entire staff should be commended for exceeding market rates of return,” the staff memo says. “The Authority is fortunate to be able to participate in the Orange County pool and looks forward to continuing to work with the Treasurer’s office in the future.”

Oftelie, a former supervisor’s aide, said he knew the county’s fund included complex financial instruments--known as derivatives--that relied on falling interest rates, but that he believed the investments were hedged to protect against losses.

“There was 15 years of success there,” Oftelie said Tuesday to explain his faith in Citron.

Times staff writer Mark Platte contributed to this story.