Citron Will Testify Before Senate Panel

Former Orange County Treasurer-Tax Collector Robert L. Citron will make his first public comments about the collapse of the investment pool he managed when he testifies next week before a special legislative committee looking into the Orange County fiscal fiasco, Citron’s attorney said Sunday.

“He has nothing to hide,” said the attorney, David Wiechert.

Citron, 69, has remained virtually secluded in his Santa Ana home since he resigned Dec. 4, two days before Orange County became the largest municipality in history to file for bankruptcy.

Despite a criminal probe pending against him, Citron will travel to Sacramento Jan. 17 to answer the subpoena from the state Senate committee, Wiechert said Sunday from his Costa Mesa office.

Three days later, Citron is scheduled to give a deposition to the Securities and Exchange Commission, which is also investigating the financial debacle.

Some had speculated that Citron would take the Fifth Amendment rather than testify, a fairly common tactic for the targets of criminal investigations. District Atty. Michael R. Capizzi has asked the Senate committee not to grant the treasurer, who has resigned, immunity from any criminal charges.

Investigators from the district attorney’s office arrived unannounced at Citron’s house last week, armed with a search warrant, and removed documents and cassette tapes. Scores of investigators also surrounded the treasurer’s former office last month and carted away box-loads of documents and computers.

But Wiechert said Citron is not afraid to answer the senators’ questions without any special protections. Scott B. Johnson, chief counsel for the Senate’s special committee on local government investments, said Citron is eager to testify.

“I am left with the impression they want to avail themselves of this forum,” Johnson said. “They say they have a story to tell and they want to come tell it.”

In the aftermath of the Orange County crisis, the committee is considering legislative changes to restrict the investment opportunities or increase the disclosure requirements for county treasuries. The committee has also subpoenaed Assistant Treasurer Matthew Raabe and invited Orange County Supervisors Gaddi H. Vasquez and Roger R. Stanton to testify.

The supervisors have tentatively agreed to testify. Raabe and his attorney could not be reached for comment Sunday.

Also Sunday, The Times obtained a transcript of a conference call less than a week before the bankruptcy filing in which Citron and Raabe assured New York brokers that the county could solve the investment portfolio’s problems methodically and without major losses.

During a Nov. 30 conversation with top officials at the investment bank Morgan Stanley, the then-treasurer and his assistant explained the battering that the highly leveraged $7.4-billion portfolio had taken because of a series of interest rate hikes by the Federal Reserve Board, and outlined possibilities for recovery.

“As interest rates have jumped up . . . it was much swifter and certainly more unexpected than we had anticipated,” Raabe said, according to the transcript.

“The pool does, in fact, have a liquidity problem. Further market losses are probable until interest rates stabilize. . . . If all depositing participants in the investment pool remain in the investment pool, it is quite possible that the market value losses will not become real losses.”

As he did in a press conference the following day, Raabe told the bankers the pool had suffered a $1.5-billion paper loss, adding: “We do not have losses. We have not taken losses, and it is our anticipation that with everyone’s cooperation, we may not have to take any losses.”

The county’s financial consultants now estimate the pool has lost $2.02 billion, or nearly 30%.

Raabe and Citron also said during the conference call that they were looking for ways to hedge the troubled portfolio and to increase its liquidity by trading some of its most complex securities for safer, short-term ones.

The officials said they had been meeting with officials from investing agencies as well as other brokerages in search of solutions.

Contrary to a report published Sunday in a local newspaper, there was no discussion in the transcript of hiding details from investors, except for an offhand comment that most public officials lack the sophisticated financial knowledge to understand the portfolio’s complexities.

“We gave them all of the information that we have given you,” Raabe told the bankers, according to the transcript. “Obviously, you folks are much more sophisticated in the investment business than most of the people who invest in our pool. While we told them we had cash-flow difficulties, we told them that it was (related) to the reverse repurchase program, and so forth, obviously the nuances of structured securities are not something we can converse with them on.”

Wiechert said the transcript is “totally innocuous.”

“It clearly shows that everyone involved was disclosing everything,” Wiechert said. “This transcript isn’t about hiding anything.”