ORANGE COUNTY IN BANKRUPTCY : 9 Class-Action Suits Against Wall Street Firm, Others Joined : Litigation: The consolidation should save O.C. money. Bondholder attorneys say Citron, other county officials will be dropped from the case.

Under orders from a judge, at least nine federal class-action lawsuits against Merrill Lynch Inc. and others as a result of the Orange County’s bankruptcy were joined into one Monday.

The consolidation of the suits, filed mostly by people who had purchased $5,000 to $600,000 worth of county bonds, will help streamline what is likely to be a long and expensive court battle.

Besides Merrill Lynch, the largest underwriter of the county’s bonds, all of the suits name Merrill Lynch executive Michael Stamenson and various county officials, including former Treasurer-Tax Collector Robert L. Citron, Assistant Treasurer Matthew Raabe and Auditor-Controller Steve E. Lewis.

The suits charge them with fraudulently misleading bondholders into believing the county finances were in better shape than they actually were and pursuing a “reckless” investment strategy that has led to losses of up to 50% in the value of some of the county’s debt obligations, including bonds. Some suits also name Smith Barney, Harris Upham Co. Inc., Shearson Lehman Brothers Inc. and CS First Boston Corp.

Attorneys representing the bondholders, however, say that they are approaching an agreement among themselves to drop all current and former county officials from the suits for now, but with the option of pursuing claims against officials later if they choose.

So far, the attorneys have come to a verbal agreement to that effect but have yet to sign any covenant. There also are no plans to formalize the agreement by submitting it to the court, said San Diego attorney Alan Schulman, who is handling one of the consolidated class-action suits.

Schulman said the attorneys came to the understanding out of consideration for the county, which probably would have been forced to pay for separate attorneys for each of the three officials.

“We feel this will give the county the opportunity to concentrate on its financial crisis at this time and not be distracted,” Schulman said. “We’re going to hold our actions in abeyance and let the case develop.”

Others involved in the case said the plaintiffs have agreed to drop Citron, Raabe and Lewis from the suits mainly because they lack the financial resources of the other defendants.

“They want to bypass us right now and get to where the money is,” Lewis said.

Another attorney representing plaintiffs, Joseph Cotchett, said deep pockets had nothing to do with his fellow attorneys’ decision to concentrate on the investment houses.

Either way, the decision was a personal relief for the three men who had been named.

“I think it’s great,” said Raabe’s attorney, Terry Bird. “It’s a relief to the individuals, but even more important, it’s going to reduce the expense to the county.”

Citron’s attorney, David Wiechert, added, “I just think it’s a prudent decision by the plaintiffs who are dealing with a county that is currently financially strapped. There’s no need to have another three or four more lawyers involved in the defense of the case.”

Wiechert also called the progress on the agreement “a great relief.”

“Because of the time and cost involved in complex litigation in federal court--whether or not Mr. Citron would have to personally bear that expense or the county would bear that expense--it’s a benefit to Mr. Citron and the county that Mr. Citron is being dismissed.

Typical of the class action lawsuits is one by Lee Theise, a Florida retiree, concerning $10,000 in bonds she purchased Sept. 1. Theise, who is being represented by law firms in Los Angeles, New York and Philadelphia, charges that First Boston and Merrill Lynch failed to “disclose the risks . . . arising from the reckless and unsuitable investment strategy” pursued by Citron and Raabe. She claims the two companies also profited by “creating and selling unsuitable derivatives and other securities” to the now-bankrupt Orange County Investment Pool.

In other court news Monday, the Schools Excess Liability Fund, or SELF, filed a class-action lawsuit against Merrill Lynch, Stamenson and Citron. The suit brings the total number of class actions stemming from the bankruptcy to at least 13.

SELF is a statewide program that pools excess liability and workers’ compensation coverage for participating California public education agencies. The suit charges that between June, 1993, and December, 1994, SELF invested $47 million in the Orange County Investment Pool.

Cotchett said he believes that for he sake of efficiency, all of the class-action suits will be consolidated into the one under U.S. District Judge Linda H. McLaughlin, who issued Monday’s consolidation order.