Senate Panel Will Quiz O.C. Crisis’ Key Players : Finance: The headliner, Robert L. Citron, is expected to make his first public response at state hearing Tuesday.

There’s no Ollie North and it’s unlikely to involve the high drama of Iran-Contra, but in matters of municipal finance this hearing promises to be big--and steeped in intrigue.

A special state Senate committee Tuesday will have a daylong session here that will for the first time bring together for questioning the key players in Orange County’s financial debacle.

The indisputable headliner is Robert L. Citron, the toppled Orange County treasurer-tax collector who is expected to make his first public comments since the county filed for bankruptcy in early December.

Also expected to appear are an array of other county officials--including a pair of sitting supervisors--and investment banking impresarios with ties to Orange County, most notably Merrill Lynch & Co.’s Michael Stamenson, who served as one of Citron’s chief brokers.

The whole bunch could be headed into a buzz saw. During a hearing on the bankruptcy last month, several lawmakers on the 10-member Senate Special Committee on Local Government Investments displayed a ready zeal to scold and take names.

Now with the prime protagonists in the Orange County drama finally set to speak--and a hoard of state and national media expected in attendance--some Capitol insiders are worried the hearing could play out like something under the big top.

“I know there are some members of the committee who are stringing their bows now and sharpening their arrows,” said state Sen. William A. Craven (R-Oceanside), the committee’s co-chairman.

State Sen. Lucy Killea, an independent from San Diego and the panel’s other chair, agreed that committee members “certainly are going to ask searching questions” and expressed hope that “we can get some gaps filled in--much of what we know right now is what’s been in the newspapers.”

What has goaded some committee members is the response by Merrill Lynch and Stamenson to a subpoena issued by the state Senate to compel the bond dealer to appear.

Senate staffers said the subpoena was sought only after Merrill Lynch employees at Stamenson’s San Francisco office “stonewalled” when inquiries were made as to his whereabouts. Eventually, they learned he was in New York, but were told Stamenson would not be returning to San Francisco until the day after the hearing.

After Craven and others began complaining to the press, Merrill Lynch officials in New York voiced assurances that Stamenson had planned all along to appear and blamed any confusion on a misunderstanding on the part of the sergeant-at-arms, who had attempted to serve the subpoena in San Francisco.

“I think that has kind of aggravated some on the committee,” Craven said. “They love to sit up there on the dais and question witnesses, and I don’t think these problems with Stamenson have helped the mood.”

In all, the state Senate has issued six subpoenas for the hearing, among them to Citron’s former chief lieutenant Matthew Raabe, who often served as the treasurer’s surrogate with investors and salesmen; Jeff Leifer, the Bel-Air financial adviser who associates joke was so close to Citron that they were like “Siamese twins,” and officials from Wall Street firms KPMG Peat Marwick and Morgan Stanley.

Also expected to testify is Orange County Auditor-Controller Steve E. Lewis, who produced several reports critical of Citron’s investment practices, all of which were ignored. Officials from two of Orange County’s financially strapped school districts are scheduled to appear--Mac Bernd, superintendent of the Newport-Mesa Unified School District, and Kim Stallings, business manager of the Placentia-Yorba Linda Unified School District. In addition, Westminster Finance Director Brian Mayhew is expected to testify on his city’s dealings with Citron and other county portfolio managers.

Much like a congressional hearing, each witness will give a prepared opening statement, then field questions from the state Senate panel. Their questioners are some of the most dogged members of the state Senate, an otherwise collegial body best known as the quiet counterpart to the raucous California Assembly.

In keeping with the decorous reputation, Craven and Killea have promised to crack the gavel if any of their colleagues get too far out of line. But that didn’t keep a few committee members from getting digs in during the December hearing.

A trio of Democrats could prove testy for Citron, Stamenson and the rest. State Sen. Daniel E. Boatwright (D-Concord), a prosecutor before he went to the Legislature a quarter century ago, is a particularly outspoken committee member. State Sen. Quentin L. Kopp, an independent from San Francisco and an attorney who doubles as a TV political analyst during election season, also has a reputation for razor-sharp questions.

Perhaps the most pointed inquiries, however, could come from state Sen. Tom Hayden (D-Santa Monica), the Vietnam anti-war activist and former husband of actress Jane Fonda. Hayden has already made his mark in the Orange County debacle, penning a newspaper opinion piece a few weeks back taking the county to task for excesses that led to the financial crisis. Hayden is expected to take dead aim at the connection between Wall Street special interests and government officials, such as Citron.

“I suspect everyone will get their two cents in,” said state Sen. John R. Lewis (R-Orange), a conservative on the committee who dished out a few zingers of his own at the last hearing. “Probably Quentin is about the most aggressive, and maybe Boatwright, largely due to their legal backgrounds. I would expect Tom Hayden to dig into this too, particularly from the reformer perspective.”

The goal of the committee is to determine what new laws might be necessary to ensure that a fiscal calamity such as the one that has befallen Orange County doesn’t happen again. “I don’t think we can legislate against bad judgment, but we’re interested in separating that from where the system failed,” Killea said.

Committee members want to learn directly from the participants about sales pitches investment bankers used to market securities to the county. In turn, they want to determine just what Citron said to woo the scores of cities, school districts, water agencies and other local governments that sank money into the doomed portfolio.

The committee also will try to determine how firms such as Merrill Lynch could continue to underwrite huge bond sales for the county--including a $600-million issue of taxable notes in July--even as the firm was warning Citron that the investment fund was in jeopardy.

“Questions of just how suitable these investments really were will certainly come up,” said Scott Johnson, chief counsel for the Senate panel. “Whether the risks were abundantly clear to both the treasurer himself and the pool participants is also germane.” Citron and some of the others are heading into the hearing as if they have little to fear. David Wiechert, Citron’s attorney, said he expects “a very cordial and civil question-and-answer session with senators who are interested in knowing the facts.”

Wiechert would provide no preview of his client’s testimony, but he said Citron would not seek immunity nor refuse to answer any question in an effort to avoid self-incrimination.

“Bob is going to respond to any questions asked him--I can’t tell you at this point what those questions are going to be,” Wiechert said. “I think the whole proceeding will be instructive.”

Wiechert said the panel has asked Citron to testify for half an hour to an hour. Senate staffers say Citron will be given the opportunity to offer a rebuttal to hostile testimony from other witnesses.

Board of Supervisors Chairman Gaddi H. Vasquez and Vice Chairman Roger R. Stanton also said they don’t expect to be grilled.

“I think we’re there to cast some light on the situation and help them understand what’s going on,” Vasquez said. “I certainly hope it can be kept on a level of information and good dialogue.”

Vasquez said that, even if things get a little heated, he is not concerned about testifying before the committee. “I’ve testified at a number of hearings, from graffiti to flood control issues,” he said.

Stanton said he is under the impression that he was invited to discuss his conceptual plan to reshape and overhaul county government. “They want to talk about my ‘White Paper,’ ” he said. “That’s why I’m going.”

But one colleague who is intimately familiar with the ways and wiles of Sacramento voiced caution.

Supervisor Marian Bergeson, a state lawmaker for 16 years before she joined the board earlier this month, said her new counterparts could be headed for a difficult time.

“I think the legislators will ask some tough questions,” she said. “Frankly, I think they want to find out what went wrong. There’s always going to be criticism.”

Nonetheless, Bergeson said, she expects that the supervisors will hold their own. “Let’s just say I think they’ll do a fine job.”

Times staff writers Matt Lait and Jodi Wilgoren in Orange County also contributed to this report.

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Who’s Who at the Bankruptcy Hearing

The Senate special committee hearing Tuesday in Sacramento promises to be informative, with many players speaking publicly for the first time since the debacle was revealed. Here’s who may show:

* Robert L. Citron: Since resigning in early December after nearly a quarter-century as county treasurer and tax collector, he has remained secluded in his Santa Ana home as investigators have swarmed. Subpoenaed for hearing, he has promised to tell his side for the first time.

* Matthew Raabe: Citron’s second in command for several years, he often made sales pitch to investors and dealt with brokers. Outside of Citron, may know the most about county’s portfolio. Has promised to honor subpoena and appear.

* Steve E. Lewis: Lifelong employee of Orange County who rose through ranks to become the county’s auditor-controller and tried to blow whistle with several critical audits; all were ignored. Most recently in 1993 warned of potential criminal activity.

* Gaddi H. Vasquez: Former police officer, a supervisor since 1987, has been criticized along with his peers for improper oversight of county investment portfolio.

* Roger R. Stanton: Served with recall papers since bankruptcy filing, has advocated restructuring plan for county government.

Not Pictured

* Michael Stamenson: Merrill Lynch broker who held Citron’s hand as he invested billions. Subject of scrutiny by local and federal investigators. Has not spoken publicly since bankruptcy became public. Has been in New York and subpoena was never served, but company officials say he will show.

* Jeff Leifer: Bel-Air financial adviser whose close relationship with Citron drew attention. Earned more than $1 million since 1990 from deals with county.

Sources: Times reports; Senate Special Committee on Local Government Investments

Researched by ERIC BAILEY/Los Angeles Times