ORANGE COUNTY IN BANKRUPTCY : Who Said What on Key Issues
ROBERT L. CITRON, Former county treasurer-tax collector
Who’s to Blame: Blamed Merrill Lynch. Called the firm his “financial adviser.” Said he relied on information from Merrill and spoke with salesman Michael Stamenson daily on the status of markets. Shifted some blame to bond rating agencies and securities regulators, contending their examinations of the fund in early 1994 signaled “confidence” in what he was doing. Also blamed himself.
Citron’s Expertise: Said he became confident in his financial ability and skills due to past success and high returns. But, looking back, found “I was not the sophisticated treasurer I thought I was.”
Merrill Lynch’s Role: Contended Merrill Lynch was his “financial adviser” and spoke daily to at least one person, Stamenson, at the firm for advice.
On the Investment Fund: Never believed the fund was in serious trouble “until the very end.” Said he thought the fund was set up so that it would never have a loss in principal.
SEC Investigation in April, 1994: Because of questions raised about Citron’s investment strategy during last year’s election, the Securities and Exchange Commission called county officials into its Los Angeles office to discuss the fund. Citron said he gave SEC “about 20 boxes of documents.”
On the Future: Would favor limits on the amount of derivatives that a government agency could own. Also would back a complete ban on campaign contributions and gifts from firms that do bond business with the county.
MATTHEW RAABE, County assistant treasurer
Who’s to Blame: Blamed Citron. Said the fund was entirely under Citron’s control, and he had only a working knowledge of it. “I was not the person who made the investment strategy or made investment decisions,” he said, although he admitted Citron sent him to explain the fund to potential investors. He saw Citron as an experienced treasurer and “assumed he knew what he was doing.”
Citron’s Expertise: Called Citron a “very experienced treasurer.” Said he assumed Citron was making the right investments.
Merrill Lynch’s Role: Said he had few dealings with Merrill Lynch. But after the fund began to lose value, met with Stamenson twice, in July, 1994, and September, 1994, to discuss the funds.
On the Investment Fund: Said he did not know details about the fund.
SEC Investigation in April, 1994: Said he gave SEC all relevant documents on the fund. But after the April meeting in Los Angeles said he “never heard from the SEC again.”
On the Future: Would support any new state restrictions that would prevent the Orange County fiscal debacle from happening again.
GADDI H. VASQUEZ, Chairman, County Board of Supervisors
Who’s to Blame: Blamed lack of information from Citron and bond rating agencies. Said the Board of Supervisors never received information on problems with the pool, only “glowing verbal and written reports.” Said high bond ratings for Orange County provided “continued assurances the investment pool and its strategies were sound.”
Citron’s Expertise: Said he and other supervisors relied heavily on the county’s financial experts, such as Citron, and rating agencies for advice. Received glowing reports on the fund’s status.
Merrill Lynch’s Role: Did not discuss.
On the Investment Fund: Maintained he wasn’t given information on the pool that Citron was getting, including reports detailing how the fund would lose value if interest rates rose.
SEC Investigation in April, 1994: Said Board of Supervisors was never informed about Citron’s meeting with the SEC in April. Said he was told later that it was decided that county officials didn’t need to know.
On the Future: Against state bailout. Said county officials have put together a team that will be able to work out the county’s fiscal troubles and restructure the government. Would support new state restrictions against contributions from bond firms.
ROGER R. STANTON, County supervisor
Who’s to Blame: Blamed Merrill Lynch. Pointed out that from July, 1994, to November, 1994, the firm sold more than $1 billion of notes for the county, with proceeds invested in the same pool that it was warning Citron about. Was troubled that Merrill Lynch’s red flag warnings to Citron were not given to county officials or bond buyers.
Citron’s Expertise: Did not discuss, but the Board of Supervisors’ position has been that members relied on Citron, an elected official.
Merrill Lynch’s Role: Contended Merrill Lynch never gave the board the same fund warnings it was giving Citron. Said Merrill treated Citron as if he were an individual, and county money as if it were Citron’s.
On the Investment Fund: Said county officials were misled as to the true status of the pool.
SEC Investigation in April, 1994: Did not discuss.
On the Future: Against state bailout because it would set a precedent for other fiscally troubled municipalities. Favored new state laws banning all contributions from bond business firms.
MICHAEL STAMENSON, Merrill Lynch broker
Who’s to Blame: Blamed Citron. Contended he was just a salesman who sold the county securities. “Neither I nor anyone else at Merrill Lynch designed or structured the county’s investment strategy or controlled the county’s investments--Mr. Citron did.” Disputed Citron’s claim that Merrill Lynch was a financial adviser.
Citron’s Expertise: Called Citron “a highly sophisticated” investor. Also contended he learned from Citron, who was “doing reverse repurchase agreements before I even knew what the term meant.”
Merrill Lynch’s Role: Said he made recommendations to Citron on what he could purchase from Merrill Lynch but did not direct the county’s investment strategy or control the fund.
On the Investment Fund: Said any bond portfolio, even one holding “plain vanilla” securities, would have lost value during 1994 and Orange County’s portfolio was no exception.
SEC Investigation in April, 1994: Did not discuss.
On the Future: Said Merrill Lynch is “concerned” about the events facing Orange County and will not walk away. Merrill Lynch remains committed to working with the county “in any practical way.”
