Hard Line Advised for Bondholders : Bankruptcy: SEC member, in speech to be given today in O.C., also calls for stricter rules on risk by government agencies.

A Securities and Exchange Commission member is expected today to call for government entities to adopt strict risk-management policies and advise Orange County’s bondholders to be more “militant,” according to an advance copy of his remarks.

Commissioner Richard Roberts is to speak at a meeting of county bondholders sponsored by the Bond Investors Assn., a group formed to represent municipal bondholders. The meeting is expected to draw interest from both individual and large institutional owners of Orange County bonds.

Two months after the county’s Dec. 6 bankruptcy filing, both Wall Street and the county’s bondholders are increasingly nervous as the cash-strapped county has barely met recent bond interest and principal payments by juggling its short supply of cash. Bondholders are fearful that the county won’t make good on at least $1 billion in payments that come due this summer.

Roberts said he sympathizes with bondholders in what he imagines is a “painful” time and advises them to fight for their rights in court, according to a copy of his speech released Monday.

“I remain concerned that Orange County may attempt to place on the shoulders of bondholders a disproportionate share of the burden of the financial hardships now facing the county,” the speech says.

Because Roberts is a commissioner of the SEC, which regulates the securities industry and has launched investigations of Orange County’s bond crisis and of derivatives, his remarks are an indicator of what new laws or regulations governmental agencies may be required to adhere to one day.

While calling county investment pools a matter for state, not federal regulation, Roberts said he urges government entities to adopt detailed investment guidelines. Such policies would require municipalities to “mark to market,” or report the current market value of all investments, rather than the book value, on a monthly basis. Guidelines should also limit the use of leverage, Roberts’ speech states.

Orange County’s investment pool was leveraged to about three times its value, and a special fund operated by former county Treasurer-Tax Collector Robert L. Citron was leveraged as much as 15 times its value with risky derivative securities, accountants have said.

Also, investment policies “should address the risks of investing in potentially volatile instruments, including derivatives, and take definitive steps toward ensuring the proper understanding and effective management of these risks,” the prepared remarks state.

In addition, Roberts will support a diversification requirement for single state tax-exempt money market funds, a municipal bond pricing information system already under development, and strict fiscal disclosure rules for a city or county that wants to sell debt.

While cautioning that the municipal bond market does not need to implement corporate-style disclosure requirements, such as quarterly filings, more disclosure is needed to prevent other municipal debacles, Roberts’ speech states.

The bondholder meeting will be at the Inn at the Park in Anaheim, starting at 9 a.m.