O.C. Board Favors Moorlach for Treasurer : Bankruptcy: The accountant had sounded early warnings about investment fund’s risk. Supervisors reject top officials’ advice to conduct wide-ranging search.

Rejecting the advice of top county officials, a majority of Orange County supervisors said Wednesday they are prepared to appoint accountant John M.W. Moorlach as the county’s next treasurer-tax collector, possibly as early as next week.

At a special board meeting, the supervisors dismissed recommendations from acting Treasurer Thomas Daxon and Chief Executive Officer William J. Popejoy to establish a committee that would conduct a comprehensive search for a candidate to replace former Treasurer Robert L. Citron, who resigned Dec. 4, two days before the county sought bankruptcy protection.

A majority of supervisors said a search is unnecessary because Moorlach--credited with sounding the first warnings about the county’s risky investment strategies and predicting its unprecedented financial collapse during an unsuccessful run against Citron last year--has earned the post.

“I personally am looking at one appointee here and that is John Moorlach,” said Supervisor Roger R. Stanton. “That’s something that, as far as I am concerned, is a given.”

Moorlach said he would accept the job as soon as it is offered.

“I’m mentally prepared for the job,” he said. “I’ve been eating, drinking and sleeping Orange County treasurer for a year and a half now.”

While supervisors discussed who would lead the treasurer’s office, there were other developments Wednesday in the county’s ongoing financial crisis:

* Popejoy announced a sweeping reorganization of the former county administrative office, laying off 25 workers and virtually eliminating an entire division dedicated to policy research and planning. He revealed that another 38 positions will either be transferred to other departments or eliminated soon.

Popejoy said the budget ax would begin swinging in all county departments Tuesday.

“Knowing that large layoffs are inevitable in county government in the next days and months ahead, I felt it important to set an example by beginning the redefinition of county government with the organization that most closely reports to me,” the CEO said in a prepared statement.

* A day after Popejoy promised to vigorously pursue lawsuits against investment houses blamed for the financial debacle, the county dropped its $1-billion lawsuit against Nomura Securities International, a Japanese brokerage house.

The suit, filed in U.S. Bankruptcy Court on Dec. 9, claimed that the brokerage unlawfully liquidated about $900 million in collateral that underpinned some of the county’s investments. Voluntarily dismissing the action, county lawyers said that since the county investment pool was liquidated after the lawsuit was filed, “the need for these actions has been reduced.”

Bankruptcy attorney Bruce Bennett said the county may reinstate its claim against Nomura once the court rules on legal issues in the county’s $2-billion lawsuit against Merrill Lynch.

* In Sacramento, state Sens. Tom Hayden (D-Santa Monica) and Quentin L. Kopp (I-San Francisco) called on a private sector panel advising lawmakers on the investment debacle to toughen a list of recommended changes in state law.

“The Wall Street practices which sucked Orange County into the black hole of bankruptcy must be addressed,” the lawmakers said in a letter.

They urged the panel to consider tougher restrictions on risky investments, fuller disclosure to agencies participating in public investment pools and a ban on campaign contributions to local government officials from investment banking firms.

Hayden and Kopp said loopholes allowed Merrill Lynch broker Michael Stamenson to contribute $1,000 to Citron the day before the Board of Supervisors approved a controversial $600-million bond issue underwritten by the firm last summer.

* At a luncheon hosted by the Orange County Chamber of Commerce, Supervisors Stanton and Gaddi H. Vasquez railed at critics who contend that they are not doing anything about the county’s financial situation.

“Most people I’ve talked to who have been involved in these type of calamities in the private sector have suggested to me that we have moved with significant speed to address these issues,” Vasquez said.

Stanton added that he had heard from financial experts that the county is moving more quickly than expected. “The fact is, we’re moving with great dispatch, but that doesn’t seem to be news,” he said.

* The supervisors established a five-member committee of finance professionals to oversee investments by the treasurer’s office. The watchdog group will recommend and review investment guidelines and file quarterly reports to the board on the county’s finances.

Daxon proposed that the oversight committee be used to help the board find the most qualified candidate to replace him when he leaves office this month, a position Popejoy supported.

But supervisors said they did not believe a lengthy search was necessary.

“Since there is already a rather predetermined decision on the part of the board that John Moorlach would be the heir apparent, if you will, it might be somewhat of a facade to go through a process where everyone had pretty much made up their mind,” Supervisor Marian Bergeson said.

Supervisor Jim Silva said he also supports Moorlach for the job.

“I think John Moorlach has had excellent insight and I could support Mr. Moorlach,” Silva said.

Because Moorlach’s appointment was not listed on the board’s agenda, County Counsel Terry Andrus cautioned the supervisors not to continue with their discussion, suggesting they schedule the item for action at another meeting. Vasquez asked that the issue be considered Tuesday.

Moorlach--who lost to Citron by a 2-1 margin in June--said he believes his 18 years of experience in accounting and financial planning qualify him for the treasurer’s post. If he is selected, he said, he will take office with a “100-day plan” aimed at restoring confidence in the treasurer’s office.

While Moorlach was receiving the news that he may soon have a new job, employees in Popejoy’s office were being told to pack their belongings.

“Everyone’s walking around like a deer in headlights,” said Annette Diogostine, 31, a research analyst, whose last day of work is Friday. “I just bought a new home two months ago in Fountain Valley. It’s going to be hard. No job. Two kids.”

Times staff writers Eric Bailey in Sacramento and Mark Platte and Michael G. Wagner in Orange County contributed to this story.