Investors Told $440-Million Loss Should Be Transferred

Financial advisers working for participants in Orange County’s failed investment pool believe that more than $440 million of the pool’s losses stem from improper transfers and should be hung on the county rather than other pool investors, sources said Wednesday.

Price Waterhouse, the accountants working for the pool participants’ committee, have found more than 100 securities that were transferred from county-controlled accounts to the larger “commingled” pool since the summer of 1993, according to a source close to the committee. When the $7.4-billion investment fund was liquidated after Orange County declared bankruptcy Dec. 6, those securities lost $440 million, the source said.

Previous estimates have placed the county’s share of the $1.69-billion loss in the pool at $510 million, with the rest being spread among about 190 schools, cities and special districts that invested in the Orange County treasurer’s pool. But under Price Waterhouse’s analysis of the transfers, the county should bear at least $300 million more of the loss, for a total of more than $800 million.

“We’re going to use this as leverage” to get a better settlement from the county, the source said. He said Price Waterhouse had looked back to 1990 but found most of the transfers in the final 18 months before the fund’s collapse.

County lawyers and accountants learned of Price Waterhouse’s discovery earlier this week, but said Wednesday that they had not yet seen documentation. Financial advisers to the investors also declined to provide documentation to The Times without more details.

“The door doesn’t always swing both ways on information,” said Paul Sachs, chief of the Arthur Andersen & Co. accounting team working for the county. “They’ll kick and yell and scream if we don’t give them information, but we haven’t seen one report from them yet.”

Sachs and other county officials announced in January that they had discovered the improper transfer of about 60 securities from a county account to the overall pool. They said the treasurer’s office moved the securities last fall from a specific investment fund to the commingled pool at their face value, which was more than what they were worth on the open market at the time of transfer.

Former Treasurer-Tax Collector Robert L. Citron has previously said he believed no harm would come to the pool from these transfers because he planned to hold them to maturity, when they would again be worth face value.

Looking at about two-thirds of the 60 securities, Sachs said the difference between the face value and the market value at the time of transfer was about $140 million.

Sachs said Wednesday that his team has been unable to determine the market value at the time of transfer for all the other 20 securities, in part because of their complex construction, and has not analyzed the losses suffered by those transferred securities during the post-bankruptcy liquidation.

But looking back as far as 1989, Andersen Co. has found scores of other transfers among the accounts, Sachs confirmed Wednesday.

“Transfers took place very routinely between all the pools,” he said. “We haven’t added up the total.”