O.C. Rewards Brokerage That Battled Citron


Before there was John M.W. Moorlach, there was Mark J. Robles.

Moorlach, who lost in a landslide when he ran against former Orange County Treasurer-Tax Collector Robert L. Citron in last June's election, is expected to be rewarded, as soon as this week, with an appointment to the post he failed to win via the ballot box.

Robles will receive no such personal crown. But his firm, A.G. Edwards & Sons Inc., will probably reap a profit from the county's financial collapse by underwriting future county bonds, under a contract secured largely because of Robles' previous challenges to Citron. "I picked them because of their good citizenship to the county in the past," interim Treasurer Thomas E. Daxon said of Edwards and its co-lead underwriting firm, Goldman Sachs.

Goldman Sachs had refused to sell securities to Citron, and warned in the fall of 1993 that the fund he managed for about 190 public agencies across the state was "excessively risky." After Robles raised questions about the Orange County treasury in 1992, Citron pressured Edwards to fire him, and the firm refused.

"I thought that showed a lot of courage by Mark Robles, and I thought that showed a lot of courage by A.G. Edwards," Daxon said last week. "It showed me that in a pinch, you could count on A.G. Edwards, they did the right thing. It is a very positive statement for the integrity of A.G. Edwards."

But some county officials and industry insiders were surprised at the selection of Edwards, because the firm is not a large player in the municipal finance market, and the criteria for Edwards' selection were not exactly standard.

According to Securities Data, a private firm in New Jersey that tracks investment activity, St. Louis-based Edwards ranked 25th among underwriters of California municipal bonds last year. Goldman Sachs, the top municipal finance firm nationwide, ranked fifth among firms underwriting California municipal debt, Securities Data showed.

"It's kind of a joke among people when we discuss it," said Zane B. Mann, publisher of the California Municipal Bond Advisor newsletter.

"The fact that A.G. Edwards and Goldman Sachs were selected because they chose not to do business with Citron seems ridiculous. That's certainly not a normal reason for selecting underwriting firms," Mann said. "It's pretty shallow thinking."

Seventeen firms submitted proposals to the county, and four finalists made oral presentations in January to a group of about seven county officials and consultants, with several more advisers listening in from New York via conference call.

After the presentations, when everyone in the room noted their favorites, Daxon was the sole backer of A.G. Edwards, according to sources who attended the meeting but spoke on the condition of anonymity.

The next day, Daxon announced his selection, acknowledging to the county's financial consultants that Robles' early warnings about the fund and involvement in Moorlach's campaign swung the pendulum in Edwards' favor.

"I think the basis for selection should be quality. It should be totally based on the ability to help the county solve the crisis," said Chris Varelas, a leader of the Salomon Bros. team advising the county. "Any other criteria should not be the No. 1 priority."

Daxon said he believed all four finalists were qualified to be the county's underwriter, and that Robles' anti-Citron stance simply sealed the deal.

Robles, a 39-year-old Mission Viejo resident who runs Edwards' Laguna Hills office, first stumbled upon Citron's high-flying investment fund in the fall of 1992, when he was soliciting business from the city of Costa Mesa.

After Costa Mesa rejected him--Robles is a retail broker, and lacks the direct access to government securities that the city requires--Robles inquired about the city's investment portfolio and drafted a list of questions for city officials to send Citron.

"No one seemed to know what was in the pool. They didn't know what questions to ask," Robles recalled. "I just couldn't believe how nonchalantly finance directors were approaching their participation in that portfolio. They were doing so on the word of Bob Citron."

Intrigued by Citron's high rates of return, Robles asked for an inventory of the portfolio's securities. He said he was shocked, even back in 1992, at what he saw.

"I thought it was a bunch of crap. I had never seen anything like it," Robles said in a recent interview. "They were very illiquid. It's actually surprising to me that it took as long as it did for this house of cards to come down.

"Originally, we were going to go in and talk to (Costa Mesa and other cities) and compete for their business," said Robles, admitting that he was hoping to profit by criticizing Citron's investments. "I thought that by educating themselves, they'd naturally pull their business. I just thought it was so self-evident that this was a risky situation, I thought they would look into this and pull their money out."

But Robles was hesitant to sound a public alarm, in part because of Citron's irate response to his initial inquiries about the fund.

Incensed by Robles' letter to Costa Mesa officials, Citron fired off an angry missive to the firm's chairman, Benjamin Edwards, in October, 1992. Citron accused Robles of libel and threatened legal action against the company because Robles' letter was written on A.G. Edwards' letterhead.

"This statement by Mr. Robles is very fallacious to the County of Orange and we are very, very concerned about (it)," Citron wrote.

Benjamin Edwards shrugged it off, telling Citron over the telephone that he would not fire the broker. "We thought it was much within the rights of Mark as a citizen," Edwards said in retrospect. "And, furthermore, he asked good questions."

Robles said he kept asking questions about the fund, but kept the answers to himself until last spring, when he read newspaper accounts of Moorlach's campaign. He then joined about half a dozen behind-the-scenes advisers who helped Moorlach analyze the portfolio.

"It became just a matter of fascination. You know a scandal is happening, a scandal of Biblical proportions. The numbers were just staggering," Robles recalled. "I had to do some soul-searching. People who are whistle-blowers--while they perform a valuable service--nothing good ever happens to them."

Robles never publicly blew the whistle. Now good things are happening, if not directly to him, then to his employer.

After the fund collapsed and Orange County became the largest municipality in U.S. history to file for bankruptcy protection, Daxon told Moorlach he wanted to do business with the people who had helped him in the campaign. Daxon then met with Robles, and a few weeks later picked A.G. Edwards as a future underwriter.

County officials, their consultants, state legislators and Wall Street experts all agree that Orange County will have to refinance its current debt and issue more to escape its current fiscal morass. While no new bond issues have yet been planned, Goldman Sachs and A.G. Edwards will earn fees as well as free publicity from the future financings.

"It doesn't seem fair to me," said a leader of one of the firms who was rejected as underwriter. "One would think the criteria would be the firm with the banking expertise and the ability to sell securities. It certainly shouldn't be who criticized the pool in the past."

Though some raised questions about the appropriateness of Daxon's choice, others said such decisions often turn on outside factors.

"Everything is political," pointed out Christopher Taylor, executive director of the Municipal Securities Regulations Board, which monitors the public finance market. "I've seen situations where they say, 'We ain't picking anybody from New York because we don't like New York.' They may give a great deal of weight to something you and I would not care about."

"These beauty contests are always subjective," added one county adviser who spoke on the condition of anonymity. "To me, (the Moorlach connection) didn't hold a lot of weight, but everyone has their own criteria. It was Daxon's decision--he's the treasurer."

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