Some Jumped in Just Before O.C. Pool Sank

Christopher Francisco sees it as a classic case of being in the wrong place at the wrong time.

For a quarter century, the water research project Francisco runs stashed its surplus funds in the Los Angeles County treasury, a conservative investment vehicle that earns modest returns. Then last summer, after the agency moved its offices from Long Beach to Westminster, the directors dragged their bank account along to Orange County’s investment pool.

They collected only two days’ interest--a grand total of $473.83--from the higher-yielding pool before its stunning collapse. Now the tiny agency could lose some $200,000, depending on the outcome of ongoing negotiations with the county.

“Unfortunately, our timing was really bad,” sighed Francisco, the administrative officer for the Southern California Coastal Water Research Project, a joint powers authority formed in 1969 to study the marine environment.

“It just seemed to make sense. It was convenient. It was close by if we needed to go over there. . . We had no idea that the Orange County investment pool was involved in the sort of dealings that they were,” Francisco said of the switch. “Being at the wrong place at the wrong time, I think, is a good way to put it.”

About half a dozen cities and special districts joined the ill-fated pool in the final months before its demise, reaping little or no rewards before getting saddled with its losses and stuck in the largest bankruptcy of a governmental body in U.S. history. Another handful of agencies had time on their side, pulling out of the pool just months, or even days, before it went belly-up.

Consider Victoria Pardue, the bookkeeper for the Central Orange County Fixed Guideway Agency, a small JPA studying the possibilities for light rail along the Santa Ana River. She closed her account in September, just missing the morass of the bankruptcy.

“I pulled the money out of the pool not because I had some magical foresight. We just needed some money to operate, and we were getting low in our checking account,” Pardue said. “It was just a coincidence, and I am so glad, because I sure didn’t want to be responsible for that. We just lucked out. It was perfect timing.”

Pardue was among the smallest potatoes in the $7.4-billion pool that Treasurer Robert L. Citron ran for about 200 local schools, cities and other government entities, before resigning on the eve of the investment pool’s Dec. 6 bankruptcy filing. During two years in the fund, the Fixed Guideway Agency earned only $6,834 in interest because it kept just $25,000 to $70,000 in the county pool, using it like a checking account.

But the list of the lucky also includes some players with higher stakes. Both the city of Costa Mesa and the Laguna Beach County Water District had millions in the pool before their 1994 exodus.

Unlike Pardue, officials at the water district said their abandonment of the fund did stem from suspicions about Citron’s investment practices.

Louis Zitnik--a stockbroker who has sat on the district board for two decades--said he was clueless about the extent of the leverage or complex derivative securities plaguing Citron’s pool. But his inability to get more information about the fund finally frustrated him enough to just pull out.

“I always was suspicious because there is no perpetual money-making machine,” said Zitnik, who works for A.G. Edwards, but said he does not know a colleague at the same firm who raised questions about Citron’s investment strategy back in 1992. “I didn’t feel there was full disclosure. I wanted something to analyze. Finally, I said, ‘We’re not getting the answers we want--we want to get our money out of there.’ ”

Of $18 million available for investment, the Laguna water district had placed $4.8 million into the Orange County pool, starting in November, 1992. By the time the district left the pool last spring, it had netted nearly half a million in profit.

Zitnik said “it’s gratifying” to have helped the water district escape the losses that other investors suffered in the bankruptcy. “If anything,” he added, “I apologize for putting any (money) in there (the Orange County pool) in the first place.”

In Costa Mesa, city officials tried too late to close their Orange County pool account.

Throughout 1994, Costa Mesa Treasurer Susan Temple had a series of meetings with Citron and his deputy, Matthew Raabe, raising concerns about the investment strategy. Within months, she also began withdrawing money from the pool, reducing the city’s investment there from $15 million in June to $5 million in November.

Finally, in part because of concern over the fund’s future--but mostly because the city needed money for a new retirement system--Temple asked for the final $5 million Nov. 17. But with the county’s cash crisis spiraling out of control, Raabe and Citron gave Costa Mesa only $2.4 million, leaving the city with $2.6 million still stuck in the bankrupt pool.

Even Costa Mesa, though, had better luck than Laguna Hills and Stanton, two cities that opened accounts shortly before the pool fell.

Stanton made its first deposit Oct. 20, less than a week before Raabe first told other county officials about the pool’s imminent disaster, and six weeks before the crisis was announced to the world.

After years of keeping its money in the lower-yielding state pool, Stanton decided to move $3 million of its $8.8-million investment portfolio to Citron’s pool in hopes of making a few extra bucks. No dice: The city has yet to collect a penny. Instead, it faces a possible 20% loss like every other investor.

“We thought we might as well take advantage of a higher yield. Instead, we’ve taken ‘advantage’ of a loss,” complained Dean Porter, the city’s finance director.

“We feel like we were sort of led to the slaughter,” Porter said. “The county certainly knew by Oct. 20 that the fund was a different fund than we had been led to believe. It was already deteriorating. We feel the county should have warned us.”

In Laguna Hills, Councilman Randal J. Bressette refused to echo Porter’s wail.

Though Bressette was the lone dissenter when his City Council voted in February, 1994, to join the doomed pool, the certified financial planner declined to crow “I told you so,” instead mumbling something about not crying over spilled milk.

“Would we like to take the decision back? Of course. Can we? No,” Bressette pointed out. “It’s unfortunate that cities got into the fund at any point and then had Bob Citron and his staff mislead us. Certainly during the fall, and probably during the summer, every investor was misled.”

As the 200 investing agencies struggle to hammer out a settlement with the bankrupt county, there are no distinctions being made about who had entrusted money to the county treasurer’s pool first or last.

Those with money on deposit there Dec. 6, the date of the bankruptcy filing, face a potential loss. Those who had the foresight or the luck to have withdrawn their funds don’t.