ORANGE COUNTY IN BANKRUPTCY : Merrill Lynch Asks Judge to Dismiss $2.4-Billion Suit
Merrill Lynch & Co. is asking U.S. Bankruptcy Court Judge John E. Ryan to dismiss Orange County’s $2.4-billion damage suit alleging that the Wall Street firm “wantonly and callously” sold risky investments to the county in violation of state and federal laws.
A 20-page motion filed Wednesday in Santa Ana argues that the county’s legal arguments “ring hollow” because the Board of Supervisors “championed those investments when it was to their advantage to do so, i.e., when they were able to receive the above-market investment returns that (former county Treasurer Robert L. Citron) provided to them.”
Merrill Lynch played a key role in supplying the ill-fated county bond pool with some of its riskiest securities. Even before the county filed suit Jan. 12, Merrill Lynch officials were denying that the investments were improper, or that county officials were unaware of the risks Citron was taking.
County bankruptcy attorneys will argue against Merrill Lynch’s motion during a 10:30 a.m. hearing May 12 in Ryan’s courtroom. Attorneys for the county and Merrill Lynch are exchanging documents as part of the legal discovery process, but a trial date has not been set.
County officials are counting on a hefty monetary award from the $2.4-billion suit to help repay the schools, cities and other agencies that lost money when the county and the ill-fated bond pool were forced into bankruptcy.
But in the Wednesday filing, Merrill Lynch asserts that Orange County’s lawsuit is “marred by a series of legal defects.”
The motion repeatedly attacks Orange County’s strategy of filing two bankruptcy petitions--one for itself, and one for the county-run investment pool. Merrill Lynch attorneys characterized the double filing as “a fiction” that’s designed to advance the county’s legal strategy at the investment firm’s expense.
Attorneys familiar with the suit said that Merrill Lynch’s filing is part of the company’s own legal campaign to limit exposure to lawsuits generated by Orange County’s unprecedented bankruptcy. Merrill Lynch has been named in lawsuits filed by the county, disgruntled bond pool investors and hundreds of Orange County bondholders.
