Bankruptcy Settlement Plan Blasted

An attorney for two water districts with money in Orange County’s failed investment pool fired off a letter Friday protesting the bankruptcy settlement agreement approved last weekend by the committee representing all pool participants.

Ronald Rus, who has been an outspoken critic of the committee throughout its negotiations with the county, raised ethical questions about the agreement’s requirement that participating agencies promise not to sue the lawyers and accountants who brokered the deal at the same time they are being required to help pay their fees.

“The bottom line is this: The committee claims they negotiated this in our interest, but they disclaim any responsibility,” Rus said Friday. “And then they want to be paid 15 million bucks for it?”

Nearly 200 schools, cities and special districts had money in the fund run by former Orange County Treasurer-Tax Collector Robert L. Citron when the county filed for bankruptcy protection Dec. 6. Last Saturday, the seven-member pool committee accepted the county’s offer for a payout of the $5.7 billion remaining in the collapsed pool.

Under the agreement, investors will be reimbursed about 77% in cash.

Those that select Option A will get another chunk in “recovery notes” that will be equivalent to cash by June 5 and the county’s “best efforts” to eventually return the rest of the money. But they must promise not to sue the county to recover more. Option B gives investors only the 77% in cash but allows them to sue the county for more. However, they must promise not to sue the committee’s lawyers and accountants.

Individual agencies have until April 17 to decide whether to accept the agreement overall, and another several weeks to choose Option A or Option B.

In his letter Friday to Patrick Shea, the lead attorney for the pool committee, Rus voiced concerns many dissident investors have expressed privately in recent weeks.

Quoting several sections of the 55-page agreement, Rus challenged the attorneys’ contentions that they represent all pool participants equally.

“We do not understand how the committee and its professionals can at once claim to be appointed on behalf of the collective interests of the pool participants . . . and then refuse to make any warranties regarding the substance of the document,” Rus wrote.

“If the committee and its professionals who negotiated the settlement agreement . . . cannot or will not tell the pool participants, at the very least, what the document says and means , and stand behind it, who can?”

Shea could not be reached for comment Friday.

Rus, whose clients are the Yorba Linda Water District and the Municipal Water District of Orange County, asked Shea to respond to the following in writing by April 5:

* Whether agencies choosing Option B can sue on the “trust theory,” which alleges that the county held their money in trust, not as an investment, and therefore must return every penny.

The executive summary of the agreement implies trust cases would be allowed, but the document itself says they are banned. County bankruptcy attorney Bruce Bennett has previously said that agencies taking Option B cannot sue on the trust theory.

* Why agencies that take Option B, who are in effect saying they are dissatisfied with the agreement, must promise not to sue the accountants, lawyers, and pool participants who negotiated it.

* Why those taking Option B must contribute to the $15-million fund set aside to pay the accountants and lawyers for the pool committee.