Brokerage May Be Quizzed Further : Inquiry: Counsel to state Senate panel, citing recent news stories, says Merrill Lynch may have misled lawmakers.

Citing recent newspaper reports revealing that Merrill Lynch & Co. may have misled them, state lawmakers investigating Orange County’s bankruptcy could hold another hearing to further question Merrill officials about their role with the county.

The Times reported last week that a top salesman for Merrill Lynch & Co. misled lawmakers about his contacts with Orange County. Another published report showed that top Merrill officials in a series of internal documents warned that Orange County’s investment strategy was dangerous and questioned whether Merrill should continue to sell securities to the county.

“Based on these recent news stories, I think we were clearly misled by Merrill Lynch,” said Scott Johnson, chief counsel to the Special Senate Committee on Local Investments.

Johnson said the committee is trying to obtain the internal memos written by Merrill’s top officials. Johnson said that once documents are obtained, “undoubtedly we are going to want to bring Merrill back.”

The committee will be asking Merrill for the memos this week, Johnson said, adding that “Merrill would be foolish not to give them up; we will get them one way or another.”

Merrill spokesman Tim Gilles said Merrill had not been contacted by Johnson, but stressed that “Merrill Lynch has cooperated and will continue to cooperate fully with the Senate special committee.”

The committee has already held a series of state hearings to investigate the details of former County Treasurer-Tax Collector Robert L. Citron’s ill-starred bet on interest rates, which led to the county bankruptcy. Lawmakers questioned top Merrill officials for hours about their dual roles in selling Orange County bonds to investors and selling Citron the risky investments for his strategy.

New evidence about Merrill’s efforts to sell a $600-million bond issue for the county contradicts sworn testimony by Michael G. Stamenson, the salesman who sold complex securities to Orange County and was Merrill’s primary contact with the county.

While Stamenson testified before the special Senate committee in January that county bond issues were outside the scope of his work, a Times story revealed that Stamenson was told by his employers to call Citron last June 30 and tell him Merrill could underwrite a $600-million bond issue at a cheaper price than a rival firm.

Internal documents, revealed in a Wall Street Journal report, showed that Merrill’s concern about the county reached all the way to its 17-man executive committee nearly three years before the county’s $1.7 billion in trading losses plunged it into bankruptcy. Top officials warning about the county’s strategy were ignored by others in the firm who continued to encourage Citron’s risky borrowing, the documents show.