For 17 Agencies, Pool Settlement Settles Nothing : Crisis: For those who chose Option B, the agreement portends years of litigation.

Most of the nearly 200 agencies with money in Orange County’s ill-fated investment pool greeted last week’s ratification of a settlement agreement as the end of a divisive fight that will allow cities and school districts to get back to business.

But for 17 maverick cities and redevelopment agencies, the settlement marks the beginning of what could be years of litigation against the county and perhaps the Wall Street brokerage houses that sold securities to the county.

The agencies--the cities of Brea, Buena Park, Claremont, Costa Mesa, Fountain Valley, Huntington Beach, Montebello, Mountain View, Santa Barbara, Tustin, Yorba Linda and six of those cities’ redevelopment agencies--selected settlement Option B, which provides pool investors with about 77 cents on the dollar and allows them to seek the remainder through the courts.

City leaders said the decision to select Option B was based as much on finances as on the deep distrust they feel toward county officials, whom they blame for the crisis.

“We’ve been lied to. We’ve been screwed,” said Buena Park Councilman Donald L. Bone. “They’ve just not told us the truth.”

Bone’s frustration was echoed in more than a dozen council chambers across the state over the past two weeks, as elected officials took aim at the county and vowed to recover 100% of their pool money.

Tustin leaders were so angered by the county’s handling of the crisis that they voted for Option B last week, while conceding that it probably doesn’t make financial sense for them to sue the county.

The city--which withdrew its principal before the pool collapsed--has just $184,000 left with the county. “We probably don’t have enough money to be messing around with (Option) B,” said Mayor Thomas R. Saltarelli. Still, he and other council members said it was important to send a message to the county.

For other cities with larger investments, selecting Option B seemed the most prudent course, officials said.

Some said they quickly dismissed Option A, which gives school districts 90 cents on the dollar and all other agencies 80 cents on the dollar in cash and recovery notes, with the remainder promised at an unspecified later date. Under Option A, pool participants lose their right to sue for the full recovery.

“The problem with Option A is that you have to trust Orange County. You have to take their bogus notes and you sign away all your rights,” said Claremont Mayor Algird Leiga. “I don’t trust Orange County. I want to reserve my rights” to sue.

County officials said they don’t relish the prospect of more lawsuits from the Option B camp. “I have a problem whenever one government entity sues another government entity because they’re using the same taxpayers’ money,” said Supervisor William G. Steiner. “I don’t like to see that occur.”

Steiner said he was pleased that the vast majority of investors went with Option A, a fact that “will disappoint many lawyers.”

City officials say their motive for choosing Option B was not to force further confrontations with the county. Rather, they expressed skepticism that the county will ever fully repay agencies that took Option A.

“I think plan A is a farce,” said Buena Park City Manager Kevin O’Rourke. “To present this to the community as a 100% (repayment) plan would be lying.”

County officials have vowed to do whatever they can to fully repay Option A investors, though they admit it might take years.

If the settlement is approved by the U.S. Bankruptcy Court, the county has pledged to pay Option A investors their cash and recovery notes by the summer. If the recovery notes are not cashable by June 5, investors can switch from Option A to Option B.

The dissension over the settlement underscores what some Option B agencies see as a credibility gap that has emerged between the county and pool investors since the Dec. 6 bankruptcy filing.

Some pool participants contend that the county misled them about the high-risk nature of the county’s investments and kept them in the dark when the pool began losing its value.

Their outrage only intensified with revelations earlier this year that the county treasurer’s office improperly diverted $85 million in interest payments due investors into separate pool accounts. Agencies also have criticized the county for failing to respond to their requests for information in the weeks following the bankruptcy filing.

“It becomes clear by each passing day that we were not given all the facts,” said Buena Park Mayor Don R. Griffin. “Information was kept from us, funds were diverted and fraud probably occurred.”

Several cities and water districts have asked the U.S. Bankruptcy Court to lift a ban on litigation related to the county crisis so that the agencies can go to state court to seek return of their money.

Huntington Beach has sued Merrill Lynch & Co., accusing the Wall Street giant of selling risky securities to the county in violation of the law. Merrill Lynch has denied any wrongdoing.

O’Rourke said the agencies that selected Option B are meeting to discuss strategy and might seek joint litigation.

“It’s easier on the court, and it’s easier for us to share the costs of litigation,” he said. “We have the same issues.”

Times correspondent Lesley Wright contributed to this report.