Citron May Have New County Job: Star Witness : News analysis: Some say his guilty plea will play a big role in suit against Merrill Lynch.

Does former Orange County Treasurer Robert L. Citron’s startling admission of guilt this week position him for his next role--as star witness against Merrill Lynch & Co.? Or does it tar him as an admitted liar who will be shredded on the witness stand by the Wall Street giant?

Citron, who pleaded guilty Thursday to six felony charges that he lied to bond investors and misappropriated public funds, is cooperating with investigators in hopes of minimizing his punishment. That leads many legal experts to believe that he will play a critical part as the county pursues its $2.4-billion lawsuit against Merrill, which sold the now-bankrupt county many risky securities and underwrote some of its now-suspect bonds.

Merrill officials would not comment Friday on the guilty plea. But in a news release, they called arguments that Citron’s guilty plea will help the county’s case “absurd,” adding that county officials “are using this in an attempt to try their legal claims against Merrill Lynch in the press.”

While all sides spent the day handicapping the importance of the felony pleas, observers said Citron’s brief courtroom appearance left many unanswered questions: What does he know? What will he tell investigators about Merrill Lynch and its super-salesman Michael Stamenson? And what will he say about the possible criminal involvement by his former assistant Matthew Raabe and other top county officials?

The break in the criminal investigation also leaves volumes of unanswered questions about the incredibly complex financial fiasco stemming from Citron’s reign. Cash-poor investors in the county’s ill-fated bond pool will be back in Bankruptcy Court Tuesday, voters must decide on a half-cent sales tax increase June 27, and the county is still short the $1.2 billion it needs to pay bondholders this summer.

Citron’s pleas were “a sideshow that would have happened, everyone knew that,” said Hugo Quackenbush, a vice president for Charles Schwab in San Francisco, which through its mutual funds owns part of a $600-million bond issue that comes due July 8.

“The real issue,” he said, “is the vacuum of leadership in Orange County, which has got a skimpy (bankruptcy recovery) plan. Everyone’s still very concerned about whether (Orange County leaders) understand the importance of the moral issue” involved in paying off the county’s debt.

Nonetheless, optimistic county officials Friday hailed Citron’s guilty pleas as a boon for their recovery plans, which hinge on winning their case against Merrill, the nation’s biggest brokerage firm. Officials argue that if Citron knew he was lying about the county’s finances, Merrill must have known of the problems and violated laws as well--allegations the firm denies.

County lawyer Lee Bogdanoff called Citron’s plea encouraging for the county’s case against the investment giant.

“We’ve said all along that Merrill Lynch is responsible for egregious activities that it committed,” Bogdanoff said. “The county’s position is that (Citron) couldn’t have acted in a vacuum. When you get down to brass tacks, this means Citron is going to pay in time, and Merrill Lynch is undoubtedly going to pay the citizens of Orange County.”

On the other hand, some lawyers and bond specialists said Citron’s guilty pleas are a boost for Merrill; even if Citron levels new charges against the firm, they figure, Merrill will be able to paint him as an admitted liar.

“I think it greatly weakens the county’s case against Merrill because they are going to have to rely on him, and he’s said he’s a liar,” said Zane M. Mann, publisher of the California Municipal Bond Newsletter in Palm Springs.

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Other analysts said the guilty plea could strengthen the bondholders’ hand in their litigation against the county.

“These plaintiffs suing the county will have big smiles on their faces now,” said Samuel Gruenbaum, a securities lawyer in Los Angeles. “The guy who was at the centerpiece of all this, he knew. And now everyone involved will be asked if they knew too.”

Patrick C. Shea, who represents participants in the county’s loss-riddled investment pool, predicted that the guilty plea will not affect the Tuesday hearing. U.S. Bankruptcy Judge John E. Ryan is scheduled to review a settlement plan for payouts to the 200 government agencies that had their money in the pool.

“None of this is going to be a big surprise to anyone,” Shea said. “ . . . That’s because the nature of the criminal counts to which Citron pleaded interrelate with the financial irregularities we already know about.”

The county does not expect investors to withdraw from the settlement plan, Bogdanoff said, because Citron’s pleas did not generate information about additional improprieties involving funds in the bond pool.

“The things Citron confessed had their nexus in disclosures that the county made a long time ago,” he said.

* A DESPERATE MAN

Why former Orange County Treasurer Robert L. Citron pleaded guilty. A1