ORANGE COUNTY IN BANKRUPTCY : After Citron’s Admissions, Experts Debate Need for Stricter Controls : Regulation: Calls for tighter rules are expected, but some watchers say this week’s events will naturally lead treasurers to use increased care.

Former Orange County Treasurer-Tax Collector Robert L. Citron’s admission that he falsified documents and misappropriated public funds probably will reignite calls for stricter regulations, but many municipal finance experts question whether additional rules are needed.

“The fact that the laws in place work is proved by the fact that he’s (facing) . . . jail,” said Elmer Dean Martin III, a Diamond Bar lawyer who specializes in tax-free municipal bonds. “I think there will probably be a lot of county treasurers around the country looking at their books, particularly if (Citron is sentenced to 14) years in prison and a $10-million fine.”

Citron’s guilty plea to six felony counts is the latest scandal to rock the nation’s $1.3-trillion municipal bond market during recent years.

Some federal officials and bond buyers are clamoring for better disclosure of potential risks in bond documents. Investors want schools, counties, cities, states and other government agencies that sell bonds to include more timely financial information in their bond offering statements--a requirement that bond issuers say would be too costly.

Sen. Barbara Boxer (D-Calif.) in January responded to Orange County’s unprecedented bankruptcy by demanding that federal regulators give municipal bond and debt offerings the same kind of scrutiny given to corporate debt offerings.

Boxer argued that cities, counties and states be required to prepare prospectuses and disclosure statements for formal review by the federal Securities and Exchange Commission.

But Boxer was at odds with SEC Chairman Arthur Levitt Jr., who argued for voluntary controls during testimony before the Senate Banking Committee.

Levitt on Friday declined to comment on whether tougher regulations are needed. In January, however, Levitt suggested that brokers address the disclosure issue by voluntarily agreeing to press states, counties and cities for more detailed information about their investments.

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Levitt also suggested that the huge market for municipal securities might be disrupted if his agency were required to demand complex prospectuses and disclosure statements from government agencies.

Stricter federal control over municipal offerings could slow down the complex municipal market, said David Brodsly, vice president with Moody’s Investors Service in San Francisco.

“This is a very complicated market with lots of ins and outs,” Brodsly said. “It might be naive to think that, by simply defining a form to be filled out, that you will somehow uncover things that otherwise aren’t being uncovered.”

Brodsly suggested that public officials nationwide are learning from Orange County’s painful bankruptcy. “This has already had a real effect on public officials who are signing (disclosure) certificates for tax-free bonds,” Brodsly said. “Clearly, there are lessons being learned by everyone about the importance of disclosure.”

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Some municipal bond industry observers suggested that tougher regulations won’t stop public officials who are disregarding existing rules.

“When you deal with dishonest people, they don’t care what the rules are,” said Richard Lehmann, president of the Bonds Investors Assn. in Florida, a group that represents bondholders.

Zane B. Mann, publisher of California Municipal Bond Advisor in Palm Springs, suggested that Citron’s guilty pleas will fuel public distrust of elected officials.

“I think that the level of public cynicism about public officials is at a high point,” Mann said. “We can’t believe what they say in person and what is in bond documents.”

But some observers argued that additional regulations might serve a purpose.

“It obviously means that we have to take a look at the entire federal and state regulatory apparatus,” said Lee Bogdanoff, one of the county’s bankruptcy attorneys. “Any time you have a failure of this magnitude you have to take a careful look at the regulatory apparatus. Of course, you’re probably never going to design a totally fail-safe system.”