BOND TICKER : West Virginia Case Gives Both O.C., Merrill Pause

In a case with similarities to Orange County’s $2-billion lawsuit against Merrill Lynch & Co., the West Virginia Supreme Court this week reversed a $60-million judgment against the investment firm of Morgan Stanley Group Inc. and ordered a new jury trial.

West Virginia had alleged Morgan Stanley broke state laws barring speculation with public funds that led to a $279-million trading loss in the state’s investment fund.

As in Orange County, West Virginia officials for a time enjoyed large profits by trading complex securities sold primarily by Morgan Stanley, and they recruited other government agencies to invest in the fund, borrowing money to make increasingly larger and riskier trades.

In an often humorous 36-page opinion that begins by quoting an Italian count (“Victory has a hundred fathers, but defeat is an orphan”), retired West Virginia Supreme Court Justice Richard Neely cites sources as disparate as the 1687 Edict of Indulgence by England’s King James II and a 1794 opinion by U.S. Supreme Court Justice John Jay.

In ordering a retrial, Neely said a jury should decide whether Morgan Stanley’s brokers violated West Virginia’s laws and prudent investment standards, comparing the case to the stock market crash of Oct. 29, 1929: “After all, if there had been a Dow Jones Index Fund in September, 1929, the prudent investor who had heavily invested in such a fund . . . would have been a hurt’n cowboy by January, 1930.”

Orange County bankruptcy lawyer Bruce Bennett, whose firm refiled its lawsuit against Merrill Lynch this week, said the West Virginia case will have little impact here.

“It’s a setback for [West Virginia] because they exerted a lot of effort and had a lower court ruling, but it only says that it’s not a summary judgment case,” Bennett said. “Therefore, the facts are going to matter. We never said the facts weren’t going to matter. We’re confident in our facts.”

While the rulings of other state courts have limited applicability here, Merrill Lynch & Co. spokesman Timothy Gilles said the West Virginia case still may provide a lesson for residents expecting a quick resolution in the county’s case.

“As we have said, there are certain differences between these two situations. However, this week’s decision in favor of Morgan Stanley does underscore the complexity of the issues involved and the length of time it takes to resolve them.”

Measure R Forces Will Rally the Troops

Opponents of Measure R plan several rallies over the next few weeks designed to generate interest in their campaign to defeat the proposed half-cent sales tax increase.

No on R forces will rally Thursday at 9:30 a.m. to coincide with a reopening ceremony for the Main Street freeway overpass in Santa Ana. Another protest is scheduled at South Coast Plaza in Costa Mesa at 4 p.m. June 26, the day before the special election. Measure R foes are also organizing a rally at the traffic circle in Orange, but a date has yet to be set.

At their monthly meeting Wednesday, members of the Committees of Correspondence--a vocal anti-tax group--said that Supervisors William G. Steiner and Gaddi H. Vasquez had violated a pledge they made late last year not to raise taxes as a way of digging out of the bankruptcy.

Steiner and Vasquez have endorsed Measure R.

Compiled by Jodi Wilgoren, Michael G. Wagner and Shelby Grad.