Brokerage Asks Court to Dismiss O.C. Lawsuit : Bankruptcy: Merrill Lynch argues that the county did not own the investment-pool securities in question.
Merrill Lynch & Co. on Monday asked a federal judge to dismiss Orange County’s $2-billion lawsuit against the giant Wall Street firm, claiming the county did not actually own the securities at the center of the lawsuit and thus cannot sue over them.
Attorneys for Merrill Lynch cited the county’s own arguments in numerous legal filings that the investment pool run by former county Treasurer-Tax Collector Robert L. Citron was akin to a mutual fund, with money held in trust for nearly 200 local government agencies.
Merrill Lynch contends that the securities it sold to the pool, therefore, belonged equally to those 200 agencies, not just the county, so any lawsuit must include all of the agencies.
Moreover, the motion said, “Merrill Lynch . . . will demonstrate that the securities at issue belong to Merrill Lynch. However, for the purposes of this motion, it suffices that whoever might own the securities in dispute, it certainly is not the county.”
“The county simply cannot assert ownership over the trust’s property,” said the 18-page motion to dismiss, filed in U.S. Bankruptcy Court in Santa Ana.
Attorneys for the county downplayed the motion as routine.
“Merrill Lynch has yet to assert a substantive defense against the county’s claims,” lawyer Michael Swartz said. “Nothing in there says these transactions are legal.”
After becoming the largest government entity in U.S. history to file bankruptcy, Orange County filed a lawsuit blaming Merrill Lynch for a $1.7-billion plunge in the value of the investment pool last fall.
The lawsuit claims Merrill orchestrated “an overall scheme to defraud the county,” selling Citron billions in investments that violated the state Constitution and other laws in order to conceal “massive conflicts of interest and divided loyalties” within the brokerage firm.
County Chief Executive Officer William J. Popejoy met this spring with Merrill Lynch Chairman Daniel E. Tully, asking for a $1.2-billion settlement of the lawsuit, but the status of those negotiations is unknown.
In the motion to dismiss filed late Monday afternoon, Merrill Lynch’s attorneys also argued that any lawsuit must include all pool participants so the firm does not face duplicate claims based on the same issues. A group of cities and other government agencies that rejected an investment pool settlement by the county this spring has already sued the brokerage in U.S. District Court.
“Unless the claims of all pool participants, including the county, are adjudicated in a single lawsuit, Merrill Lynch is unfairly exposed to a substantial and unfairly prejudicial risk of inconsistent rulings and multiple or otherwise inconsistent obligations,” the motion states.
