Alleged Stanton Secrecy Breach Being Probed

The Orange County district attorney is investigating allegations that Supervisor Roger R. Stanton disclosed confidential information and possibly undermined the county’s $2.4-billion bankruptcy-related lawsuit against Merrill Lynch & Co., officials said Thursday.

Stanton confirmed that he had been questioned by district attorney investigators about two weeks ago but downplayed the probe.

“I can unequivocally state that I have not released any confidential information about negotiations,” Stanton said.

The district attorney’s investigation centers on a complaint by former County Chief Executive Officer William J. Popejoy, who went to the Orange County Grand Jury two months ago asking the panel to investigate and remove Stanton from office. Popejoy accused Stanton of disclosing confidential information by publicly suggesting that the county might be able to settle its lawsuit against Merrill Lynch for $500 million.

The county sued the Wall Street firm last December, blaming it for illegally selling the county risky investments that contributed to its bankruptcy. Merrill Lynch officials have denied any responsibility in the county’s financial collapse Dec 6.

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A spokesman for the district attorney declined to discuss any investigation involving Stanton or the bankruptcy. But a high-ranking law enforcement source said the grand jury investigated Popejoy’s accusation and found enough evidence of possible wrongdoing to warrant an investigation by the county’s prosecuting agency.

Stanton’s attorney, Wylie Aitken, dismissed suggestions that investigators had any evidence against his client. Aitken, who was present during the district attorney’s interview with Stanton, said it was his impression that the investigators were only “following up” on Popejoy’s complaint because they felt compelled to “follow through” and resolve the matter.

“As an experienced litigator, and as an experienced negotiator in matters of these types, the suggestion by Mr. Popejoy that Stanton’s [statement] somehow has compromised the county’s ability to resolve the case with Merrill Lynch is totally absurd,” Aitken said.

Stanton and Aitken declined to discuss details of the interview with investigators.

“These folks have an obligation to make a courtesy inquiry to follow up on even the most absurd of accusations such as these,” Stanton said.

Popejoy said that he was “extensively questioned” by the district attorney’s investigators two weeks ago and that it was his impression they were taking his complaint seriously. But he also declined to elaborate on his interview.

When Popejoy went to the grand jury on June 22, he accused Stanton of undermining the county’s settlement negotiations with Merrill Lynch. He told the panel that Stanton publicly released a settlement figure that he and other board members had learned in a closed-door briefing by Popejoy. The supervisors were told that the county could expect to reach a settlement of about $1.2 billion, Popejoy told the grand jury. Stanton’s subsequent statement was “irresponsible” and might have cost the county hundreds of millions of dollars in a settlement, Popejoy said.

The alleged violation that the district attorney is reviewing falls under an obscure state law that prohibits “willful or corrupt misconduct in office,” officials said. A violation, if proven, would force an official’s ouster.

It is believed to be the first time in county history that a supervisor’s actions have been investigated under the law, Government Code Section 3060. The law, however, was used in the mid-1980s to investigate trustees of the Orange Unified School District.

Stanton’s comments about the Merrill Lynch lawsuit were made amid a heated campaign in June on passage of a controversial ballot measure proposed by Popejoy to raise the county’s sales tax by half a cent to help pull it out of bankruptcy.

Stanton, who opposed the tax, outlined other possible solutions to the bankruptcy that didn’t involve raising taxes. Among his options, which were detailed in a “position paper,” Stanton said the county could expect to receive at least $500 million from its lawsuit against Merrill Lynch.

On Thursday, Stanton said he never intended to suggest that $500 million would even come close to being an adequate settlement. He added that he would not be satisfied with anything less than $2.4 billion.

Stanton earlier explained that he chose the $500-million figure because it would satisfy the litigation claims of cities and special districts when the county investment pool collapsed and forced the Dec. 6 bankruptcy declaration.

He said he calculated the figure from public documents in the county.

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Under a public settlement agreement with the county, pool investors, excluding schools, would make up about 10% of their losses from a portion of proceeds. In that agreement, the county would receive $1 out of every $3 in litigation proceeds. Since investors are owed $342 million in secured claims, Stanton said he figured that $500 million was the minimum that the county needed.

“It wasn’t a settlement offer,” Stanton asserted Thursday.

He also took a swipe at Popejoy.

“It’s a shame that taxpayer money is once again being expended to indulge someone’s political sour grapes,” Stanton said.

Merrill Lynch officials have said repeatedly that discussion of any settlement is irrelevant because the firm did nothing wrong and accepts no responsibility for the county’s bankruptcy.

If the district attorney determines that there is enough evidence to support the allegation of wrongdoing in Stanton’s case, evidence would be presented again to the grand jury. The grand jury would then decide to support or dismiss the “accusation.” If the panel supported the accusation, a jury trial could be held.

* STANTON NOT THE FIRST: D.A. Capizzi has investigated other O.C. supervisors. A19

* EXECUTIVES GET BONUSES: 3 top O.C. toll road officials get 5% reward for good work. B1