O.C. IN BANKRUPTCY : Stanton Threatens to Sue Popejoy for Slander : Feud: Supervisor says accusations that he undermined the county’s negotiations with Merrill Lynch have injured him. Ex-CEO says Stanton ‘has a warped sense of right and wrong’ and dares him to file suit.

Supervisor Roger R. Stanton and former Chief Executive Officer William J. Popejoy lashed out at each other in separate interviews Friday, with Stanton threatening to sue Popejoy for slander, and Popejoy defiantly daring him to do it.

Saying that he and his family have been “injured” and “maligned” by Popejoy, Stanton went on the offensive to dispute the former CEO’s accusations that he had undermined the county’s position in settlement negotiations with Merrill Lynch & Co., which the county blames for its investment pool collapse and is suing for billions in damages.

“He’s trying to make fact out of fiction,” Stanton said. “Enough is enough is enough. Whether you’re in public life or private life, you don’t have to put up with the kind of insults and lying that my family and I have been subjected to by this man.”

Popejoy countered that Stanton “has a warped sense of right and wrong” and invited the supervisor to take the issue to court.

“If the truth is slander, tell him to sue,” Popejoy said. “I said what I felt was right and what the facts show. . . . He should not be in office. He’s damaged our negotiations with Merrill Lynch and rendered a great disservice to Orange County.

“The interesting part of all this is that Mr. Stanton is very worried. He is scared, and he damn well should be. He can rationalize it any way he wants.”

Stanton said he’s fed up with Popejoy, is consulting with his attorney about a possible lawsuit, and is angry, not scared.

The verbal warfare between Stanton and Popejoy involves the county’s $2.4-billion lawsuit against Merrill Lynch, which the county filed after declaring the biggest municipal bankruptcy in U.S. history.

The county contends in its lawsuit that Merrill Lynch sold inappropriate investments to former Treasurer-Tax Collector Robert L. Citron on credit terms that far exceed the limits set by the California Constitution. When those risky investments lost value, the county-run investment pool plunged $1.7 billion in value, and the county declared bankruptcy.

Merrill Lynch officials have denied wrongdoing.

According to Popejoy, Stanton undermined the county’s secret negotiations with Merrill Lynch when he suggested on June 22 that the county might settle the case for $500 million. Popejoy, who was still the CEO at that time, accused Stanton of disclosing confidential information that was discussed with the board in closed session. Popejoy then went to the Orange County Grand Jury, asking the panel to investigate and remove Stanton from office for alleged misconduct.

A high-ranking law enforcement source said that the grand jury found enough evidence of possible wrongdoing that it has asked the district attorney to investigate the incident further. The district attorney has declined to discuss the matter, but others have confirmed that investigators are questioning county officials.

Stanton has strongly denied he did anything wrong. When Popejoy first raised the issue in June, the supervisor said he decided “to take the high road” and not legitimize his accuser’s comments with a response.

But as Popejoy continued to attack him publicly--most recently last week--Stanton said he could no longer remain silent on the subject.

“What he’s said is preposterous,” Stanton said.

The supervisor said he believes Popejoy initiated the grand jury’s investigation because he was trying to take revenge on Stanton for opposing Popejoy’s bankruptcy recovery plan, which included the failed ballot proposal to institute a half-cent increase in the sales tax. Popejoy has denied that.

Stanton’s statements about settlement proceeds were outlined in a “position paper” in which he opposed the sales tax measure, and proposed other ways of pulling out of bankruptcy.

Stanton said the settlement figure in his document was culled from public records, including an agreement between the county and agencies that invested in the county’s failed investment pool.

Under that agreement, pool investors--excluding schools--would rely on litigation proceeds to repay about 10% of what they had on deposit in the county’s ill-fated investment pool. The agreement stated that the county would receive $1 out of every $3 in litigations proceeds. Because investors are owed $342 million in these secured claims, Stanton said he figured that $500 million was the minimum that the county needed.

Stanton said he never intended the figure to be viewed as an acceptable settlement amount. He said he wouldn’t settle the Merrill Lynch suit for anything less than $2.4 billion.

Terry C. Andrus, the county’s former counsel who was in the closed-session meetings with Stanton and Popejoy and who expects to be rehired by the supervisors as a contract consultant, backed Stanton’s version.

“I didn’t interpret the figure as a settlement offer,” Andrus said. “Nothing in his position paper breached any confidential discussions from closed session that I’ve participated in.”

Chris Varelas, the county’s financial adviser, also said that he did not believe Stanton committed any wrongdoing.

“I would definitely not characterize it as a compromise of information,” Varelas said.

Attorney J. Michael Hennigan, who is handling the county’s lawsuit against Merrill Lynch, said he also did not view Stanton’s settlement figure as a problem.

“I thought he was just plugging a hole in his [recovery] formula,” Hennigan said. “I didn’t think it was a matter of any significance.”

Stanton, in fact, said Popejoy is the only one who has released confidential information from closed session by confirming to reporters that he was trying to negotiate a settlement with Merrill Lynch for $1.2 billion.

Popejoy said that the number was already widely reported in the press before he confirmed it and that he asked Merrill Lynch officials for permission to disclose the figure before his comments to reporters.

Stanton, however, said the board did not give Popejoy authority to reveal that figure, which was discussed in closed session.

“He’s gone too far,” Stanton said.

Stanton and his attorney, Wylie A. Aitken, have been collecting Popejoy’s comments about the supervisor from newspaper clippings and television news reports, looking for slanderous material. They did not know when they might file a lawsuit.

Aitken said Popejoy’s allegations are “ridiculous” and noted that the $500-million figure Stanton discussed in his position paper was not even a number that was mentioned during the board’s closed-door meeting with Popejoy.

“I’d like to get him on the stand and ask him to produce one word, one sentence, one piece of paper that came out of this meeting that was a breach of confidential information and then watch him sit there and sink in the chair,” Aitken said.

Popejoy said Stanton’s position paper speaks for itself.

“He used a settlement figure that he knew was well below what I had told the board in confidential meetings,” Popejoy said. “What he did was severely undermine the county’s case. That’s the misconduct.”

Stanton said he is serious about exploring his legal options.

“When I became an elected official I didn’t give up my right to be a human and my right to defend myself. And the way to do that in our society is through the courts,” Stanton said.

Even though the threshold for slander in cases involving public officials is much higher than for average citizens, Stanton’s attorney said he believes he might be able to prove that Popejoy knew his comments were false, and that he made them maliciously.

“This is above and beyond what somebody should be subjected to even in a political environment,” Aitken said.

“I have to expect I’m going to be a lightning rod for people who have an ax to grind,” Stanton said. “That is part of the job, but I have a right to defend myself from attacks like this.”

Julian Eule, a professor of constitutional law at UCLA, said slander lawsuits are “extremely difficult to win,” especially when filed by a public official.

* COMMITTEE URGES ACTION: A Senate panel urges lawmakers in Sacramento to support O.C. recovery efforts. B6