O.C. Ready to Sue Firms It Blames for Bankruptcy
Orange County’s legal advisers are on the verge of bringing massive lawsuits against a wide array of firms--including a former auditor and bond counsel--that they blame for triggering the county’s bankruptcy.
At the top of the list of litigation targets is KPMG Peat Marwick, whose audits county officials say failed to warn of impending financial calamity.
Also on the list are CS First Boston Corp. and Nomura Securities International, prominent firms that sold risky securities officials believe helped precipitate $1.7 billion in losses in the county-run investment pool. The county also is plotting legal strategy against LeBoeuf, Lamb, Green & MacRae, Los Angeles legal counsel on a controversial $600-million bond offering that pumped borrowed money into the county’s investment scheme but left critics complaining of inadequate disclosures.
The lawsuits would come on top of a pending $2-billion suit against Merrill Lynch & Co., a heavy seller of securities to Orange County and No. 1 on the county’s list of those to blame for its current bankruptcy. Like Merrill Lynch, representatives of Peat Marwick contend they did nothing to contribute to the bankruptcy.
A Nomura representative did not return phone calls. A spokesman for First Boston said he could not comment because “we don’t know a thing about it.”
A partner at LeBoeuf said she was unaware of any imminent legal action.
The litigation efforts are taking shape as an Orange County bankruptcy recovery plan appears to be gaining support locally and in the state Legislature, raising the prospect that the county could emerge from Chapter 9 bankruptcy by mid-1996.
“You’re going to see lawsuit after lawsuit, boom, boom, boom, the day after this recovery plan is in place,” said one county official who declined to be identified.
Now more than ever, the county’s full recovery is riding on litigation success. A key element of the county’s recovery plan calls for using litigation proceeds to repay more than $800 million to cities, schools, special districts and others that lost money in the county’s ill-fated investment scheme. If the county fails to win in court, those entities would not get an additional cent.
“I feel that the best likelihood for recovery of monies is to expand the suit to include other culpable parties, rather than just Merrill Lynch,” Supervisor William G. Steiner said. “This potential could result in a global settlement, where the burden is spread among many entities. . . .”
An official of one prospective defendant said the firm felt “abused” by news of a potential lawsuit, and criticized the county for tarnishing the company’s name.
Peat Marwick contends its county audits were properly performed and were never intended to ferret out risky financial maneuvers. Miller said a lawsuit would unfairly hurt Peat Marwick’s standing in the marketplace.
