SEC Warning O.C. Officials of Possible Fraud Charges : Bankruptcy: Sources say investment firm executives are also being notified, indicating end of investigation is near.

Signaling that the Securities and Exchange Commission is wrapping up its massive investigation into the Orange County bankruptcy, federal authorities are notifying county officials, bond lawyers and executives of several investment firms that action may be taken against them for possible violations of federal anti-fraud laws, sources said Sunday.

SEC officials began making telephone calls to the individuals last week, inviting them to explain why they should not be charged, the sources said. This overture, known as a Wells procedure, is invoked when SEC officials have largely completed their investigation and believe they have enough evidence to file civil enforcement action in federal court.

Sources who asked not to be identified said that from 10 to 100 such phone calls were being made, but declined to give a more specific number.

The targets reportedly include former county Treasurer-Tax Collector Robert L. Citron, who managed the ill-fated investment pool that lost $1.7 billion last December, plunging the county into what has become the nation’s largest municipal bankruptcy.

Citron, who oversaw the pool, was indicted and has pleaded guilty in Superior Court to six felonies including misappropriating public funds. He faces a possible maximum sentence of 14 years in state prison and a $10-million fine. He is expected to be a key witness in the county’s $2.4-billion lawsuit against Merrill Lynch Inc.

Citron’s lieutenant, former Assistant Treasurer Matthew Raabe, will also be asked to state why he should not be charged by the SEC, the sources said. Raabe, who was indicted by the Orange County Grand Jury on charges similar to those against Citron, has yet to stand trial.

Apart from the SEC probe, the Orange County district attorney’s office and the U.S. attorney’s office are conducting separate investigations.

Also targeted by the SEC are other county officials who had responsibility for the investment pool, some officials of local governments and agencies that issued notes raising money for investment in the pool, executives with the firms that underwrote the investments, and law firms that gave advice on the deals, the sources said.

The charges vary, according to sources, but would all center on one main type of alleged violation: Failure to disclose accurate information to investors about the riskiness of the bonds and the purpose of the bond sales.

Reached Sunday night, three county supervisors--William G. Steiner, Roger R. Stanton and Marian Bergeson--and former Supervisor Thomas F. Riley said that they had not received any communication from the SEC and that they were not aware of telephone calls being made.

However, a top county official, who spoke on condition of anonymity, said, “we know they’re on their way.”

Sources said Merrill Lynch, which sold the county billions of dollars in securities, is among the firms expected to receive notification from the SEC, as is Rauscher Pierce Refsnes Inc. A few days after the county declared bankruptcy, SEC officials had subpoenaed records from both brokerages to determine if disclosure laws were followed. The firms denied any wrongdoing.

Leifer Capital, a Santa Monica firm that advised the county on major borrowings, is also expected to receive a Wells notice, sources said.

As part of its investigation, the SEC focused on as many as 10 bond transactions by local agencies solely for the purpose of investing in the ill-fated Orange County investment pool, sources said. These notes were issued by several Orange County school districts and cities, both within and without the county. The list of issuers includes the Newport-Mesa Unified School District, the Orange County Department of Education and the cities of Irvine and Anaheim. The county itself issued $600 million worth of taxable notes last summer.

The county’s highly leveraged investment pool had recorded impressive earnings for many years, benefiting the county and local schools and other municipalities. But the earnings depended on interest rates remaining low. When rates rose sharply last year, the county’s investments suffered heavy losses, leading to bankruptcy.

Some of the other professionals involved in issuing the notes worked for Rauscher Pierce Refsnes and for bond counsel firms LeBoeuf, Lamb, Greene & MacRae in New York and Rutan & Tucker in Los Angeles.

A Merrill Lynch spokesman had no comment Sunday. Jeffrey Leifer, who owns the Santa Monica company that bears his name, didn’t respond to a message left on his home answering machine Sunday evening.

Taylor Briggs, managing partner of LeBoeuf, Lamb, which served as bond counsel to Citron and the county, said his law firm had not received a Wells notice. “We did not get any such notice, and I don’t know of any reason why we should,” Briggs said.

John B. Orenstein, deputy general counsel of Inter-Regional Financial Group, parent of Rauscher Pierce of Dallas, declined to say if his firm had received one of the SEC phone calls. As a matter of policy, “we don’t say anything one way or another about SEC investigations,” Orenstein said.

Under the Wells procedure, the SEC, which regulates stock and bond brokers and the securities industry as a whole, generally tells the targets of investigations that they have two weeks to make a response, if they desire.

However, sources said that because the Orange County case is complex and involves dozens of potential defendants, the agency is likely to allow a longer period for a response.

The SEC launched its massive investigation into Orange County’s securities transactions shortly after county officials declared bankruptcy Dec. 6.

As part of their investigation, SEC officials subpoenaed thousands of county documents including detailed records from the five-member Board of Supervisors. Apart from submitting records, county supervisors were summoned to testify before the SEC.

Top county officials, including Auditor-Controller Steve E. Lewis, former County Administrative Officer Ernie Schneider and Eileen Walsh, the county’s former finance director, were also made to testify before the agency in closed-door sessions.

Schneider had no comment Sunday night on whether he had received a Wells notice. Lewis did not return a call for comment.

Sources have previously told The Times that county officials who appeared before the SEC were specifically asked about their relationships with numerous underwriters and brokers, such as Michael Stamenson of Merrill Lynch, one of Citron’s chief brokers.

Investigators were also curious about Leifer, Citron’s longtime financial adviser, who earned more than $2 million arranging the county’s annual borrowings.

Paltrow reported from New York and Maharaj from Orange County.