Two Sitting Supervisors Get SEC Warning Notice : Bankruptcy: Stanton, Steiner and other three on board when fund collapsed told civil charges possible, sources say.

Federal regulators have warned five past or present members of the Board of Supervisors that they might face civil charges stemming from Orange County’s $1.7-billion investment collapse, sources said Wednesday.

The supervisors, including two who are still on the board, are among several officials and financial firms notified by the U.S. Securities and Exchange Commission that civil charges might be filed against them in federal court, a former board member and sources confirmed.

If charges are filed, it would mark the first legal action that lays blame for Orange County’s bankruptcy on its elected leaders, who repeatedly have contended they were misled by staff and duped by financial firms that made millions of dollars in dealings with the county.

Through their attorney, the five supervisors who governed the county before the Dec. 6 bankruptcy have been issued “Wells notices” by the SEC. The notices are an official heads-up from the regulatory agency that charges might follow and they allow firms or individuals a chance to argue against charges before a court proceeding is initiated.

Retired 5th District Supervisor Thomas F. Riley confirmed that he had been notified and that on Wednesday he received a copy of a reply sent by the county to the SEC.

“I did get this letter this morning,” Riley said. “It was sent to the commission by our attorneys.”

Riley said the letter described the possibility of an SEC action, but he would not elaborate.

Gerald Boltz, the special county attorney who represents the supervisors in SEC matters, did not return calls for comment.

“This is a very sensitive time right now,” said one source, adding, “There are negotiations going on with the SEC.”

Roger R. Stanton, the board’s current chairman, and William G. Steiner are the only sitting supervisors who were in office at the time of the unprecedented municipal bankruptcy. Gaddi H. Vasquez resigned last month. The terms of Riley and Harriett M. Wieder expired at the end of last year.

Barbara Brown, Stanton’s executive assistant, said he told her Wednesday that he had not received a Wells notice.

Steiner said he would not comment, adding that SEC officials had admonished witnesses subpoenaed to testify not to talk publicly about the case.

Barbara Daly, former press aide for Vasquez, said “he’s unreachable.”

Wieder could not be reached for comment.

SEC chief of enforcement William McLucas also said he couldn’t discuss the notices.

The SEC action raises questions about whether supervisors gave “proper approval” to the issuance of more than $1 billion in municipal debt last year, said sources familiar with the investigation.

All of the county’s borrowings between June and September last year were approved without board debate or discussion, and appeared on the board’s “consent calendar” with other routine items of business such as equipment purchases.

Federal investigators have examined all of the county’s municipal finance dealings in 1994, sources said. The investigators have focused with particular interest on a controversial $600-million taxable note deal sold in June, 1994, and $320 million of pension bonds the following September.

Individuals who violate federal securities laws--some of which require public disclosure of critical financial information--face various penalties, from stiff fines and permanent injunctions to negotiated consent decrees in which they promise not to violate the laws again. Violators also can be barred from working in the securities industry and forced to make restitution or pay penalties.

One source said that SEC attorneys have indicated the agency’s 10-month investigation is nearly completed and that enforcement actions would be “sent out in stages” to various officials and financial firms.

C.S. First Boston Corp., the underwriter on the pension bonds on which the county later defaulted, already has received a Wells notice from the SEC.

So has Rauscher Pierce Refsnes, Inc. of Dallas, a financial adviser for various school and government agencies in Orange County, including for a $299-million note issue sold by the Orange County Board of Education on behalf of 27 local schools districts in 1994.

First Boston and Rauscher Pierce spokesmen declined to comment.

The SEC also has given a notice to former County Treasurer-Tax Collector Robert L. Citron, who managed the county’s investment pool. Earlier this year, Citron pleaded guilty to six counts of violating state securities laws and misrepresentation and agreed to cooperate with investigators, including the SEC.

In its current wave of Wells notices, sources said, the SEC also is focusing on the role of financial firms in several taxable note deals sold by Orange County school districts to invest in the county investment pool operated by Citron.

The next phase of Wells notices is expected to target other Wall Street investment firms and financial advisers that did business with the county, especially firms that participated in the $600-million deal sold by the county solely to invest in Citron’s pool, sources said.

The notices, named after former SEC enforcement chief John A. Wells, typically give firms or individuals about two weeks to argue against such action either in a 40-page rebuttal or 12-minute video.

For the financial firms, sources said, charges could most likely involve violations of federal disclosure laws, including a rule that makes it a crime to mislead investors or “omit material facts” from bond documents.

Elaine Cacheris, executive director of the SEC office in Los Angeles, which has conducted most of the investigation, did not return calls for comment Wednesday. In the past, Cacheris has said the agency won’t discuss pending investigations.