Countywide : Merrill Lynch Filing to Deny County Claim

Merrill Lynch & Co. again denied responsibility for the investment fiasco that forced Orange County into bankruptcy, in its response to the latest version of the county’s $2-billion lawsuit against the brokerage firm filed in U.S. Bankruptcy Court.

In court papers scheduled to be filed with the bankruptcy court on Monday, the firm elaborated on its contention that because the county didn’t actually own the money in the ill-fated investment pool, it can’t sue the brokerage house in bankruptcy court.

“This latest attempt at blame-shifting has the same fundamental defect of its earlier complaints,” said Merrill Lynch spokesman Timothy Gilles. “The assets here were not the property of the county and the case can’t properly be brought in bankruptcy court.”

The filing contains a sworn declaration from state Sen. Mike Thompson (D-St. Helena), who wrote the section of the state law in 1991 that established that counties holding funds for other entities do not have “creditor-debtor” relationships.

Michael Swartz, a lawyer for the county, said he had not received the company’s response late Friday and could not comment until he had read it.

The county filed its $2-billion lawsuit for the second time Oct. 26. Eight days earlier, U.S. Bankruptcy Judge John E. Ryan had dismissed the action on technical grounds, ruling essentially that he was not convinced that the county was the proper party to bring a claim against the Wall Street firm.

In its 105-page complaint, the county once more accused Merrill Lynch of causing the unprecedented bankruptcy by illegally giving former Treasurer-Tax Collector Robert L. Citron billions of dollars in credit so that he could recklessly invest the money in highly risky securities.

Merrill maintains it violated no laws and acted professionally.

County lawyers have argued that Orange County owned the securities managed by Citron, thus the county was the proper party to sue Merrill Lynch.

But the brokerage firm contends the securities belonged to the 187 government agencies who invested in the pool, and not Orange County, and it should be up to those agencies to file any lawsuit.