Countywide : ‘Killer Bees’ Take Suit to District Court

Less than a week after a federal judge declined to hear their lawsuit, a coalition of California public agencies refiled a similar action Monday in U. S. District Court in Santa Ana, seeking $50 million in losses suffered when the Orange County Investment Pool crashed last December.

The lawsuit by 14 cities and government agencies alleges that Merrill Lynch officials and former county Treasurer-Tax Collector Robert L. Citron conspired to enrich the brokerage firm and the county at the expense of nearly 200 cities and school districts that poured funds into the county’s failed investment pool.

Citron has pleaded guilty to six counts, including misappropriation of funds, and his sentencing is pending. Merrill Lynch spokesmen have consistently denied any wrongdoing.

In their latest civil action, the government agencies repeat allegations contained in 14 separate lawsuits pending in U. S. Bankruptcy Court. On Nov. 21, U. S. District Judge Gary L. Taylor rejected a request by the agencies to have their lawsuits transferred from bankruptcy court, ruling that the bankruptcy judge had not yet decided whether the agencies’ legal actions could proceed in his court.

The agencies bringing the suit are known as the “Killer Bees” for having chosen Option B under a court-approved settlement that gave pool investors who selected that option only 77% of their pre-bankruptcy deposits but the right to sue for the unpaid 23%. That right was surrendered by the vast majority of pool investors, who--under Option A--chose to receive 77% of their deposits plus a series of IOUs for their balances.

Lisa Norlander, an attorney for the Killer Bees, said she believes the latest lawsuit has a better chance of proceeding in federal court because “it is not a lawsuit against the county.”

Orange County Treasurer-Tax Collector John M.W. Moorlach is named as a defendant in the lawsuit only because he is the pool’s trustee, Norlander said.

County bankruptcy attorney Bruce Bennett said he could not comment on the Killer Bees’ action because he had not seen a copy of the lawsuit.