Firms’ Courtship of O.C. Officials Detailed : Bankruptcy: Grand jury testimony depicts how lobbyists for underwriters used campaign donations to sway officeholders to award contracts to their clients.


For years, a number of Wall Street’s biggest firms and Orange County politicians engaged in a lucrative courtship, with campaign contributions flowing in one direction and multimillion-dollar bond deals being awarded in their wake.

Details, brought to light in the more than 9,000 pages of testimony before the Orange County Grand Jury obtained by The Times, show that well-connected lobbyists and political consultants were routinely hired to sway the county’s top elected officials, who chose the underwriting firms for billions of dollars in new bond issues.

The testimony portrays a near-textbook description of “pay to play,” a pernicious system of buying political access that federal securities regulators have been trying to stamp out in recent years. In often frank terms, both consultants and top county officials described how the normally secretive world of municipal finance operated in one of America’s richest counties, and how sensitive top officials were to criticism about the system.

Although no witnesses apparently came forward with information about blatant quid-pro-quo vote selling, the testimony made clear that those who hired the right lobbyists and made timely contributions could win the business.


Some of the most revealing testimony came from Scott Hart and David Ellis, prominent Orange County lobbyists whose Newport Beach firm has represented Merrill Lynch & Co. in obtaining county bond business since 1991.

The giant Wall Street firm, blamed by Orange County for $1.64 billion in investment losses that triggered the county’s bankruptcy, agreed to pay Hart and Ellis a retainer and “a performance incentive, like a bonus” if they helped Merrill Lynch get selected to underwrite county bond deals.

“Our job was to assist Merrill Lynch in marketing bonds [and] underwriting services to different governmental agencies as well as the Board of Supervisors,” Hart said, "[and] to educate them a little bit on what the political environment was in that particular jurisdiction where we were marketing the bonds.”

“Why would a Merrill Lynch or any other underwriter need [your services] to gain access to an elected official?” a prosecutor asked.


“That is the way it has been as long as I have been around,” Hart replied. “I don’t know of any major underwriter service, bond service, financial service [operating] in this county that doesn’t have a lobbyist . . . working for them.”

Part of the lobbyists’ work involved educating clients about the long-standing tradition of “district prerogative.” Under that practice, the selection of a bond underwriter was left to the supervisor in whose district a capital project was going to be built.

It was important to know who would be exercising the prerogative, Hart said, so that qualified firms “could come in and . . . present their product” to the right supervisor.

The testimony of Ellis, Hart’s partner, showed the kind of nitty-gritty details about campaign donations that a client such as Merrill Lynch received for its money.

Ellis analyzed in-depth the political standings of Supervisor Roger R. Stanton, then-Supervisors Chairman Gaddi Vasquez and Gary Hausdorfer, a director of the Orange County Transportation Authority and, at the time, a San Juan Capistrano city councilman.

“As you know, we ran into an unexpected problem with Supervisor Roger Stanton, chairman of [the Orange County Transportation Authority], during the last round of financing,” Ellis wrote in a February 1992 proposal to Merrill Lynch to continue providing lobbying services.

“Supervisor Stanton’s term on [the transportation board] expires in June 1992. He will be replaced by Supervisor Gaddi Vasquez. We believe Vasquez will replace Stanton on the finance committee.

"[Merrill Lynch] must spend the next few months developing a relationship with Vasquez,” Ellis continued. “As a Hispanic, he is a rising star in the Republican Party. He is up for reelection in June. Although well funded with over $200,000 in his account, he is always looking for more. Currently he has no opponent.”


Ellis recommended that the brokerage firm organize fund-raising events for Vasquez and Stanton.

“Because [Vasquez] has no opponent, and he will be on the political landscape for many years, this is a good investment in the future,” Ellis wrote.

“Because of his predisposition against Merrill Lynch, [Stanton] must be turned around,” Ellis wrote. “Merrill Lynch must be involved in a significant way.”

Stanton accepted Merrill Lynch’s invitation to organize a fund-raiser for him, but Vasquez rejected the firm’s offer.

Attorney Wylie A. Aitken, who represents Stanton, said: “It’s interesting to note that none of the [grand jury’s] allegations against Roger Stanton have anything to do with pay for play. I can only surmise that if the district attorney felt they had seen any misconduct, they certainly would have gone out of their way to act on it.”

Ellis, reached at his Newport Beach office, said he would have no comment on his grand jury testimony. He said his partner, Hart, “is skiing and won’t be checking in for his messages, would you?”

Vasquez resigned from the board in October. He could not be reached for comment.

Ellis’ political assessment of transportation authority director Hausdorfer said: “As you know, Gary has been a Merrill Lynch ally. However, he has recently brought PaineWebber on as a client, somewhat clouding his support.”


But, Ellis continued, “Merrill Lynch must respond to Hausdorfer’s fund-raising request rapidly.”

Merrill Lynch has repeatedly insisted that it acted responsibly and professionally in its dealings with Orange County.

At the time that Merrill Lynch hired the two lobbyists, the firm was eagerly eyeing a planned $500-million bond issue that the Orange County transportation panel was planning.

Flush with the proceeds of a successful half-cent sales tax increase, the agency was about to launch massive road-building and improvement projects and was in the process of selecting the underwriters that would issue the bonds, Hart testified.

“The [transportation authority] was dying to release their first list of pre-selected bond underwriters,” Hart continued, and “Merrill was interested in being pre-selected.”

But, Hart testified, “it was a little late.” By the time they were hired, the bids were about to be awarded.

Although Merrill was not selected to underwrite the transportation bonds, Hart testified that Merrill Lynch continued to retain his firm, paying as much as $4,000 a month at one point.

Asked if he had ever heard the term “pay to play,” Ellis said, “Sure.”

What does it mean, he was asked.

“Donate so you get considered,” he replied. But he said that he didn’t think it existed in Orange County because “Merrill Lynch didn’t get any of the [transportation panel] work, so obviously the theory didn’t play itself out in this case.”

But Ellis was referring to the brokerage firm’s efforts to underwrite bonds for the transportation panel. He did not mention that for years Merrill Lynch had participated in the county’s often massive annual borrowings and was the principal underwriter and securities broker to former treasurer Robert L. Citron.