Merrill Lynch Denies Proposing Any Deal

Merrill Lynch & Co. issued a statement Tuesday denying that it had offered to settle Orange County’s $2-billion bankruptcy-related lawsuit last May when the firm’s top executives met secretly with William J. Popejoy, who was the county’s chief executive at the time.

Timothy Gilles, a spokesman for the brokerage, described as “totally and completely false” Popejoy’s account of the New York meetings at which Popejoy said Merrill Lynch offered to pay bondholders $430 million and give the county an $800-million loan to pay off schools, cities and other agencies that lost money in the ill-fated investment pool.

The purported offer came to light when confidential notes that Popejoy later provided to the Board of Supervisors were made public Monday along with other evidence presented to the grand jury in its investigation of the county’s unprecedented bankruptcy.

When asked about the alleged offer Monday, Gilles declined to comment but remarked that Popejoy did not take notes during the meeting, adding that “as to the accuracy of his notes, we have no comment.”

But Tuesday, he flatly denied that the firm’s executives had proposed any such deal.

“Any amounts put forth as possible settlement figures were advanced unilaterally by Mr. Popejoy and were rejected flatly by Merrill Lynch,” Gilles said.

Popejoy, who has maintained since last summer that he insisted Merrill Lynch should pay the county at least $1.2 billion to settle the lawsuit, said he flatly rejected the Merrill offer.

On Tuesday, Popejoy said he stood by his account of his meetings with Merrill Lynch Chairman Daniel Tully and other company executives.

“That was all theirs,” Popejoy said of the plan to retire $430 million in debts to county bondholders, and float an $800-million loan for the county. “Why would I propose something that wasn’t acceptable?”

The county’s $2-billion suit alleges that Merrill Lynch duped former Orange County Treasurer-Tax Collector Robert L. Citron into purchasing risky securities, and that the Wall Street firm had knowingly arranged credit that exceeded limits imposed by the state’s Constitution.

According to the county’s lawsuit, Merrill Lynch had sold Orange County 68% of the securities in its investment portfolio, which had grown at one point to $21 billion, including $14 billion bought with borrowed money.

In addition to Merrill, the county has sued its outside auditor, KPMG Peat Marwick, for $3 billion, alleging the firm failed to warn county leaders about the risks in its ill-fated investment pool. County bankruptcy lawyers also are waging a legal assault on other professionals and Wall Street firms that did business with the county.

Merrill Lynch has consistently denied any wrongdoing.

Gilles, the firm’s spokesman, said Merrill Lynch granted Popejoy a meeting last May “as a courtesy to a former client,” not to discuss a settlement.

At that meeting, the firm’s executives asked Popejoy several questions “in order to better understand what he was saying, but no proposals or offers were put forward by Merrill Lynch.”

Popejoy said in his notes that he demanded a $1.2-billion payment from Merrill Lynch. He said the firm’s executives replied that Merrill Lynch had done nothing wrong but would be interested in joining other Wall Street firms in crafting a bailout plan “to avoid further hardships” by Orange County.

At one point in the meeting, Popejoy’s notes say that Merrill Lynch even proposed helping finance a $1.2-billion low-interest loan to bail the county out of bankruptcy.

But Tuesday, Gilles said the firm made no such offer.