Merrill Executive Who Flagged O.C. Finances Is Gone

A Merrill Lynch & Co. executive who predicted that Orange County was heading toward financial disaster 21 months before the county filed bankruptcy took a leave of absence from the brokerage on Thursday.

William S. Broeksmit, who helped pioneer the complex investments that contributed to Orange County’s financial collapse, had warned his supervisors in memos that the county’s investment pool should be sold and even questioned the firm’s strategy.

On Thursday, Merrill executives said Broeksmit, 40, wants to “spend more time with his family” and would go on leave from his job in the New York office on March 1. No return date was set.

Broeksmit, who joined the firm 12 years ago, could not be reached for comment.

He will be replaced as head of global equity derivatives business by Sergio Ermotti, the firm’s London-based head of European equity derivatives.

“There is no Orange County connection to this,” said Richard T. Silver, spokesman for Merrill. “He’s been at this for years and wants to take a break with his family.”

In a three-page memo written as far back as Feb. 24, 1993, Broeksmit warned that Orange County’s investment pool “barely meets” Merrill’s borrowing limits and said executives should encourage the county to change its strategy of borrowing huge sums to bet on interest rates.

The memo was written to Edson V. Mitchell, a director of Merrill’s fixed-income group, who is no longer at Merrill. He left the firm last spring to join Deutsche Bank AG.

Merrill, which sold Orange County a significant number of the complex derivative securities that contributed to its collapse, is being sued for $2 billion in damages by Orange County.

“Broeksmit’s certainly an important fixture in Merrill’s relationship with Orange County,” said Bruce Bennett, the county’s lead bankruptcy lawyer, who said he had heard of Broeksmit’s leave of absence.

The Broeksmit memo was one of several revealing how executives in the brokerage firm questioned Merrill’s dealings with the county. These concerns were never completely revealed to county officials other than then-Treasurer-Tax Collector Robert L. Citron, who had a dangerous strategy of heavily borrowing in order to gamble that invest rates would fall.

The memos were released last year as part of special state Senate committee investigation of the county fiscal collapse. The county filed bankruptcy on Dec. 6, 1994.

Broeksmit headed Merrill’s U.S. fixed-income derivatives business from 1988 to 1994, before moving into the smaller equity-derivatives area last year.