County Seeks Bond Salesman’s Transcripts Before Questioning Him

Orange County’s litigation attorneys want to know what Merrill Lynch & Co. bond salesman Michael Stamenson told Securities and Exchange Commission lawyers investigating the collapse of the county’s multibillion-dollar investment pool.

In an emergency court hearing Monday, the county’s attorneys asked U. S. Bankruptcy Judge John E. Ryan to order the Wall Street brokerage to surrender transcripts of Stamenson’s SEC testimony before they take his deposition.

Stamenson, a salesman at the San Francisco office and the lead broker on the firm’s Orange County account, is scheduled to be questioned by the county’s attorneys Monday in connection with the county’s $2-billion damage lawsuit against the brokerage.

J. Michael Hennigan, the county’s chief litigation counsel, said he wanted to examine Stamenson’s SEC testimony before he questions him.

After Merrill Lynch denied his request for the transcripts, which Hennigan had sought in the normal course of discovery, an emergency hearing was called Monday to resolve the dispute.

After an hourlong proceeding, Ryan said he will rule on the matter Friday. But Ryan told both parties to instruct their employees to obtain their SEC transcripts so that they could be exchanged. Under current rules, the SEC releases transcripts only to witnesses or their attorneys.

At Monday’s hearing, Merrill’s lawyer, Dennis Brown, said the county’s requests for documents were burdensome. He noted that the county had filed a $3-billion lawsuit against its former outside auditor, KPMG Peat Marwick, alleging that the firm failed to warn county officials about the risks in its investment pool.

Brown said the allegations against KPMG resembled those in the lawsuit against Merrill Lynch. The lawyer said he feared Merrill Lynch’s employees would be obliged to give depositions in multiple cases.

But Hennigan denied that. He said he simply wanted to read Stamenson’s transcripts to learn about the “perception inside Merrill Lynch about the . . . the risks of instruments sold to Orange County.”

“It would be irresponsible of me to take his deposition before I’ve read his transcript,” Hennigan said.

Larry Greenfield, a private attorney for Stamenson, told the judge that his client might object to the release of his transcripts, saying Stamenson had “concerns about personal matters” in the documents.

But Ryan told the lawyer to file his objections in writing and to have the transcripts in court Friday, when the judge will deliver his ruling.

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According to the county’s lawsuit, Merrill Lynch sold Orange County 68% of the securities in the $21-billion investment portfolio, which included $14 billion bought with borrowed money. The county used virtually all of this borrowed money to buy reverse repurchase agreements, a transaction in which the seller often provides both the credit and securities being purchased.

Stamenson’s role is a key element of the county’s lawsuit. Attorneys for former Treasurer-Tax Collector Robert L. Citron, who ran the investment pool, and the county have alleged that the Merrill Lynch broker duped the former official into buying risky securities that were ill-suited for a public agency.

Merrill Lynch officials have said that Citron made his own investment decisions, and that he was supported by the county’s Board of Supervisors.

A tape-recorded conversation between Stamenson and Citron that was made public two months ago revealed that Stamenson was abruptly summoned back to Merrill Lynch’s New York headquarters from London--while en route to a vacation in Africa--to explain the county’s volatile investment portfolio.

“It is the belief of everybody but me, to be honest about it, Bob, . . . that you are too concentrated in the [highly volatile securities],” Stamenson said in the taped conversation, which was said to have occurred more than two years before the investment pool’s collapse. “You got too many of your eggs in one basket.”