Dubious Judge Rejects Bond Trade Group’s Brief

A judge overseeing Orange County’s lawsuit against Merrill Lynch & Co. refused Tuesday to consider a court brief filed by a bond market trade group after voicing concerns about the group’s impartiality.

Attorneys for the Public Securities Assn. conceded the trade group had not considered filing a friend-of-the-court brief in the bankruptcy case until it was urged to do so about a year ago by Merrill Lynch--one of its most prominent members.

The association’s attorneys insisted the filing of the brief was still an independent decision that was not influenced by Merrill Lynch.

“I have not seen a situation where a litigant went out and then encouraged the filing of an amicus brief,” Ryan said. “I’m concerned about the appearance of bias and the lack of impartiality in coming before the court.”

Outside of court, Orange County’s lead bankruptcy attorney, Bruce Bennett, said the incident highlights the defense tactics of Merrill Lynch.

“It just tells us we have a sophisticated defendant who will use every available means to resist the county’s efforts to recover in the case,” Bennett said.

A spokesman for Merrill Lynch declined to comment on the judge’s ruling, but rejected the notion that the firm did anything improper in suggesting the filing of what is known as an amicus curiae brief.

“It was perfectly proper for Merrill Lynch to ask PSA to consider filing an amicus brief,” said spokesman Andrew Sieg. “Indeed, it is standard practice of good counsel to solicit responsible amicus briefs on matters of national concern.”

The county filed for bankruptcy Dec. 6, 1994, after losing nearly $2 billion on a risky investment strategy forged by longtime Treasurer-Tax Collector Robert L. Citron. The county’s lawsuit seeks $2 billion and contends that Merrill Lynch duped Citron into gambling taxpayer’s funds on “repurchase agreements” and other volatile securities in violation of state law.

Merrill Lynch officials have denied any wrongdoing in connection with the county’s bankruptcy, insisting that Citron handled his own decisions and acted with the support of the County Board of Supervisors.

The county’s argument, if successful, could cause the bottom to fall out of the nation’s $1.5-trillion repurchase agreements market by raising legal uncertainty about the complex transactions, according to the brief filed by the Public Securities Assn., which represents securities firms and banks that underwrite bonds.

The legal clash came Tuesday after Bennett accused the association and Merrill Lynch of working together to craft the court brief, noting that Merrill Lynch’s court documents referred to the group’s brief before it was ever filed.

When counsel for the association and Merrill Lynch objected to those comments, Bennett shocked his opponents in court by asking them to take the witness stand and testify under oath. Ryan appeared ready to proceed, but the attorneys declined.

Outside of court, the association’s senior vice president and general counsel, Paul Saltzman, said Merrill Lynch twice recommended the filing of the brief. But representatives for the Wall Street brokerage, who sit on an association governing board, were barred from being involved in any decisions about the brief, Saltzman stressed.

While disappointed in the ruling, Saltzman said, the association achieved its goal of alerting Ryan to the impact the bankruptcy case could have on the nation’s securities market.

“Our message was received by the court,” Saltzman said.

* NEXT CHAPTER: Wall Street dealers urge reforms in municipal bankruptcy law. D1