Anaheim Opposes Proposed SEC Settlement

Anaheim officials are asking a federal judge to postpone approving a settlement between the U. S. Securities and Exchange Commission and former county Treasurer-Tax Collector Robert L. Citron and his one-time deputy, Matthew R. Raabe, until the city resolves its own legal troubles with the federal agency.

In court papers filed this week, the city urged U. S. District Court Judge Gary L. Taylor to delay signing off on the deal, pending the outcome of threatened SEC action against Anaheim for allegedly failing to warn certain of its lenders of risks it faced in the county-run investment pool.

SEC officials notified city officials last fall that Anaheim was among several local municipalities and school districts that were facing disclosure fraud charges by the agency.

According to court documents, the SEC has threatened action against Anaheim and its former finance director with failing to disclose how proceeds from the city’s 1993 and 1994 taxable note issues would be used. Anaheim invested the proceeds in the Orange County pool to take advantage of its higher rate of return.

The pool collapsed in December 1994, losing $1.64 billion and plunging the county into the nation’s largest municipal bankruptcy. Anaheim lost $34 million in the pool, which it will only be repaid in full if the county wins nearly $2 billion in lawsuits it has filed against the Wall Street and accounting firms it blames for the disaster.

After the crash, the SEC charged Citron and Raabe with issuing false and misleading statements to help the county sell $2.1 billion of municipal bonds to investors in 1993 and 1994.

Earlier this year, the two men reached a settlement with the SEC under which they did not admit or deny any wrongdoing, but promised not to violate any federal securities laws in the future.

The SEC did not impose any additional sanctions on either official, who have also agreed to cooperate with agency officials still investigating the county’s financial collapse.

But that agreement is now on shaky legal ground.

Taylor, who has questioned whether the proposed permanent injunction against Citron and Raabe is not “an empty gesture,” will decide whether to approve the settlement after reviewing a confidential report on the SEC’s ongoing investigation.

But Anaheim lawyers are asking Taylor to withhold his decision.

“The SEC is on a mission to improve disclosure practices within the municipal market, and wants to use this court to facilitate its goals,” the city states in its opposition to the deal. “Entering a judgment on these orders will open the floodgates for the SEC.”

“The city wants nothing more than a level playing field where the SEC cannot cite as authority its unilateral action in obtaining a consent decree in this case,” the city states.

Their attorneys say Anaheim officials committed no wrongdoing. They say purchasers of the city’s notes were “sophisticated institutional buyers” who relied on rating agencies which “have stated, in hindsight, they they were defrauded.”

Howard Kastel, a Chicago lawyer who is representing the city in federal court, said Thursday the city is opposing the settlement because “we don’t want the SEC to enhance its credibility in the case against us by citing a court order in place.”

Taylor has expressed doubts in open court about whether the agreement would have an effect on Anaheim, but he has not ruled on the city’s request.