Supervisors OK Settlement With Investors

Clearing a key obstacle to its bankruptcy recovery plans, the Board of Supervisors approved an out-of-court settlement Thursday with a dissident band of 14 agencies that had sued the county for losses they suffered in the county’s ill-fated investment pool.

As part of the settlement, the agencies will drop their lawsuit against the county in exchange for $24.5 million in IOUs, cash and proceeds--if any--from litigation the county is waging against the Wall Street firms it blames for its $1.64 billion in investment pool losses.

Officials said Thursday that the settlement brings the county a step closer to its goal of emerging from bankruptcy by June 30.

“We believe this is an agreement that will benefit both the county and the [investment pool] participants,” said Chief Executive Officer Jan Mittermeier. “It’s a win-win situation for everyone on this.”

As of Thursday, all but one of the maverick agencies had also approved the settlement, which provides them with $7.5 million in cash, $8 million in interest-bearing warrants to be paid over 10 years, and $9 million in litigation proceeds should the county’s lawsuits against Merrill Lynch & Co. and others succeed.

The committee representing the more than 180 other agencies with money in the pool also signed off on the plan Thursday.

The 14 dissidents, which include Yorba Linda and Buena Park as well as several cities located outside the county, are known as the “Killer Bs” because they selected Option B of a pool settlement plan crafted last year.

The Option B agencies received 77% of their pool deposits in cash and retained the right to sue the county, brokerage firms and other parties for their balances. Last fall, they filed suits against the county and Merrill Lynch, the Wall Street firm that sold most of the securities on which the county lost money.

Merrill Lynch has steadfastly denied that it did anything wrong and said that former county Treasurer-Tax Collector Robert L. Citron was a sophisticated securities buyer who knew the risks he was taking.

The vast majority of the nearly 200 pool investors selected Option A, which provided them with up to 83% of their money in cash and notes. Option A agencies also stand to get a share of the county’s litigation proceeds, but the agencies gave up their individual litigation rights.

Under the agreement approved Thursday, the Option B agencies will be treated essentially the same as Option A’s. But they will retain their rights to sue Merrill Lynch and others.

Some Option A leaders raised concerns about the agreement earlier this week, saying it might give the “Killer Bs” too generous a deal. But on Wednesday, officials expressed support for the settlement.

“It’s a good opportunity for everyone,” said Wally Kreutzen, executive vice president of the Transportation Corridor Agencies and a member of the pool investors committee. “I think it moves the bankruptcy resolution forward . . . and does not impact the settlement that the A’s have already made with the county.”

Kreutzen said the TCA and other government entities remain convinced that Option A was the best path because it allows investors to benefit from a successful lawsuit against Merrill Lynch without having to finance years of costly litigation.

“Clearly, it’s a gamble,” Kreutzen said of the strategy being pursued by the Option B agencies. “We wish them good luck.”

Option B officials also expressed satisfaction with the agreement.

“I’m elated,” said Yorba Linda Mayor John M. Gullixson. “Now we can focus on the real bad guy: Merrill Lynch.”