Facing Deadline, O.C. Files Six Suits Over Bankruptcy

With the right to sue over certain claims expiring today, Orange County filed six lawsuits Thursday against more than 20 brokerage houses and others for their alleged roles in the county’s historic bankruptcy.

The lawsuits were filed in U.S. Bankruptcy Court in Santa Ana mainly because the county wanted to make sure that it protects its right to take legal action against potential defendants before the statute of limitations expires today, the second anniversary of the county’s bankruptcy.

The county expects to hold most of the latest litigation in abeyance while it continues to negotiate with the defendants, said one lawyer familiar with the talks. “This is not a surprise to anyone,” the lawyer said.

The lawsuits seek unspecified damages from such major brokerages as CS First Boston, Bear Stearns & Co., Dean Witter Reynolds Inc., PaineWebber Inc. and Lehman Brothers. The county also sued Smith Barney Inc., Donaldson Lufkin & Jenrette Securities Corp., Prudential Securities Inc., Kidder Peabody & Co. and Citicorp Securities Inc.

The lawsuits allege that the broker-dealers entered into speculative investments and unlawful borrowing agreements and transactions with the county.

The county also sued the Federal National Mortgage Assn., the Federal Home Loan Banks and the Federal Farm Credit Banks over transactions involving structured notes. The county accused the Federal Farm Credit Banks of misrepresentation and fraud.

In addition, the county sued bond attorneys Brown & Wood, alleging breach of contract and professional negligence.

The suits are the latest in a long string of county lawsuits stemming from the largest municipal bankruptcy in U.S. history. The county source said additional lawsuits could be filed in cases where today’s statute of limitations is not a problem.

Orange County filed for bankruptcy protection after its highly leveraged securities portfolios suffered losses totaling $1.64 billion as risky bonds lost value with rising interest rates throughout 1994.

The county emerged from bankruptcy in June.