OCTA Sues Goldman Sachs Over Investment Advice

The Orange County Transportation Authority on Wednesday sued Goldman, Sachs & Co. for failing to warn the agency to steer clear of the county’s highly risky investment fund.

The agency claims the municipal investment giant knew as early as 1992 that former county Treasurer-Tax Collector Robert L. Citron was pursuing a dangerous strategy, but it didn’t warn the agency to remove the proceeds of a $540-million bond deal from the county-run pool.

Goldman Sachs served as “senior manager” on the 1992 bond deals.

“In late 1992 and again in 1993, Mr. Citron met on at least two occasions with partners of Goldman Sachs and discussed investment strategy used for the [pool] and the [pool’s] investments,” according to the 18-page complaint filed in Orange County Superior Court.

“Goldman, Sachs confirmed its concerns about the high and untoward degree of leverage and risk . . . as well as its potentially precarious liquidity, and that the types of and extent of the [pool’s] particular investments bordered on illegality or were illegal.”

As a result, the lawsuit alleges, Goldman Sachs “declined to participate” in the pool.

OCTA, according to the complaint, wrote the firm on Jan. 15, 1993, seeking “any comments you may have regarding the overall financing procedure used by the authority.” But Goldman did not relate any concerns.

Stan Oftelie, the agency’s chief executive officer, said Goldman Sachs conducted an analysis of the county’s investment pool, which it found to be “volatile” and lacking sufficient liquidity.

“They had knowledge of the problems with the pool but did not share that with us,” Oftelie said. “They had no discussion about the safety or volatility of the pool with us.”

“Goldman Sachs had superior knowledge of pool’s problems but didn’t tell its client,” he added.

A Goldman official said the firm had no comment.