Water District Files Lawsuit Against Broker Over Losses

The Irvine Ranch Water District has filed a $130 million suit against Merrill Lynch Inc., seeking to blame the giant Wall Street brokerage for losses suffered in the county’s financial collapse two years ago.

In a federal lawsuit filed here, the water agency alleged that Merrill Lynch knew about the high risks in the $21 billion investment pool run by former county Treasurer Robert L. Citron. The pool crashed in Dec. 1994, causing a $1.7 billion loss and the county’s unprecedented bankruptcy filing.

Merrill Lynch, which sold Citron most of the risky securities in its investment pool, is defending a separate $2 billion suit filed by Orange County, which has sued other professional and legal firms for losses suffered in the financial collapse. All have denied wrongdoing.

The water district’s suit noted that the agency was suing Merrill Lynch in its capacity as the district’s financial advisor.

It alleged that despite numerous inquiries by district officials, Merrill encouraged the agency to invest in the pool “by misrepresenting the status of the pool investments and concealing material facts, including Merrill Lynch’s own serious internal concerns” about Citron’s risky investment strategies.

“We repeatedly asked the right questions of our own trusted investment advisor and . . . relied on them,” said Peer Swan, an Irvine water district director. “We now believed we were deliberately misled by Merrill Lynch for its own profit.”