O.C. Allowed to Sue U.S. Over Bankruptcy

In an unprecedented decision, a federal judge ruled Wednesday that Orange County can seek to hold the United States liable for allegedly helping to trigger the county’s financial collapse more 2 1/2 years ago.

U.S. District Judge Gary L. Taylor said the county could maintain a suit alleging that government authorities and officials with several securities firms worked together to sell risky securities to former Treasurer Robert L. Citron.

Earlier this week, lawyers with the U.S. Department of Justice in Washington came to Santa Ana to plead with Taylor to dismiss the suit. This type of legal action involving the issuance of securities had never been allowed against the United States, according to Jack Kaufman, an attorney with the Justice Department.

But Taylor disagreed, ruling that the county could maintain its suit under a law that allows injured parties “suffering a legal wrong” to sue the government.

Michael Swartz, an attorney for the county, said he was pleased with the court’s decision.

“We believe the facts will demonstrate that the county was defrauded,” Swartz said. “We will be able to prove that at a trial.”

The county sued the federal government last year, charging misrepresentation and fraud and saying that the government acted on behalf of the Federal Home Loan Banks over transactions involving structured notes. Those notes turned out to be highly risky, according to county lawyers, and contributed to the county’s historic bankruptcy filing in December 1994.