County Says It Need Not Share Money From Merrill

Nearly a month after Merrill Lynch & Co. agreed to pay $30 million to avoid criminal prosecution on bankruptcy-related charges, Orange County’s chief executive said Friday that the county--and not cities and school districts--is legally entitled to the money.

Both the county and representatives of the government agencies that lost money in the 1994 bankruptcy have laid claim to the $30 million, and attorneys for the various parties have been meeting for the last few weeks in an attempt to sort out the sticky legal issues.

Chief Executive Officer Jan Mittermeier said that county attorneys “feel quite strongly” that Orange County has no legal obligation to disburse the funds among the more than 200 cities, school districts and others that had placed money in a county-run investment pool, which lost $1.64 billion of its value in 1994. Mittermeier said she has asked the attorneys to provide a written legal opinion on their findings.

“So far, [the attorneys] have not been able to find a legal basis to say this money belongs to pool participants,” she said.

While most of those agencies have received 80% to 90% of their investment back, they will see the remainder only if the county is successful in its civil litigation against Merrill Lynch and others it claims were responsible for causing the financial collapse.

Under the county’s bankruptcy recovery plan, the first proceeds from the civil litigation would go to school districts, which are still missing about $110 million they invested in the pool.

The recovery plan does not make mention of how settlements of criminal cases should be handled. But representatives of pool investors said Friday that the $30 million should be considered a settlement received by a third party and distributed as if it were money from civil litigation.

“If the CEO is saying this money should stay with the county, we strongly disagree,” said Irvine City Manager Paul Brady, adding that investors are still awaiting the outcome of negotiations among the various attorneys.

Even if attorneys conclude that the county is legally entitled to the Merrill Lynch money, Board of Supervisors Chairman William G. Steiner said he still favors most of it going to schools as a gesture of good faith. “Morally, I think it’s the right thing to do,” he said.

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But other supervisors have expressed interest in using the $30 million for a variety of pressing county projects, such as expanding jail space, constructing a new South County courthouse and retiring bankruptcy debts early.

“There are many ways the county could use the $30 million to benefit all 2.8 million residents,” Mittermeier said. “I think people need to look at this in the context of all system needs we have to meet.”

Mittermeier said the layoffs and government reorganization prompted by the bankruptcy would allow the county to use the $30 million to maximum public benefit.

“If you look out there at other areas [of government], where could there be a more efficient use for the $30 million?” she said.

Brady said that negotiations among attorneys could last into August. Pool investors have authority under the recovery plan to have U.S. Bankruptcy Court determine who gets the $30 million, if they are unhappy with the county’s final decision, he said.