Bankruptcy Figure Rules Himself Out of Tollway Job

A financial advisor whose firm was set to receive a $150,000 contract with the county today withdrew from the job Wednesday amid controversy over his role in the Orange County bankruptcy.

“The events of the last two days indicate this is clearly going to be a political decision rather than one based strictly on merit,” said Douglas S. Montague of La Canada. “We’ve made a decision not to be involved in that type of a process.”

The Transportation Corridor Agencies, which oversees Orange County’s toll roads, had been scheduled to vote without discussion on the financial services contract with Montague DeRose & Associates.

However, several of the agency’s board members said they learned from published reports Wednesday that Montague, a former investment banker, had been fined $35,000 by federal regulators for what they called his failure “to disclose information important to investors” in the county’s ill-fated investment pool. The toll road agency lost $74 million in the county’s bankruptcy.

At the time, Montague was the lead municipal investment banker for Credit Suisse First Boston Corp., which underwrote a $320-million pension-bond offering that had failed to alert investors to the county’s risky finances, according to the Securities and Exchange Commission.

On Jan. 29, the commission ruled that CS First Boston, Montague and colleague Jerry Nowlin willfully violated federal securities law.

The bank, which is being sued by the county, was fined $800,000. And Montague signed a 15-page consent decree, a standard SEC procedure, in which he did not admit guilt but promised to obey securities laws in the future.

Irvine Councilman Mike Ward, the agency board’s chairman and a member of the two-person committee that chose Montague, said he was aware of the would-be advisor’s background when he and committee member Susan Withrow selected him from a field of six bidders to advise the Foothill/Eastern toll road agency on refinancing its bonds. But Ward said he didn’t consider it significant enough to disclose.

On Wednesday, Ward called most of his fellow board members to apologize. “I made a mistake,” he said. “Because of the information in the paper, the members of my board got blindsided, and I don’t like to do that to anybody.”

Before hearing of Montague’s withdrawal, Ward said he planned to open the issue up for a full discussion of the board but would still support the hiring of Montague. Afterward, he expressed regret that his first choice for the job had dropped out.

“I’m sorry, because I don’t think it was that big of an issue,” he said. “I think it got blown out of proportion, and the sad part for the [agency] is that the most qualified firm won’t get the job.”

Withrow agreed. “I’m surprised,” she said Wednesday. “Based on what I understood of the SEC action, there was certainly no criminal admission. And, frankly, their team was picked on merit. It’s unfortunate, but I guess he’s trying to take the high road.”

Among those on the other side was board member Todd Spitzer, a county supervisor, who said that he learned of Montague’s background from published reports Wednesday and found it disturbing.

“There are plenty of very credible financial advisors available to the toll road agency,” he said. “It seems inappropriate to have to be involved with someone from the only firm to have entered into an SEC settlement agreement.”

Those sentiments were shared by county Treasurer-Tax Collector John M.W. Moorlach, who is credited with warning the county about financial problems before the bankruptcy.

“I think better judgment should have been applied,” he said.

Spitzer said he would use today’s meeting to call for the establishment of a financial advisory board to provide better oversight on financial contracts awarded by the toll road agency.