Morgan Stanley Is Next Target in County’s Suits

Having hammered out a $400-million settlement with Merrill Lynch & Co., Orange County has selected another Wall Street titan, Morgan Stanley & Co., as the next big target in the county’s lawsuits over its 1994 financial debacle, lawyers said Monday.

U.S. District Judge Gary L. Taylor, overseeing the suits against about 20 professional firms, didn’t rule on the matter at a hearing. But no serious objections were heard to naming Morgan Stanley the new lead defendant in the county’s ongoing efforts to recover its $1.6-billion investment loss.

“We anticipate that Morgan Stanley will be first and Fuji Securities will be second,” said one of the county’s lawyers, James W. Mercer Jr.

Taylor said he would like to hold one trial after another beginning on Nov. 24 for any cases that aren’t settled by then. So far, defendants including Merrill have agreed to pay the county a total of $620 million to settle claims.

Like Merrill Lynch, Morgan Stanley lent huge sums to the county. It also provided some of the interest rate-sensitive securities that former county Treasurer Robert L. Citron favored, though not nearly so many as Merrill Lynch, Citron’s chief investment house.

When interest rates rose sharply in 1994, Citron’s bets on low rates came up losers. The county now accuses Morgan Stanley and others of profiting from a scheme so risky that it is barred by California’s constitution and statutes.

Morgan Stanley has denied any wrongdoing, although sources said it has taken part in a series of preliminary settlement talks.