Citron on the Witness Stand Was One Way to Court Disaster

Forget about the legalisms of municipal investing and Wall Street responsibility.

There’s one big reason Merrill Lynch officials couldn’t afford to let a jury hear about their dealings with former Orange County Treasurer-Tax Collector Robert Citron.

That big reason was Robert Citron. The man whose investment portfolio helped line Merrill Lynch’s pockets in the early ‘90s would have been their worst nightmare on a witness stand. Had jurors heard testimony from Merrill Lynch sharpies, and then from the bemused Citron, they probably would have wondered how he only lost $1.6 billion in the market.

No Orange County jury would have let Merrill walk on this one.

So, Merrill had to settle its Orange County bankruptcy-related case, which it did this week for $437 million. Merrill executives have already said they can absorb the blow. At most, then, they get some bad public relations on the street. Indeed, they’re still doing great business.

Merrill had the perfect pigeon in Citron--a man whose big portfolio camouflaged low self-esteem. The only thing Merrill couldn’t have foreseen was how much confessing its pigeon later would do about his shortcomings.

Merrill’s first look at that came in early 1995 when its executives saw Citron testify before state legislators. That must have sent a shudder through them. Had Citron come across that day as a cocky, wheeler-dealer, Merrill might have had a chance in a trial. Instead, Citron began by saying how ill-trained he was when he became treasurer in 1973 and how he depended on others even as he became more experienced. He said he considered Merrill the county’s “financial advisor” as his investments grew increasingly complex.

Citron testified again last year at the trial of Matt Raabe, his protege who was later sentenced to prison for his role in handling the county investment pool. Again, Citron came across as someone incapable of mastering the complexities of municipal investing.

Calculated or not, Citron’s public demeanor as the contrite-but-befuddled former treasurer would have been tough for Merrill to fight in court. Given that he pleaded guilty to several felonies, while showing a perfect willingness to implicate others, the 72-year-old Citron on a witness stand might well have cost Merrill more than $437 million.

So, why didn’t the county hold out for more?

That the settlement figure isn’t twice as high proves what a true partnership Merrill had with Orange County. In other words, it took two to tango, and the county had its own reasons to worry about a jury verdict. Who’s to say a jury wouldn’t have decried Merrill’s tactics but only given the county half as much as Merrill was offering?

Merrill Lynch could have secured testimony from others about Citron’s public boasts about his investing prowess. It could have showed that Citron scored heavily in the market, and that the Orange County Board of Supervisors gave him free rein to keep going.

Yes, Merrill had some ammo, but no attorney in the world could have made Citron look like a financial wizard. A few forlorn looks from Citron and a few jumbled statements about reverse purchase agreements, and Merrill would have been in chambers.

From the outset, then, this case was headed for settlement. Neither side wanted all its actions made public, and, accordingly, both sides have agreed to destroy all materials that might have been presented at trial.

Some people lament that, saying we’ll never know what really happened. I think I know what happened, and it’s not that complicated.

A three-way tryst formed among Merrill Lynch, Citron and the Board of Supervisors. For a while, everybody loved everybody because everybody’s needs were met. When it blew up, the parties reacted like embarrassed trysters usually do: they blamed everybody else.

Without full disclosure, can we learn lessons?

The answer is yes. The late Supervisor Tom Riley left one as far back as December of 1994, when the bankruptcy was but a couple weeks old.

At his farewell board meeting, the retiring supervisor’s heartfelt lament could stand as a perfect credo for any supervisor:

“I don’t know about you, but I wish I had listened just a bit more, questioned just a bit more, and trusted just a bit less.”

Dana Parsons’ column appears Wednesday, Friday and Sunday. Readers may reach Parsons by calling (714) 966-7821 or by writing to him at the Times Orange County Edition, 1375 Sunflower Ave., Costa Mesa, CA 92626, or by e-mail to dana.parsons@latimes.com