Firm, County Reach $23-Million Settlement
A law firm that helped Orange County issue municipal bonds as the county treasury neared meltdown in 1994 will pay more than $23 million to settle a lawsuit over its role in the fiasco, the county announced Thursday.
Brown & Wood, a New York-based firm that vouched for the accuracy of documents behind $975 million in county bonds, admitted no liability in settling the suit.
Officials also disclosed a settlement of nearly $7 million with Bear Stearns & Co. Inc., a Wall Street firm that underwrote some of the bonds and helped finance the risky strategies of former county Treasurer Robert L. Citron, who pleaded guilty to fraud. Bear Stearns also admitted no liability.
Citron’s heavy borrowing to buy interest rate-sensitive securities led to a $1.64-billion loss when the Federal Reserve raised rates sharply in 1994. The county went to federal court to file the biggest municipal bankruptcy case in history--and to sue brokers, lawyers and other advisors to recover its losses.
The Bear Stearns and Brown & Wood settlements bring the total recovered by the county to about $770 million. The proceeds will be shared with 200 school districts, cities and local agencies that also lost money in the bankruptcy.
Brown & Wood was supposed to ensure that the bonds’ official statements disclosed potential risks. The county lawsuit contended that had it been warned that Citron was misrepresenting the safety of the county’s investment portfolio, the Board of Supervisors would never have issued the bonds.
The county already has settled with many other defendants, notably the giant brokerage Merrill Lynch & Co., Citron’s chief investment house, which agreed to pay more than $400 million to settle civil suits.
J. Michael Hennigan, a lawyer for the county, said he expects several more small settlements. But some major suits remain unresolved, including one against the bond rating firm Standard & Poor’s. S&P;, which rated the county’s bonds highly before the bankruptcy, strongly denies any wrongdoing and has vowed to go to trial to exonerate itself.
The Brown & Wood settlement was announced late Thursday afternoon.
“Every litigation settlement is a triumph of pragmatism over principle, and this is not an exception,” said Joseph W. Armbrust, Jr., a partner with Brown & Wood.
A Bear Stearns official declined comment.
