Judge Delays Hearing on Merrill Bankruptcy Settlement

A court hearing on Merrill Lynch and Co.’s proposed $437-million settlement of Orange County bankruptcy lawsuits has been moved back from Monday to late next month.

The hearing, before U.S. District Judge Gary L. Taylor in Santa Ana, will allow other parties to object to the fairness of the deal. The judge rescheduled the hearing for Oct. 26, after several of those parties asked for more time to study the issues, county lawyer James W. Mercer said Tuesday.

Still scheduled for Monday in Taylor’s court is a pretrial hearing involving Orange County and Fuji Securities, another of the brokerages the county blames for toppling it into the nation’s biggest municipal bankruptcy.

The Wall Street firms loaned billions of dollars to then-county Treasurer Robert L. Citron, who used the money to buy interest rate-sensitive securities supplied mainly by Merrill Lynch. The scheme resulted in huge losses when rates soared in 1994.

At issue before Taylor is the county’s contention that the strategy was so risky it was illegal for public funds--and that the brokerages therefore must repay the entire loss. Fuji contends Citron had the authority to borrow the money and that it was his duty, not Fuji’s, to preserve public funds.

Orange County’s treasury, which invested funds from 200 school districts, cities, local utilities and other agencies, lost $1.64 billion in the financial debacle. The county has so far recovered $739 million from related legal actions, mainly civil lawsuits against former financial and legal advisors.

Merrill Lynch, Citron’s chief brokerage, agreed to pay $400 million to the county, $17 million to Irvine Ranch Water District and return $20 million in frozen funds to settle the civil suits. It also paid $30 million to Dist. Atty. Mike Capizzi, ending a criminal investigation. The brokerage never admitted any wrongdoing.