Court Allows O.C. Investment Pool Suit Against Merrill Lynch

The state Supreme Court on Wednesday allowed 14 public agencies in an Orange County investment pool to sue Merrill Lynch & Co., the brokerage they accuse of helping to bankrupt the county in 1994.

The court unanimously denied review of a lower-court ruling reinstating the suit by government agencies from around the state who turned down the county’s offer to share in its settlement. The suit seeks nearly $80 million in damages, interest and legal fees.

The suit accuses Merrill Lynch, the nation’s largest brokerage, of taking part in former Orange County Treasurer Robert Citron’s violations of his duties to taxpayers and investors.

Citron’s failed bets on interest rates led to $1.64 billion in losses for the county’s investment pool, a savings bank for schools, cities and water and sewer districts. The losses forced the county to seek federal bankruptcy protection in December 1994.

Citron pleaded guilty to falsifying records and violating state securities laws and served eight months in a prison work-release program.

Merrill Lynch agreed last year to pay the county $437.1 million to settle a suit accusing the firm of giving bad advice that contributed to the financial collapse. The company later agreed to pay $2 million to settle Securities and Exchange Commission accusations that it was negligent in warning investors about the risk of buying the county bonds it underwrote.

The county and nearly 200 members of the investment pool who agreed to take part in its suit have shared $781 million in settlements so far, including the money from Merrill Lynch.