12 Firms to Pay $20.8 Million in O.C. Settlement

Bringing the lawsuits over Orange County’s 1994 financial collapse nearly to an end, a dozen Wall Street firms agreed to pay the county $20.8 million Monday for their roles in the largest municipal bankruptcy in U.S. history.

The settlements increase the county’s total recovery to $860.6 million--about half of what it lost in 1994 on investments that backfired.

The firms that settled Monday were accused of contributing to the debacle by providing credit or risky securities to then-Treasurer Robert L. Citron to further his strategy of betting on low interest rates. The treasury, with $7 billion in funds from the county and 200 cities, schools and public agencies, lost more than $1.6 billion when the Federal Reserve forced rates up sharply.

The settlements bring to a close the county’s lawsuits accusing its former brokerage, accounting and legal firms of wrongdoing in connection with the bankruptcy.

The county’s sole remaining suit, which its attorneys acknowledge will be a difficult one, attempts to blame the bond rating firm Standard & Poor’s for failing to sound alarms as the county skidded toward insolvency. A judge has ruled the county must prove S&P; knowingly printed falsehoods when it gave its highest ratings to county bonds in 1994.

The $860.5 million in settlements comes mainly from former professional advisors to the county, notably Merrill Lynch & Co., Citron’s chief investment house. Merrill paid more than $450 million to settle civil claims and a criminal investigation of its role in the debacle.

The brokerages that settled Monday admitted no guilt. They are BA Securities, Cantor Fitzgerald Securities Corp., Citicorp Securities Inc., Daiwa Securities America Inc., Donaldson, Lufkin & Jenrette Securities Corp., Fuji Securities Inc., Kidder, Peabody & Co., Lehman Bros. Inc., PaineWebber Inc., Prudential Securities Inc., Sanwa Securities (USA) Co. and Smith Barney Inc.

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Bloomberg News contributed to this report.