Judge OKs Payments Ending O.C. Bankruptcy

Amid applause and cheers, a federal judge Wednesday closed the book on Orange County’s bankruptcy by approving the distribution of $816 million in litigation proceeds to the more than 200 government agencies that lost money.

The largest municipal bankruptcy case in U.S. history closed with none of the heavy news media scrutiny or chaos of its beginning, with U.S. District Court Judge John E. Ryan giving final approval for a settlement plan five years and two months after the Dec. 6, 1994, financial collapse.

“Speak now or forever be foreclosed,” Judge Ryan said moments before the hearing ended. But none of the dozen attorneys in the wood-paneled courtroom raised any objections--and most shared Ryan’s wide grin.

“It’s over!” said Assistant County Counsel Thomas C. Agin, whose office has been consumed with the bankruptcy for most of the last five years. “There were tons of lessons to be learned, and I hope we clearly learned them, and we don’t make the same mistakes again.”

Thomas Hayes, the former state treasurer who helped oversee the county’s bankruptcy recovery, was deluged with handshakes and congratulations as the hearing ended. He accepted the compliments but said the five-year saga has taken its toll.

“I didn’t have gray hair when this started,” he said.

The $816 million will be divided among the county and 200 government agencies and school districts that lost about $1.6 billion in the investment pool administered by former treasurer Robert L. Citron. An additional $17 million in accrued interest in county funds related to the investment pool also will be distributed.

The payments will mean near total financial recovery for many of the agencies that placed money in the investment pool.

Schools--the top priority in the county’s bankruptcy recovery plan--have recovered on average 97.7% of their investments. Cities and public agencies have recovered 94.4%. The county got back 87 cents on the dollar.

Schools have been expecting the money for months and plan to use it for a variety of projects, from buying computers for classrooms to repairing cracked blacktops and leaky roofs.

The money comes from settlements the county reached with Merrill Lynch & Co. and other Wall Street firms officials hold responsible for causing the bankruptcy.

The litigation proceeds were supposed to be distributed last year. But they were held up while the bankruptcy court considered a request by the county’s outside attorneys for a hefty bonus. The firm of Hennigan, Mercer & Bennett sought an additional $48 million in compensation; the judge eventually granted them $3 million.

County officials celebrated the news but also rang a cautionary note.

Betting on declining interest rates, Citron had made risky investments that fell apart when the Federal Reserve began raising interest rates in the early 1990s.

Citron pleaded guilty to six felony counts of fraud and misappropriation of funds, but never served jail time. There was no evidence that he personally profited from the investments.