$32.5-Million Settlement Closes Out Bankruptcy

A new $32.5-million settlement in the county’s protracted bankruptcy controversy will allow a small group of investors known as the “Killer Bs” to recoup nearly all the funds they invested in Orange County.

The payout, agreed to by Merrill Lynch, means the group of 14 California cities and agencies--dubbed the Bs because they favored option B of the county’s bankruptcy recovery--did better than any other group caught up in the Orange County investment scheme that caused $1.64 billion in losses and led to the biggest municipal bankruptcy in American history.

“We were seen as kind of crazy,” said Michael Martello, city attorney for Mountain View, a Northern California investor. “People said we were going to lose our shirts. We were going to be embarrassed.”

Instead, nearly all the Bs, which collectively lost more than $44 million, were made whole by the settlement, which was reached last week and announced Monday. The Bs had previously recovered more than $25 million in cash and notes from Orange County and other parties.

The grand total of more than $57 million recovered by the Bs should give most, if not all, a 100% return, according to the group’s representatives. That’s better than the 97% recovery for schools and 93% recovery for other agencies and cities that made up the far larger group of investors who took the $420 million Merrill Lynch settlement reached in 1998. The county recouped 35 cents on every dollar lost.

Representatives from the Bs, who alleged Merrill Lynch duped them in an investment scheme that triggered the bankruptcy, said they believed the amount was fair.

Merrill Lynch did not admit any wrongdoing in the settlement. A company spokesman said the settlement resolves the last litigation brought by government agencies over the bankruptcy.