Rehearing Ordered in O.C. Bond Fraud Case

A federal trial court must rehear the government’s case against a former Dain Rauscher Corp. investment banker who was accused of failing to disclose the risks of buying Orange County bonds in 1994, a U.S. appeals court ruled Tuesday.

A three-judge panel of the U.S. 9th Circuit Court of Appeals decided that the lower court in Santa Ana erred in dismissing a Securities and Exchange Commission fraud case against Dain employee Kenneth D. Ough.

District Judge Gary L. Taylor had ruled that formal disclosures about the risks of investing in $800 million worth of municipal bonds offered by the county were as good as the industry standard.

But the appeals panel said the judge should have applied a tougher yardstick to Ough’s role in drafting offering documents for some Orange County entities.

Ough’s firm was one of the largest underwriters of municipal bonds sold in Orange County before the county declared bankruptcy in December 1994. The 9th Circuit panel instructed the District Court, which had granted Ough’s motion for summary judgment, to consider whether he displayed reasonable prudence.

If the court finds he didn’t meet this standard, it should decide whether he intentionally deviated from this requirement and should reconsider whether the documents met the industry’s standard.