Orange County Renews Its Ties to Merrill Lynch

The Board of Supervisors on Tuesday adopted a policy under which Orange County would again do business with Merrill Lynch, the Wall Street brokerage firm it accused of causing the 1994 bankruptcy.

The action represents a milestone for Orange County, which collected $420 million from Merrill Lynch to end a bankruptcy-related suit, and came after an emotional debate about whether the firm could be trusted.

“When I think of the bankruptcy, I think of Merrill Lynch,” said Supervisor Jim Silva. “As a supervisor, I really don’t want anything to do with Merrill Lynch.”

In the end, the board unanimously approved a policy that requires any Merrill Lynch business--including the buying and selling of securities--to be made public and approved in advance by supervisors.

The Wall Street giant has been trying for months to renew business ties with the county. Treasurer-Tax Collector John M.W. Moorlach, who gained fame for predicting the county’s bankruptcy, has been a prominent supporter of restoring ties.

Moorlach said the county could save $800,000 a year by using Merrill Lynch, which is offering lower rates than other brokerage firms.

Orange County lost $1.7 billion in the financial collapse. County officials blamed the bankruptcy on risky investments Merrill Lynch sold to then-Treasurer Robert L. Citron. The county is still burdened with a hefty $900-million bankruptcy debt.

In 1998, Merrill Lynch agreed to pay $420 million to settle a civil lawsuit alleging that the company encouraged the county to make exotic investments that violated state law.

The firm also paid a $30-million fine levied by the Orange County district attorney’s office to resolve a criminal investigation.

Moorlach said in a prepared statement that the settlements ended an “adversarial relationship” and suggested that the county and the firm might be able to have “constructive relationships” in the future.

Tuesday’s vote prompted Merrill Lynch officials to say they are eager to renew ties with the county. “We think we can benefit the county by increasing the amount of business through competition,” said Bill Halldin, a Merrill Lynch spokesman. “We have attempted to set a new standard for research integrity on Wall Street.”

But some officials remain skeptical. Board Chairwoman Cynthia P. Coad said Merrill Lynch still has a long way to go to restore Orange County’s confidence.

Supervisor Todd Spitzer, who proposed the rules adopted Tuesday, pointed out that Merrill Lynch has been accused of misleading investors in the Enron scandal.

In May, the brokerage firm agreed to pay $100 million and change some of its research policies to settle charges by the New York attorney general that Merrill Lynch analysts gave investors bad advice. The firm denies any wrongdoing in the Enron case.

Moorlach said any dealings with Merrill Lynch will be public. “I would not use them without contacting you personally and being assured of your comfort level,” he told supervisors in a letter.

Brett Barbre, a spokesman for Moorlach, said Merrill Lynch will never have the influence over county finances that it did in the years before the bankruptcy when Citron was in charge: “All John [Moorlach] wants is the ability to shop at that store, not having Merrill Lynch serve as a personal shopper, which they did under Citron.”