Stamenson said that while he spoke each morning about 8 a.m. with Citron, he was not the treasurer's "first call." That spot was reserved for Albert J. De Spirito, a senior vice president with responsibility for government securities at Dean Witter & Co.'s Los Angeles office.
Wall Street sources said De Spirito worked as a salesman in the Los Angeles office of Salomon Bros. until about 1981. Subsequently he worked for the firms of First Boston and Drexel Burnham Lambert before joining Dean Witter.
Citron said during Tuesday's hearing that he has known De Spirito since 1974 and had consulted him often. De Spirito declined comment Tuesday on his dealings with Citron.
Records show that Dean Witter was lead manager or underwriter on some $150 million in Orange County bond issues between 1990 and 1994, making it the county's eighth-largest underwriter during that period.
Citron said he did not believe that the fund was "in serious trouble until the very, very end. I always believed that the fund . . . would never have a principal loss, because we would never have to sell securities until they matured."
He also suggested that the county's bankruptcy filing was "premature." Noting that Wall Street firms dumped $11 billion in collateral after the bankruptcy and his resignation, Citron said: "I believe if I was still there at that time that dealers would not have sold the securities."
Citron--certain that interest rates would stay low and that the county's investment pool would prosper--said Merrill Lynch officials impressed him with graphs and charts "that were easily understandable to someone like myself."
That notion drew a sharp response from Sen. Rob Hurtt (R-Garden Grove), who suggested that even the most casual observer of the economy understood that interest rates were likely to rise in 1994.
"Everybody knew . . . that interest rates were artificially low," that they would rise and that "it was only a question of when," Hurtt said.
Later, a member of a private-sector panel that is aiding the Senate committee also challenged Citron's perception of interest rates.
When James Pugash, president of Hearthstone Advisors, a San Fernando Valley consulting firm, asked, "Isn't the real problem that people didn't want to face the truth that Orange County was hooked on money from the pool?" Citron replied: "There could be a degree of validity in that statement, yes."
Sen. John R. Lewis (R-Orange) and others pressed Citron about why he would make investment decisions based on criteria other than the safety of taxpayers' money.
"There is great pressure put on me and others to maximize our returns for budgetary reasons, and that is how the situation grew that required me to try to maximize the returns," Citron said.
He said he had no documents showing what sort of pressure was applied, suggesting instead that it came verbally. He recalled that County Administrative Officer Ernie Schneider asked him to come up with money to fund a gang suppression program, adding that similar pleas were made "several times."
Citron, who held the office for 24 years before his resignation last month, testified that counties should not borrow money to invest--as he did in hopes of multiplying the returns of the Orange County portfolio--and should use derivatives only to reduce risk, not for speculation.
Sen. Tom Hayden (D-Santa Monica) questioned why disclosure statements for two investment deals put together by the county within three months of one another in 1994 revealed such different levels of risk. The first intimated certain problems with the county's financial situation, while the second was "downright upbeat," Hayden said, adding that he felt there was "a glossing over of the risk."
Citron responded that the county "relied on professionals" in investment banking to put the prospectuses together.
Asked what checks and balances are needed to head off a similar debacle, Citron--who had squelched an effort to set up a panel to oversee his investments--suggested establishment of a small group of advisers "qualified by training and education" to oversee investment pools.
Some checks already are in place, he added, noting that the Orange County portfolio had been reviewed in the spring of 1994 by the SEC. Based on that checkup, Citron said he concluded that problems would not materialize in the pool.
Citron, who received more than $14,000 in campaign contributions from Wall Street last year, said he believed that brokerages should not be allowed to donate money to any political campaign.
Asked if the bankruptcy resulted in part from the "conflict of interest" that existed because Merrill Lynch earned more as it did more transactions with the county, Citron replied that "in retrospect, it appears that way."