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O.C. Portfolio Back in Line After Tuneup

Finances: In the first test of safeguards created since 1994 bankruptcy, an audit finds full compliance after minor violations were uncovered.


SANTA ANA — After discovering that the county treasurer's office was not fully complying with strict investment guidelines, Orange County's new chief financial officer commissioned an independent audit of the $2.8-billion portfolio.

But the audit--completed last week--found no additional violations, and officials said the portfolio is now in full compliance with all county regulations.

"As of today, the portfolio is clear," said Gary Burton, a former Orange County Transportation Authority executive who joined the county as chief financial officer six weeks ago. "We went through and cleared it up. . . . We are providing the monitoring and oversight."

Burton's actions mark the first major test of Orange County's conservative, low-risk investment rules, which were created in the wake of the December 1994 bankruptcy.

The rules prohibit the risky investments made by former Treasurer-Tax Collector Robert L. Citron, whose wrong-way bets on the direction of interest rates in 1994 caused a $1.64-billion loss to the county-run investment pool.

The audit comes as Citron's successor, John M.W. Moorlach, begins to gradually take control of the investment portfolio, which has been run by Salomon Bros. Asset Management since the bankruptcy.

Burton stressed that the violations in question were technical in nature and that county funds were never at risk. Still, the revelations raised concerns among some county officials who urged vigilant monitoring of the investment portfolio.

"I think it's very important that we have a full reporting of any lack of compliance," Supervisor Marian Bergeson said at Tuesday evening's board meeting. "We need to know what's going on."

Burton said the violations were discovered in September in a review by Salomon Bros. of Moorlach's investment portfolio.

One violation involved investments the treasurer's office made in foreign banks. Burton said that, although the investments were perfectly safe, they did not comply with a county rule requiring that such institutions operate in the United States.

A second violation involved the purchase of "commercial paper" that had strong short-term credit ratings, but no long-term ratings. Such investments are permitted under state guidelines but not under the county's stricter rules.

"It's a matter of interpretation. We are going through it and coming up with the right interpretation," Burton said. "Every once in a while, you can't help but have a violation because of the sheer volume."

After the Salomon Bros. report, Burton hired Spurry Capital of San Francisco to conduct a compliance review of the portfolio covering June-September. The audit did not detect additional types of violations by the treasurer's office but indicated that Salomon Bros. was technically out of compliance on some investments in its portion of the portfolio.

Moorlach immediately liquidated all the investments questioned by Burton and said the episode highlights the oversight safeguards established in the wake of the bankruptcy.

"The system is working," said Moorlach, who publicly criticized Citron's risky investments months before the Dec. 6, 1994, bankruptcy. "We want to be as cautious as possible and make sure everything is in compliance."

Supervisor Don Saltarelli agreed. "I think this proves that the checks and balance are in place," he said. Moorlach "was cooperative and handled the situation very well. It's the kind of attitude we need."

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