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Bankruptcy Figure Up for Tollway Job


A financial advisor fined $35,000 three months ago for his role in Orange County's bankruptcy is on the verge of being hired for four times that amount by a county agency that lost millions in the collapse.

Douglas S. Montague, a former investment banker who was found by federal regulators to have "failed to disclose information important to investors" in the county's ill-fated investment pool, is slated to be hired Thursday by the Transportation Corridor Agencies as a financial advisor for $150,000. Irvine Councilman Mike Ward, the agency's board chairman and a member of the two-person committee that chose Montague, defended the hiring.

"I think you can compare this to a person who normally drives the freeway at about 84 mph, and after they get a ticket, they are probably a very safe driver for the foreseeable future," Ward said.

But County Treasurer-Tax Collector John M.W. Moorlach, who is credited with warning the county about financial problems before the bankruptcy, responded: "We don't have a ticket. I think right now we've got a hit-and-run."

The unprecedented 1994 bankruptcy resulted in a $1.64-billion loss to county government and scores of cities, school districts and special districts that contributed to the county's investment pool. The tollway agency lost $74 million.

At the time, Montague was the lead municipal investment banker for Credit Suisse First Boston Corp., which underwrote a $320-million pension-bond offering that had failed to alert investors to the county's risky finances, according to the Securities and Exchange Commission.

On Jan. 29, the commission ruled that CS First Boston, Montague and colleague Jerry Nowlin willfully violated federal securities law. The bank, which is being sued by the county, was fined $800,000.

Montague signed a 15-page consent decree, a standard SEC procedure, in which he did not admit guilt but promised to obey securities laws in the future.

The new contract with Montague of La Canada and his firm calls for them to advise the transportation agency, which operates the county's toll roads, on partial refinancing of bonds for the Foothill and Eastern corridors.

The contract is contained in a consent portion of the agency's agenda, meaning it was to be voted on without comment.

Several agency board members said Tuesday that they were unaware of Montague's background.

"This doesn't strike a good chord with me," Supervisor Tom Wilson said. "This is the first I've heard of it. There are too many folks out there who don't have a blemish on their record that we could be hiring."

Supervisors William G. Steiner and Todd Spitzer, also on the board, said they expect an explanation of why Montague is being recommended.

"I wouldn't give a shred of business to any individual who was involved in the Orange County bankruptcy," Spitzer said.

Montague didn't return calls for comment Tuesday. His firm's office referred calls to him.

Ward defended the selection of Montague's firm on the basis of its experience and creativity in the field of bond refinancing. He and board member Susan Withrow selected Montague from a field of six competitive bidders. Their choice was endorsed by two committees consisting of agency board members.

"They came up with some innovative ideas on refinancing and, quite frankly, what we are doing here is inventive financing," Ward said.

Ward said he discussed Montague's association with the bankruptcy with Withrow but said the issue wasn't raised at either of the two committee meetings. It also wasn't mentioned in a staff report on the matter. Withrow, the mayor of Mission Viejo, could not be reached for comment.

"First Boston was an extremely small player in the Orange County bankruptcy," Ward said. "They were one of many companies that were on the periphery."

Moorlach, who replaced former county Treasurer-Tax Collector Robert L. Citron, disagreed with Ward's description of CS First Boston. As the first financial institution to pull its collateral out of the county's pool, the bank was the "first domino" in Orange County's financial collapse, Moorlach said.

"I think it's a big deal, and it does matter," he said. "I think we shouldn't lose our sense of outrage over what occurred in Orange County. The paint isn't dry yet, and I'm disappointed that other financial advisors didn't rank higher than this firm in the selection process."

The contract is especially inappropriate, Moorlach said, because the county's lawsuit against Montague's former employer is still pending. He scoffed at an assertion by Ward that the hiring was appropriate because Montague's firm was being recommended, not Montague personally.

"You develop professional relationships with individuals and if those individuals fail you in their professional capacity at one firm, what does having a new firm have to do with it?" Moorlach said. "I think better judgment could have been applied."

The agency meeting begins at 9:30 a.m. at the Santa Ana City Council Chambers, 20 Civic Center Plaza.

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