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O.C. Recoups Another $117 Million in Bankruptcy Losses


In another major victory in Orange County's fight to recover its bankruptcy losses, two more brokerages agreed Tuesday to pay $117.5 million to settle charges that they helped create the 1994 debacle.

Morgan Stanley, Dean Witter, Discover & Co. and Nomura Securities International Inc. denied wrongdoing and said they settled rather than risk a larger award in a lawsuit.

Their payments will bring the county's recoveries to nearly half what it says it lost, and to about 80% of the loss as figured by the defendants. With lawsuits against 17 defendants still unresolved, some county officials are privately expressing hope of recouping $1 billion of the total loss it puts at $1.6 billion.

Suits are pending against 14 brokerages, a former legal advisor and a former financial advisor on the county's municipal bonds, and against Standard & Poor's Corp., a major bond-rating service.

"The latest settlements give us tremendous momentum," said James W. Mercer Jr., one of the county's lead attorneys.

Legal experts said the settlements are far greater than usual in investment loss suits. But Orange County's debacle was far from a run-of-the-mill case involving a falling stock price and allegedly broken promises.

The loss shook the financial world. Overnight, one of America's richest counties became its biggest bankruptcy case, rocking the sleepy municipal bond market with the threat of default. And Wall Street's biggest firms stood accused of furthering an investment scheme so risky it was illegal.

Now the bondholders have been made whole and the county has largely repaid the 200 school districts, cities and local agencies burned in its financial meltdown. And the settlements have fast-tracked recovery for the county itself, which issued $800 million in long-term bonds to pay its debts.

In Tuesday's deals, Morgan Stanley Dean Witter agreed to pay $69.6 million. The deal actually settles claims against two brokerages originally sued by the county--Morgan Stanley and Dean Witter--that merged after the suits were filed.

Morgan Stanley Dean Witter maintained its dealings with the county had been "exemplary," saying it settled because litigation is always uncertain. "We're glad to put the matter behind us," a spokeswoman said.

Nomura issued a similar statement, citing the "considerable costs and diversion of management's time and the uncertainty" of legal proceedings. It will pay the county $47.9 million.

The settlements bring the total recovered by the county's legal team to $739 million. By far the biggest share is from Merrill Lynch & Co., the nation's largest brokerage and once the chief investment house for the county.

Merrill agreed last month to pay the county $400 million, return $20 million in frozen county funds, and pay the Irvine Ranch Water District $17 million to settle a separate lawsuit.

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