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Brokerage Agrees to Settle in O.C. Bankruptcy Case

May 09, 1998|E. SCOTT RECKARD | TIMES STAFF WRITER

A brokerage that Orange County sued over its massive bankruptcy settled the case Friday for $52.5 million, breaking ranks with 19 other Wall Street firms.

County leaders predicted more major settlements will follow their agreement with Credit Suisse First Boston.

The brokerage and others were accused of lending former county Treasurer Robert L. Citron so much money to pour into risky securities that they violated the law. The county also contended that First Boston concealed huge profits it made selling the high-risk securities, which eventually contributed to the collapse of the county treasury.

The firm admitted no wrongdoing. First Boston said it settled the lawsuit to put "unpredictable and distracting" litigation behind it.

It's the third multimillion-dollar settlement of claims related to the bankruptcy so far.

Earlier this year, the bond law firm LeBeouf Lamb Greene & MacRae agreed to pay $55 million to settle claims by the county and a college that lost money in the financial debacle. The firm served as the county's bond counsel in the months leading up to the financial collapse in December 1994.

Previously, Merrill Lynch & Co., Citron's main investment house, agreed to pay $30 million to end a criminal investigation separate from the county suits. Indeed, the county's main shot at recovering the vast losses sustained by it and 200 schools, cities and local agencies is Wall Street--which until now had made no payments in the civil case scheduled for trial Sept. 15.

"I think we're going to see more settlements as we get closer to trial," said William G. Steiner, the only current Orange County supervisor who was in office at the time of the collapse.

First Boston and two of its employees had already paid $870,000 to settle a related case brought by regulators at the Securities and Exchange Commission. The firm said it no longer has any significant liability in the Orange County fiasco.

Among Wall Street firms, Merrill Lynch appeared to have the most potential liability in the county's civil case. First Boston did not have the close relationship to Citron that Merrill did, and it sold the county a small fraction of the number of risky securities Merrill sold.

When the Federal Reserve Board raised interest rates sharply in 1994, hammering the county's investments, First Boston was the first brokerage to sell the county-owned securities it had held as collateral for the loans. That started a flood of losses of taxpayer funds that ultimately totaled $1.64 billion.

Merrill Lynch spokesman Bill Halldin declined to comment on the First Boston case. Merrill maintains that Citron charted his own course and that if there is any blame to be put on the brokerages, it should fall broadly on those who loaned Citron funds--meaning a wide range of other firms.

All told, the county filed 15 civil lawsuits against 28 defendant groups, including legal, accounting and advisory firms, as well as the 20 Wall Street firms.

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