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O.C. to Deal Again With Merrill Lynch

Supervisors vote 3 to 2 to renew county's ties with the broker many blamed for the 1994 bankruptcy. Treasurer supports the move.

June 04, 2003|Stuart Pfeifer | Times Staff Writer

After a contentious debate that illustrated the lingering wounds from its 1994 bankruptcy, Orange County's Board of Supervisors voted Tuesday to renew business ties with Merrill Lynch & Co., the Wall Street giant many blamed for the county's financial collapse.

The board voted 3 to 2 to approve Merrill as a broker-dealer through which Treasurer-Tax Collector John M.W. Moorlach can buy investment products like certificates of deposit. Moorlach said he does not intend to seek investment advice from the Wall Street firm, but simply wants the authority to buy its products when they offer a higher yield than other firms.

Buying low-risk products from Merrill represents a far different strategy from the one employed by former Orange County Treasurer Robert L. Citron, Moorlach said. Citron consulted with Merrill in a risky borrow-and-invest scheme that backfired with more than $1.6 billion in losses. The county still carries $873 million in debt related to the debacle.

"The world is 180 degrees different. We're running a money-market fund, probably the least-risk area of any investment field," Moorlach said. "We're trying to [make] some money. We're in a financial crunch."

Moorlach estimated that he could generate an additional $1 million a year for the county with the new authorization to buy from Merrill. He said the firm traditionally offers a larger inventory of products, often with a higher yield, than competing firms.

One observer of Orange County politics said that it made sense for officials to give up their grudge against Merrill Lynch.

"Merrill Lynch didn't comment a crime. The county of Orange got itself into bankruptcy on its own because the supervisors weren't supervising and the treasurer was consulting psychics," said Mark Petracca, a political science professor at UC Irvine. "To hold that against Merrill Lynch forever is an insane thing to do."

Still, one county supervisor, Jim Silva, said he is not ready to forgive and forget.

"If we save $1 million a year by utilizing Merrill Lynch, in another 873 years we'll be back even. This is a cruel joke that is being played on the taxpayers of Orange County. I'm really appalled," Silva said.

In 1998, Merrill Lynch paid $437 million to resolve lawsuits with Orange County and other investors who lost money in Citron's investment pool. The firm paid an additional $30 million to avoid criminal prosecution for its role in the county's financial collapse.

Last year, a defiant Board of Supervisors voted to prohibit any financial relationship with Merrill without its approval. After two new board members took office this year -- Chris Norby and Bill Campbell -- Moorlach started floating the idea of investing with Merrill Lynch again.

"There comes a time when we have to stop fighting an old war," Moorlach said.

Moorlach's word carried a lot of weight with the board. In 1994, he campaigned against Citron and told anyone who would listen -- and often those who wouldn't -- that the county's risky investments could have disastrous results.

Citron won reelection, but resigned a month later after the county declared bankruptcy. The board appointed Moorlach as his successor. In the ensuing months, Citron pleaded guilty to six felony charges and county officials disclosed that the former treasurer had consulted with a mail-order astrologist and a psychic while considering the county's investments.

Norby said that if Merrill can give the county a better return without added risk, it's time for the county to work with it again.

"Things do change," the supervisor said. "It is a different world."

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