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Merrill Lynch To Pay $2M Fine

August 24, 1998

WASHINGTON (AP) _ Merrill Lynch & Co. agreed today to pay $2 million to settle federal regulators’ allegations of negligence arising from the 1994 bankruptcy of Orange County, Calif.

Merrill, the nation’s largest brokerage firm, neither admitted nor denied wrongdoing in the settlement _ the latest enforcement action by the Securities and Exchange Commission related to the Orange County case.

The Wall Street firm also agreed to refrain from future violations. In a statement issued from its New York headquarters, Merrill Lynch said, ``This settlement puts the matter behind us and avoids any further distraction by the Orange County situation.″

The SEC said it was the first time the market watchdog agency has directly blamed a bond underwriter for misleading its investment bankers by failing to give them vital information about a bond sale. Merrill underwrote $875 million in municipal securities issued by Orange County in July and August 1994.

The $2 million civil penalty is one of the largest it has ever imposed for fraudulent conduct that was not intentional, the SEC said.

Earlier this summer Orange County, which had filed a civil lawsuit against Merrill, reached a $437.1 million settlement agreement with the brokerage giant. Merrill denied any wrongdoing.

Orange County sought federal bankruptcy protection in December 1994 after losing $1.64 billion from its investment pool, a savings bank for schools, cities, water and sewer districts.

In related actions, Wall Street firm CS First Boston Corp., which also was an underwriter of Orange County securities, and two of its investment bankers in January agreed to pay civil penalties totaling $880,000 and to refrain from future fraudulent conduct in selling securities. CS First Boston and the investment bankers neither admitted nor denied wrongdoing.

Earlier this month, the SEC filed a suit against brokerage Dain Rauscher and two of its investment bankers alleging fraud in the sale of more than $980 million in securities issued by Orange County.

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