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Former Orange County Treasurer Admits to Defrauding Investors

April 28, 1995

SANTA ANA, Calif. (AP) _ The former Orange County treasurer, whose casino-style investments lost $1.7 billion and forced one of the nation’s wealthiest counties to declare bankruptcy, has pleaded guilty to fraud.

Robert Citron looked subdued but collected Thursday as he admitted to six counts of defrauding investors. He faces up to 14 years in prison and has agreed to cooperate in the investigation of the nation’s biggest municipal bankruptcy.

He was released on $25,000 bail and is to remain free until investigations are completed, said Deputy District Attorney Wallace Wade. No sentencing date was set.

Citron, 70, admitted to misappropriating public funds by skimming more than $80 million in interest due to investors in the county pool and putting it in another investment pool. He also made false statements to sell securities to the schools, cities and local agencies that invested in the county, and lied to sell various bonds for the county and its schools.

``Bob feels a deep sense of remorse and responsibility,″ said his lawyer, David W. Wiechert. Citron has not talked publicly about the case.

``He pled guilty because he is guilty,″ Wiechert said, ``and hopes that his truthful cooperation will help resolve some of the outstanding questions that are still being examined regarding the county’s financial crisis.″

One unanswered question is the role of Citron’s main brokerage, Merrill Lynch & Co. Citron testified at a state legislative hearing that he failed to realize the risks of investments pitched to him by star Merrill Lynch bond salesman Michael Stamenson.

Stamenson and Merrill Lynch, the largest U.S. brokerage, have denied any wrongdoing, contending Citron was a sophisticated financial chief and the architect of his doomed strategies.

The complaint against Citron also says he was aided by former Assistant Treasurer Raabe. His lawyer, Gary Pohlson, said Raabe is probably the next target.

``All Bob Citron is trying to do is get himself a deal by rolling over on someone who didn’t do anything wrong,″ Pohlson said. ``He is the one who does all the deals and now he’s trying to sell out Matt Raabe.″

As a result of the December bankruptcy filing, Orange County plans to eliminate about 3,000 positions through layoffs and leaving jobs unfilled. The workforce will be reduced to around 15,200 by June.

The prospect of higher taxes also looms for one of America’s most conservative regions.

The county is suing Merrill Lynch to recover its $1.7 billion loss. The county claims the brokerage violated state law and its duty to provide suitable investments by allowing Citron to make huge bets on stable or lower interest rates.

County officials and investigators, who have struggled to piece the complex case together without Citron, were relieved after his decision to cooperate.

``Citron can help us by providing the truth. We’re not interested in him making the case, but telling us facts,″ said county Chief Executive William J. Popejoy.

Wade could not estimate how long the investigations by the district attorney and a county grand jury would take.

District Attorney Michael R. Capizzi said prosecutors have made no promises regarding Citron’s sentence. The plea agreement says Citron intends to apply for probation, and he has asked that a judge from outside Orange County decide on the sentence.

Whispering quietly and even appearing to joke with his lawyer, Citron appeared an almost meek figure in his gray suit, thin gray hair and glasses as he entered his guilty pleas before Superior Court Judge David O. Carter.

Citron’s financial rise began when the state Legislature passed a law expanding the methods by which county treasurers could borrow money.

He used the borrowed funds for interest rate-sensitive, medium-term bonds and derivative securities. By late last year, he had created what was in effect a gigantic bet on stable or lower interest rates.

The wager was lost when the Federal Reserve raised interest rates four times. That sharply increased the cost of Citron’s borrowings, even as it depressed the value of the securities he had bought with the borrowed money.

In December, jittery brokerages liquidated more than $11 billion of Orange County’s portfolio they had held as collateral on loans, turning what had been ``paper losses″ into real ones.

Citron then resigned after 21 years as treasurer.

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