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Report: SEC Orange County Probe to Yield No Fines or Criminal Referrals

January 16, 1996

LOS ANGELES (AP) _ Officials in office when Orange County went bankrupt apparently will face no federal criminal charges or civil fines stemming from a Securities and Exchange Commission investigation, a published report said today.

Instead, to settle SEC civil charges, county supervisors and other top officials will promise not to break securities laws in the future, The Los Angeles Times reported today, citing sources familiar with the investigation.

The SEC, the national police force for the stock and bond markets, only has the power to assess civil penalties such as fines. However, it can recommend criminal prosecution to a U.S. attorney, and the agencies generally work closely together.

The Times said the SEC plans no criminal referrals in the Orange County mess. Local prosecutors and the county grand jury have taken the lead in the criminal investigation, accusing the former county treasurer, assistant treasurer and budget director of fraud and misappropriation of funds under state law.

As part of the agreements with the SEC, the officials would not admit any wrongdoing, the newspaper said.

William McLucas, the SEC’s enforcement chief, today declined comment on the report and said he could not discuss the investigation.

McLucas told the newspaper that ``within the next few weeks, I would hope to put some of the Orange County issues behind us.″

Last fall the SEC began to notify public officials, lawyers, financial advisers and others that they might be cited for civil violations in connection with the bankruptcy.

The SEC asked an unknown number of targets to respond why they should not be cited.

The alleged improprieties varied, the Times reported, but all centered on one main type of violation: failure to disclose accurate information to investors about the riskiness of the bonds and the purpose for the bond sales.

The Times said today that the SEC will file a complaint in U.S. District Court, and simultaneously file the settlements. It was not clear when that would happen.

According to a lawyer for former Assistant Treasurer Matthew Raabe, a settlement agreement between his client and the SEC will be finalized this week.

Sources told the Times that settlements with former Treasurer Robert L. Citron and the five county supervisors in office at the time of the bankruptcy will be finalized within the next few weeks.

Gerald Boltz, a former SEC attorney who represents the supervisors, could not be reached for comment, the Times said.

The settlements, if reached, would be far too lenient given the magnitude of the bankruptcy, said Bruce Whitaker, a spokesman for the Committees of Correspondence, a watchdog group formed after the bankruptcy.

``I had gotten the impression that (the SEC) was going to go easy on them, but I think that’s outrageous, really,″ he said. ``It’s like writing a traffic ticket for grand larceny.

The county itself could be cited for failing to abide by securities laws, and enjoined from future securities violations, according to the Times.

In addition to the SEC’s investigation, the Orange County district attorney and the U.S. attorney’s office are conducting separate investigations.

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