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Merrill Trying To Talk Investigators Out of Bringing Orange County Charges

September 20, 1996

NEW YORK (AP) _ Merrill Lynch & Co. is trying to convince federal regulators not to bring charges against the firm in connection with the 1994 collapse of Orange County, Calif.’s investment fund, a source close to the firm said today.

The source, who spoke on condition of anonymity, said the firm is not seeking a settlement with the government, but wants to avoid charges altogether.

The Wall Street Journal reported today that the Securities and Exchange Commission sent so-called Wells Notices to Merrill saying possible charges would focus on whether the firm adequately disclosed the risks of its dealings with Orange County.

The SEC is likely to focus on a $600 million note sale, which Merrill handled on behalf of the county in June 1994. Merrill did not disclose the deteriorating condition of the county’s investment pool to those who essentially lent the county money by buying the notes, the newspaper said.

The Journal cited sources familiar with the matter, whom it did not identify.

Orange County filed for bankruptcy in December 1994 after risky investments by then-county Treasurer Robert L. Citron lost $1.6 billion. It was the biggest-ever U.S. municipal bankruptcy. The county emerged from bankruptcy this past June after paying off bondholders.

Merrill spokesman Tim Gilles said the firm does not comment on Wells Notices, except to say, ``We are confident that our disclosure was proper.″

A Securities and Exchange Commission spokeswoman said the agency had no comment.

Merrill is also battling a $2 billion lawsuit by the county that contends Merrill must share the blame for the investment losses.

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