December 8


Filing for Chapter 9 bankruptcy.  Now that’s a story of national import.  Gale Holland and Dan Whitcomb of USA TODAY made it the cover story with “Scandal ‘all comes down to greed.’”  One thing you get to observe with a major story like this is that some reporters are not heavy lifters.  Sometimes, fact checking and proofing would really be a good idea.  This article had a fun error as it relates to the date of the election.

Over the years, [Citron had] become a local hero because of the tremendous rate of return he offered other government administrators: an average 9% in the past decade.

“Probably we got too greedy,” says Pamela Gibson, city manager of La Palma, one of the smallest pool investors.

Citron came under rare criticism before last month’s election.  Accountant John Moorlach – bidding for Citron’s treasurer job – warned that Citron’s portfolio was a time bomb.

He was dismissed as a naysaying crank.

You go from shock to anger to acceptance and then you go to remedy.  The LA Times started with this thinking as the lead article of their Business section with “Investors Weigh Their Options – Legal Action Against Brokers Is Inevitable, Experts Predict” by Scot J. Paltrow.  We get introduced to Professor Coffee, who is still quoted often today on topics of a similar nature.  The layers of the onion were being peeled by the media, as we are also introduced to Michael Stamenson, and they discovered portfolio composition anomalies that I pointed out in my letter to Chairman Riley some five months prior.

John C. Coffee, Jr., an expert on securities law at Columbia University Law School, and others say suits seeking to force the firms to reimburse the county for its losses are extremely likely.  They say much will depend on facts that have yet to be made public.  But they say settlements and decisions in other cases suggest that, if sued, the brokerage firms face a significant risk of being forced to make good on at least part of losses now estimated to be well in excess of $1.5 billion.

Concern about possible suits comes amid new disclosure about Merrill’s role in the Orange County fund.  Sources close to Merrill told The Times on Wednesday that last May senior executives from Merrill Lynch’s headquarters in New York flew to Orange County to meet with county Treasurer Robert Citron to go over concerns about the fund and its investment strategy.  The county’s account with Merrill until then had been handled almost exclusively by Merrill’s San Francisco office.  The meeting came as Citron was running for reelection against John M. W. Moorlach, who had leveled major criticisms about the risks the fund was taking.

Michael Stamenson, a veteran institutional salesman in Merrill’s San Francisco office, was the lead broker on the Orange County account.  Stamenson, who reportedly earned over $5 million in annual commissions in recent years, has declined to comment.

But Orange County was one of Merrill’s leading customers for buying interest rate-sensitive derivatives, sometimes buying the entire amount Merrill had to sell.  The fund bought nearly $4 billion of Fannie Mae securities from Merrill in 1993, including an entire $800-million issue in July of that year, sources confirmed.

Daily Pilot Editor Bill Lobdell did a piece, titled “Mom’s Christmas letter would brighten bad news,” that parodied his mother’s overly positive annual Christmas letters.  It didn’t take too long for the humor to start.  Here are a few samples:

Mr. Moorlach tried to get support from folks around the county, but Bob’s friends, God bless ‘em, wouldn’t budge. 

Only the East Coast media types would give Mr. Moorlach any favorable press – and you know how they are.

Only the stuffed shirts at the Mesa Consolidated Water District wouldn’t give their money to Bob.  Their problem is their old-fashioned way of thinking about investments:  safety first, then liquidity and finally yield.  How boring!

And it wasn’t just Bob’s friends who came out in support of him.  So did the newspapers!  It was really quite touching.  Good ink, endorsements!

Our year got even more interesting during the holidays when interest rates climbed a bit (thanks, Mr. Greenspan) and Bob’s investment portfolio took a slight dip – on paper only!

Bob know there’s no such thing as bad publicity, but still . . . who needs to be around a bunch of naysayers?  Bob certainly didn’t!  Delivering high returns to investors for 24 years was enough for him!  It was time to spend some time with the ol’ family!

Have a happy holiday and great new year!

Bob Citron & Co.

Evan Henerson of the Daily Pilot dealt with the deep subject of “Everybody continues to seek answers.”  It touched a subject that wasn’t getting much play time, for now.  Thank you, Congressman Rohrabacher.

While several citizens criticized Citron or finance officials who followed the ex-Treasurer’s lead, [Congressman Dana] Rohrabacher blamed the media for ignoring Costa Mesa accountant John Moorlach’s criticism of Citron’s policies earlier this year, while Moorlach was running for the Treasurer’s seat.

“The media totally ignored and downplayed (Moorlach’s) charges,” Rohrabacher said from Washington, D.C.  “And since the charges didn’t make headlines, people in business and individuals decided not to do anything themselves.”

My nemesis in the Daily Pilot, Fred Martin, finally chimed up in his column titled “Orange County lacking strong leadership.”  Fred was un-merciless in his attacks of me during my campaign.  Thanks for the weak apology, I think.  But, if you don’t understand finances,  you only rely on what you read in the newspapers, and you despise all registered Republicans, well, what can I say?

John Moorlach tried to tell us that we were careening down the toll road to financial ruin, but we didn’t listen.  We characterized him as a kook, called his tactics alarmist, and voted heavily for Citron when Moorlach tried to unseat the treasurer in last June’s election.

I wrote strongly against Moorlach, not for the message he was trying to send, but for the way he was doing it.  The tactic of trying to upset a multi-billion-dollar apple cart by going to New York-based financial media was, I believed, a lousy way to get elected.

It was, I felt, just more piranha-style politicking:  often massively hyperbolic, often pure fiction.  Unfortunately, that was not the case this time.

I don’t regret criticizing Moorlach’s methods.  I do regret not going to John, not hearing him out and trying to understand what he was saying and writing about it.  If that was dumb on my part, I certainly have a lot of company. 


Jenifer B. McKim and James B. Kelleher of the OC Register continued with the recent theme on the toll road front, “Foes act to block sale of tollway – Riverside County OKs legal action as the state reviews the 91 Express Lanes deal,” making it front-page news.

Assemblyman Dick Ackerman, R – Fullerton, said he might also ask [Governor] Davis to delay the bond sale.

Orange County Treasurer John Moorlach—the first county official to question the sale—has asked the state Treasurer’s Office to intervene.  The state agency said it is now reviewing the matter.

Megan Garvey and Meg James of the LA Times also made the front-page with “State Taking ‘Hard Look’ at Road Sale – Atty. Gen. Bill Lockyer said his office may try to block ‘deplorable’ bond deal transferring the private 91 Express Lanes to an O.C. nonprofit group.”

Some, including state Treasurer Phil Angelides and Orange County Treasurer John M. W. Moorlach, question the validity of . . . ridership projections.

Moorlach has been highly critical of the projections, as well as the deal’s structure.  The 30-year bond issue, he pointed out, lasts for the entire franchise agreement, which ends in December 2030.

The Riverside Press-Enterprise had a piece by Jill Spielvogel, titled “State to investigate pending sale of Highway 91 tollway – Attorney general’s office is responding to concerns raised by Riverside County.”

“We all have a real concern about how this deal smells, and we’re all asking for some antiseptic,” Moorlach said.  “Maybe it’s legit, but on the surface it raises too many questions.”

The topic drew the attention of editorial boards.  The LA Times chimed in with a lead editorial headed “Orange County Perspective – Concern on Toll Road Sale.”

Locally, Orange County Treasurer John M. W. Moorlach and Riverside County officials have been asking good questions.

These important public assets need to be guarded, maybe even put into state hands.  They certainly should not be traded in a closed process that would allow new owners to transfer long-term debt and then take a cut of the money before departing.

The Press-Enterprise’s lead editorial had a clever title, “Hit the brakes on the toll lanes.”

[Riverside County] supervisors aren’t the only public officials worried that this deal is a bad bet.  Orange County Treasurer John Moorlach, who did much to rescue that county from its scandalous bankruptcy, is attacking the deal as an imminent “train wreck.”  Mr. Moorlach says the toll lane arrangements feel too much like the risky investments that put his county in those straits five years ago.

Here’s a deal that clearly threatens Riverside County commuters with a rolling series of rate increases and, in Mr. Moorlach’s experienced opinion, could leave commuters and taxpayers holding a bag.

If there’s something that really commends this deal as a sound move – something that offsets the glaring details and failure of public disclosure to this point – by all means, let’s hear it.

And let’s put this deal on hold while it’s heard.

Andrea Figler of The Bond Buyer attended a December 6th (the fifth anniversary of our bankruptcy filing) fundraiser that I hosted, titled “An Evening With the Mentoring State Treasurers,” which featured Former Utah State Treasurer Ed Alter (just completing his last term in 2008) and Former Nevada State Treasurer Bob Seale.  Both were a big help to me when I came on board as County Treasurer.  Since the OC has a population larger than some 20 states, I found considerable value in meeting with state treasurers.  These two, and a couple more, provided a big assist.

You usually don’t have reporters show up at your fundraisers.  But her piece made it to front-page, top-of-the-fold, with “Orange County:  Five Years Later – O.C. Bankruptcy Party – Hints That Treasurer May Seek Higher Office.”

When asked how Moorlach asked for help during the crisis, former Nevada Treasurer Bob Seale replied that it was Moorlach who helped the state treasurers.

The county’s bankruptcy declaration had government officials around the country worried about fiscal oversight of not only local governments but also state governments.  At the time, Seale was called to testify in front of the U.S. Senate Banking Committee on whether other local and state governments could fall into the same poor fiscal condition created by former county Treasurer Robert Citron.

So after bankruptcy protection was sought, public officials such as Seale sought Moorlach’s opinion of the susceptibility of other governments nationwide.  The federal government was proposing fiscal oversight of not only municipalities but also state treasuries.

“John discovered that it was not an endemic problem within the United States,” Seale said.

Utah Treasurer Ed Alter, who has overseen his state’s finances for two decades, also praised Moorlach on not only his fiscal efforts with the county, but also his “fine, upstanding character,” and his professional expertise.  A treasurer should be able to provide the public with an explanation beyond the obvious, Alter said, and Moorlach has done this.


The Treasurer’s office hosted a conference on the tenth anniversary of the county’s filing for bankruptcy and Rich Saskal of The Bond Buyer was in attendance.  His observations were recorded in “Human Failings Helped Bring Orange County’s Fall, Panelists Say.”  It was quite a profound evening with many individuals on the panel who were on both sides of the equation. 

Ter Sforza of the OC Register was in attendance as well and produced a piece titled “Former county officials (re)count their losses.”  She was also at the Orange County Forum’s Luncheon Panel on the same topic on December 7th.

All this reminiscing has been more fun than a hot poker in the eye, former county officials agreed.

But County Treasurer-Tax Collector John Moorlach was afire.

“I’m a guy who likes to camp,” Moorlach said at the retrospective he organized Monday on the county government’s financial meltdown 10 years ago.  “I always thought, ‘Wouldn’t it be fun to sit around campfire and talk about all this?’  I feel like I’ve been around a campfire tonight.”

Most people don’t even remember the bankruptcy, but to these folks, it was a visceral, personal tragedy.

Moorlach, at least, felt revitalized by the discussions.  “It was good therapy for me,” he said.  “We all have regrets.  If I had just convinced them, maybe we could have saved a billion dollars.  But you have to be better, not bitter.”

The OC Register’s lead editorial also covered the conference in “Eating crow at the Nixon Library—Principals in the county’s bankruptcy meet to recall what went wrong a decade ago.”

During the panel discussion on the media, Rick Reiff, of the Orange County Business Journal, said the problem wasn’t that the media was too skeptical, but that it was skeptical of the wrong people.  Reporters trusted Mr. Citron and dismissed Mr. Moorlach, he said.

[Former Orange County Supervisor Roger] Stanton read from a Los Angeles Times editorial at the time endorsing Mr. Citron.  Mr. Reiff referred to a Register headline in September, shortly before the financial sky fell, declaring:  “O.C.’s sky didn’t fall.”  Clearly, the media fell down on the job, as did the political establishment and the voters, who rejected Mr. Moorlach in favor of Mr. Citron in the June 8 election of 1994.

Facinating stuff.  We only wish current county leaders would listen to Mr. Moorlach’s current warnings about dire financial consequences of spiking pensions for employees.

The OC Register’s other editorial, “Defining a solution to the pension crisis,” supported ACA 5 by Assemblyman Keith Richman, R – Northridge.

Although there may seem to be short-term budget benefits, county Treasurer John Moorlach warned that the new benefits immediately increased the retirement system’s unfunded liability by $300 million.


Please come to our Third Annual Christmas Open House on December 16th, from 3 to 5 p.m.

10 Civic Center Plaza

333 West Santa Ana Boulevard

Fifth Floor, Second District

(Park in the lot off of Ross Street)

To RSVP, please call Margaret Chang at 714-834-3220