MOORLACH UPDATE — ORANGE COUNTIANA — A Journal of Local History — November 9, 2012

ORANGE COUNTIANA – A Journal of Local History, Volume VIII, was released last evening by the Orange County Historical Society.  Froy Tiscareno and I provided some insights on two of the five chapters in this edition.  Other authors with books of historical interest concerning Orange County were also present and it was a treat to hear their stories.  Some thirteen years ago, Orange County Historical Commission member Don Dobmeier challenged me to write a chapter on the Orange County Bankruptcy for this publication.  I asked for permission to write it in a different format.  Usually, you tell them what you’re going to tell them, then you tell them, and then you tell them what you told them.  I wanted to do it in a different manner.  And, since I was a player in the events leading up to, during and after the County filed for Chapter 9 bankruptcy protection, it was difficult to separate myself from the piece.

A Long Beach State professor had been assigned to edit my submission.  It came back riddled with changes and comments.  One being something like “write in the third person.”  Well, I was busy in 1999, too.  So I wrote to Esther Cramer, the Commissioner heading up this project, and requested that my submission be pulled.  This simple solution seemed easier than spending time with an editor who had his own formatting style.  The manuscript went into a file and disappeared.  I did see it referred to in a book, titled Orange County: The Golden Promise – An Illustrated History, by Pamela Hallan-Gibson, published by American Historical Press, copyright 2002.  I’ve never heard the story as to how the author had access to the manuscript and it will remain a mystery. 

In a recent conversation with Phil Brigandi, Orange County historian extraordinaire, I mentioned that I had written something for a previous edition.  He reviewed it, and with a few minor editing changes, he accepted it pretty much in its original state.  So you have a thirteen-year-old submission being published in 2012, with gratitude to Phil Brigandi, the book’s editor.

Although I have been mentioned in a lot of books, magazines, and other publications, there are few where I have had the privilege of submitting a chapter.  Accordingly, last night’s premier was fun.  I did not focus my remarks on the bankruptcy, which is a tough story to retell, but on growing up in Orange County, enjoying it’s wonderful resources, and recounting the delay in publication.  Esther Cramer passed away on April 15, 2012, and the book is published in memorium to her and two other historians of note.  For me, it only seemed fitting.  Orange County has had its rough patches, but it is a wonderful place to live.

The title of the chapter is “The Orange County Bankruptcy.”  The subtitles are “MEGO – My Eyes Glaze Over,” “Chapter 9 of the Bankruptcy Code,” “Professional Malpractice and Gross Negligence,” “The Secondary Perpetrators,” and “The Turnaround.”  For fun, I’m providing the first two sections and the conclusion.  If you want a copy of the book, you can acquire it from the Orange County Historical Society, http://www.orangecountyhistory.org/, and go to “Publications for Sale,” http://www.orangecountyhistory.org/publications-sale.html.  Volume VIII should be up on their website soon and this paperback will be available for $20.  If you have any questions, just e-mail the editor, Phil Brigandi, at orangecountiana@orangecountyhistory.org.  (If I have a slow period in the future, I’ll provide the rest of the chapter.)

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MEGO – My Eyes Glaze Over

Misinterpretation. There are occasions where something will occur, the magnitude of which is not quickly apparent to you. What you hear or see doesn’t quite resonate, or register. You may find it preposterous and drop the subject. You may ask questions and nibble around the edges. The answers may be patronizing, but they pacify your immediate concerns.

Preoccupation. You may just be too busy with minor issues that you do not have time for major ones. You may just be too important to be irritated by some matters. Besides, financial discussions make your eyes glaze over.

Obfuscation. You believe your sources are trustworthy. You have heard enough and come to what you believe is the correct conclusion. It’s not. In fact, you’re completely wrong, even though you’re convinced that you understand the facts correctly.

Revelation. Then an astonishing new disclosure or brainstorm hits you, and the true issues suddenly become clear. “Oh, that’s what that meant; how did I miss something so obvious?”

Chapter 9 of the Bankruptcy Code

In 1994, the County of Orange went through one of those “why didn’t we see it coming” experiences. This is a tale of human failure that resulted from misinterpreting the gravity of an investment method, how it occurred, and what has been implemented to be sure that it does not happen again. And since I had the distinction of enjoying a front-row seat, let me provide a brief summary of this internationally reverberating event.

On December 6, 1994, the County of Orange filed for bankruptcy protection under Chapter 9 of the Bankruptcy Code. This rare and dramatic action resulted from an improper and failing investment strategy of public funds perpetrated by County Treasurer-Tax Collector Robert L. “Bob” Citron. It was the largest municipal bankruptcy filing up to that time in world history.

The initial news and subsequent related articles would command front page headlines in the local newspapers for a period of time not seen since World War II. This financial earthquake, generating a loss in excess of $1.6 billion, is probably the most significant event of Orange County’s 120-plus year history.

Orange County was a substantial municipality, with a population exceeding that of twenty states. In an age of instant global communication, the announcement of one of the world’s wealthiest counties filing for bankruptcy protection became universally known. When Orange County was mentioned around the U.S., people were more likely to mention the bankruptcy than Disneyland. And the stigma still lingers. It now seems that one cannot read a municipal finance or derivative-related article without some mention of Orange County. Regretfully, this will be attached to our formerly pristine reputation for decades to come.

The Turn Around

Fortunately, we didn’t dwell long at the scene of the accident. We re-grouped. We re-structured. We worked as a team. We made painful sacrifices.

We laid out a plan and we committed to it. Orange County would exit from Chapter 9 bankruptcy protection just eighteen months later. Our Treasurer’s office is now probably one of the most carefully run and studiously overseen shops in the nation. We have experienced a significant amount of grace in the small area of the globe which we call home.

We taught ourselves, and the rest of the nation, some very important lessons: Red flags should not be lost on an Orange background. Layers of professionals do not necessarily equate into a safe and sane world. Higher returns really do mean higher risks. Complacency, lack of oversight, benign trust, and an unwillingness to ask the right questions may create a sad disappointment in the future. Anyone in a leadership position should never be caught stating to the public, “I don’t know how in the hell [our Treasurer] does it.”

We are not misinterpreting now. We are not preoccupied. We are not complacent. We have been humbled. Once is enough. We have rectified the causes. We have rebounded. We have turned the county around. We are a marvelous success story.

Fortunately, we learned. Numerous new laws, regulations, and promulgations have been created since the Orange County bankruptcy to prevent a repeat occurrence. I believe that they will work. The tragedy of another “Orange County debacle” occurring again is highly remote in this nation’s future. And for that we should all be relieved.

FIVE-YEAR LOOK BACKS

November 8

2007

H. G. Reza and David Reyes of the LA Times provided their story on O.C. launches audit of Carona’s spending – Officials also ask the sheriff to return his county credit card, though an aide says he doesn’t have one.”


Orange County officials want to block indicted Sheriff Michael S. Carona’s access to a county credit card issued to his department while he is on a self-imposed 60-day paid leave, and they have launched an audit of his office’s spending going back to 1999, his first year as sheriff.

The county’s audit oversight committee met Wednesday and decided to look at 21 accounts in the Sheriff’s Department, including petty cash, said Supervisor John Moorlach.

County Auditor-Controller David Sundstrom said the probe was precautionary, sparked by Carona’s federal indictment on public corruption charges. He said auditors will also examine the sheriff’s travel on county business.

Carona is accused of a broad conspiracy to sell access to his office for tens of thousands of dollars and gifts, such as a boat, pricey watches and tickets to the World Series and a Las Vegas boxing match. He is not accused of using public funds for personal use.

The sheriff has pleaded not guilty, as has his wife, Deborah, and Debra V. Hoffman, identified in court documents as his longtime mistress.

"There is no indication by reading the indictment or through other sources that there’s any nefarious activity in the Sheriff’s Department," Sundstrom said.

But Moorlach said Carona "shouldn’t be using county funds" after he goes on administrative leave Friday and asked the auditor’s office to bar him from using a county credit card or other public assets.

Carona will, however, be paid $33,166 over the 60 days that he is working on his defense.

Typically, each department has a credit card that can be used for county business, said Peter Hughes, director of internal audits for the Board of Supervisors. A small number of people within a department are authorized to use the card, he said.

Sundstrom and other officials were not certain Wednesday whether Carona still had a card in his possession.

Carona’s spokesman, Michael Schroeder, said the sheriff did not.

Moorlach is still fuming over a 10-day fact-finding trip to Europe taken in March by Carona and three top officials from his department.

According to Moorlach, Carona said one of his stops was a DNA lab in England used by law enforcement, but the sheriff never set foot in the building.

Moorlach said Carona lied to the board in August when he told supervisors he had visited the lab. Last week, one of the assistant sheriffs who traveled with Carona said he was never there but met with Scotland Yard officials instead.

"It was then that I said I’m calling for his resignation," Moorlach said. "That’s plain lying."

He questioned whether the trip was even necessary.

Undersheriff Jo Ann Galisky, named acting sheriff by Carona, blasted critics of the trip, saying it served a useful purpose. Galisky, Assistant Sheriff Steve Bishop and Orange County DNA lab manager Dean Gialamas were on the trip. Carona’s wife joined them in France.

"To tell you the truth, I’m a little offended by this interpretation that these types of trips serve no purpose and are just a vacation," Galisky said Wednesday. "Those of us in leadership positions have BlackBerrys and our work is constant. It doesn’t stop just because we’re there in Europe."

She said everyone but Gialamas skipped the DNA lab visit in Birmingham to make more efficient use of their time. Carona and the others instead met with the director of Forensic Science Services at the New Scotland Yard office in London, Galisky said.

Gialamas said he reviewed software the Birmingham lab has produced. The Orange County and Birmingham labs are talking about collaborating, he said.

The law enforcement officials also met with counterparts at Interpol headquarters in France as well as experts on terrorism and airport and transportation security.

Moorlach and other supervisors are also unhappy that Carona will remain on the county’s payroll while on leave. But they are powerless to stop it because he is an elected official.

The supervisors were also displeased by Carona designating Galisky as acting sheriff without consulting them, but the board has no legal authority to overrule his decision. An amendment to the county charter proposed Tuesday by Moorlach would have included giving the board authority to name an interim head of the Sheriff’s Department, but it was defeated on a 3-to-2 vote.

Board Chairman Chris Norby supported the amendment. On Wednesday, he said County Counsel Ben de Mayo has advised the board that Galisky cannot legally be called acting sheriff.

"The sheriff can designate certain responsibilities whenever he is gone from the office," Norby said. "Operationally, she’s taking over some of the duties, but she’s not acting sheriff."

The sheriff’s command officers are scheduled to meet today with de Mayo to discuss which responsibilities can be legally handed over to Galisky.

Carona’s legal woes also led to a budding controversy Wednesday among members of the Assn. of Orange County Deputy Sheriffs, whose board of directors Tuesday called on Carona to resign or take a leave of absence while he fights the charges against him. Several deputies who requested anonymity complained that the board acted without consulting the membership or advising them.

Association general manager Mark Nichols said the board acted after "contacts with individual deputies since the indictment" of Carona was announced.

"A few members have told us this wasn’t their position. Others have told us they were going to sit back and see what’s going on," Nichols said. "There were others who wanted us to take a more aggressive position. The general consensus was that it’s too bad the issue is before us."

The OC Register had a letter to the editor writer who had a different perspective on my reaction to Sheriff Carona’s insinuation that he had visited a certain DNA lab, when in fact, he had not, in Carona on leave but not out of the limelight.”

A few recent letters to the editor about Sheriff Mike Carona were stunning in their rationale ["Balancing citizen’s rights with sheriff’s," Nov. 7]. One writer threw out the single line about being presumed innocent until proven guilty and then spent 30 lines outlining possible ways to punish him financially, as if he were already found guilty.

Supervisor John Moorlach is "fuming" because the sheriff went to Europe on business and was supposed to visit a DNA lab in Britain but instead Carona sent his DNA expert there and went to Scotland Yard ["County auditor to delve into Carona expenses," News, Nov. 7]. Scotland Yard hadn’t moved, it’s in London and is an appropriate job-related place for a sheriff to visit. If this is the depth of corruption and deceit claimed, the sheriff certainly has nothing to worry about.

Ronald Owen Davies of Laguna Hills

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