The county’s $7,8 billion investment fund held money belonging to 180 cities, school boards and other agencies. The man in charge of investing it, county treasurer Robert Citron, had a stellar reputation as an aggressive investor. In 1993, when a similar state-run investment pool yielded 4.58 percent, Citron garnered a stellar 7.4 percent. But Citron bet heavily on lower interest rates – a move that proved disastrous when the Fed began raising rates in 1994. A few days after the losses became apparent, Citron resigned.
The Orange County crisis continues to produce fallout. The county’s Saddleback Valley school district recently axed 47 employees because of budget cuts tied to the losses. The Securities and Exchange Commission is launching an investigation into the fiasco, and chairman Arthur Levitt has suggested voters throw out the officials responsible. County officials are prepared to fight the charges. Its attorneys are planning to sue its primary broker, Merrill Lynch, as well as the Wall Street firms that helped push it into bankruptcy.
