Robert Citron, a former treasurer of California’s Orange County who spent nine months in prison for his role in what stood for years as the nation’s biggest municipal bankruptcy, has died. He was 87.
Orange County, the nation’s fifth most-populous county and home of Walt Disney Co.’s Disneyland, sought protection from creditors in 1994 after Citron lost about $1.7 billion on derivative investments. The county emerged from 18 months of bankruptcy in June 1996.
That stood as the biggest county bankruptcy until 2011, when Jefferson County, Alabama, filed for protection after costs spiraled out of control on auction-rate securities and derivatives related to $3.1 billion of sewer-system debt.
Citron was long praised for the above-market returns -- about 10 percent annually, and 17 percent in 1982 -- that he earned on county investments. His strategy of borrowing money short-term to buy longer-maturity derivative securities was successful in 1992 and 1993 as interest rates dropped, and backfired in 1994 when rates surged.
He pleaded guilty to lying about conditions that led to losses in the county’s investment pool. The legal case revealed, among other things, that Citron had consulted a $4.50 star chart prepared by an Indianapolis astrologer to help guide his strategy for the county’s $20 billion investment pool. Citron said in court documents that he used the star chart for clues to upcoming market events -- and that shortly after he ceased using the charts, his strategy collapsed.
He served about nine months of a one-year sentence in 1997, spending his time in a work-release program at the sheriff’s commissary, alphabetizing prisoner requests for deodorant, envelopes, candy bars and other items. He spent his nights and most weekends at home.
Fallout from the bankruptcy reached Wall Street.
Orange County sued Merrill Lynch & Co. for providing inappropriate investment advice, citing recommendations made to Citron by former Merrill bond salesman Michael Stamenson. Citron used money borrowed from Merrill and other firms for his interest-rate bets.
Merrill, which was acquired in 2008 by Bank of America Corp. (BAC), settled with the county for $400 million in 1998. Morgan Stanley (MS) Dean Witter & Co., now called Morgan Stanley, agreed to pay $69.6 million. Nomura Securities International Inc., part of Nomura Holdings Inc. (8604), Japan’s biggest broker, agreed to pay $47.9 million. One year later, a dozen securities firms, including Smith Barney Inc. and PaineWebber, paid the county $20.8 million in a settlement.
Citron was born in 1925 in Los Angeles, a third-generation Californian, and grew up in Burbank, according to the Los Angeles Times. He served as the county’s treasurer and tax collector for 24 years after rising through the ranks of the treasury department.
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