The Phantom Of Orange County

The great Orange County bankruptcy drama has a cast of thousands. Surrounding the protagonist, former County Treasurer Robert L. Citron, are municipal officials, Wall Street brokers, and lawyers galore.

But so far, one important player has escaped much notice: Citron's financial adviser, Jeffrey Leifer. The head of a tiny Santa Monica (Calif.) firm, Leifer served as Orange County's most important debt adviser in 1993 and 1994 and advised on most of the county's largest municipal-securities offerings. He is among those being investigated by the Securities & Exchange Commission, say sources close to the probe. The SEC wants to know whether Leifer reviewed offering statements to be distributed to investors and adequately disclosed information, particularly about a $600 million note offering last July. The proceeds of the offering were invested in the Orange County investment pool, which later reported losses of more than $2 billion. A key question: Did the statement for the notes sufficiently portray the risks of investing in the highly leveraged fund?

Leifer, through a spokesman, denies he had any responsibility for public disclosure and due diligence, claiming that was the responsibility of "other professionals." He is probably referring to Merrill Lynch & Co., the underwriter of the $600 million issue. The SEC is also investigating Merrill for adequate disclosure. A Merrill spokesman says the firm fully disclosed all risks and is cooperating with the SEC.

OVERSIGHT. Yet some of Leifer's other municipal clients say one of his main jobs was reviewing offering-disclosure documents for financial accuracy. In two cases, they say, Leifer oversaw official statements, which are the municipal equivalent of prospectuses, on behalf of his clients. Rodney Dole, controller for Sonoma County, says that in the five note issues that Leifer advised them on over the past four years, it was "one of his main responsibilities to assist us in preparing the official statement."

James Kenan, director of finance and administration for the Orange County Transportation Authority, says Leifer was hired in part to review the offering documents: "We were being advised in terms of what needed to be in there--full disclosure in terms of flow of revenue in our case back to 1992."

Leifer began his career at Erlich-Bober & Co., a Los Angeles-based bond house no longer in existence, before joining First Interstate Bank. He worked in its now-defunct public-finance unit and was registered with the SEC as a broker. In 1989, he launched Leifer Capital. Recently, he hired Ronald S. Rubino, an influential former Orange County budget director. His friendship with Citron blossomed, and Orange County became his biggest customer.

By 1994, he was advising the county on most of its large debt issues. Local officials say Leifer was known for negotiating good prices for his clients and was always available to speak to their gatherings about issuing debt.

DISTANCE. It won't help Leifer that Merrill is busy portraying itself as a mere technician that simply executed a plan Citron and Leifer had masterminded. Merrill is trying to distance itself from Citron and Leifer, despite the giant firm's three roles vis-a-vis Orange County: as underwriter, lender to the investment pool that was run by Citron, and as a broker of investment products to the fund. "We were never the investment adviser to Citron," says a Merrill spokesman.

What could help Leifer immensely is that the responsibilities of financial advisers are so ill-defined. Such advisers arose in the public sector to act as impartial consultants to bond issuers. Their duties typically include advising municipalities on what form of debt to issue and conducting a search for the best underwriter at the best price.

The bigger issue is that anyone can become a financial adviser. "No regulatory structure touches them at all," says Christopher Taylor, executive director of the Municipal Securities Rule Making Board, a self-regulatory organization that oversees municipal offerings. Leifer Capital, like most independent financial advisers, is not registered with the National Association of Securities Dealers. And courts provide little legal guidance, since most bond-related litigation concerns corporate debt, which doesn't use financial advisers.

With Washington gearing up to focus on Orange County, Leifer's responsibilities--and those of financial advisers in general--are likely to move into the spotlight.



Leifer works for First Interstate's Public Finance Unit, where he builds contacts in county governments. Launches Leifer Capital in 1989.


Leifer cultivates Orange County as his biggest customer. Advises on

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