County Gets Ultimatum to Pay Out Money From Agreement With Merrill

SANTA ANA — Local cities and school districts said they will consider taking legal action unless the county agrees by Thursday that they should be given the $30 million that Merrill Lynch & Co. paid to avoid prosecution on bankruptcy-related charges.

The cities and school districts that lost money in the bankruptcy contend that the bankruptcy recovery plan requires that the $30 million be paid out to them.

But some county officials said the government agencies are not entitled to the money, and they have suggested using it for a variety of pressing county projects.

Attorneys for the various parties have been meeting in an attempt to sort out the legal issues since shortly after Merrill Lynch agreed to the settlement in June. But patience appears to be wearing thin.

Irvine City Manager Paul Brady said a committee of cities, special districts and schools plan to meet Thursday to discuss the matter.

If the county hasn’t agreed by then to turn over the $30 million, Brady said the committee could decide to bring the dispute to the U. S. Bankruptcy Court judge who approved the recovery plan.

“We have suggested very strongly that this money belongs to the [outside] investors [in the county’s investment pool] and not the county,” Brady said. “We would like a resolution by Thursday. The ball is in the county’s court.”

More than 200 government agencies had deposited money in the county-run investment pool that lost $1.64 billion of its value in 1994, prompting county officials to declare bankruptcy. While most of those agencies have received 80% to 90% of their investment back, they will see the remainder only if the county is successful in its civil litigation against Merrill Lynch and others it holds responsible for causing the financial collapse.

Under the recovery plan, the first proceeds from the civil litigation would go to school districts, which are still due about $110 million they invested in the pool. But the recovery plan does not mention how settlements of criminal cases should be handled.

Some county supervisors favor giving most of the $30 million to schools as a gesture of good faith.

But other supervisors have expressed interest in using the $30 million for a variety of pressing county projects, such as expanding jail space, constructing a new South County courthouse and retiring bankruptcy debts early.