Brokerage Denies Offering to Settle Bankruptcy Suit

SANTA ANA — Merrill Lynch & Co. issued a statement Tuesday denying that it had offered to settle Orange County’s $2-billion bankruptcy-related lawsuit last May when the firm’s top executives met secretly with William J. Popejoy, who was the county’s chief executive at the time.

Timothy Gilles, a spokesman for the brokerage, described as “totally and completely false” Popejoy’s account of New York meetings at which Popejoy said Merrill Lynch offered to pay bondholders $430 million and give the county an $800-million loan to pay off school districts, cities and other agencies that lost money in the ill-fated investment pool.

The purported offer came to light when confidential notes that Popejoy later provided to the Board of Supervisors were made public Monday along with other evidence presented to the grand jury in its investigation of the county’s unprecedented bankruptcy.

Gilles declined to comment on the alleged offer Monday, but flatly denied Tuesday that the firm’s executives had even considered a settlement.

Popejoy, who has maintained since last summer that he insisted that Merrill Lynch should pay the county at least $1.2 billion to settle the lawsuit, said he flatly rejected Merrill’s offer. On Tuesday, Popejoy said he stood by his account of his meetings with Merrill Lynch Chairman Daniel Tully and other company executives.

The county’s $2-billion suit alleges that Merrill Lynch duped former Orange County Treasurer-Tax Collector Robert L. Citron into purchasing risky securities, and charges that the Wall Street firm had knowingly arranged credit that exceeded limits imposed by the state’s Constitution.

According to the county’s lawsuit, Merrill Lynch had sold Orange County 68% of the securities in its investment portfolio, which had grown at one point to $21 billion, including $14 billion bought with borrowed money.