MOORLACH UPDATE — Filing Closes — March 13, 2010

It’s a busy news day.  There are three topics to discuss.

The first is that the filing period to rerun for office closed yesterday evening at 5 p.m.  The big news is that no one pulled and filed to run against me.  Hallelujah!  It appears that Supervisor Bates received the same level of good fortune.

Contested races are good for public debate on the job you’ve done and the plans you have for a second term.  An uncontested race allows me to focus on my job without having to add fund raising and campaigning to an already heavy workload.  I am blessed to be faced with the latter.

This is big news to me.  It looks like it wasn’t to the OC Register, which covered the closing of the filing period without any mention of Supervisor Bates or myself (see http://www.ocregister.com/news/county-239105-race-democratic.html).

The second is that the filing period is extended five more days, until Wednesday, March 17, if the incumbent does not rerun.  Yesterday Orange County Treasurer-Tax Collector Chriss Street announced that he would not rerun.  This caused the three articles below, by City News Service, the LA Times and the OC Register.  The KPCC article has one misinterpretation.  My reference to being early was directed to my efforts in the fall of 2007 to revoke the authorization of our treasurer to invest, and not to my efforts to unseat Citron in 1994.

The third is what I will be dealing with in my second term, the negotiations with the Federal Aviation Administration to extend the 1985 John Wayne Airport Settlement Agreement.  John Canalis, the new editorial director of the Daily Pilot, touches on this important issue in his front page column.  Some of you may remember John Canalis in his role as a reporter for the Long Beach Press Telegram.  He attended the Airport Working Group’s (AWG) dinner Wednesday evening where Professor Mario Mainero provided my office’s position on our strategy for these upcoming negotiations.  It was a direct way to respond to the open letter recently printed in the Daily Pilot by AWG’s new president, Tony Khoury (see http://www.dailypilot.com/articles/2010/03/04/opinion/dpt-communitycommentary030510.txt).   If you would like a copy of the Professor’s speech, let me know.

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Embattled OC treasurer will not seek re-election

KPCC Wire Services

SANTA ANA — Orange County Treasurer Chriss Street, who lost a federal bankruptcy court lawsuit against him last week, has decided not to run for re-election.

Street also recommended today he have his investment authority suspended. The Orange County Board of Supervisors will consider that request Tuesday.

U.S. Bankruptcy Judge Richard M. Neiter ruled last week that Street breached his fiduciary duty when he had control of a trust for seven years.

Street was supposed to liquidate the trust’s assets, but instead acquired assets in an attempt to build a trucking empire he would lead, the judge ruled. Neiter ordered him to pay more than $7 million in damages to the End of the Road Trust.

Messages left with Street’s office and his spokesman since last week have not been returned. Efforts to reach Street were also unsuccessful.

Street recommended the county’s auditor-controller, David Sundstrom, take over the treasurer’s investment authority. However, it’s more likely the supervisors will pick the Chief Financial Officer Robert Franz, Supervisor John Moorlach said.

"That’s what I recommended two and a half years ago,” Moorlach said. "And I was shot down. I have a tendency to be a little early sometimes.”

Moorlach was referring to the 1990s when he warned county officials of problems with the county’s investments as he ran against then-Treasurer Robert Citron. Moorlach lost, but Orange County declared bankruptcy in 1994 and Citron resigned. Moorlach was appointed treasurer and then won election before running for supervisor.

Moorlach brought Street aboard as the county’s assistant treasurer in January 2006 before Moorlach was elected supervisor that year.

"He has a habit of not telling you the whole story,” Moorlach said, adding he asked Street if he had any "skeletons in the closet” before Moorlach hired him.

"When you withhold information, I equate that with lying,” Moorlach said.

Street was forced out as the court-appointed trustee for the End of the Road Trust, which came out of the Fruehauf Trailer Corp. bankruptcy, in 2005. He was in charge of the trust since 1998.

Street tried to build a truck-trailer manufacturing empire out of the trust’s assets, but ended up wasting millions of dollars, Neiter ruled. Street used some of the trust money to pay for personal expenses and did not liquidate the assets as he was supposed to do, the judge ruled.

"All he had to do was read the agreement he signed as trustee — you liquidate assets you don’t acquire them,” Moorlach said.

"It’s a real heart breaker,” Moorlach said. "You expect someone to be a partner and they get a lot of things done and improve government in Orange County but then he just became a boat anchor always trying to explain the silly decisions he’s made. It’s just sad.”

The vote on the county board to strip Street of his investment authority will have to be unanimous. Street’s term of office ends Jan. 3, 2011, and it’s unclear whether he will resign. Moorlach has repeatedly asked him to resign.

Other candidates who have been issued forms to run for treasurer will now have until Wednesday to decide if they want to run.

Gary Capata, Patrick Desmond and Shari L. Freidenrich are the potential candidates who have been issued the documents to run. Street was also issued documents, but did not file by the 5 p.m. deadline.

Moorlach is backing Freidenrich, the Huntington Beach city treasurer. Freidenrich said she will wait until Wednesday to decide if she will run. She said she sought the documents to run because she felt someone needed to knock Street out of office.

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After a judge’s rebuke, O.C. treasurer won’t seek reelection

By Raja Abdulrahim and Christopher Goffard

Sixteen years after its treasurer drove Orange County into the largest municipal bankruptcy in U.S. history, the man now holding the office — haunted by his own legal battles — has announced that he would surrender his investment powers and bow out of his reelection bid.

Amid calls for his resignation and a stern rebuke from a federal judge, Treasurer Chriss Street said he would give up authority over the county’s roughly $5-billion investment pool. The drama has rekindled painful memories in a county that is still paying off the debt from a history-making 1994 bankruptcy that cost thousands of people their jobs.

Street’s troubles stem from the eight years he spent at the helm of a bankruptcy trust before he was elected treasurer in June 2006. Last week, a judge ruled that Street had, as a bankruptcy trustee, breached his fiduciary duty by failing to protect and liquidate the trust’s assets.

Instead, the judge ruled, Street lost millions in an ill-fated attempt to build an empire by buying bankrupt trailer manufacturers. "This is a case where a fiduciary lost sight of his mandate . . . by engaging in unsuccessful business ventures, self-dealing and violations of the liquidating trust agreement," wrote Judge Richard Neiter, the U.S. Bankruptcy court judge who presided over a two-day civil trial in February.

Ruling that Street had kept improper records and used the trust to pay himself an additional $240,000 in salary and cover personal expenses including personal charges on a company credit card and a trip to South America, the judge ordered him to pay more than $7 million in damages.

Street, a former investment banker, denied mishandling the bankruptcy or seeking personal profit from the case, but said he accepted the judgment. "Every American deserves his day in court, and I had mine," Street said in a memo to county supervisors.

The treasurer’s position in Orange County has been a sensitive post going back to the county’s $1.6-billion bankruptcy, a financial collapse that was blamed on the risky and capricious investment strategy developed by then-Treasurer Robert Citron, who was ultimately charged with six felonies and sentenced to five years’ probation.

Street was among those who had predicted the county’s bankruptcy, along with John Moorlach, who succeeded Citron as treasurer. Moorlach later brought Street aboard as his assistant.

When Street decided to run for treasurer, he sought Moorlach’s endorsement and the pair had dinner with their wives to discuss their future.

"We asked, ‘Well is there anything we should know in case anything comes up?’ And he said, ‘No, everything’s fine,’ " said Moorlach, who is now a county supervisor. "Whoever’s in that position should be Caesar’s wife, with no hint of impropriety."

Street won Moorlach’s endorsement and enjoyed a reputation as a reformer, but controversy has dogged his time in office. He faced criticism for using taxpayer money on a costly remodeling of his office, and allegations that he tried to improperly award county contracts.

Moorlach’s opinion of Street changed radically, and he has called for Street’s resignation repeatedly since 2007.

He did it again in the wake of the judge’s ruling. "Why put the residents of this county through your drama, what makes you so special?" Moorlach said last week. "Why does someone with this kind of baggage run into public office?"

Street’s decision to surrender his investment powers came days before the board was set to vote on whether to strip him of his authority over the pool of money.

In his memo to supervisors, Street recommended that Auditor-Controller David Sundstrom temporarily step in to watch over the county’s investment pool. Street said he intends to "weigh my legal options."

Street could not be reached for comment, but his attorney, Phillip Greer, characterized Street’s decision as "best for the county," adding: "I think there’s just too many distractions." He said Street did not resign because he felt that wouldn’t be "appropriate" or "necessary."

Supervisor Bill Campbell initially endorsed Street’s run for treasurer, but withdrew that endorsement once he learned of the lawsuit. He said he thought Street should now resign. "I think it’s a black eye for the county," he said.

Keith Rodenhuis, Street’s deputy treasurer and spokesman, said the outcome of the trial was "disappointing" and factored into Street’s decision not to run for reelection. "There’s really no problem in the treasurer’s office," he said. "It’s really a perception problem." He said the treasurer’s office has the highest rating by Standard & Poor’s.

Assemblyman Jim Silva (R-Huntington Beach), who served on the Board of Supervisors during the bankruptcy, said he had had great confidence in Street.

"Aside from his private dealings, his public dealings with Orange County have been great," Silva said. "He is probably one of the most respected treasurers in the history of California, if not the best the county has had."

Fred Smoller, director of a public administration master’s degree program at Brandman University in Irvine, had a far less rosy view.

He said that long before Street’s announcement, Citron and convicted former Orange County Sheriff Michael S. Carona had set the stage for Orange County politics.

"We have a long, unfortunate history of corruption and incompetence," Smoller said.

raja.abdulrahim@latimes.com

christopher.goffard@latimes.com

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Street drops out of treasurer’s race

By JENNIFER MUIR and RONALD CAMPBELL

Orange County Treasurer Chriss Street will not seek reelection and has recommended that supervisors "temporarily suspend" his investment authority while he weighs his legal options.

The move comes a week after a federal judge ruled that Street breached his fiduciary duty when he attempted to build an empire instead of protecting the assets of a trust he was hired to liquidate. He was ordered to pay more than $7 million in damages to the End of the Road Trust, which he ran for seven years.

In a letter sent to county supervisors Friday morning, Street defends his track record with the county and his business dealings with the bankrupt trucking company.

"Nonetheless, some will seek to use this civil judgment to diminish the accomplishments of the Treasurer-Tax Collector’s staff, and cast doubt on our operations in an effort to advance their own goals," Street wrote about his proposal to relinquish his investing authority. "As a public servant, I am committed to putting the interests of the tax payers and my staff first."

A spokesman for Street conceded this morning that the outcome of the trial "factored into his decision" not to run. Street’s decision extends the filing deadline for potential candidates to join the race – a group that’s swelled to four by Friday evening.

Deputy Treasurer Keith Rodenhuis also read a prepared statement about the decision: "Treasurer Street has made dramatic improvements to the office he inherited. Yet he feels that it is in the best interest of his family to avoid the rigors of a reelection campaign. He is grateful for his time at the county. And Chriss now looks forward to utilizing his skill set in the private sector."

Meanwhile, Orange County supervisors are moving forward with their own plan to suspend Street’s authority to invest county funds — an effort to forestall losses and prevent the loss of confidence by investors in the county’s pool. Street’s term doesn’t’ end for nine months, on Jan. 3, 2011.

Supervisor Bill Campbell and board Chairwoman Janet Nguyen are sponsoring an emergency agenda item that calls for transferring Street’s investment authority to county Chief Financial Officer Robert Franz. Street recommends transferring the authority to the county’s elected auditor-controller, David Sundstrom.

"We just don’t believe it’s proper to have someone found guilty in court of breaching his fiduciary duty to be responsible for managing the county’s investment funds," Campbell said. "It’s our obligation to protect the assets and reputation of the county’s investment pool."

All four county supervisors would have to approve the emergency ordinance, which would remove Street’s authority 15 days after the vote.

As treasurer Street invested $6.5 billion for the county government and more than 20 local school districts.

It is by design a conservative pool, with its money market fund earning 0.54 percent in the last year and its extended fund, invested for one to three years, earning 2.45 percent. State law restricts the pool’s investments. County policy – imposed after then-Treasurer Robert L. Citron’s risky bets drove the county into bankruptcy in 1994 – is even more restrictive. In general the treasurer can put public money only into U.S. Treasury bills, government agency debt and highly rated corporate debt.

Under Street the county treasury earned high ratings from outside groups for its safety.

Yet Street also led the treasury into territory that other county treasurers avoided. He tripled the county’s stake in structured investment vehicles, a strategy that backfired when the worldwide credit market collapsed in August 2007.

Street sold one $75 million investment at a loss, shortly before it defaulted. He was not so lucky with his $80 million purchase of Whistlejacket, an investment named for a racehorse. It defaulted in early 2008, and a $49 million slice is still on the county’s books, marked down to $37 million.

Street was the court-appointed trustee for the End of the Road Trust, successor to the bankrupt Fruehauf Trailer Corp., from 1998 until creditors forced him out in July 2005. Moorlach hired him as the county’s assistant treasurer in January 2006, in effect making Street his designated heir in the June 2006 election.

Moorlach said he had asked Street to disclose any indiscretions before he endorsed him for treasurer, and Street didn’t tell him about Fruehauf. Moorlach first called for Street’s resignation more than two years ago when he continued to learn details of the case through the press and court documents. He reiterated those calls the day U.S. Bankruptcy Judge Richard M. Neiter handed down his decision last week.

"When someone withholds information from you, it’s a form of lying," Moorlach said. "I feel a little betrayed."

"The nightmare that John Moorlach gave the taxpayers of Orange County by appointing and supporting Chriss Street is finally over," said Nick Berardino, general manager of the Orange County Employees Association. Berardino and the union have been longtime critics of both Street and Moorlach.

Campbell said he met with Street Monday and also asked for his resignation. On Tuesday, Street’s lawyer Phil Greer called Campbell to say that Street would propose suspending his investment authority instead.

In a scathing 29-page ruling released last week, Neiter found that Street "willfully engaged in self-dealing to advance his personal interest ahead of that of the trust’s beneficiaries."

Neiter dismissed Street’s sworn explanations for his conduct as "absurd", "inconceivable" and "incredulous." He wrote that Street’s conduct as trustee "amounts to gross negligence and willful misconduct."

The trust charged – and Neiter agreed – that Street wasted millions of the trust’s dollars trying to create a truck-trailer manufacturing business that he could run, rather than liquidating assets as he was hired to do. Neiter also ruled that Street used trust money to pay for everything from fancy dinners to parking tickets.

Street’s decision not to run for reelection extends the filing deadline for potential opponents from today to 5 p.m. on March 17. He also loses the $1,730.98 filing fee he paid to the county Registrar of Voters last Friday – the same day Neiter handed down his judgment in the civil case.

Two candidates announced plans to run before the ruling in Street’s civil fraud trial: Shari Freidenrich is the elected city treasurer for Huntington Beach, where she’s served since 1996. She has the backing Moorlach — a former Street supporter who for the past two years has been one of his most vocal critics. Patrick Desmond is a long-time employee of the county assessor who ran against Street in the 2006 election.

Two others, Laguna Niguel Mayor Pro Tem Gary Capata and South Orange County Community College District Trustee Dave Lang, pulled papers this week to join the race. Capata is a partner in Capata & Co., which specializes in tax planning and compliance, retirement counseling, financial coaching and litigation support services. Lang is a CPA and shareholder in a small public accounting firm in Irvine.

Greer, said they had not decided whether to appeal Neiter’s decision. "We’ll be looking very hard at that over the weekend," he said.

If Street appeals, he must post an $8.8 million bond — equal to 125 percent of the judgment — if he wants to stave off the trust from collecting its judgment while he appeals, said Los Angeles money manager Dan Harrow, Street’s successor as trustee at Fruehauf.

The judgment is potentially ruinous for Street. He has amassed well over $1 million in legal bills during the four years since Harrow sued him.

In mid 2008 he filed personal financial records in court under seal to try to convince a judge that he could no longer afford to pay for his defense. His lead defense attorney quit in October 2008, citing $640,000 in unpaid fees.

Contact the writer: 714-796-7813 or jmuir@ocregister.com

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Editor’s Notebook:  Focusing on common goals

By John Canalis

Time has healed many of the wounds inflicted during the divisive El Toro airport debate of the 1990s and early 2000s.

Evidence of that came by way of Irvine Mayor Larry Agran, who addressed the Airport Working Group’s annual meeting this week at the Balboa Yacht Club in Newport Beach.

You read that right.

An official representing the strongest of El Toro airport foes — Irvine City Hall — crossed into Newport Beach, the strongest of El Toro airport supporters.

When he received the invitation to speak before the group, Agran quipped, “I wasn’t sure if it was some kind of joke or a trap.”

It was neither. The invitation was an olive branch extended by the AWG to a respected opponent on an issue that once divided Orange County like the Mason-Dixon line.

For those who weren’t around then, Irvine and many South County cities strongly opposed the idea of building an international airport at El Toro — the site of the old Marine Corps air base — while Newport Beach and many of the North and West County cities concerned with growth forecasts at John Wayne Airport, supported it.

There was intense debate. There were ballot measures and lawsuits.

But eventually the El Toro airport plan lost out to the Great Park concept.

The reason El Toro airport proponents and opponents can now work well together, Agran explained, is that the debate “never got personal” and was conducted with dignity.

Agran’s speech was well received by the AWG members, largely because it eschewed past problems and focused on what the Irvine mayor called the cities’ common goals: reducing air traffic by diverting more flights to Los Angeles and the Inland Empire; moving toward rail and shuttle buses to get people out of their cars; cleaning up the region’s air; and continuing to build a regional park that everyone hopes will indeed be great.

“We have so many common challenges and opportunities to work together for a better Orange County community,” Agran said.

Agran is also a proponent of a high-speed rail that can shuttle passengers to the Bay Area in as little as three hours. More than half of the flights out of Orange County are to destinations 400 miles or fewer away, and Agran believes trains can become an attractive alternative to flights out of JWA.

Though the El Toro debate is safely in the rear-view mirror, airport issues remain a continuing concern in Newport. And the AWG meeting also set aside time to discuss growth forecasts at JWA and the slight adjustments to take-offs and landings that can reduce the impact of noise on Back Bay and other Newport residents.

Chapman Law School Professor Mario Mainero, who is the airport assistant to county Supervisor John Moorlach, delivered a passionate speech about keeping the settlement agreement in place that restricts JWA’s uses beyond its expiration date for passenger limits in 2015 and curfews in 2020.

Doing so, he said, is “essential to preserving quality of life in our community.”


JOHN CANALIS is editorial director for the Daily Pilot, Laguna Beach Coastline Pilot and Huntington Beach Independent. He can be reached at (714) 966-4607 and john.canalis@latimes.com.

                                                                                                                                                                                                                                                        

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