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SEC takes first enforcement action in Orange County collapse.

The Securities and Exchange Commission has taken action against Orange County and individual members of the Orange County government, alleging material misstatements and omissions of fact under the antifraud provisions of the federal securities laws regarding $2 billion of municipal securities the government sold investors in 1993 and 1994.

As a result of its charges, the SEC filed and settled a civil injunctive action against the former Orange County treasurer and the former assistant treasurer. The commission also settled an administrative proceeding against Orange County, the Orange County Flood Control District and the county board of supervisors. The SEC released a report of its investigation into the conduct of the board of supervisors members in authorizing the issuance of certain municipal securities.

SEC chairman Arthur Levitt said die Orange County case involved inaccurate statements made to sell securities. "In other words, it involved disclosure," said Levitt. The chairman said investors depended on the information provided in public securities offerings. "The law requires that the accuracy and completeness of that information be held sacrosanct." The report on members of the Orange County board said the supervisors failed to take steps to assure the county's financial condition was disclosed when they authorized the issuance of municipal bonds. "For almost 20 years now, since the New York City fiscal crisis of the 1970s, we've been cautioning officials who authorize the issuance of municipal securities that they have a critical role in ensuring that official statements representing those securities are accurate and not misleading," said Levitt.

Orange County has taken its own action

In December 1995, Orange County filed for $3 billion in damages against its former outside auditor, KPMG Peat Marwick. The county filed a separate civil suit against its former primary investment banker, Merrill Lynch & Co., and has said future targets of similar suits may include law firms and financial advisers. KPMG Peat Marwick has responded to the Orange County suit by calling attention to the government agencies and courts that have publicly blamed the county's investment decisions for its collapse. "The county's losses are the result of its investment decisions, and KPMG did not serve as an investment adviser to the county" said the firm.
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Title Annotation:California
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Apr 1, 1996
Words:364
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