Much of the court record about the county bankruptcy has been sealed, including all of former assistant county treasurer Ray Wells’ direct testimony. But a few depositions have been made public. A review shows glimpses of Wells trying to maintain control, not always successfully, over the Treasurers’ office.
Here are some examples:
n Wells was leery of Jeff Leiffer of Leiffer Capital, who was an informal financial advisor to Citron while he was also selling him securities.
Matt Raabe testified, “Jeff Leiffer was in the habit of writing letters to Mr. Citron after the issuance of the notes saying what he had done for Orange County as its agent, and Mr. Wells would draft letters back to Mr. Leiffer for Mr. Citron saying, ‘You are not the agent of Orange County,’ and tried to make that very clear, that Jeff Leiffer was not under contract to the county.”
n Wells filled out Citron’s financial disclosure forms. Raabe said that Citron argued with Wells over having to report gifts, including dinners with Merrill Lynch broker Mike Stamenson, who sold many of the derivatives and inverse floaters to Citron.
“Mr. Citron would refuse to allow Mr. Wells to report those (dinners). He would not give him the value of the meals, and he would say (it was) because those were meals with close personal friends as opposed to business dinners,” recalled Raabe.
n In 1992, Stamenson presented to Citron a plan to buy inverse floaters. Wells told Stamenson that the county would have to borrow funds to buy them, and asked Stamenson whether Merrill Lynch would recommend the investments to someone who had no money and had to borrow. “Mr. Wells frequently asked that type of a question,” recalled Raabe.
n Stamenson once made a presentation to Citron and Wells about buying two-year treasury notes and then selling them. Wells did an analysis and determined the county would be better off holding them. Wells said Stamenson chastised him for “sticking his nose” where it didn’t belong. Stamenson said Wells “grossly mis-characterized” the call.
n Wells didn’t like “hot money”,funds that could quickly be pulled out of the investment pool. According to Raabe’s testimony, Wells was worried that, “The more people who brought money into the pool, the less control the county treasurer had in evaluating cash flows and controlling the money.”
n Veronica Deves-Aguilar, who oversaw the accounting functions for the Treasurer’s Office, said there were meetings with Stamenson at which Citron would fall asleep.
“He typically would fall asleep in some of these meetings, and so he would participate if he was awake and alert. Most of the time Mr. Wells would ask a lot of questions,” she testified.
n Citron was considering buying a derivative that is based on the difference between interest rates for the Swiss franc and the U.S. dollar. But Raabe said he and Wells argued against purchasing it.
“We tend to look at things as accountants, and our point of view was it was hard enough to figure out what was going to happen with U.S. interest rates. We felt the office didn’t really have that much experience in foreign interest rates, and to try to guess what was going to happen with two interest rates at the same time seemed somewhat unwieldy, and Mr. Citron disagreed and went ahead. Those securities ended up earning a fortune. They significantly outperformed almost anything else we had,” said Raabe.
“It was around this time that Mr. Wells and I talked about whether we were just lucky or whether Mr. Citron really was that bright,did he really understand things so much above and beyond what we did? There were times when Mr. Wells would ask me if I fully understood what we were hearing, and I would say, ‘No.’ He’d say, ‘Well, I don’t either. That’s why I’m asking you.'”
