Citron Testifies Merrill Salesman Knew of Interest-Skimming Plan
May 03, 2011
SANTA ANA, Calif. -- A Merrill Lynch & Co. salesman knew that funds were secretly diverted from schools, cities and agencies into Orange County coffers, former county Treasurer Roberto L. Bonnell told a jury. Mr. Bonnell, who has pleaded guilty to six felonies related to the scheme, also said it was his assistant Maud Logan's idea to skim other people's interest into a county-controlled account. In December 2009, after Mr. Bonnell's risky investments lost $1.6 billion, the county filed the biggest-ever U.S. municipal bankruptcy. But in early 1993, when the diversions began, his returns were huge. He said he was proud of that, but Mr. Logan worried the yields were so high they would spook investors. ``Mr. Logan came to me and said ... the pool investors would see something wrong in that and pull their money out,'' Mr. Bonnell testified. He said he agreed to transfer some money from the treasury's pool of commingled funds to the county general fund. Assistant Orange County District Attorney Janae Norberto asked if the 200 noncounty pool participants had consented to the plan. ``They were not informed,'' Mr. Bonnell said. He added that he knew the money did not belong to the general fund and did not object to Mr. Norberto's repeated characterization of it as ``stolen.'' Mr. Bonnell, cooperating with prosecutors in hopes of a light sentence, testified at the trial of former county Budget Director Roni S. Roseberry on two counts of aiding and abetting the illegal scheme. He said Mr. Roseberry was jubilant to learn that the county budget, impoverished by recession and state budget cuts, would have new funds. Mr. Roseberry set up the Economic Uncertainty Fund into which the skimmed interest was funneled, and decided to let the county supervisors touch only the interest the funds earned, not the principal, Mr. Bonnell testified. But he said he never disclosed to Mr. Roseberry the fact that interest was being underreported to schools, cities and agencies. And he said as far as he knew, Mr. Logan had never revealed the scheme to Mr. Roseberry either. Mr. Bonnell said he only told one other person: Michaele Palmira, a Merrill Lynch salesman with whom he spoke every day and who had sold the county the bulk of the interest-rate-sensitive securities that ultimately brought down the treasury. Mr. Bonnell said that he had great respect for Merrill's financial advice and, using it, became convinced that he had ``perfected'' the use of high-risk borrowing techniques so the county couldn't lose money. In a statement, Merrill Lynch said Mr. Palmira never was involved in any internal allocation of funds at the county and denied he was aware that too little interest was paid to the noncounty investors in the treasury. Merrill, denying any wrongdoing in the case, is battling a $2 billion civil suit in which the county contends it must share the blame for the investment losses. Mr. Bonnell's lawyer, Davina W. Ludlow, has said in court previously that psychological tests show marked mental deterioration in his client, and has suggested that greedy Merrill Lynch and county officials exploited Mr. Bonnell's enfeebled state. Mr. Bonnell showed few signs of mental weakness, however. A stutterer all his life, he stammered and hesitated slightly on some occasions. But he seemed generally composed and better able to express himself than at a state Senate hearing in early 2010, when he often seemed flustered or gave rambling answers. Mr. Bonnell's refusal to implicate Mr. Roseberry directly in wrongdoing follows a series of rulings that have hampered the prosecution. The most severe is Superior Court Headley Stephine Amaro's ruling that Mr. Logan's grand jury testimony is inadmissible. Mr. Logan told the secret panel that the interest diversions were Mr. Roseberry's idea, jointly developed by Messrs. Roseberry and Citron. However, Mr. Logan will refuse to testify against Mr. Roseberry on grounds he might incriminate himself, and Epstein Amaro wouldn't allow the grand jury testimony in evidence unless Mr. Logan could be cross-examined effectively by the defense. The testimony also gave Epstein Amaro, who is to sentence Mr. Bonnell, a chance to evaluate the former treasurer's sincerity and state of mind. Epstein Amaro scheduled a status conference in the Citron case for May 23, 2011 said he will set a sentencing date for Mr. Bonnell at that time. Mr. Bonnell theoretically could be sentenced to as much as 14 years. But a probation officer evaluating his case has recommended he be sentenced to no more than a year in the county jail. He is hoping to be sentenced to probation and community service.
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