Orange County bankruptcy
In 1994, Orange County California, home of Anaheim, Santa Fe, and the TV series "The OC", declared bankruptcy. The county's financial officer, Bob Citron, was found to have invested heavily in leveraged fixed income instruments, including some rather complex securities. With an increase in interest rates, the investments lost $1.6 billion.
After the bankruptcy, Citron was sentenced to 1 year in jail. Orange County sued its bankers Merrill Lynch claiming they were sold totally unsuitable investments. Although Merrill claimed it made full disclosure, it later settled the case for $400 million.
This case, which forms part of the Professional Risk Managers' International Association (PRMIA) case studies for exam 4, highlights numerous important risk management issues. Join us for a detailed discussion. Copies of background material for this case can be collected from Mathematics 3 (M3) 2001, or by emailing mathbus@uwaterloo.ca.