Robert Lafee Citron (April 14, 1925 – January 16, 2013) was a Democratic Party politician who was the longtime Treasurer-Tax Collector of Orange County, California, when it declared Chapter 9 bankruptcy on December 6, 1994. Citron was the only Democrat to hold office in heavily Republican Orange County at the time. The bankruptcy was brought on by Citron's investment strategies, which seemed to be an effort to earn high incomes for the county without raising taxes through risky, leveraged positions in bonds. The strategy paid out at first. In 1994, a cash crunch occurred when interest rates increased and financiers for the county required increased collateral from the county.
Born in Los Angeles, Citron grew up in Burbank and Hemet. His father, Jesse, was the doctor who put an end to alcoholic W. C. Fields's love of scotch. The younger Citron made his career in the Treasurer-Tax Collector's department before winning election to the top job.
Citron controlled several Orange County funds including the General Fund, the Investment Pool, and the treasury Commingled Pool. He sent out the county's tax bills with catchy slogans, such as "Taxes paid on time never draw fines." He won re-election seven times; in his last election victory, his opponent, John Moorlach, charged that his handsome gains were the result of risky betting.
As controller of the various Orange County funds, Citron had taken a highly leveraged position using repurchase agreements (repos) and floating rate notes (FRNs). The loss incurred by the use of these financial instruments reached the amount of $2 billion and was caused by being too highly leveraged for rising federal interest rates. In other words, if federal interest rates had not risen, the massive trading position would have been a substantially profitable position; if interest rates did rise, the trading position would result in substantial losses. In fact, rates rose.
The Orange County funds, managed by Citron, were worth $8 billion. However, Citron went out to the repo market and leveraged the County Pools to amounts ranging from 158% to over 292%. To obtain this degree of leverage, he used treasury bonds as collateral. Profits of the fund were excessive for a period of time and Citron resorted to concealing the excess earnings. He pleaded guilty to improperly transferring securities from the Orange County General Fund to the Orange County Treasury Commingled Pool.
The county's finances were not suspect until February 1994. The Federal Reserve Bank began to raise US interest rates, causing many securities in Orange County's investment pools to fall in value. As a result, dealers were requesting extra margin payments from Orange County. These extra margin payments were funded in part by another bond issue made by Orange County; the size of that bond issue was $600 million. However, this fix proved to be only temporary. In December 1994, Credit Suisse First Boston (CSFB) realized what was going on and blocked the "rolling over" of $1.25 billion in repos ("rollover" essentially means issuing another repo when the previous one ends, but at the new prevailing interest rate). At that point Orange County was left with no recourse other than to file for bankruptcy.
Facing 14 years in prison, Citron pled guilty to six felony counts and three special enhancements. Charges also included filing a false and misleading financial summary to participants purchasing securities in the Orange County Treasury Investment Pool.
While in bankruptcy, every county program budget was cut, about 3,000 public employees were discharged, and all services were reduced. Citron was sentenced to one year of work release, five years of supervised probation, and performed 1000 hours of community service.
Citron died at the age of 87 on January 16, 2013.
- Jacque, Laurent L. (2010). Global Derivative Debacles: From Theory to Malpractice. Singapore: World Scientific. ISBN 978-981-283-770-7. Chapter 14: Orange County, pp. 221–244.
- "Robert Citron, treasurer at center of O.C. bankruptcy, dies". Los Angeles Times. January 16, 2013.
- Greenwald, John (December 19, 1994). "The California Wipeout". Time Magazine. Retrieved 2007-07-22.
- Reckard, E. Scott (30 January 1998). "O.C. Bankruptcy Case Settled by First Boston". Los Angeles Times. Retrieved 25 July 2012.
- Platte, Mark; Matt Lait, Debora Vrana (28 April 1995). "Citron Pleads Guilty to Felonies". Los Angeles Times. Archived from the original on 28 April 1995. Retrieved 30 October 2011.
- "Ex-Treasurer Freed In California County". New York Times. 25 October 1997. Archived from the original on 25 October 1997. Retrieved 30 October 2011.
- Wagner, Michael G. (19 December 1995). "Report Urges Citron Be Spared Prison Time". News Article (Santa Anna, CA: Los Angeles Times). Retrieved 30 October 2011.
- Unknown (27 April 1995). "PEOPLE VS. ROBERT LAFEE CITRON". Archived from the original on 27 April 1995. Retrieved 30 October 2011.
- Plea/Sentencing Agreement at Lectric Law Library
- Losing your tail on the repo market: The story of Robert Citron by Linda Allen, published in The Arbitrageur. Highly technical analysis of how Citron's investments failed.
- The Orange County Bankruptcy: Who’s Next?