Bankruptcy Action Dismissed by SEC

The Securities and Exchange Commission has dismissed the last of its actions involving participants in the 1994 Orange County bankruptcy, an administrative proceeding against the North Orange County Community College District.

But if an appeals court rules in its favor, an SEC spokesman said, the action could be reinstated in about two years. “What we agreed to do, basically, is put the case on hold,” said Gregory Glynn, an SEC attorney.

The action stemmed from a federal charge filed in the wake of the bankruptcy that the college district and several other public entities had failed to disclose risky investments funneled through the county’s treasury, thus contributing to the financial collapse.

Earlier this year the other defendants in the action--including the cities of Anaheim and Irvine, the Irvine Unified School District and the Orange County Board of Education--settled the case by agreeing, without admitting any wrongdoing, to refrain from similar securities violations in the future.

The college district--which oversees Fullerton and Cypress colleges, as well as an adult education program--declined to settle, however, choosing to fight the allegations instead.

“What we interpreted their action to be,” said Ed Conner, an attorney representing the district, “was a claim that we had engaged in securities fraud. That was so far removed from the truth that it was painful, and no one thought anything would be served by completely knuckling under to charges that were completely false and unfounded.”

The SEC’s case suffered a major setback in August when a federal judge ruled that statements made by Kenneth D. Ough, an investment banker who had counseled the district on its participation in the county’s monetary pool, had met industry standards regarding disclosure and had not violated federal securities laws.

The commission has appealed the ruling to the 9th District Court of Appeals, which is not expected to make a decision on the the matter for at least 18 months. In the meantime, Glynn said, the administrative action against the district was dismissed without prejudice Monday “in order to allow the 9th Circuit to decide.”

A spokeswoman for the district Tuesday called the action a victory.

“We always thought that this was the appropriate thing to do,” spokeswoman Donna Hatchett said, “and we’re happy they decided to do it.”