Orange County

About Orange County

Orange County, California filed for Chapter 9 bankruptcy on December 6, 1994, the largest municipal bankruptcy at the time. County Treasurer Robert Citron had invested 7.5 billion in derivative securities, betting that interest rates would fall. When the Federal Reserve raised rates in 1994, the portfolio lost 1.6 billion. Citron had relied on a strategy of leveraging investor funds through reverse repurchase agreements. Orange County was forced to cut services and lay off employees. The county emerged from bankruptcy in June 1995 after issuing recovery bonds. Citron pleaded guilty to securities fraud and was sentenced to community service. The bankruptcy demonstrated that municipal investment policies needed stronger oversight. Many states passed laws restricting municipal investment in derivatives.