Robert Lafee Citron (April 14, 1925 – January 16, 2013) was a longtime Treasurer-Tax Collector of

Orange County, California Orange County is located in the Los Angeles metropolitan area in Southern California. As of the 2020 census, the population was 3,186,989, making it the third-most-populous county in California, the sixth-most-populous in the United States, a ...

, when it declared Chapter 9

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...

on December 6, 1994. 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 rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...

s increased and financiers for the county required increased collateral from the county. It was later revealed that Citron relied upon a mail-order astrologer and a psychic for interest rate predictions as the county's finances began to falter.

Early life

Born in

Los Angeles Los Angeles ( ; es, Los Ángeles, link=no , ), often referred to by its initials L.A., is the largest city in the state of California and the second most populous city in the United States after New York City, as well as one of the world' ...

, Citron grew up in Burbank and

Hemet Hemet is a city in the San Jacinto Valley in Riverside County, California. It covers a total area of , about half of the valley, which it shares with the neighboring city of San Jacinto. The population was 89,833 at the 2020 census. The foundi ...

. His father, Jesse, was the doctor who put an end to alcoholic

W. C. Fields William Claude Dukenfield (January 29, 1880 – December 25, 1946), better known as W. C. Fields, was an American comedian, actor, juggler, and writer. Fields's comic persona was a misanthropic and hard-drinking egotist who remained a sympathe ...

's love of scotch. He attended the

University of Southern California The University of Southern California (USC, SC, or Southern Cal) is a Private university, private research university in Los Angeles, California, United States. Founded in 1880 by Robert M. Widney, it is the oldest private research university in C ...

but did not graduate. The younger Citron made his career in the Treasurer-Tax Collector's department before winning election to the top job.

Treasurer-Tax Collector

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 Johannes Meindert Willem Moorlach (born December 21, 1955) is an American politician who served as a member of the California State Senate representing 37th Senate district, which includes portions of Orange County, from 2015 to 2020. He was de ...

, 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 In finance, leverage (or gearing in the United Kingdom and Australia) is any technique involving borrowing funds to buy things, hoping that future profits will be many times more than the cost of borrowing. This technique is named after a lever ...

position using

repurchase agreement A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...

s (repos) and

floating rate note Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread (also known as quoted margin). The spread is a rate that remains constant. Almost all ...

s (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 A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...

market and leveraged the County Pools to amounts ranging from 158% to over 292%. To obtain this degree of leverage, he used

treasury bond United States Treasury securities, also called Treasuries or Treasurys, are government bond, government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Sin ...

s 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.

County bankruptcy

Although regulators and the county's financial counterparties had already begun scrutinizing Citron's risky investment strategy as early as 1992, following an article in the trade publication, ''Derivatives Week'', the county's finances did not begin to unravel until early 1994. At that time, the

Federal Reserve Bank A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve A ...

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 Credit Suisse First Boston (also known as CSFB and CS First Boston) is the investment banking affiliate of Credit Suisse headquartered in New York. The company was created by the merger of First Boston Corporation and Credit Suisse Group in 1988 ...

(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 some claim that Orange County was left with no recourse other than to file for bankruptcy. While the county was in bankruptcy, every one of its program budgets was cut, about 3,000 public employees were discharged, and all services were reduced. Financial scholar John C. Hull later described the incident as "the classic example" of an institution initially earning a profit through risky trades, becoming complacent about risk as a result, and then making disastrous losses.

Criminal conviction

Facing 14 years in prison, Citron pleaded 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. Citron was sentenced to one year of

work release In prison systems, work release programs allow a prisoner who is sufficiently trusted or can be sufficiently monitored to go outside the prison and work at a place of employment, returning to prison when their shift is complete. Some work release ...

and five years of supervised probation, and performed 1,000 hours of community service. He served a year in prison, where he was allowed to work in the

commissary A commissary is a government official charged with oversight or an ecclesiastical official who exercises in special circumstances the jurisdiction of a bishop. In many countries, the term is used as an administrative or police title. It often c ...

Death

Citron died at the age of 87 on January 16, 2013.

References

External links

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. (Archived fro

)
The Orange County Bankruptcy: Who's Next?
{{DEFAULTSORT:Citron, Robert Tax collectors American white-collar criminals American money managers Rogue traders California Democrats Politicians from Los Angeles People from Santa Ana, California 1925 births 2013 deaths California politicians convicted of crimes University of Southern California alumni