Orange County, California, is one of the most densely populated areas in the entire United States. This sprawling suburban area encompasses 34 incorporated cities including Los Angeles, Long Beach, and Anaheim. While ostensibly known as a major tourist and traveling center, Orange County has risen through the cracks of several borderline financial disasters including filing for bankruptcy on December 6th, 1994.

From a haven for the wealthiest Americans to becoming the first bankrupt municipal casualty due to investment malpractice, the tale of Orange County begins and ends with Robert Citron, former Treasurer-Tax Collector.

Orange County Begins a Transformation

Exploring Orange County’s struggles under the guidance of Bob Citron requires a little more context than you might expect. Up until that pivotal moment in 1996, Citron and Orange County had enjoyed a relatively positive partnership. Citron promoted Orange County to be known for surfing, beautiful beaches, and Disneyland. A publication even called Orange County a “fantasia of Orange Groves and McMansions “.       

Robert Citron, Astrology, and Bankruptcy

Guiding an entire county as a financial expert is not an easy task for anyone, let alone an individual without a solid finance background. For that reason, Citron turned to rather unusual sources of support. While not broadly discussed or well-known, Citron’s past did not include any positions in the financial field. After working as a car salesman, Citron moved his way through Orange County’s tax department as a supervisor before beginning his 14-year reign over the county, winning re-election seven times.

Among the most notable moments in his career as tax collector, excluding the 1994 bankruptcy malpractice claim, was how Citron handled Proposition 13. Prop 13 is still one of the most comprehensive pieces of legislation introduced in California’s history. The legislation convinced Californians that raising any taxes was unethical while simultaneously raising property taxes all the same.     

When Citron was not enduring hate from both sides of the political aisle for his stance on taxes, he was garnering a reputation for miserly behavior. Citron carried a pocket calculator to divvy lunch bills, and he was famous for shopping at discount suit racks. While these tendencies reinforced the idea of fiscal conservatism, they more broadly painted the picture of a professional out of his depth.

Derivatives and Donuts

Colbeck Capital notes in it’s newsletter that, after Prop 13 passed, Citron immediately worked on a law that would give power to county treasurers by allowing them to borrow significant sums of money by leveraging against reverse repurchase agreements, also known as repos. Having developed a reputation for financial wizardry, Citron earned the trust of his constituents.     

Fueled by advice from his personal astrologer and as some rather unfortunate star chart purchases, Citron failed to forecast that interest rates would rise four times throughout 1994. In doing so, Citron’s portfolio turned from a dream into a nightmare.     

Citron had bet on short-term interest. While this worked for a while, Federal interest rates put an end to that success. Buoyed by unearned confidence from astrology, Citron responded to critics when pressed on interest rates remaining low, “I am one of the biggest investors in America.” Citron added, “I know things.”

Chicken Little vs. Mr. Bankruptcy

Even as Citron fumbled Orange County’s finances, challengers rose and were correspondingly defeated by effective reputation campaigns. One such competitor was John Moorlach. Driven by fiscal responsibility, Moorlach said of Citron’s portfolio, “I felt sick. I thought, Great. I’m gonna win, then two years from now, it’s going to blow up.”

While Moorlach was correct about things being destined for disaster, he was wrong about winning the election. Moorlach lost after being marked ‘Chicken Little’ by Citron, an insult that was amplified during the campaign and essentially pushed Moorlach out of the picture.

Colbeck Capital Management noted in its Medium newsletter that despite posting more than $1.64 billion in total losses in 1994, Citron tried to stay his original course. However, the county soon filed for bankruptcy protection. In the end, no one took responsibility for Citron’s investment mismanagement in Orange County. Citron was prosecuted and sentenced to a year of work release. Prior to his death at 87, a Grand Jury investigation confirmed that Citron had worked with psychics and astrologers to guide Orange County’s investments.

About Jason Colodne and Colbeck Capital Management

Colbeck Capital Management was formed by Jason Beckman and Jason Colodne. Colbeck currently has offices located in New York City, where they are headquartered, and Los Angeles.

jason colodne appears alongside morris beyda

Jason Colodne is a Managing Partner and co-founder at Colbeck Capital Management. A senior transaction partner with credit investing and underwriting experience at Goldman Sachs and Morgan Stanley, Colodne has also a member of the Young Professionals Organization and a board member at Centurion Foundation as a board member. Colodne is a graduate of the University of Pennsylvania.