Los Angeles - The Securities and Exchange Commission has inquired into the role played by Rauscher Pierce Refsnes Inc. as underwriter for a school district that issued taxable notes that were invested in the Orange County, Calif., investment pool, a school district official said.

The Newport-Mesa Unified School District issued S46.96 million of taxable notes in June that were then invested in the Orange County investment pool for purposes of earning arbitrage income, according to Michael H. Fine, director of fiscal services for the Newport Beach-based school district.

Fine said yesterday that the district has had a couple of conversations" with SEC officials since Dec. 1, when word of the investment pool's $1.5 billion paper loss was first disclosed.

"They had questions about the underwriter," Fine added, but he said he did not know what areas the SEC was probing.

Leslie O. Lynch, executive vice president and comanager of Rauscher Pierce's fixed-income department, yesterday said he is not aware of an SEC inquiry.

"We have not been contacted, this is the first I have heard of it," Lynch said.

Orange County officials have said the SEC contacted them following the announcement last week of losses in the Orange County pool. The disclosure sure set off a dramatic chain of events, including the resignation of county treasurer-tax collector Robert L. Citron on Sunday and the country's filing of Chapter @ bankruptcy on Tuesday.

Newport-Mesa is one of three local districts that last June issued taxable notes underwritten by Rauscher Pierce. The combined proceeds from the four financings, totaling about $200 million, were placed in the pool.

In addition to the Newport-Mesa district, three other school-related public agencies issued taxable notes, which mature June 13, 1995. They are the Orange County Board of Education, which placed $42.18 million of proceeds in the pool; Irvine Unified School District, which placed $54.58 million; and the North Orange County Community College District, which placed $56.29 million.

Rutan & Tucker, a Costa Mesa, Calif.-based law firm, was bond counsel on the Newport-Mesa, Irvine Unified, and Board of Education financings; LeBoeuf, Lamb, Greene & Macrae was bond counsel on the community college district financing.

Financial adviser on all three transactions was Fieldman, Rolapp A Associates.

"The disclosure was made in the official statements that proceeds of the notes would be held by the Orange County treasurer-tax collector on behalf of the district, and the transaction was rated by Standard Poor's on that basis," Tom Johnsen, a principal with the Irvine, Calif.-based independent financial advisory firm, said yesterday. He added that his firm was unaware of an SEC inquiry.

The rating agency rated the four note issuances SP1-plus. Earlier this week, all local obligations in the county's pool were placed on Credit Watch with negative ramifications.

Newport-Mesa's Fine said yesterday that each of the four districts issued roughly the same amount of taxable notes in the fiscal year that ended June 30.

In last fiscal year's inaugural group of financings, Rauscher Pierce approached Newport-Mesa and said it wanted to be a financial adviser on the transaction, Fine said.

"As the deal started to structure itself ... Rauscher said it would be the underwriter @ nicer fees that way," Fine said.

After the Newport-Mesa notes were priced, Matthew R. Raabe, who is currently Orange County's acting treasurer following the resignation of Citron, wrote to the district to explain how proceeds from the note issuance would be invested.

Raabe, then assistant treasurer, described the transaction as a "complicated matter" involving reverse repurchase agreements. The repos are a key to the pool's leverage-based investment strategy that ultimately led to the county's portfolio losses.

"Only after relating the positives and negatives to you, and that the negatives or risks were very minimal, did we agree to this financial transaction," the Raabe letter said. There is no risk related to the $46,960,000 principal amount," the letter added.

Fine said the district's taxable notes issuance in the first fiscal year turned out to be "a winner." He said the district made $1.1 million on the deal. Originally Fine thought this year's issuance would earn the district $700,000, a figure revised downward to $300,000 following last week's pool loss announcement.

"We have sufficient reserves to take care of that decrease," Fine added.

Rauscher Pierce underwrites about one-fifth of California's taxable tax and revenue anticipation notes, Lynch said, but added that the firm is reevaluating its role in his market segment.

"We're in the process of reviewing the entire situation and making a determination regarding how we proceed in the future in these financings," he said. Noting the scrutiny of the Orange County pool, he added, "l would expect that everybody else" is also reevaluating such financings.

While acknowledging that Rauscher Pierce bankers originally approached the four school districts and suggested that they consider the taxable note investment, Lynch said his firm didn't develop" the taxable structure.

The transactions have raised eyebrows among some observers who wonder if straight arbitrage deals make sense for government entities.

Newport-Mesa's Fine said yesterday said he was in no mood to discuss whether the financing was good public policy.

"That's why we hire high-priced bond counsel and others to make sure that what we're doing is in fact legal and that it is above board," he said.

Fine said he is not sure if litigation will be the result of the pool catastrophe, but said that his district has hired special counsel that was not involved in the deal just to review documents."

"We don't make public policy," said Lawrence G. Rolapp, a principal in Fieldman, Rolapp. "The agencies make the public policies. We were brought in subsequent to Rauscher Pierce and we provided advice regarding the negotiations with the underwriter, including the pricing."

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