LOS ANGELES -- Robert Citron was a high-flying investor in one of the United States' most affluent and conservative counties, soaring on the billions of dollars entrusted to him by local governments hooked on his high returns.


But his reputation crashed last week, following disclosures that the public fund he managed had lost $1.5 billion in value -- nearly one of every five dollars -- since the beginning of the year.


He quit Monday, and California's Orange County filed for federal bankruptcy protection the next day-- the largest local government ever to do so -- leaving public officials and taxpayers wondering how they could have trusted one man with so much of their money.


The answer lies in the complexity of modern financial markets and the desire of all local governments to find new sources of money at a time of rising costs and restive taxpayers.


Citron was in some ways the local wizard of municipal finance, delivering excellent returns for years. Few of the people who benefited from his success wanted to pull aside the curtain and question the man behind it about how he did it, according to Citron's supporters and critics here.


"None of us questioned his technical ability and knowledge at all," said John Stark, treasurer of the city of Claremont, which is not in Orange County but put $5 million into its investment fund based on Citron's excellent reputation.


"He's the guru, look what he's doing for us," was the attitude among the 185 cities and agencies that turned over nearly $8 billion to Citron for investment purposes, said John Moorlach, a certified financial planner who ran unsuccessfully against Citron for the treasurer's post last June.


Citron had invested in complicated financial instruments that boosted the fund's total value to $20 billion as of January. But he did so by betting heavily that interest rates would stay steady or decline. When rates rose, the bet went bust, and the fund's value on paper dropped to $18.5 billion.


One of the county's biggest lenders, C. S. First Boston Group, cut off its credit Tuesday, calling in some $1 billion in short-term loans and seizing securities pledged as collateral. First Boston then put the securities on the market at a deflated price, turning paper losses into real ones. Others of its lenders were considering following suit. First Boston's action put the fund in default on those loans, The bankruptcy prevents agencies and other investors from yanking their money out. It's also a way of buying breathing space to figure out what to do next.


County officials, and managers of the cities and agencies in the fund, huddled with lawyers and financial advisers Wednesday, seeking answers to questions about what happens next to their money and operations. The county has hired financial consultants to analyze the situation and report on the condition of the investments by next Wednesday. City managers and elected officials said it was too early to predict the effect on their municipal operations.


Orange County's bankruptcy was an astounding development for one of the country's richest, most stable local governments.


Besides Disneyland, Orange County is also home to the man who had been recognized as a star of municipal finance for much of his 24 years in office. Citron was first elected tax collector in 1970 and became treasurer in 1973 when the two jobs were combined.


But his chief focus, by most accounts, was his job managing the huge Orange County Fund, money pooled for investment purposes by scores of cities and agencies in Orange County and elsewhere in the state. The fund averaged a 9.03 percent return over the last decade, and even hit a high of 16.9 percent in 1982.


"He had 10 years of earnings that were just outstanding, outperforming (other treasurers) by a significant amount," said Lee Buffington, treasurer and tax collector of San Mateo, California, and former president of the California Association of County Treasurers and Tax Collectors.


Citron was investing in risky transactions called derivatives, which depend on the movements of interest rates, exchange rates or other indexes. He also borrowed money heavily to amplify profits. When rates rose recently, his short-term costs rose, and the bond values dropped, souring the deals.


Both the $1.2 trillion dollar municipal bond market and the new derivatives markets are largely unregulated. Federal officials and politicians have expressed concern that many of the government finance officers investing in derivatives may not entirely understand what they are doing.


Many of the local governments that invested with Citron knew only that he was successful. They did not follow the actual investments.


Citron was such a big player in municipal finance, with his massive portfolio and more than two decades of experience, that he crafted many of the complex transactions himself, proposing the terms to the Wall Street investment banking houses, according to financial sources familiar with his work.


Citron's returns "prevented leaders from making tough decisions," Moorlach said. They said, "'Thank you, Mr. Citron, now we don't have to fire anybody.' Nobody asked, 'Why is he doing better than everyone else? And why is everybody else so stupid?'"


However, not everyone was entranced. Buffington, of San Mateo, said he never joined Citron's fund because he was "not comfortable" with the risks involved. "There are some of us who get slapped around by people for being too conservative," Buffington said. "Now they know why."