Prince William County officials filed suit yesterday against the brokerage firm that handled high-risk securities transactions that cost the county $1.05 million, seeking return of funds that were invested plus millions of dollars in damages.

The county claims in its suit, filed in U.S. District Court in Alexandria, that New York-based County NatWest Inc. violated several federal laws, including a racketeering statute, and failed to register with Virginia officials to do business in the state.

County NatWest officials could not be reached for comment.

The county seeks to invoke a Virginia law providing that clients of brokerages not registered with the state can rescind their transactions that the broker handled. The county is asking for $5.2 million from transactions conducted over a two-year period, including the $1.05 million lost in high-risk transactions.

The suit also alleges that the firm failed to disclose "substantial risks" and gave "false and misleading" advice about certain high-risk "hedge transactions." Those claims form the basis for the county's request for $2 million in actual and $5 million in punitive damages.

In addition, the suit filed by Cooter & Gell, a Washington law firm hired by the county, alleges that County NatWest violated the Racketeer Influenced and Corrupt Organizations Act and cites a $10 million loss incurred by the state of West Virginia in similar investment transactions handled by County NatWest.

Under the RICO law, the county is seeking triple damages -- $6 million.

County NatWest agreed last year to pay West Virginia $2 million to settle a suit that officials of that state had filed, and it denied breaking any law.

Although Prince William's losses occurred in 1987, the Board of County Supervisors did not learn of them until 13 months later. The supervisors hired a Richmond law firm to investigate the transactions and authorized a suit in March. The county's lawyers have been negotiating with the securities firm ever since.

"We were hoping it wouldn't have to go this far," said Supervisor Terrence Spellane (I-Coles). "But there's only so much negotiating you can go through . . . . Full speed ahead."

Prince William's losses involved short-term investments in mortgage-backed securities. A mid-level county employee authorized a series of risky "hedge transactions" that involved selling securities while promising to repurchase them later at a set price. Although the securities lost value after the first sale, the county had to buy them back at the original price.