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California and the West

Court Backs Release of Testimony About Orange County Bankruptcy

Ruling: Justices cite 'corrosive effect' of idea that grand jury target could buy way out of probe. Merrill Lynch will appeal.

June 17, 1998|MICHAEL G. WAGNER and JEAN PASCO | TIMES STAFF WRITERS

SANTA ANA — A state appeals court on Tuesday agreed that closed-door testimony by executives of Merrill Lynch & Co. about the giant brokerage's role in the Orange County bankruptcy must be released to the public.

Merrill Lynch said the ruling, which stems from the county's criminal investigation that ended when the firm paid $30 million to halt the grand jury probe, would be challenged in the California Supreme Court.

The grand jury testimony hasn't been released publicly. But The Times and other news organizations asked a Superior Court judge last summer to release about 5,000 pages of Merrill Lynch testimony. The judge agreed, and the firm appealed.

The ruling by the three-judge panel of the Court of Appeal in Santa Ana highlights the fact that California is one of the few states that has rejected the traditional secrecy of grand jury transcripts.

"This one is going to send some shock waves," said Laurie Levenson, associate dean of Loyola Law School. "It says that if there's a strong public interest in disclosure, then these proceedings are not so secret."

Those who fought on Merrill Lynch's side--local and state prosecutors--say the decision will wreak havoc in the criminal justice system.

"This opens the door to the grand jury," said Gary W. Schons, a senior supervising deputy attorney general. "There's now a potential for great mischief in the result reached by this appellate court."

But David W. Wiechert, who represented former county treasurer Robert L. Citron, said he didn't believe that the ruling "would have much effect on the average burglary or convenience store holdup." Wiechert and Citron are staunch advocates of releasing the grand jury record.

"This is simply not the slippery slope" the district attorney and attorney general have argued, Wiechert said. The appellate court simply concluded that grand juries operate as an arm of the court and that judges have the discretion to make some investigative matters public.

Until now, cases that don't result in indictment "are always buried in a black hole and nobody finds out what happens," said Pepperdine University law professor Timothy Perrin. "It strikes me that there is a strong public interest in this particular case because there isn't ever going to be a public airing of what happened and why [without the release of the testimony]."

Merrill Lynch's $30-million payment effectively kept the public from discovering what executives had said under oath about their part in the county's bankruptcy. The financial fiasco was triggered by the $1.64 billion the county lost trading risky securities purchased mostly from Merrill Lynch.

The significance of that settlement caught the eye of the three appellate justices.

"Whatever might be said of the reasons for the 'settlement' in this case, it is important that it not be misinterpreted," Justice William W. Bedsworth wrote for the panel.

"The corrosive effect" of the idea that a grand jury target could buy its way out of a probe or that prosecutors could coerce payments through such investigations "would be catastrophic," he added.

The "irony" that grand jury transcripts are revealed when someone is indicted but are sealed forever when someone settles to halt any indictment "would not long be lost on either the law-abiding public or the criminal public," he wrote.

The Legislature could not have intended, Bedsworth stated, "that the courts be unable to defeat this tragic distortion of the law."

Merrill Lynch, along with the Orange County district attorney and the state attorney general, fought the release of the transcripts, arguing that making them public would invade the privacy of investigation targets who had not been indicted. They also argued that release of the testimony would overturn a century-old precedent that makes grand jury secrecy, absent an indictment, inviolate.

"We disagree with the court's ruling," said Merrill Lynch spokesman William Halldin. "We believe California law protects the privacy of innocent victims when there is no indictment, [and] we will pursue that view with the California Supreme Court."

Attorneys for media groups, however, cheered the decision. "This is quite a big deal, [because] the financial disaster that struck Orange County was of historic importance for the public, and the only way to really get at it is through those transcripts," said Karen N. Frederiksen of Davis Wright Tremaine, the Los Angeles law firm that represents The Times and other news organizations.

Two weeks ago, Merrill Lynch agreed to pay $420 million to settle a $2-billion civil lawsuit brought by the county over the firm's involvement in the bankruptcy, the nation's largest municipal failure.

Last week, The Times and other media served notice in the county's recently settled civil case that they intend to fight for access to deposition testimony taken from dozens of Merrill Lynch and other investment industry executives.

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