One More Step in Recovery

Orange County and Merrill Lynch both wound up winners Thursday in the deal to drop a criminal investigation of the brokerage firm’s role in the county’s bankruptcy. Under the agreement, the company will pay $30 million to the county.

But as often happens in settlements of probes into financial dealings, the outcome raised serious questions. The county’s district attorney, Michael R. Capizzi, bristled at the suggestion that the company bought its way out of criminal charges. Capizzi said that before the settlement, it had not been determined whether criminal charges would be filed. A conviction would have hurt the brokerage in related civil trials.

Merrill Lynch said it had done nothing wrong but agreed to pay the $30 million to avoid “the substantial cost and distraction” of long litigation. Capizzi too said a trial would have been long and costly, and he added that the outcome would have been uncertain.

One unfortunate aspect of the agreement is that grand jury testimony during the 2 1/2-year investigation will be kept secret. That will make it more difficult to get a complete picture of exactly what caused the biggest municipal bankruptcy in U.S. history.

The county will continue to press its civil lawsuit against Merrill Lynch, which it contends bears much of the blame for the staggering $1.6-billion loss in the county’s investment pool in 1994.

Orange County’s former treasurer and his assistant have been judged guilty for their actions in the case. The county, meanwhile, is trying to get its credit rating restored. Merrill Lynch has acknowledged losing some municipal bond business in the aftermath of the bankruptcy. And the company still faces a Securities and Exchange Commission investigation. The $30-million agreement represents one more step in Orange County’s journey back from disaster.