Court Rejects Bid by Merrill to Keep Transcripts Secret

A state appellate panel rejected Merrill Lynch’s bid to keep secret grand jury testimony about the brokerage’s role in the Orange County bankruptcy, saying its temporary stay of a lower court’s order unsealing the transcripts will dissolve at 2 p.m. Tuesday.

The 4th District Court of Appeal’s order Thursday essentially affirmed Superior Court Judge David O. Carter’s directive last week to Dist. Atty. Michael R. Capizzi that he release some 5,000 pages of testimony heard by the grand jury investigating whether Merrill or its executives violated state criminal laws in their dealings with the county.

“This is a victory for the state of California,” said Kelli L. Sager, the lead attorney representing a group of media companies, including The Times, in a court battle over release of the grand jury transcripts.

“In my view, this provides a mechanism through which the public can get information about what happened in Orange County,” Sager added.

Merrill Lynch’s attorneys, meanwhile, were preparing new legal arguments to submit to the appeals court in hopes of convincing the justices that the company is entitled to another stay that would halt public release, said Timothy Gilles, the company’s spokesman.

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Attorneys representing the giant Wall Street brokerage firm took issue with Sager’s pronouncement that Thursday’s ruling was a significant victory, emphasizing that it was merely a “procedural ruling.”

“As we read the order, the court has simply ruled on certain procedural issues with respect to the mechanics of obtaining a stay,” Gilles said. “This is by no means final.”

Merrill Lynch paid $30 million last month in a controversial settlement with Capizzi, who agreed to abort the grand jury’s investigation only two weeks before its term was to expire.

In an 11-page decision issued last Thursday, Carter called the deal between the brokerage firm and the district attorney “extremely unusual and suspect” and ordered the immediate release of the grand jury testimony.

Media attorneys, and the attorney representing former county Treasurer Robert L. Citron, had argued that unless the grand jury testimony was released, the public would have no way of judging whether the district attorney was right to strike such a deal, or whether Merrill Lynch had bought its way out of a likely criminal indictment.

Carter’s ruling was without precedent in California, where grand jury testimony is automatically made public in cases where criminal indictments are issued, but generally kept secret when they are not. But the judge ruled that there was no California law that infringed upon the inherent authority of the judge overseeing the grand jury to order the testimony released.

Carter said there was an overriding public interest in disclosure.

“There is a compelling and fundamental right . . . of all citizens to have access to vital information relating to the loss of over $1.67 billion,” Carter wrote in a decision that embraced the argument made by media organizations.

But before the transcripts were released, Merrill Lynch attorneys obtained an emergency stay from the appellate court.

Sager and others blamed the district attorney’s office for delaying the release, allowing the brokerage enough time to seek the appeals court stay.

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Deputy Dist. Atty. Wallace Wade dismissed such comments Thursday, saying, “That’s a shallow and ill-informed criticism.” The delay was not intended to help Merrill Lynch, but to deal with the task of making multiple copies of the voluminous grand jury records, he said.

While insisting that it was not seeking to hinder implementation of the judge’s order, the district attorney’s office did submit a letter to the appellate court lambasting Carter’s decision, saying it was based on “rumor, innuendo and hearsay” instead of the law. The letter also challenged Carter’s belief that the release of the documents will allow the public better understanding of the fiscal debacle.

The appellate court sided with Carter in a brief order written by Presiding Justice David Sills, who did not elaborate on the decision.

Sager, the lead attorney for media organizations, said that although there’s an outside chance that the appellate court could reverse its ruling, Thursday’s decision “in effect is the green light” for the district attorney’s office to release the grand jury transcript.

Merrill Lynch “made their arguments to the Court of Appeal, and the Court of Appeal has rejected it,” Sager said. “I don’t think the word ‘denied’ is ambiguous.”

On Thursday, the district attorney’s office was in the process of preparing the transcripts, which are recorded on computer diskettes, so that they are “ready to be turned over,” Wade said.

“We’ve never been required to do this and we do not have the facilities to rapidly copy diskettes,” Wade said. “This was a complete surprise to us that we were ordered to turn over transcripts, because that’s the court reporter’s job.”

Nevertheless, Wade said, his office should have the documents ready to be publicly released by 2 p.m. Tuesday. The district attorney’s office said they will not be filing additional briefings on the issue.

“We’ve said as much as we’ve wanted to say,” Wade said. “We don’t think the law permits it. . . . Our position is crystal clear.”

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Although the county’s lead bankruptcy attorney, Bruce Bennett, said in court that “public release is not on [his clients’] agenda,” county officials said they were happy with the court’s ruling and said they hoped the transcripts would soon be available to the public.

“The public has a right to know,” said Board of Supervisors Chairman William G. Steiner. “I think there are more smoking guns in those transcripts than there were at the North Hollywood shootout.”

Supervisor Todd Spitzer said the transcripts should provide the public with insights into how the bankruptcy occurred and whether Capizzi made the right decision by settling his criminal investigation with the Wall Street giant.

Spitzer criticized Capizzi for not being more forceful in making the transcripts available to the public and for not immediately releasing them when Carter made his ruling.

“I’m disappointed that the D.A. didn’t immediately release them when Judge Carter issued his order,” he said. “The D.A. sat on his hands.”

Treasurer-Tax Collector John M.W. Moorlach, who questioned investment policies months before the bankruptcy, said the release of the transcripts might led to more scrutiny of Merrill Lynch.

“This is a case where someone got snookered, and it wasn’t Merrill Lynch,” Moorlach said. “The public has a right to see these documents.”

Times staff writer Shelby Grad contributed to this report.