2 Ex-Jurors Say D.A.’s Merrill Case Was Weak

Two members of the grand jury that heard testimony about Merrill Lynch & Co.’s role in the Orange County bankruptcy said Tuesday that criminal charges would have been hard to prove and their fellow grand jurors might not have returned an indictment even if the district attorney had asked for one.

Both former grand jurors also said the more than 5,000 pages of sworn testimony, most of it from top officials of the giant brokerage firm, should be made public immediately.

Merrill has not allowed any of its top executives to be interviewed by the press about events leading up to the bankruptcy, so their versions of exactly what transpired have never been made public.

“Assuming the district attorney could have gotten an indictment, it would have been a very difficult, very complicated case,” said Donald Wecker, the grand jury foreman.

In the first public comments by a member of the grand jury, Wecker said Dist. Atty. Michael R. Capizzi informed the jurors one day before announcing publicly that he was settling the case with Merrill Lynch for what amounted to a $30-million penalty.

“It was sort of anticlimactic,” Wecker said of Capizzi’s remarks to the grand jury.

Wecker said it appeared to him that “one of the reasons [Merrill] settled is they didn’t want all that testimony coming out, although I don’t think they would be harmed that much by its release.”

Grand juror Henry Legere agreed that the testimony should be made public, saying that “since we never got into discussions [about an indictment], I don’t think there’s anything really confidential.”

Both jurors, whose grand jury terms ended June 30, cautioned that the panel members never discussed with each other how they would have voted if asked to return an indictment. They also said the county’s $2-billion civil case against Merrill Lynch was never far from jurors’ minds.

“I see the civil [case] being much more important than the criminal case,” Legere said, primarily because of the less stringent “preponderance of evidence” legal standard in civil case, as opposed to the “beyond reasonable doubt” standard in criminal matters.

Wecker, a retired Northrop Corp. executive who lives in Fountain Valley, said some jurors “thought this whole [criminal] hearing was being used to put pressure on Merrill Lynch for the civil case.”

Dubbed “Operation Raging Steer,” a sardonic reference to the Merrill Lynch logo, the district attorney’s criminal probe spanned 30 months, from the time the county declared bankruptcy following the loss of $1.64 billion on risky securities until the settlement was hammered out with Merrill in mid-June.

Several dozen witnesses, part of the district attorney’s “third phase” of the criminal investigation, began appearing last summer.

It quickly became apparent that the probe’s focus had narrowed almost exclusively to whether Merrill Lynch had failed to fully disclose the precarious state of the county’s $21-billion investment pool to the buyers of Orange County bonds issued some seven months before the bankruptcy.

One of the key witnesses was Michael G. Stamenson, the bond salesman who sold former Treasurer Tax-Collector Robert L. Citron most of the exotic securities that led to the losses that triggered the bankruptcy.

Stamenson, who talked to Citron by telephone every day, invoked his 5th Amendment right against self-incrimination when he first appeared before the grand jury last October, Wecker said.

In June, only weeks before the jury’s term expired, Stamenson appeared again after having been granted limited immunity from prosecution.

“Stamenson pleaded the 5th the first time,” said a grand juror who asked not to be identified, “but when he came back in he was a very good witness.”

Prosecutors occasionally grant limited-use immunity to witnesses, guaranteeing that their testimony, or leads developed from that testimony, can’t be used against them. The witness may still face criminal charges based on other evidence, but that rarely occurs.

Chief Assistant Dist. Atty. Maurice L. Evans declined to comment on why Stamenson was granted limited immunity.

And Richard Marmaro, Stamenson’s attorney, said Tuesday, “I’m not going to comment on grand jury matters.”

By focusing on Merrill’s disclosures to investors in four county bond issues, the grand jurors said, the district attorney faced the difficulty of showing that anyone had been seriously harmed, since all the bond investors got their money back, with interest.

Numerous Merrill executives testified that they were aware the county pool run by Citron was heavily leveraged and held risky securities, but that the responsibility for reporting these facts in official bond disclosure documents “was so splattered around the company” that it was hard to pin the blame on anyone, Wecker said.

“I gathered that from the [district attorney] going after the corporation and not the individuals,” he added.

Among the executives who left a lasting impression was William S. Broeksmit, who helped pioneer the complex “derivative” investments sold to Citron.

In a Merrill Lynch memorandum previously released, Broeksmit predicted the county’s pool was headed for disaster, unless Citron reversed his one-way bets on interest rates.

Wecker said Broeksmit testified that he warned his bosses nearly two years before the bankruptcy that the pool was in danger of toppling if “hot money” from investors was suddenly pulled out of the pool.

Wecker said Merrill executives testified that, after Broeksmit’s warning, they met frequently to discuss Orange County. But because one of the firm’s attorneys sat in on the meetings, when executives were asked in front of the grand jury about those discussions they declined to comment, citing attorney-client privilege.

Most of the firm’s officials, said Legere, a retired 12th-grade teacher of government who lives in Los Alamitos, “all claimed they were just doing their jobs.”

Another witness whose testimony left an impression on the grand jurors was Diane P. Brosen, a director with Standard & Poor’s, the New York rating agency.

Brosen, who could not be reached for comment, at first refused to testify, claiming the process by which the firm arrived at its ratings of the county’s bonds was protected under the free-speech guarantees of the 1st Amendment.

“She was claiming that she was the same as a [newspaper] reporter,” Wecker said, adding that her argument “seemed a little far-fetched.”

Brosen has been quoted as saying in April 1994, some seven months before the bankruptcy, “We [Standard & Poor’s] don’t have any major concerns with the Orange County” investment pool.

Although much of the testimony involved complicated financial transactions and expressions that often caused jurors’ “eyes to glass over,” Wecker said, the panel listened intently and many took copious notes.

Legere agreed. “This was not the kind of group of people who would make snap judgments.”

When Capizzi announced the settlement, Legere said, “I was nonplused about it. We had done our jobs. We had done what we were supposed to do.”