O.C. Grand Jurors Tell of Bankruptcy Testimony

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 whose explanations for the massive bankruptcy have never been made public, should be immediately released.

“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 members of the panel whose 18-month term ended June 30, Wecker said Orange County Dist. Atty. Michael R. Capizzi told jurors a day before he publicly announced it 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 news. He said it appeared 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, saying, “Since we never got into discussions [about an indictment] I don’t think there’s anything really confidential.”

Both jurors, who said the panel members never discussed with each other how they would have voted if asked to return an indictment, said the county’s $2-billion civil case against Merrill Lynch was not 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 cases, as opposed to the “beyond a 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 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 to the buyers of Orange County bonds issued seven months before the bankruptcy the precarious state of the county’s $21-billion investment pool.

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 $1.64 billion in losses that triggered the bankruptcy.

Stamenson invoked his 5th Amendment right against self-incrimination when he first appeared before the grand jury in October, Wecker said.

In June, Stamenson appeared again to testify after having been granted limited immunity from prosecution.

“When he came back in he was a very good witness,” said a grand juror who asked not to be identified.

Prosecutors occasionally grant limited-use immunity to witnesses, guaranteeing that their testimony, or leads developed from that testimony, can’t be used against them.

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

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 released previously, 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.

After Broeksmit’s warning, Wecker said, Merrill executives 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.”