Welcome Light on Bankruptcy

Merrill Lynch & Co. recently settled the huge civil case over the Orange County bankruptcy for $420 million, on the heels of agreeing to pay $30 million to avoid criminal prosecution. A lingering issue from the criminal investigation was that some 9,500 pages of grand jury testimony were kept secret. This week, a state appeals court wisely ruled that the public is entitled to have those transcripts.

This information would have become public had there been an indictment. Keeping potentially embarrassing details under wraps was surely an incentive for Merrill Lynch to settle the criminal case, beyond shedding the risk of indictment. For the public, there is no such benefit in secrecy. In fact, while Merrill Lynch has defended itself publicly, the public hasn’t had the benefit of learning the real inside story--the one told by company executives under oath. Given the magnitude of the bankruptcy, there’s a compelling interest for public entities in gleaning the long-term lessons of this financial disaster. Those who do business with government will be on notice that they do so under more exacting scrutiny.

In writing for the three-judge panel of the Court of Appeal, Justice William W. Bedsworth brought out important points. He took note of the potential for a grand jury target with deep pockets to purchase its way out of unsettling disclosures. He discerned that such a “corrosive effect” on grand jury proceedings also might result if prosecutors threatened indictment as a way to compel targets to pay up.

The California Supreme Court can affirm an important message about the accountability of private firms dealing with public entities by upholding the ruling of the appeals panel. And in the civil case, depositions taken from dozens of Merrill Lynch and investment industry executives no doubt would be revealing. They too should be released.