Justices Reject Bid to Open O.C. Grand Jury File

SAN FRANCISCO — The California Supreme Court ruled Thursday that the public has no right to review transcripts from the aborted grand jury probe into Orange County’s financial debacle.

The unanimous decision reversed two lower-court rulings that said the public’s interest in understanding the 1994 bankruptcy outweighed the state’s tradition of keeping grand jury testimony sealed when it doesn’t result in indictments.

At the request of news organizations, an Orange County trial judge had ordered the records opened because of “the magnitude of the public’s loss of funds and loss of confidence in government and financial markets.”

Merrill Lynch & Co., which was being investigated by an Orange County grand jury, appealed to keep the transcripts secret.

Orange County filed for bankruptcy in December 1994 after its investment fund, which purchased high-risk securities from Merrill Lynch, lost a total of $1.64 billion.

The grand jury in 1996 launched a criminal probe of the investment banking firm’s activities. Having previously brought criminal charges against three public officials, the jury was investigating whether Merrill Lynch committed fraud in pushing the county to buy risky securities.

The criminal investigation ended abruptly a year later after the financial giant agreed to a financial settlement of $30 million in connection with four debt offerings. Of the sum, $3 million went to the district attorney’s office.

That payment infuriated Orange County Superior Court Judge David O. Carter, who called it “extremely unusual and suspect” when he ordered the transcripts to be made public.

Several county officials and First Amendment attorneys expressed disappointment at Thursday’s ruling, and an assemblyman announced he will propose legislation requiring the release of grand jury transcripts when investigations end with financial settlements.

The Supreme Court expressed sympathy for public concern that a target of a criminal grand jury probe could avoid indictment by “buying its way out” of prosecution through a monetary settlement.

But the court said trial judges lack “the authority to pierce the veil of grand jury secrecy” even when public interest demands it.

The Supreme Court overturned a Court of Appeal decision that upheld Carter’s ruling; the appeals court had given judges the right to release transcripts whenever the advantages of public disclosure outweighed those of secrecy. At issue were 9,000 pages of transcripts from 42 witnesses, including 29 from Merrill Lynch.

But the state’s highest court said the Legislature has crafted specific rules for grand juries since the California Constitution was adopted in 1879 and has sole authority for carving out exceptions to grand jury secrecy.

Attorneys for the news organizations, which included the Los Angeles Times, had asked the courts to release the records because of the unusual nature of the case and pressing public concerns about it.

Their early victory marked the first time courts had agreed to open up grand jury transcripts in criminal probes that did not yield indictments.

“This was a novel ruling [in which] the media really broke new ground,” said Robert G. Morvillo, a lawyer for Merrill Lynch. He said the Supreme Court has now “reinstated the process to where it has always been.”

Kelli L. Sager, who represented the news media in the case, said other states give judges the authority to release grand jury transcripts.

Although the law in California has kept transcripts of grand jury criminal proceedings secret when the target was exonerated, there had never before been a case in which the potential defendant reached a monetary settlement to end the probe, she said.

“This is the first time I know of that this particular situation has come up and has been challenged,” Sager said. She lamented that “the public will never know whether the D.A. did the right thing or not.”

Lawyer Alonzo Wickers, who works with Sager, said that the ruling does not take away rights the public or media have traditionally enjoyed.

“Unfortunately,” he said, “if a similar circumstance arises in the future, the media will not likely have access as a result. This decision does make clear that any exception to the general rule of grand jury secrecy must come from the Legislature.”

A spokesman for Merrill Lynch said the firm was pleased it persuaded the court to keep the transcripts sealed. Bill Halldin, the spokesman, called the decision “consistent with California’s long-standing effort to protect the privacy of innocent grand jury witnesses.”

The county also had filed a separate civil suit against Merrill Lynch for $2 billion. The firm settled with the county in that suit for $420 million in 1998.

Former Orange County Treasurer Robert Citron joined the news organizations in pressing for release of the records. Citron pleaded guilty to several felonies and received a one-year jail sentence in connection with the bankruptcy. He was allowed to serve his time by working days for the sheriff’s office and spending nights at his home.

Under state law, transcripts of criminal grand jury proceedings must be made available to the public 10 days after an indictment is returned, unless otherwise ordered by a court. If there is no indictment, the Legislature has not authorized such records to be made public.

Last year, the Legislature passed a bill that opens up transcripts in civil grand jury proceedings, subject to judicial approval, as long as the witnesses’ identities are kept secret.

Assemblyman Scott Baugh (R-Huntington Beach) said Thursday he will introduce a bill during the current session requiring the public release of grand jury transcripts when criminal investigations end with financial settlements.

Terry Francke, general counsel for the California First Amendment Coalition, predicted the Legislature may well pass such a bill.

Francke, whose nonprofit group lobbies for open government, said he believes the Orange County investigation was the only such criminal probe ever to end with a monetary settlement.

“If there is no Legislative attention to this problem,” Francke said, “then I would think it would be quite tempting for any corporate suspects . . . to try to derail [an] investigation by offering a settlement.”