Let the Public Hear Bankruptcy Testimony : Residents should know what key figures told grand jury

The biggest single event in recent Orange County history was the county bankruptcy because of the loss of $1.64 billion in an investment fund. The effect of the bankruptcy was enormous; the repercussions will be felt for many years. Officials should be doing everything they can to explain to residents how the disaster occurred.

One aid in illuminating the road to bankruptcy would be release of testimony before the county grand jury that examined the financial breakdown to see if criminal indictments were warranted.

The process never reached the indictment stage, because Dist. Atty. Michael R. Capizzi and Merrill Lynch agreed the brokerage firm would pay $30 million; in exchange the county would not bring criminal charges. Although Capizzi said in announcing the deal that he would explore the possibility of releasing the testimony to the grand jury during more than two years of investigations, he argued in court last week that the law requires that it be kept secret. But the county would be better off with access to the 5,000 pages of testimony. Two of the grand jurors agreed, saying the public would be well-served by the disclosure.

The two former members of the panel also said criminal charges against Merrill Lynch would have been difficult to prove. They stressed that jurors had not discussed among themselves whether to issue an indictment.

The county continues to press its civil lawsuit against Merrill Lynch. The county contends that the brokerage firm led it astray, preying on former Treasurer-Tax Collector Robert L. Citron and selling him overly risky securities that were likely to plunge in value when interest rates rose. That’s what happened in 1994, and the county filed for bankruptcy that December.

One key witness to the events leading up to the bankruptcy is Michael Stamenson, a top Merrill Lynch bond salesman who sold Citron most of the out-of-the-ordinary securities in the county’s portfolio. Stamenson talked to Citron by telephone every day, but he appeared before the grand jury only after being granted limited immunity from prosecution. What did he say? Release of the grand jury testimony would let the public know. Stamenson’s attorney and lawyers for Merrill Lynch both support keeping the grand jury testimony secret.

Openness about the testimony is warranted, as is vigilance in monitoring post-bankruptcy spending. The bankruptcy caused a reduction in the number of county workers and a cutback in spending. Tight restrictions were imposed in many areas, including overtime pay. But the recent disclosure that overtime paid to workers in the year that ended July 1 jumped 50% over the previous year was disturbing.

That large an increase would be cause for concern at any time, but coming less than three years after the bankruptcy it should set alarm bells ringing. The county’s chief financial officer--a position created to keep tabs on spending--said the county’s operations are returning to normal and it’s natural the pendulum will swing. If so, county residents should be able to look forward to a major decrease in overtime during the current fiscal year as the pendulum presumably swings back toward the middle.

Some of the overtime expenditures are unsurprising, going to agencies like Social Services and Probation, which have struggled with overcrowding at juvenile detention facilities and the Orangewood home for neglected and abused children.

While increases in staffing are needed to cope with overcrowding, managers must decide if it is cheaper to pay overtime because the problem is temporary, or if it is more cost effective to hire more workers because the problem unfortunately seems unlikely to be solved any time soon.