$30 Million Is All the Explanation We Really Need

Thirty million dollars in easy money.

That’s what Mike Capizzi got from Merrill Lynch for shelving the criminal investigation of the firm that many people feel was the brains behind the Orange County bankruptcy. Rats, now we need a grand jury leak to find out what Merrill did.

Some may fret and stew that Merrill got off the hook without admitting any criminal liability, but let’s be grown-ups here. The firm had been saying from Day 1 that it had no liability whatsoever and couldn’t wait to prove it in court.

Apparently, the parade of witnesses before the grand jury dulled Merrill Lynch’s enthusiasm. Or maybe the company’s legal counsel watched video replays of former Orange County Treasurer Bob Citron testifying about how little he really knew about the securities business and how often he talked to Merrill Lynch advisors. Whatever, Merrill’s legal people must have figured an indictment was just around the bend and, really, is that a headline any self-respecting Wall Street giant wants to see in the newspaper?

“I think this is a chink in the armor,” said Paul Nussbaum, a bank executive and onetime chief advisor to former county executive officer William Popejoy in the first few months after the bankruptcy. “I believe for them to begin to acknowledge any liability . . . is a great step for the county. Their attitude since the time they broke off discussions with Bill has been that all claims against them were without merit and baseless.”

So, for a cool $30 mil--or about what Michael Jordan made this year to play basketball--the firm folded its hand. The tantalizing thing is wondering whether the county could have gotten more or, coming from the completely opposite direction, whether Merrill Lynch needed to capitulate at all.

Remember, Capizzi couldn’t convict former Budget Director Ron Rubino on bankruptcy-related charges or even get into a courtroom on Supervisors Roger Stanton and Bill Steiner, so who’s to say what he would have done against Merrill Lynch?

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They both win. Merrill gets dinged for pocket change and Capizzi can tell voters if he runs for state attorney general that he got $30 million out of Merrill Lynch. That’s how settlements like this one get done.

The Merrill Lynch public relations machinery now will sell the line that the firm has admitted no wrongdoing.

That doesn’t mean others have to buy it. For instance, state Sen. Quentin Kopp of San Francisco, a member of the special committee that investigated the Orange County bankruptcy.

I asked if the agreement said anything to him. “Yeah, it says they’re guilty of criminal conduct,” Kopp said of Merrill Lynch. “They oughta be blacklisted by every governmental entity in California.”

After watching Citron testify a couple different times, I’m not sure the bankruptcy debacle is all that complicated. By his own words, Citron made it easy to picture him on the phone with Merrill Lynch, looking to bolster his ego with his risky big-bonanza investments.

“I don’t mean to be crass about it,” Nussbaum said, “but when you’re dealing in highly sophisticated financial instruments and you have ready prey that lacks that same level of sophistication, a lot of people strive to take advantage of that.”

He was speaking, of course, in general terms.

Still, a criminal trial would have given the public a clearer handle on the Orange County-Merrill Lynch relationship. Perhaps now, we’ll simply have to wait for the civil case the county has filed against Merrill Lynch and other firms.

Sure.

People who know infinitely more than I about these matters are saying in other parts of the newspaper today that Capizzi’s settlement compromised the county’s position in the civil case. If that’s the odds-on position to take, let me, in blissful ignorance, bet on the longshot.

I see another settlement somewhere in the backstretch but one that will eventually make the turn for home. As I read the form, why would Merrill Lynch be any more willing to be embarrassed in civil court than in criminal court?

The firm has hundreds of billions of dollars in worldwide client holdings, and it can afford to pay. One national expert predicted in 1995 that Merrill Lynch would eventually settle its civil case with Orange County for a few hundred million dollars, and that not even that sum would severely hurt it.

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I asked Nussbaum about that and he said the typical strategy for a giant firm fearing the publicity or outcome of a case would be to craft a “global” settlement that would include itself and the numerous ancillary firms being sued. That way, Nussbaum said, the showcase firm tries to blend into the canvas and minimize the embarrassment factor.

Generally, Nussbaum said, the dollar figure for such global settlements is in the half-billion-dollar range.

For that sum, I can easily picture Orange County once again agreeing to lock up forever any and all information.

As for the rest of us finding out what happened, well, you don’t think either county officials or Merrill Lynch really want us to know that, do you? But like I said, it probably isn’t all that complicated.

Dana Parsons’ column appears Wednesday, Friday and Sunday. Readers may reach Parsons by writing to him at The Times Orange County Edition, 1375 Sunflower Ave., Costa Mesa, CA 92626, or calling (714) 966-7821.