Ben Richardson’s very public resignation from Bloomberg LP over its China coverage takes a scandal that had been a contained to a crisis point.

Richardson’s courageous and forthright email to Jim Romenesko marks the moment Bloomberg lost all control of the narrative. Until now the controversy about the fate of an unpublished exposé had surfaced only through anonymous leaks from staffers.

As Richardson himself notes, that has left Bloomberg as the only on-the-record voice driving the discussion, and it has insisted that the story was not spiked but was simply “not ready.” The increasing implausibility of the claim notwithstanding, no one could know for sure.

Bloomberg further asserted its will when it dismissed one of the lead reporters on the story, Michael Forsythe, on suspicion that he was a source of leaks to The New York Times, which has since hired him. Such is an employer’s power in such matters that Forsythe, for his part, could only tweet thanks to well-wishers for their support and say nothing publicly.

Crisis contained. Then the mask began to slip when Peter T. Grauer, Bloomberg LP’s chairman, last week told a crowd at the Asia Society in Hong Kong in off-the-cuff remarks that because of the organization’s huge business interests in China, it “should have rethought” stories that “wander” from straight business news, “stories about the local business and economic environment.”

Grauer’s remarks appeared to confirm what would have at one time been unthinkable: that Bloomberg was prepared to compromise its journalism to preserve access to the Chinese market. Grauer and Bloomberg have declined to clarify the record.

Grauer’s unforced error clearly falls under Michael Kinsley’s definition of a gaffe—an advertent admission of the truth. (It’s somehow not surprising that Kinsley would be among the droves of big-name journalists now on the staff of Bloomberg View [UPDATE: for a while; Kinsley has since moved back to The New Republic; UPDATE 2 (sigh) and then to Vanity Fair].)

As Richardson says, Bloomberg has actively suppressed any discussion about the fate of the tycoon story or of Bloomberg’s overall approach to covering China (links added).

Throughout the process, the threat of legal action has hung over our heads if we talked — and still does. That has meant that senior management have had an open field to spin their own version of events. Suffice to say, what you read in the NYT and FT … was a fair summation.

Clearly, there needs to be a robust debate about how the media engages with China. That debate isn’t happening at Bloomberg.

Such threats seriously damage Bloomberg’s claim of transparency as a guiding principle—one supposedly so ingrained in the organization’s culture that it is incorporated into very design of its see-through headquarters. “Time for Bailout Transparency,” Editor-in-Chief Matthew Winkler wrote in one of a series of op-eds and other remarks in support of Bloomberg’s freedom-of-information suit for the Federal Reserve’s secret financial crisis bailout programs. For more, see the “Transparency” section of The Bloomberg Way. As I noted last week, the style book mentions the importance of “integrity” almost as much as it does “transparency.”

In his email to Romenesko, Richardson gives Bloomberg transparency in spades, particularly to a “small group of incompetent and self-serving managers” he says is responsible for killing the story:

Clark Hoyt supposedly reviewed the story and declared that it wasn’t ready for publication. But, to my knowledge, he didn’t ring or contact any of the team who worked on the story to discuss it. We don’t even know which version of the story he reviewed. Certainly the final version that I saw had been gutted and narrowed down so much that it could be dismissed as a story about “a bankrupt theatre chain”. The reporters who worked on the story for months didn’t get to review the copy before it was unilaterally spiked on a conference call with a ludicrous amount of top brass…
It’s interesting to see Grauer speak so plainly. He is a straight-talking man and I’ve always enjoyed his frank comments. I enjoyed them especially today in the sense that they illustrate the frame of mind of senior management from the business side—someone should ask Mike to go public on his views on the right to free speech as a universal value. //january town hall. hint hint///
The sad thing about this is that a small group of incompetent and self-serving managers have screwed things up for everyone else. I spent 13 years at the company, as did Mike [Forsythe] I worked with some fantastic people who did and continue to do great work.

Hoyt was named a Bloomberg’s independent editor last fall in the wake of an internal investigation into whether Bloomberg reporters were too aggressive in using information from Bloomberg’s system in reporting on Bloomberg’s customers, in this case, Wall Street banks. The haste and thoroughness with which Bloomberg tamped down a threat from the newsroom to its business model looks quite a bit different, and somewhat less laudatory, in light of recent events.

Hoyt declined to comment, as did a Bloomberg spokesman except to say Richardson left the company March 3. A person familiar with the matter said Hoyt reviewed a full version of the story, not an abbreviated one, and his view, like that of senior editors, was that the story wasn’t ready to run.

Last fall, I wrote that Bloomberg News was at a crossroads. For the first time, credible allegations surfaced that journalism interests were sacrificed, even though it had earned every benefit of the doubt over the years:

There is no evidence—at all—that financial considerations had anything to do with the editorial decisions on the stories in question.

Now there is evidence, from the chairman of the company himself. So much for the benefit of the doubt.

It is clear Bloomberg has decided which road to take on its China coverage— and it has run straight into a cul-de-sac. It’s difficult to see how it will find its way back.

The conflict is between a key market and cornerstone values.

There is no third choice.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.