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Fury over the special prosecutor's 'no, but' report

Edwin Meese III seized the chance to play the martyr last week. Special prosecutor James McKay capped off a 14-month, 81.7 million investigation of Meese's ethical conduct with an 830-page report that exonerated the departing attorney general in the Wedtech and Iraqi-pipeline scandals. In a controversial move, however, McKay found that Meese "probably" broke conflict-of-interest and income-tax laws, though none of the violations were worthy of indictment. "I'm outraged at the tarnishing of our system of justice," said Meese, who predicted two weeks earlier that the report would "vindicate" him. "No responsible prosecutor would [say] 'There's no basis for prosecution' ... and then go out in public and say 'but the guy committed this offense.' If anybody did that in the Justice Department, they'd be fired."

Two "probable" offenses related to Meese's role in the 1985 breakup of AT&T. He owned stock in seven regional "Baby Bell" telephone companies, creating a conflict-of-interest risk. At his confirmation hearings in 1985 Meese promised the Senate Judiciary Committee to sell the securities. Instead, he turned them over in trust to his financial adviser, but continued to receive dividends. As attorney general, McKay says, he probably committed felonies by taking part in two regulatory matters of the telephone industry in which .there was a real possibility that the market value of the stock would be affected..

The McKay report portrayed Meese as a sloppy manager of his finances. In 1986 he failed to declare $20,706 in capital gains. Filing a false tax return is a felony; failure to pay the $3,479 due, a misdemeanor. McKay thinks Meese, who paid the overdue taxes this year, always intended to pay up eventually. Sources close to the inquiry told NEWSWEEK that Meese.s self-styled portrait as a bungler is inaccurate, they say he is a careful record keeper who uses a color-coded system to keep track of investments. For reasons that are unclear, investigators chose not to report that evidence.

Out of line: Many criticized McKay for not indicting the attorney general, but the prosecutor contended that Meese should not be held to higher standards than anyone else. "It all came down really to the question, if this were an ordinary person, would he be prosecuted?" said McKay. "We concluded he probably would not be." Some lawyers agreed that McKay was out of line when he suggested that Meese had broken the law. "I don't think it's a prosecutor's function to make the statements that were made," said Plato Cacheris, a prominent Washington attorney. "If he felt the evidence didn't support a prosecution, that's all that needs be said."

Despite the lack of indictments, Meese faces more problems in the months ahead. The McKay report documented details of Meese's ties to attorney E. Robert Wallach, who was at the center of the Wedtech and Iraqi-pipeline scandals. McKay said his review of the Wedtech case is incomplete because witnesses took the Fifth Amendment, but three of them, including Wallach, may talk when they go on trial in January. Last week two aides who resigned in protest in March said they would testify before the Senate Judiciary Committee. The Justice Department's ethics division opened an internal inquiry last week and could also launch a criminal investigation. Meese's friends worry that the California bar might start disbarment proceedings. Although he leaves office next month, the forces lined up against Meese clearly have no intention of letting him go quietly.

by JAMES N. BAKER with RICHARD SANOZA in Washington

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