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Front Page New York Times June 13, 1988

Report on Meese Inquiry: 'Unflattering' Conclusions


By PHILIP SHENON

Special to the New York Times

WASHINGTON—

Even though an independent prosecutor's report is not expected to accuse Attorney General Edwin Meese 3d of criminal wrongdoing, Justice Department officials say it will almost certainly provide strong evidence that Mr. Meese was insensitive to the appearance of impropriety.

The report is expected to be made public later this month. After its release, the Attorney General faces an internal disciplinary review that, according to Justice Department officials, could result in a departmental recommendation to President Reagan that Mr. Meese be dismissed.

Johnson Era Ethics Order

The report by the independent prosecutor, James C. McKay, is a culmination of more than a year of investigation.

Law-enforcement officials say it will detail several instances in which Mr. Meese's conduct, although not criminal, may have violated Federal ethics rules, including a 1965 executive order that prohibits actions that "create the appearance of using public office for private gain."

The order, signed by President Johnson, also bars Government employees from creating the appearance of "preferential treatment to any organization or person, impeding Government efficiency or economy, losing complete independence of impartiality" or "affecting adversely the confidence of the public in the integrity of the Government."

Mr. McKay is expected to cite several instances in which Mr. Meese may have created the appearance of impropriety, including the following:

* Mr. Meese's involvement in a $1-billion Iraqi pipeline project in which E. Robert Wallach, his lawyer and close friend, had a financial stake.

* The Attorney General's ties to the Wedtech Corporation, a Bronx-based military contractor that has been accused of attempting to bribe public officials in exchange for their assistance.

* Mr. Meese's investment of about $55,000 with a California financial adviser who was a consultant to Wedtech. Special Justice Office

Mr. McKay's report will be forwarded to the Justice Department's Office of Professional Responsibility, which is responsible for investigating allegations of wrongdoing by Federal law-enforcement officials.

In investigations of other department officials, the director of the office, Michael E. Shaheen Jr., has demonstrated a willingness to stand up to his Government superiors.

If he does not clear Mr. Meese, Mr. Shaheen could recommend a range of penalties, from a mild rebuke to dismissal, and career officials in the Justice Department say they would not be surprised if Mr. Shaheen recommended later this year that his superior, the Attorney General, be disciplined and perhaps dismissed.

Victim of 'Lynch Mob'

In a series of recent interviews, part of a broad public relations campaign clearly intended to blunt the impact of whatever criticism is in the independent prosecutor's report, Mr. Meese has insisted that he is the victim of a "lynch mob" that includes Washington reporters and liberal lawmakers.

In a television interview late last month, the Attorney General said he would welcome Mr. McKay's report. "If the facts are accurately portrayed, it should set the record straight, as I've said before, and show that Ed Meese is not guilty of any wrongdoing," the Attorney General said.

Yet, according to Federal investigators, Mr. Meese will be sorely disappointed if he is expecting Mr. McKay to issue an exoneration.

"The report will not draw broad conclusions about Meese," said one investigator. "But anybody who reads it closely will see that the evidence, when drawn together, makes for anything but a flattering portrait."

Because of the complex chronology and overlapping cast of characters in the McKay investigation, it is sometimes difficult to keep the allegations against Mr. Meese separate. Pipeline Project And Old Friend According to Federal investigators, the most serious allegations against Mr. Meese involve the Iraqi pipeline project. Sponsors of the pipeline, which was never built, hoped it would carry oil from Iraq through Jordan to the Gulf of Aqaba.

Among the chief proponents of the project was Mr. Wallach, a San Francisco personal-injury lawyer who had been a close friend of Mr. Meese's since the two men attended law school at the University of California. Mr. Wallach had been retained to assist Mr. Meese in his bruising battle in 1984 and 1985 to be confirmed as Attorney General.

Insurance Plan Sought

Mr. Wallach, who often boasted to business associates of his friendship with the Attorney General, is linked to virtually all of the allegations of wrongdoing leveled against Mr. Meese in recent years.

In 1985, Mr. Wallach sought Mr. Meese's help in obtaining the Reagan Administration's assistance for the pipeline plan. Because of the danger that Israel might view the pipeline as a threat and destroy it, Mr. Wallach and his client, Bruce Rappaport, a secretive Swiss financier with close ties to Israel, wanted the United States to help set up an insurance plan for the project.

In May 1985, Mr. Meese put Mr. Wallach in touch with Robert C. McFarlane, who was then the White House national security adviser.

The introduction alone raised ethical questions.

In May, according to public documents, Mr. Meese was still barred from any official involvement with Mr. Wallach. The Attorney General made that clear in a May 24 memo notifying his aides that he was prohibited from dealings with Mr. Wallach until the lawyer had been paid for his assistance to Mr. Meese in the confirmation fight.

Unusual Letter Sent to Peres

It was not until June 7, after Mr. Meese had already introduced Mr. Wallach to Mr. McFarlane, that a Federal court approved a plan for the Government to pay Mr. Wallach.

Mr. Meese's involvement in the pipeline project deepened in October 1985 when he sent an unusual letter to Shimon Peres, who was then the Israeli Prime Minister, recommending that Mr. Peres bypass the State Department and deal directly with Mr. McFarlane at the White House.

The letter was unusual if only because it is the Secretary of State who would normally deal with such a sensitive foreign policy matter.

According to investigators, Mr. McKay has spent much of the last several months attempting to determine whether Mr. Meese received any sort of illegal payment from Mr. Wallach in exchange for his assistance in promoting the pipeline project.

Much of Mr. McKay's effort has centered on a $150,000 payment to Mr. Wallach by Mr. Rappaport in August 1985, in the midst of Mr. Meese's involvement in the pipeline project. The money was put into a stock-trading account that pooled investments for several people, including Mr. Wallach and Mr. Meese.

Recollection of Memo Denied

Mr. Meese's lawyers have denied that the Attorney General knew anything about the $150,000 or that he benefited in any way from the payment by Mr. Rappaport. According to law-enforcement officials, Mr. McKay has found no evidence or insufficient evidence to refute the Attorney General's account.

The officials say Mr. McKay has also been unable to show that Mr. Meese was aware of a plan in 1985 to make potentially illegal payments to the Israeli Labor Party in exchange for the party's assistance with the project.

Mr. Wallach made mention of the plan in an "eyes only" memo to Mr. Meese in September 1985 in which he asserted that Israel, in exchange for its help, would receive $65 million to $70 million, "a portion" of the money going directly to the Labor Party. The Attorney General has said that he has no memory of reading the memo, one of scores that Mr. Wallach had sent him in recent years.

The Foreign Corrupt Practices Act of 1977 makes the Attorney General repsonsible for prosecuting American citizens or companies that attempt to bribe foreign officials. Mr. Meese could have faced charges if prosecutors could demonstrate that he knew of a bribery plot and did nothing to stop it.

No evidence has ever been made available to indicate that payments were ever made to Labor Party officials, and they have vigorously denied the allegation.

Although investigators say Mr. McKay has insufficient evidence to show that a crime was committed, they say the prosecutor's report could demonstrate repeated violations of the 1965 executive order.

Mr. Meese's repeated assistance to Mr. Wallach could, for example, violate the executive order's prohibition on the creation of an appearance of favoritism. Inquiry Began With Wedtech The independent prosecutor's investigation of Mr. Meese did not begin with the pipeline proposal, however.

Mr. McKay's interest in the Attorney General originally stemmed from allegations involving the Wedtech Corporation, the scandal-ridden military contractor that has been linked to schemes to pay millions of dollars in bribes to gain Government contracts.

And in those allegations, Mr. Wallach was again a key figure. He is now under indictment in New York on Federal racketeering charges in the Wedtech case, accused of influence peddling.

In 1981 and 1982, Mr. Wallach sent more than a dozen memos to Mr. Meese, who was then a counselor to President Reagan, urging his support for Wedtech's efforts to obtain a lucrative no-bid contract to build small engines for the Army. Mr. Wallach has said he was acting at the time as an unpaid adviser to the company.

'Fair Hearing' Urged

In 1982, Mr. Meese did intervene, urging that Wedtech get a "fair hearing" on the Army project. A White House meeting was called by Mr. Meese's deputy, James E. Jenkins, to resolve a dispute over the $32 million contract; it was eventually awarded to Wedtech.

In a memo to Mr. Meese in the fall of 1982, Mr. Jenkins said, "Your personal go-ahead to me saved this project."

In a report last month, a Senate panel, the subcommittee on Oversight of Government Management, found that Mr. Meese, by his involvement in the Wedtech contract, had violated a White House policy that prohibited officials from becoming involved in certain Government procurement matters.

The policy, stated in an October 1981 White House staff manual, barred employees from contact with "any procurement officer about a contract in which he has a personal financial interest or in which a relative, friend or business associate has a financial interest."

Damaging Statements Cited

Lawyers for Mr. Meese have denied the allegation, arguing that the October 1981 policy did not apply to Mr. Meese because, at the time of Mr. Meese's intervention, Mr. Wallach was not working for Wedtech. It was not until December 1982, the lawyers said, that Mr. Wallach became a paid consultant to Wedtech.

A number of Wedtech executives have pleaded guilty to charges of attempting to bribe public officials in exchange for their assistance involving Wedtech contracts.

In exchange for leniency, they have agreed to cooperate with prosecutors, and they have made repeated damaging statements about Mr. Wallach and his ties to Mr. Meese.

Wedtech Head Testifies

According to defense lawyers in the case, the plea bargains raise serious questions about the truthfulness of the Wedtech officials.

In a court appearance last month, Wedtech's former president, Fred Neuberger, testified that in 1985, Wedtech paid $300,000 to Mr. Wallach to help defray his costs in defending Mr. Meese during the confirmation battle on Capitol Hill. Asked in the testimony whether he believed that Wedtech was, in effect, paying for Mr. Meese's legal representation, Mr. Neuberger replied, "That was my thought."

The testimony from Mr. Neuberger and others has led investigators to question whether Mr. Meese received any sort of illegal gratuity, such as payment of his legal fees, in exchange for his assistance to Wedtech. Mr. McKay, the investigators say, has been unable to demonstrate any such connection, and Mr. Meese has repeatedly denied wrongdoing. Investments - Latest Focus In recent months, much of the special prosecutor's investigation has centered on Mr. Meese's involvement in an investment fund linked to Mr. Wallach and through him to Wedtech.

In 1985, the Attorney General, at Mr. Wallach's recommendation, decided to turn over most of his investments, worth about $55,000, to W. Franklyn Chinn, a San Francisco financial adviser who was working as a consultant to Wedtech and was later named a director of the company. Mr. Meese has acknowledged that he knew at the time that Mr. Chinn had been asked to advise Wedtech.

Mr. Chinn generated nearly $35,000 in profits for Mr. Meese, who has said that he was unaware of what Mr. Chinn did with the money.

One-Day Stock Trades

Virtually all of the profit came from highly speculative, one-day stock trades. An investigation by the Senate oversight subcommittee found that on several occasions, Mr. Chinn invested amounts of money for Mr. Meese that were greater than the balance in his account. In effect, the panel found, Mr. Chinn was making large, potentially improper loans to Mr. Meese.

The Federal Office of Government Ethics has already determined that Mr. Meese acted outside the law in investing the money with Mr. Chinn, who has been indicted along with Mr. Wallach in the Wedtech case.

The ethics office found last year that financial arrangement, which has been described by Mr. Meese as a "blind" limited partnership, did not meet the requirements of the Ethics in Government Act for blind trusts, nor was it submitted for approval by the ethics office, as required.

The ethics act, although it carries no criminal penalties, can subject offenders to administrative sanctions. The purpose of a blind trust - an arrangement in which investments are made and administered without the investor's knowledge - is to prevent the use of a public office for private gain.

Second Investment Questioned

There were ethical questions about another of Mr. Meese's investments. He has said that when he turned over his assets to Mr. Chinn for investment, he intended to include about $10,000 worth of stock that the Meese family held in the seven regional Bell telephone companies.

The shares apparently never got to Mr. Chinn; Mr. Meese has said he lost the certificates.

In the meantime, however, Mr. Meese did not excuse himself from the Justice Department's supervision of the breakup of the American Telephone and Telegraph Company, raising questions of whether his participation in the breakup might have been influenced by his stock holdings.

Mr. Meese later obtained a White House waiver that permitted him to be involved in discussions about the telephone company breakup.


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