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Front Page New York Times July 19, 1988

MEESE FOUND FREE OF SERIOUS BLAME IN MAJOR SCANDALS


ETHICS QUESTIONED


Attorney General Filed a False '85 Tax Return, Report Asserts


By PHILIP SHENON
Special to the New York Times

WASHINGTON—

An independent prosecutor said today that Attorney General Edwin Meese 3d had probably broken the law in managing his personal finances, but he essentially exonerated Mr. Meese of wrongdoing in two major government scandals.

The prosecutor, James C. McKay, said in a report that he would not bring criminal charges against Mr. Meese for willfully filing a false tax return, in part because he believed that the Attorney General intended to pay the taxes eventually. [ Excerpts from the prosecutor's report, page A21. ] Mr. Meese understated the taxes he owed to the Government for 1985 by nearly $3,500, the prosecutor said.

Meese Issues Rebuttal

Mr. McKay's report, which provoked an indignant rebuttal by Mr. Meese to the suggestion he had broken the law, brings a 14-month investigation of the Attorney General's personal and official conduct to an ambiguous conclusion. [ Excerpts from Meese's rebuttal, page A22. ] Supporters contended today that Mr. Meese, who has announced his intention to step down, has been vindicated. Opponents on Capitol Hill and elsewhere said the prosecutor had shown that the Attorney General was insensitive to his ethical obligations.

Mr. McKay said previously that he did not intend to seek to indict Mr. Meese in two matters that had long been the focus of his investigation: the Attorney General's involvement in a $1 billion Iraqi pipeline project and his ties to the Wedtech Corporation, a Bronx militry contractor.

Wedtech Scandal

And in his report today, Mr. McKay said there was insufficient evidence to show that Mr. Meese took bribes or illegal gratuities in the Wedtech scandal or violated Federal laws against bribing foreign officials in the pipeline matter.

In regard to Wedtech, the exoneration came in this language, "The independent counsel has determined that the available evidence is insufficient to support a conclusion that Mr. Meese violated any of these laws." On the pipeline, the report said there was "insufficient evidence" to conclude that Mr. Meese had broken the law.

At the same time, the document raised new questions about the ethical conduct of the Attorney General, asserting that he willfully filed the false tax return for 1985.

Mr. McKay also determined that Mr. Meese, whom he repeatedly faulted for sloppiness in his personal finances, had probably violated Federal conflict-of-interest laws when his family held telephone company stock worth thousands of dollars at a time when he was reviewing telecommunications policy at the Justice Department.

The 814-page report concluded that despite the apparent criminal violations, other evidence tended to support the Attorney General's contention that if errors were made, they were not motivated by venality. Mr. McKay's investigation cost $1.7 million.

At a news conference, Mr. Meese, who has announced plans to resign later this summer, said he was "appalled" by the conclusion he had probably violated Federal laws. He accused the independent prosecutor of violating "every principle of fairness and decency."

"I have always acted legally, ethically and properly," Mr. Meese said. "And any indication by the independent counsel that I have in any way violated any law is absolutely false.

"To have the idea foisted upon the American people, a false implication of wrongdoing, is absolutely at odds with every principle of our system of justice."

At a separate gathering with reporters, Nathan Lewin, one of the Attorney General's lawyers, referred to Mr. McKay's findings as those of a "hit and run driver; it's a very cheap shot."

In a statement, President Reagan said he was "pleased that after extensive scrutiny, the independent counsel did not charge the Attorney General with any criminal wrongdoing." The White House spokesman, Marlin Fitzwater, added, that "as he has said before, the President feels Ed Meese has been an outstanding Attorney General."

Thurmond Questions Judgment

But one longtime supporter of Mr. Meese, Senator Strom Thurmond of South Carolina, the ranking Republican on the Judiciary committee, said, "It appears from the special counsel's report that the Attorney General did not exercise good judgment in a number of instances."

In his voluminous report, Mr. McKay, a registered Democrat who says he has never been politically active, portrays the Attorney General as repeatedly indifferent to the appearance of impropriety, a habitually disorganized public servant whose judgment was often clouded by the influence of friends and colleagues.

Mr. McKay's report had originally been scheduled for release last week; lawyers with knowledge of the investigation said the prosecutor had hoped the report would be public before today, when it might be overshadowed by the start of the Democratic National Convention in Atlanta.

At the request of lawyers for Mr. Meese, however, the release date was put off until this week to allow them extra time to reproduce copies of a 105-page rebuttal that was also made public today.

Investigations Continue

A copy of Mr. McKay's report has already been forwarded to the Justice Department, which is expected to consider an internal investigation to determine whether Mr. Meese violated the department's own ethics regulations.

The Office of Government Ethics as well as lawmakers are continuing their separate investigations of the Attorney General's conduct.

On July 9, in an article based on large portions of Mr. McKay's report, The New York Times provided considerable new information about Mr. Meese's involvement in the $1 billion Iraqi pipeline project and about Mr. Meese's ties to the Wedtech Corporation, which has been linked to a far-ranging scheme to bribe public officials. Mr. McKay's investigation had focused on whether the Attorney General knew of a purported bribery scheme designed to win Israel's support for the pipeline project.

In the portions of the report in The Times, Mr. McKay found that the "admissible evidence is insufficient to conclude" that Mr. Meese believed that payoffs would be made to Israeli officials. Government leaders in Israel have vigorously denied any knowledge of such a scheme. The pipeline was never built.

Mr. Meese's lawyers said in their rebuttal today that the prosecutor's review of the pipeline allegations had been a "mammothly feckless venture." "This is probably the most poorly conceived, ill-founded and wasteful use of investigative resources in the history of American law enforcement," the rebuttal said of the pipeline inquiry.

On Wedtech, Mr. McKay's report found that the "currently available evidence does not show any criminal wrongdoing by Mr. Meese in relation" to the company. Mr. McKay did find, however, that Mr. Meese and his staff were "instrumental" in helping Wedtech win a $32 million Army contract that was awarded without bidding.

Tax Return for 1985 Cited

In the portions of the report released today, perhaps the most important disclosure was that of Mr. Meese's failure to file an accurate tax return for 1985.

"A trier of fact would probably conclude beyond a reasonable doubt that Mr. Meese willfully permitted a materially false tax return to be filed for him" that failed to declare $20,706 in capital gains from the sale of stock, Mr. McKay said.

"The independent counsel has determined that a trier of fact would probably reject a defense that Mr. Meese in good faith believed he was in full compliance with the law," the report said. The report provides this account: Mr. Meese and his wife, Ursula, turned over nearly $55,000 worth of stock in the spring of 1985 to W. Franklyn Chinn, their investment manager.

Mr. Chinn sold the stock, most of which had been inherited from Mrs. Meese's mother, and reported the details to the Attorney General in March 1986, shortly before the deadline for filing the Meeses' 1985 tax return.

The Meeses realized a net capital gain of $20,706 from the stock. They owed $3,479 in taxes. They were granted an extention for filing their return until Oct. 15, 1986. A week before the October deadline, Mr. Meese told his accountant, John R. McKean, that he had sold the securities in 1985.

But the Attorney General did not identify the securities or tell Mr. McKean the amount of money realized from the sale, information that would be needed to calculate the capital gain. Mr. Meese had not located the information at that time.

Mr. Meese was about to leave on an extended trip, and Mr. McKean suggested, and the Attorney General agreed, that the return should be filed by the Oct. 15 deadline without any reference to the stock sale, and that an amendment return disclosing the capital gains would be filed as soon as possible.

According to the independent prosecutor, Mr. Meese's decision to file the return without reference to the sale of the shares was probably a violation of Federal tax laws. The report said that Mr. Meese should have declared the capital gains income on his return filed Oct. 15, 1986, and because he did not, the return "was materially false."

Amended Return Filed

Mr. Meese did eventually file an amended return, but not until February of this year, nearly 15 months after the original tax return was sent to the Internal Revenue Service.

Mr. McKay noted without elaboration that the return was filed about a week after prosecutors scheduled a grand jury appearance for Mr. McKean, the accountant.

The report listed several reasons why Mr. McKay had decided not to bring an indictment on the tax matter, including his finding that Mr. Meese had apparently intended to pay the taxes eventaully.

The prosecutor also said his investigation of Mr. Meese's tax returns from 1981 to 1986 showed that the Attorney General "appears in all other respects to have complied with his tax obligations." Mr. McKay added, "The absense of a pattern of noncompliance is a factor that weighs heavily in the taxpayer's favor."

In their rebuttal, Mr. Meese's lawyers said: "It is evidence that Mr. Meese relied in good faith on his accountant. It is plain that Mr. McKay is now charging Mr. Meese with criminal conduct for the sole reason that his accountant gave him the wrong advice."

Mr. McKean, the accountant, said in a statement today that he had not intended to mislead the Internal Revenue Service.

On the question of the telephone company stock, Mr. McKay found that the Attorney General probably violated the law when he held onto the shares in the regional Bell telephone companies while overseeing Justice Department telecommunications policies.

Federal conflict-of-interest laws prohibit officials of the executive branch from participating in matters in which they have a financial interest.

Yet while he held onto nearly $10,000 worth of stock, the prosecutor found, Mr. Meese did become involved in development of a plan to deal with the breakup of American Telephone and Telegraph into the regional telephone companies.

'Reasons Not to Prosecute'

But Mr. McKay said he found "compelling reasons not to prosecute."

"There is no evidence that Mr. Meese acted from motivation for personal gain," the report said. "He took steps, albeit ineffective, to divest himself of his financial interest" in the stock.

In the rebuttal, Mr. Meese's lawyers said the independent prosecutor had misconstrued the evidence and that the Attorney General had believed that ownership of the shares was transferred to his financial adviser, Mr. Chinn, in May 1985, before Mr. Meese became involved in telephone policies at the Justice Department.

"Mr. Meese showed time and again that he actually believed he had no ownership interest," the lawyers said. "Mr. McKay is entirely wrong in his analysis of the law."

Much of Mr. McKay's report centers on the relationship between Mr. Meese and his close friend and former lawyer, E. Robert Wallach, a San Francisco lawyer who was involved in most of the allegations that were under scrutiny by Mr. McKay.

The report detailed several instances in which Mr. Meese was called upon to assist Mr. Wallach in projects in which he had, or eventually had, a financial interest. Mr. Wallach received more than $100,000 to represent a Swiss financier who was a key proponent of the pipeline proposal.

Mr. McKay said in his report that "there are some notable coincidences in the timing of Mr. Meese's acceptance of things of value directly or indirectly from Mr. Wallach and some of the official acts done by Mr. Meese that benefited Mr. Wallach."

The report added, "There is nothing inherent in any of the things of value accepted by Mr. Meese from Mr. Wallach, or in the circumstances of Mr. Meese's acceptance of them, that constitutes sufficient evidence to determine that they were accepted as unlawful gratuities."

Mr. Wallach, who became a paid consultant to Wedtech, has been indicted in New York on influence-peddling charges involving the military contractor, which is now being reorganized under the bankruptcy law. Mr. Chinn, an investment adviser to both Mr. Wallach and Mr. Meese, became a director of Wedtech, and he has also been charged in the case.

Mr. McKay's report disclosed that Mr. Wallach received a $200,000 loan this year from a Washington businessman, Howard Bender, at about the time investigators looked into their roles in obtaining a job for Mr. Meese's wife.

Mr. McKay concluded that Mr. Wallach and Mr. Bender "may have had ulterior motives" for their roles in arranging the $40,000-a-year position for Mrs. Meese at the Multiple Sclerosis Society.

Photos of Edwin Meese; James C. McKay (NYT/Paul Hosefros); E. Robert Wallach (pg. A21) (AP, 1976); W. Franklyn Chinn (pg. A21) (AP)


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