NEW YORK — The new managers of bankrupt Wedtech Corp. Tuesday filed an $11-million lawsuit against Atty. Gen. Edwin Meese III's financial consultant, W. Franklyn Chinn, charging he conspired to defraud the Bronx-based military contractor by submitting false invoices to collect over a million dollars in unearned consulting fees.
The suit names another former Wedtech consultant, Dr. R. Kent London, as a participant in the scheme.
Meese, whose ties to Wedtech are being investigated by independent counsel James C. McKay, earlier announced that he was withdrawing $60,000 he had invested in a "limited blind partnership" through a firm run by Chinn. Meese was not mentioned in the lawsuit.
Federal, State Probes
The lawsuit, which was filed in federal bankruptcy court here, is the latest development in the growing scandal centering on the manufacturing firm. Wedtech has been accused in both federal and New York state criminal investigations of providing illegal inducements to public officials to help it get contracts.
The suit alleges that Chinn and London drew up fraudulent invoices last year to collect and divide $1.1 million in consulting fees, in addition to stock options Wedtech had agreed to pay them for helping the firm expand. The two men met in Zurich and Washington in carrying out the alleged scheme to bilk Wedtech and hide the money in a Swiss bank account, according to the suit.
The suit seeks repayment of the consulting fees as well as $10 million in punitive damages.
Chinn's attorney, Cristina Arguedas of Berkeley, Calif., called the allegations "false and absurd." She said the consulting fee had been reviewed a year ago by outside auditors who found that "it was legitimately earned."
William Osterhoudt of San Francisco, representing London, said: "The suit is without foundation. Dr. London's work was valuable, his fee was justified and the firm agreed to it. We completely reject any contention it was bogus."
Chinn, who is based in San Francisco, became a Wedtech consultant in April, 1985, to solicit new sources of funds and customers for the company. London was hired about the same time to help develop a new metal-coating process that Wedtech executives believed would interest the Pentagon.
Meese invested $60,000 with Chinn's investment firm, Financial Management International Inc., in 1985 after he disposed of private stock holdings at the request of the Senate Judiciary Committee to avoid any appearance of conflict of interest.
Martin R. Pollner, a former Treasury Department official and New York attorney who is Wedtech's new corporate counsel, said there is no evidence that Chinn invested any of Meese's funds in Wedtech. Because the investment arrangement was "blind," Meese had no knowledge of where the money was placed, officials have said.
Counsel Examines Link
Meese's association with Chinn is one of the Wedtech links that independent counsel McKay is examining in his investigation of Meese. Meese has acknowledged that his office backed Wedtech in its attempt to obtain a $31-million Army contract in 1982, but he maintained that he exerted no improper influence and received no benefits.
In choosing Chinn as an investment counselor, Meese got a referral from his longtime friend and personal attorney, E. Robert Wallach of San Francisco, who also served as a Wedtech adviser.
Wallach and Chinn have been designated "subjects" of an investigation into Wedtech by a federal grand jury in New York.
The new management that filed the suit took control of the firm after it filed for bankruptcy in December in the wake of the fraud allegations.
Robert L. Jackson reported from New York and Ronald J. Ostrow from Washington.