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Donovan Innocent of Fraud Charges : Ex-Labor Secretary, 7 Others Cleared of All Counts Based on Subway Deal

May 26, 1987|BOB DROGIN | Times Staff Writer

NEW YORK — Former Labor Secretary Raymond J. Donovan, the nation's first Cabinet officer indicted in office, was found not guilty Monday of all grand larceny and fraud charges after an eight-month trial in state court.

The jury, which deliberated for 9 1/2 hours, also found his seven co-defendants innocent of all charges stemming from a subway construction contract.

Donovan stood with arms folded as the jury's foreman read the verdict. As he was proclaimed not guilty on the first and most serious count of grand larceny, the former seminarian made the sign of the cross.

His wife, Catherine, who was seated in the gallery, clutched a friend's hand and sobbed.

Donovan, 56, resigned as labor secretary in March, 1985, six months after he was indicted.

'Nightmare Is Behind Us'

"A 2 1/2-year nightmare that began in September of 1984 is now behind us," an emotional Donovan said outside the courtroom. "I just want to say the jury has reawakened my faith in our system. It was shattered here for nine months."

When asked if he would serve again in government, Donovan replied: "I will not."

In Washington, President Reagan voiced his pleasure with the jury's decision.

"I have always known Ray Donovan as a man of integrity, and I am happy to see this verdict. I have never lost confidence in him," the President said in a statement read by White House spokesman Ben Jarrett.

The jury spent two days deliberating after a trial capped by two days of tumult in the courtroom when juror Milagros Arroyo, 30, became emotionally distraught and was dismissed.

Alternate Juror Seated

Judge John P. Collins on Saturday seated an alternate juror who had heard all the evidence at the trial but had not been in on the beginning of deliberations.

The 137-count state indictment, filed Sept. 24, 1984, concerned Donovan's work as executive vice president and part owner of the Schiavone Construction Co. of Secaucus, N. J., before he joined the Reagan Administration in 1981.

While in office, Donovan was dogged by allegations of ties to organized crime figures. After two investigations, a special federal prosecutor, Leon Silverman, concluded in 1982 that he had found "insufficient credible evidence" to prosecute Donovan on the allegations. A separate investigation by the U.S. attorney in Manhattan in 1980 also found no grounds for prosecution.

Donovan has steadfastly maintained that he is innocent of any wrongdoing, and he charged that Bronx District Atty. Mario Merola, a Democrat, had brought the indictment to win publicity and embarrass the Reagan Administration during the 1984 presidential campaign. Merola's goal, Donovan said in a recent interview, was not "truth or justice" but to "hang Ray Donovan's pelt on the wall."

The Bronx trial involved charges that Donovan and other Schiavone company executives conspired with a small Bronx earth-moving company in the late 1970s to defraud the New York City Transit Authority of $7.4 million during construction of the East 63rd Street subway tunnel from Manhattan to Queens.

Bogus Firm Cited

According to prosecutors, Donovan and other Schiavone executives set up a bogus minority-owned subcontractor, the Jopel Trucking & Contracting Co., as a "front" to help qualify for the $186-million subway contract. The contract required Schiavone to make a "good faith effort" to subcontract 10% of its work to minority-owned business enterprises.

Prosecutors said Schiavone executives told the transit authority that it was giving Jopel a $12.4-million subcontract to haul 1 billion pounds of dirt, mud and rocks from the tunnel site. But prosecutors said that Jopel received only $5 million and that the other $7.4 million was diverted back to Schiavone through inflated billing, false payrolls and a phony equipment leasing scheme.

'Sweetheart Deal'

During his summation, prosecutor Stephen R. Bookin charged that the arrangement was a "sweetheart deal" intended to "hoodwink" the transit authority. He said that the Schiavone company "never intended to use good faith efforts" to subcontract to legitimate minority-owned companies. "They made representations to the transit authority that they never intended to fulfill," he said.

The now-defunct Jopel company was founded by state Sen. Joseph L. Galiber of the Bronx, who is black, and William (Billy the Butcher) Masselli, a reputed "soldier" in the Genovese organized crime family. Both men were defendants in the case.

The other defendants were Richard C. Callaghan, Schiavone's senior vice president; Joseph A. DiCarolis, president and chief operating officer; Morris J. Levin, secretary and chief counsel; Albert J. Magrini, vice president, and Gennaro Liguori, second vice president. The two companies were also charged.

Drew Worldwide Attention

Although Donovan's indictment and arraignment drew international attention, the historic case quickly faded from public view. Pretrial hearings and lengthy legal wrangling dragged on for two years.

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