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Sues Over $300,000 Fee Allegedly Intended to Buy Influence : Wedtech Accuses Meese Friend of Fraud

July 22, 1987|ROBERT L. JACKSON and RONALD J. OSTROW | Times Staff Writers

NEW YORK — Federal investigators in the Wedtech Corp. probe are focusing on allegations that E. Robert Wallach, a lawyer and close friend of Atty. Gen. Edwin Meese III, used Wedtech's purchase of a shipyard to cover payments to him intended to influence the Reagan Administration on the company's behalf, sources close to the case said Tuesday.

The allegations surfaced Monday in a $3.3-million suit filed in federal bankruptcy court here against Wallach charging that he conspired with five former executives of the now-bankrupt Wedtech to defraud the company of "at least $300,000," the amount he was paid for the shipyard deal.

The suit, which seeks $3 million in punitive damages, says that the $300,000 was paid to Wallach in October, 1984, by the former Wedtech managers for services he purportedly rendered in connection with Wedtech's purchase of the Upper Peninsula Ship Building Co. in Michigan.

Actually, Wallach "performed no services" for Wedtech on "the finding, negotiation or acquisition of the shipyard assets . . . to justify the payment of the fee," according to the suit, brought by Wedtech's new management.

Denies Charges

Wallach, through his lawyer, said Tuesday: "All fees that I received from Wedtech Corp. were earned by me and were appropriate. Any charges of civil conspiracy that include my services or activities on behalf of the company are unfounded and without basis."

Wedtech, a New York defense contractor, has been under scrutiny by federal prosecutors in New York and Baltimore as well as an independent counsel in Washington on charges that the firm bribed public officials and gave large consulting fees and stock to help obtain government defense contracts.

Lyn Nofziger, President Reagan's former political adviser, was indicted on conflict-of-interest charges last week in connection with work he did for Wedtech and others. James McKay, the independent counsel who obtained Nofziger's indictment, is also investigating links between Wedtech and Meese.

Four of the five former Wedtech executives named in the civil suit against Wallach pleaded guilty last February to "conspiring to offer compensation to members of Congress and officers and employees of the executive branch of the United States government for services rendered" and have been cooperating with federal investigators ever since.

The fifth, John Mariotta, a Wedtech founder, was forced out of the company and indicted on bribery and other charges.

More than one of the five former Wedtech executives told investigators for U.S. Atty. Rudolph Giuliani how Wallach, who was serving as a Wedtech consultant, obtained the shipyard payment, sources close to the case said. They said he convinced the company's former management that Meese, then counselor to the President, was going to be named attorney general and that Wallach would receive a high Justice Department appointment.

'Eyes-Open Payment'

The payment to Wallach was described as "an eyes-open payment," with the former Wedtech managers knowing he had not worked on the shipyard deal but was trying to sell his influence, one source said.

Meese has acknowledged that Wallach wrote him about a dozen memos on Wedtech's efforts as a minority-owned company to obtain a no-bid contract to build small engines for the Army. He has said that his White House office interceded to ensure that the company received a "fair hearing" from the Army.

Despite the focus of investigators, Wallach has not been formally notified that he is a "target" of the inquiry, Wallach's lawyer, John Kotelly, said, and is believed to be still ranked only as a "subject."

The U.S. attorney's manual describes a subject as "a person whose conduct is within the scope of a grand jury's investigation." A target is a person about whom there is substantial evidence of a link to the commission of a crime and "who in the judgment of the prosecutor is a putative defendant."

The civil suit contends that Wallach, in carrying out the alleged fraud, wrote a letter to former Wedtech board Chairman Anthony Guariglia, "with copies to the other convicted co-conspirators and Mariotta dated Nov. 6, 1984," as a "cover-up" for his $300,000 fee.

Wallach concocted the letter with the five former Wedtech executives "to misrepresent the nature of the payment to defendant Wallach, to cover up a payment made by debtor (Wedtech) for no services rendered by Wallach and to permit former management . . . to improperly account for the expense of said payment," the suit alleged.

New Managers Cooperating

Attorneys for the new management said that they are furnishing Giuliani and McKay with all information they come upon that suggests any violation of federal laws.

"We have been completely cooperative with Mr. Giuliani and Mr. McKay and are turning over all the evidence which our own investigation uncovers," said Martin R. Pollner, counsel for Wedtech's new management and a former deputy enforcement chief at the Treasury Department. "Our own specific duty is to recapture any monies that were misappropriated from the now-bankrupt corporation."

Robert L. Jackson reported from New York and Ronald J. Ostrow from Washington.

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