Former Treasury Secretary David Kennedy testified at a criminal trial here that after leaving government he developed a close business relationship with controversial financier Michele Sindona.

Kennedy testified that he once borrowed $200,000 from Sindona for an Arizona land venture. He said that Sindona also set up a $150,000 trust fund in a Swiss bank for his "out of pocket expenses."

The former treasury secretary in the Nixon administration told of introducing Sindona to top bank regulators and officials in the U.S. and abroad.

Kennedy was a surprise government witness at the ongoing criminal trial at U.S. District Court of three top executives of now defunct Franklin National Bank, once controlled by Sindona.

Franklin had been the 20th largest bank in America. Its scandalous collapse in 1974 ranks as the biggest bank failure in U.S. history.

Sindona, who paid $40 million for control of Franklin in 1972, is not on trial. The government is trying to get him extradited to Italy where he faces charges that he embezzled $225 million from a bank he controlled there.

Sindona did appear briefly at the trial, but he refused to testify on the gounds of self-incrimination. He is waging his battle against extradition from a luxurious cooperative apartment at the Pierre Hotel, owned in his wife's name.

The three former bank executives are charged with falsifying Franklin's books in 1974 to make it look as if the bank had a $79,000 profit when, in fact, it was losing over $7 million.

The directors are also accused of creating profits of $2 million through fictitious foreign exchange transactions.

The defendants are Harold Gleason, 59, the former chairman of Franklin, Paul Luftig, 48, who was president, and J. Michael Carter, 59, senior vice president.

In addition to 14 counts of criminal conspiracy, Luftig is charged with committing perjury before the grand jury when asked if he ordered a subordinate to make false statements to Franklin's accountants.

The unindicted co-conspirators in the case include Sindona and three other bank officials: Carlo Bordoni, Peter R. Shaddick and Howard D. Gross.

Bordoni, 48, a close associate of Sindona, fled to Venezuela but was returned to the U.S. He pleaded guilty in September to falsifying Franklin's records and taking part in the misapplication of $30 million in bank funds through foreign currency speculation.

Shaddick and Gross also pleaded guilty to similar offenses, and all three are awaiting sentencing. Meanwhile, they have appeared as government witnesses during the current trial. It is expected to wind up later this week when closing arguments are presented to the jury.

Kennedy, 73, who was chairman of Continental Illinois National Bank & Trust Co. of Chicago until 1969 when he became Treasury secretary, testified that he has known Sindona since the late 1950s or early 1960s. "He came to see me at the Continental Bank," he said.

Sindona also visited him while he was in Washington, Kennedy said. "He came to see me about problems in Italy," Kennedy testified.

After resigning in 1971 from the Treasury, Kennedy became a roving ambassador and then ambassador to NATO through 1972. Soon after quitting, Kennedy joined the Board of Sindona's personal Swiss holding company, FASCO International. He said he remained on the board "until it blew" -- or collapsed.

Kennedy revealed that he appeared before a U.S. grand jury here probing Sindona's affairs. He said the jury asked him about the $200,00 loan he got from Sindona.

He said he received the loan in January, 1974, to enter an Arizona land venture. It turned out he needed only $100,000 of it, so he returned half of the loan. He has since paid off the balance, he said.

Kennedy said Sindona had at various times made the deposits on his behalf in Fina Bank, Switzerland. "There ws $50,000 and then there was another amount that I don't know whether it was a mistake or what it was of $100,000" he testified.

At one point, Kennedy testified that he learned of the account in 1977. But when asked the same question later, he claimed he found out about the Fina account in "early 1975."

He said that the money "is held in trust to go back to Mr. Sindona."

In testimony Kennedy said he met with Claridge's Hotel, London, on March 26, 1974, the very day that the government alleges the criminal conspiracy was hatched. He says defendant Gleason was also there. But Kennedy testified he stayed at the hotel only long enough to "exchange pleas-antries."

He could not remember what else was said during the 15 minuties he said he was in the Sindona hotel suite.

Kennedy was helpful to Sindona, who was viewed with suspicion when the then high-flying Italian financier arrived in the U.S.

He said he traveled Europe speaking to Central Bankers on Sindona's behalf. He went to Japan when Sindona wanted to open a branch of the Franklin there, and he met with the Federal Reserve Board for Sindona.