It was bad enough when some of the nation's biggest retailers such as Sears, Roebuck and Montgomery Ward were told by the Consumer Product Safety Commission that the seats on some of their bicycle exercisers were apt to fall off, impaling the rider.

But then, right in the middle of the agency's official "fix it" order, was the memo from the Maoist People's Front for the Protection of Workers and Peasants denouncing the exerciser and its manufacturer for inflicting "grave harm to several of our comrades."

The group, calling itself "a patriotic organization of loyal Americans, dedicated to fighting the exploytation sic of the Workers and Peasants by the Capitalists," then went on to libel the exerciser manufacturer, Beacon Enterprises, including an anti-Semitic attack on one of Beacon's top officials.

The memo had been sent anonymously to the commission during the agency's investigation of the exercycles.

Today, commission officials defend inclusion of the memo as part of the agency's official notification. "You send firms what's in the file, and don't censor things just because they are in bad taste," says Cathryn C. Cook, CPSC's director of compliance. "Part of what's at issue is what people are saying about the product and the people who sell the product. When you're trying to deal on a voluntary basis, you don't hold information back."

Even so, at the time the commission discovered that the memo was included in material sent to the stores, it immediately asked Sears, Montgomery Ward and the other stores receiving the letters to destroy the memo.

To some, the letter seemed so bizarre it wasn't taken seriously. "We thought it was a joke; it had no serious relationship to the rest of the material," said Rudolph H. Aires, Sears' vice president for government affairs.

Nonetheless, the agency apologized to Beacon's lawyers who were, to say the least, upset by the incident.

Relationships between Beacon and agency lawyers were not the best to begin with. While CPSC lawyers were charging that the injuries stemmed from a design defect, Beacon contended the problems occurred when consumers failed to follow the assembly instructions properly.

CPSC and Beacon have since reached an agreement where Beacon has promised to undertake a program to replace the seat attachment hardware on more than 120,000 of its bikes.

But the Maoist memo has left Beacon bitter. "There has been a reaction by the retailers to this whole train of events. They are not reordering the product," says Beacon's attorney, George Billock.