"I'm for legislation that protects the rights of people, but I do not believe that regulation regarding placement fees is necessary," John William Costello, president of National Executive Search Inc., testified when the District of Columbia was considering how to regulate employment agencies back in 1962.

To a large extent, Costello's view prevailed.

The District regulates employment placement agencies, but it does not prohibit them from collecting placement fees in advance from job seekers, a practice banned by 44 states. Moreover, the District doesn't regulate career counseling firms.

Regulators in some states that prohibit advance fees complain about loose D.C. laws. They say the District has been to the job-finding business what the Cayman Islands are to banking--a haven from burdensome restrictions.

Operating as a D.C. business, Costello's National Executive Search has run one of the biggest advance-fee employment-career counseling services in the country.

Says Hugh G. Horton Jr., director of the private personnel service division, North Carolina Department of Labor: "Our concern is that organizations such as National Executive Search advertise in national media, and citizens of North Carolina respond to such ads. As a result, they can be victimized by practices not allowed in this state."

In recent months, a series of legal actions by state authorities and an expose' in October on CBS's "60 Minutes" dogged NES.

Frustrated jobseekers who paid NES fees but never found work have come forward to complain after seeing the televised tales of other angry and unhappy clients, one of whom described National Executive Search as a "a well-oiled, professionally run business scam."

Once embarrassed to admit to their fates, ex-clients mounted legal and public relations attacks on NES. Leading the charge was former NES client Stuart Rado of Miami who filed a $5,000 suit against the agency. Since then, Rado has barraged the media, regulators and other clients with information about NES.

In lawsuits against NES and complaints to state regulators, former clients claimed NES charged them an up-front fee amounting to 10 percent of the annual salary they hoped to earn. About all the career-counseling firm and its affiliated employment agency did for them was rewrite their resumes and mail copies to a large number of corporate personnel departments, the complaints allege. Several of the unhappy clients say they never even got an interview, let alone a job, after using NES's services.

A little more than a month after the "60 Minutes" segment, NES suddenly filed for Chapter 7 bankruptcy in U.S. Bankruptcy Court here. The firm's Nov. 18 bankruptcy petition listed assets of $126,000 and liabilities of $402,662.

Shortly after NES filed for bankruptcy, John William Costello Associates, which formerly handled only applicants seeking jobs paying $80,000 or more, began accepting clients seeking lower paying jobs. The staff of John William Costello Associates now includes many of the dozen or so employes who worked for NES, including John William Costello Jr., the founder's son, the regulators say.

Law enforcement authorities are investigating the circumstances leading to the bankruptcy. The U.S. Attorney's office for the District of Columbia, the Federal Bureau of Investigation, U.S. Postal inspectors and the D.C. police consumer fraud unit have investigations under way, according to authorities and to former clients who have been interviewed by those agencies.

Douglas L. Lashley, a Bethesda attorney who represents NES, said the 60-year-old elder Costello recently had a stroke and is now confined to a wheel chair. He says that the company has no specific comments on recent developments, but adds that a number of the allegations made about NES are inaccurate. He noted that the Federal Trade Commission investigated NES in 1969 but dismissed misrepresentation charges against it after two weeks of hearings.

"Because of the bankruptcy, many people who had problems with the firm are left out in the cold," says Reed Brody, an assistant New York State attorney general who says he has investigated numerous complaints against NES.

Brody said his office has taken legal action against several nationwide firms that charge advance fees to job-seekers and last summer sent NES a lengthy subpoena asking the firm to substantiate statements made to prospective clients. New York had not received answers when NES filed for bankruptcy, Brody said.

Maryland's commissioner of labor and industry, Harvey A. Epstein, says, "We've taken steps to close down the Costello office in Baltimore."

New Jersey entered a consent order limiting the firm's operations there and Georgia formally notified the firm it was planning to sue just prior to NES's declaration of bankruptcy.

New Carolina ordered refunds for some of NES's clients. Lashley attributes the demise of NES to North Carolina's publicizing the refund provision in the settlement, which was then given national attention on "60 Minutes."

The District's Office of Consumer Affairs received a rush of complaints about NES after the "60 Minutes" show and has been criticized by authorities in other states. The office has submitted new proposed laws to the city council. Officials at the agency say the reason changes in the law were not proposed earlier was because there were not many complaints.

"There was a dribble of complaints over the years," says the office's general counsel, Matthew J. Green. "But '60 Minutes' opened the floodgates and 67 complaints have been filed since."

Green says that NES was the largest of several Washington career-counseling firms, and voices amazement that clients would do business with NES after reading its written contract.

The NES standard contract promises "to aid the undersigned client in achieving new career goals." Clients also sign a contract with an affiliate called NESINC, which says it will "search to find and develop leads for specific career positions for the client." The NESINC contract states, "there will be no charge for these services."

Green says NES is not regulated as an employment agency because it does not offer to help clients find employment or make job placements, but rather is a career-counseling service. NESINC, the affiliated employment agency, does do placement work, but does not charge for that service. NESINC has been licensed by the District, according to Lashley.

Disgruntled clients in lawsuits and complaints to state and local officials described their experiences with NES and NESINC.

Advertisements for NES in The Washington Post, Wall Street Journal, New York Times, and other newspapers attracted clients with promises such as: "We're going to mount a full-scale program for you, right now!" and "Executives U.S. and overseas $30,000 to $100,000 plus, You are marketable!"

The ads led job-seekers to the local NES office in several cities which allegedly sent applicants to Washington.

As part of its service, NES gave clients a "free" trip to Washington, where applicants met NES executives at the firm's K Street offices to learn if they were qualified to be clients.

State authorities allege that the trip to Washington permitted NES to collect advance fees, which could not be collected in most cities where the ads appeared because state laws forbid it.

The bankruptcy filing shows that in May 1982, a jury awarded former NES client Vinton Freedly of Houston triple damages and legal fees totaling $22,515 in a lawsuit against NES.

Freedly was drawn to NES's Houston office in the mid-1970s by a newspaper ad, said his attorney Maurice Bresnehan, recounting the lawsuit. Bresnehan said his client was put on a plane to Washington, where he told NES officials he wanted to earn $40,000 a year. "They told him he should be looking for $60,000 to $80,000," said Bresnehan, who noted that his client was in his 60s at the time and earning about $15,000 annually.

Freedly paid an advanced fee of $4,500, according to his attorney, and for that the NES group sent his resume to the presidents of the biggest companies in the country. "They really romanced him, and that's what the jury found," says Bresnehan. But NES went bankrupt before Freedly could collect on the verdict, so attorney Bresnehan said Freedly now joins the list of unsecured creditors, with little chance of being paid in full.

"It is amazing to me that a company can escape through bankruptcy," complained Kathleen Power, who was for 10 years director of public relations at Mount Vernon College. Power, who is still looking for a new job, says she paid NES an advanced fee of $3,000 last July and got not one job interview for her money.

Mario Brossi, who was working on Capitol Hill when he paid NES $3,200 to help him seek a new career, explains his decision this way: "When it boils down, they held themselves out to do damned little. But in the tight job market, you tend to give them the benefit of a doubt." Brossi said he eventually found a job on his own and sought to arbitrate his contract dispute with NES before they went bankrupt. (The standard NES contract requires arbitration of disputes.)

Others say that while the written promises by NES were modest, the verbal claims made to them by firm officials were more grandiose. William Johnson of Silver Spring, an unemployed international marketing executive who paid $3,000 to the firm and never even got a single job interview, says, "I didn't clamp down on them because I thought they were making phone calls to corporations for me."

But some NES clients have learned from their experience with the firm, even if it didn't find them a job.

Richard Bolles, author of the bestselling book on job-hunting and career changing, "What Color Is Your Parachute?," went to NES when he was looking for a job before becoming a successful writer. In a telephone interview from his San Francisco office, Bolles described what happened:

"In 1968 I was a clergyman on salary and went to NES's office here. They charged me $800, rewrote my resume and sent out 500. When I complained of not getting any replies, they sent 300 more.

"I never got a single reply, and later I spoke with an administrator at University of California who had been sent one of the resumes. He said that the resume was so miserably written that he couldn't tell what I could do."