The Southland Corp., a Dallas-based firm that owns the 7-Eleven chain of convenience stores, paid and received more than $2.4 million in possibly illegal "kickbacks" on the sale of dairy products between 1975 and 1977, according to an internal SEC investigative report.

The report also found that the SEC's enforcement chief, John Fedders, then an attorney advising Southland, knew about the "kickbacks" but recommended that the company not disclose them to the federal agency.

The report concludes that Fedders did not violate any laws in his representation of Southland, but raises questions about his role in the preparation of the corporation's internal investigation into the ethics of the payments.

The SEC internal report, a copy of which was obtained by The Washington Post, also states it is a "close call" whether Southland violated federal securities laws by failing to report the dairy payments or a $96,500 payment it made to a former New York City councilman. Federal prosecutors have since charged that the payment to the councilman was part of a conspiracy to bribe New York state tax officials.

Nonetheless, the report recommends that the SEC not sue the company because so much time has passed since the payments were made and because it is not clear whether the payments materially affected the company

SEC Chairman John Shad yesterday refused to comment on the report and praised Fedders "as a truly outstanding director of enforcement." He also noted that the commission has unanimously adopted the report's recommendation not to file charges against Southland.

Peter Bleakley, a lawyer with the firm of Arnold & Porter, which represents Southland, said yesterday that the company had voluntarily discontinued the dairy payments in 1978 and had not violated any laws. He said that payments of the sort Southland made were "rampant in the industry" at the time, and sharply criticized the report's author, Michael Wolensky, for describing them as "kickbacks." Wolensky, administrator of the SEC's Atlanta office, was chosen to conduct the probe because he does not work directly with Fedders.

"Mr. Wolensky was trying to do a hatchet job," Bleakley said. "He calls them kickbacks to make them sound more sinister."

According to the SEC report, Southland had engaged in a longstanding practice, common in the industry, of paying discounts -- which Wolensky termed kickbacks -- to customers of its dairy products. In addition, the company also received such payments, which the report notes were illegal in several states at the time because the resulting price charged was below the posted minimum allowed by state laws.

The review that Fedders helped prepare found that between Jan. 1, 1975, and November 1977, Southland made $1.8 million in questionable payments and received another $636,013. Moreover, the report adds, "significant amounts of the illegal discounts were paid, with senior management's knowledge, by anonymous cashiers' checks issued at a Salt Lake City, Utah, bank in an attempt to conceal their origin."

"His Fedder's view based upon the facts as he knew them at the time was that they the dairy payments were not material and did not need to be reported," said James Rocap, Fedders' lawyer. "John Fedders has been cleared and exonerated by the commission -- no ifs, ands or buts about it."

The internal SEC probe grew out of a grand jury investigation of the company. As a result of that investigation, the company was convicted last June on criminal conspiracy charges in connection with a $96,500 payment to Eugene Mastropieri, a former New York City councilman.

Fedders, previously a lawyer with Arnold & Porter, was asked by Southland in 1976 to help it conduct an internal review into questionable payments made by the company. The ethics review report did not mention the Mastropieri payment to the company's board of directors, although its existence was known to Fedders and other company officials.

Fedders' role in the inquiry was the subject of congressional hearings last year and prompted the SEC to order its own investigation into the Southland case.

The report by Wolensky notes there is conflicting testimony as to what Fedders was told about the payment and that it is "difficult to conclude that he was knowingly part of a 'cover up' scheme or that his individual conduct was negligent."

But the report also states: "While revelations of the facts he Fedders knew to the Southland Audit Committee and a more probing inquiry on his part were warranted, he viewed his role as the outsider providing guidance to the Legal Department."