A Style section story July 18 said the Tokyo-based Policy Study Group was funded by a mix of industries and Japanese government agencies. The Post's information was based on records filed with the U. S. Justice Department. An attorney representing PSG said yesterday that information was inaccurate. He said PSG was funded solely by its members. (Published 7/27/89)

He has boasted that his bodyguards are better than Nixon's. He listed his occupation as "millionaire" when arrested last year for driving under the influence of alcohol. He told a former friend that the Icelandic ambassador's residence behind his Wyoming Avenue place would be his "safe house" if his life were in danger. More recently, he planned to create and moderate a public television talk show to be called "Spence & Friends." Spence & Friends indeed. For a while, it looked as though Craig Joseph Spence -- the international business consultant at the center of Washington's latest scandal -- was trying to befriend all of Washington, freely throwing parties for passing acquaintances who happened to have slightly famous names or potentially good connections. Now, in light of reports that Craig Spence regularly patronized a homosexual prostitution ring that operated out of an upper Northwest house, federal authorities are looking at Spence, including the late-night tours of the White House he arranged for friends, and at his dealings with a uniformed Secret Service officer once stationed at the White House. And Spence is also being talked about in social Washington because the slightly famous names who attended some of his parties are turning up in news accounts about him. But much of Washington is learning only now that when it comes to the 48-year-old Spence, it's difficult to separate fact from exaggeration and innuendo. "I think it's quite clear that perfectly innocent people can be inadvertently used," said Joseph diGenova, a former U.S. attorney and a former Spence guest, "by someone who is leading a double life." The Washington Times -- in a series of articles over the last two weeks -- has reported that Spence is involved in everything from blackmail, bugging and drugs to sexual seduction and male prostitution. There are dozens of Spence stories circulating around town. Most seem to originate from his tight circle of friends. In interviews with many of Spence's associates, it turns out that the most damaging Spence stories came from his own mouth. And one thing nearly everybody who knows him agrees with is this: Craig Spence was given to boastfulness and exaggeration. "Craig is a fascinating and outrageous man," says old friend Ted Koppel, "who has never had any trouble with the truth -- in either direction." One Washington Times headline on June 30 said everything: "Power broker served drugs, sex at parties bugged for blackmail" The problem is that the prominent people named in the Washington Times -- Ted Koppel, Eric Sevareid, Phyllis Schlafly, William Casey, Arnaud de Borchgrave and many others -- attended the other parties. The parties where: People sat around in a perimeter after dinner discussing trade policy, where American policy makers were ushered into circles of foreign visitors to make serious talk; parties to which Koppel would sometimes send a stand-in; parties so dull that even Dossier magazine wouldn't run the photographs. Spence, meanwhile, is nowhere to be found. His lap dog Winston -- from whom he is rarely separated -- is at a town house in Upper Marlboro with a longtime Spence employee. The imposing stone house on Wyoming Avenue in Kalorama, where Spence once lived and entertained, is attracting gawking news hounds. His close friends have been logging hours on the phone, talking about him to each other and to reporters. And many of his slightly famous acquaintances say they feel smeared by association. For them, Spence has become the ultimate hazard of Washington party-going. "I am, of course, appalled," says former diplomat Robert Neumann. When he became ambassador-designate to Saudi Arabia, he agreed to be guest of honor at a Spence party cohosted by former attorney general John Mitchell, although Spence and Neumann were only acquaintances. "That's how Washington works," he said, adding that if he questioned the motives of every party-giver, "I'd never leave my house." Koppel -- a bureau chief for ABC in Hong Kong more than 20 years ago when Spence was an ABC correspondent in Vietnam -- is one of the few who can make light of their association. He declined to speak in depth about Spence because he's planning his own story about him, but said, "Craig is a charming and using and weird person. If I were going to cut off any kind of contact with Craig Spence because of weird behavior, I would have cut it off 22 years ago." Spence understood that peculiarly Washington mix of social and business life. He came to town in 1979 from Tokyo, where he worked as a stringer for ABC radio, and quickly built a social and professional base from a small and important group of contacts. Spence used his association with Koppel, among many others, to his advantage. Spence dropped his name, using it as a draw for his parties, and he impressed his Japanese clients by taking them to ABC to meet him. Spence, a hard-line conservative who once studied drama and speech, was given to theatrics. Sometimes he'd pick up the phone and answer: "This is God. Speak." He showed up at parties with a bodyguard and once pointed to a spot in the room, loudly ordering the guard to stand there. Other times he'd show at parties in a long, red-lined cape. In his more sedate moments, he wore traditional English-cut suits, smoked a pipe and had a driver on call. His library was crowded with photos of himself captured next to slightly famous faces. He dropped names compulsively, running through lists of his important friends, sometimes repeating them over and over. "It was sickening," says Pierre Rinfret, a friend of Spence and an economics consultant in New York. "You'd be with him for an hour and he'd mention Eric Sevareid 10 times." This, friends say, was standard Spence. They agree that in recent years his behavior appears to have become even more eccentric, leaving him isolated from many of those once close to him. The Mystery Man Late one night in January 1988, Craig Spence called a close friend at home. "Come get me," he asked. Spence had been picked up for driving under the influence of alcohol downtown, though the charges were later dropped. Back at the friend's house, Spence appeared distressed. "He was speaking in sort of waves," recalls the friend. Then Spence made an announcement: The evening was not what it seemed. Spence, who often intimated that he worked for the CIA and spoke in spy lingo, said that he had "missed a drop." "Someone's life," he said dramatically, "might have been forfeited." Spence left the room to make a phone call. When he returned he intoned: "My worst fears have been realized." "I asked myself," said the friend, "'Is this more Walter Mitty? Is this more third-rate James Bond?' ... But I'm still not convinced that Craig is not an agent." His small circle of former close friends -- Georgetown University law professor Richard Gordon; former television correspondent Liz Trotta; a slightly eccentric freelance researcher and writer Timothy Dickinson; Yenching Palace restaurant owner Van Lung; plus a number of others who don't want to be named -- debate among themselves the validity of Spence's murky claims that he was a U.S. government agent. One time last year, he told a friend that he was on a top-secret government mission in Central America. But when the friend tried to track him down through a travel agent they shared, the man was surprised to learn that Spence was not in dangerous Honduras where he said he'd be. He was vacationing at a resort in Cancun. "He wanted to play at being important," said W. Scott Thompson, once a Spence friend and a former U.S. Information Agency official. "You're dealing with shadows, a guy who created a persona." Economics consultant Rinfret said Spence tried to create an image of mystery and intrigue to attract international clients. "He did cultivate that image. It was a commercial objective: Saying, 'I'm in,' " Rinfret said. "I really thought he was CIA. He always tended to be a bit mysterious. ... He ran his own intelligence network in the U.S. and Japan. ... He made himself fascinating." "If he's CIA, we're in worse shape than we realize," says former Spence friend Van Lung, who has acted for years as an unofficial liaison to the Communist Chinese government. Van Lung says Spence often broadly hinted that he performed secret government work. Like the tales of espionage, the allegations about bugging were a regular subject of discussion among his friends. And again, they got their information from him. "He was telling people he was bugging them, constantly," says Trotta. "On the telephone, he'd say it when he got angry at you." Lung agrees: "It seemed he said it in a way to intimidate his guests, telling them not to say anything bad about him. ... I never knew when he was joking or serious." One of the more talked about incidents took place at a Spence party last year at the Kalorama house. Trotta, feeling challenged by Spence's claims about the bugging, says she got down on her hands and knees in the living room and found wires and cables all over the room at floor level. She also found metal fasteners that could have been listening devices, she says, clipped to the bottom of a coffee table. A skeptical guest who witnessed this -- who was familiar with the architecture and furnishings -- said that one of the so-called bugs was a button-release on the table and that to his knowledge, there were no bugs. At another party last year, Trotta and Gordon were huddled in a corner most of the evening, discussing their concerns about Spence's behavior and health. Spence confronted them later that night. " 'I heard every word you said,' " Gordon recalls Spence saying. " 'You're conspiring against me. I've got this corner bugged.' " And then he pointed to the ceiling. "There was never a bug hanging over Professor Gordon's head," says the same skeptical guest, who was also at that party. Another person there says that it was so obvious that Gordon and Trotta were gossiping about Spence all night he would not have needed bugs to guess what they were saying. Gordon acknowledged that Spence never recounted anything specific from the conversation. Some believe that Spence may have been up to something with the electronic equipment that friends observed in the house. But Spence's clairvoyance, it seems, was strongest when his bodyguards were present and within earshot of the supposedly bugged conversations. The Spence Mythology It's no small wonder that his closest friends perpetuated The Spence Mythology, since Spence guarded his background. "I didn't know where he was born," said Sevareid, who met Spence in Boston 25 years ago and was in contact with him until about a year ago. "I didn't know anything about his family. I didn't know where he had gone to school." Trotta, one of his closest friends since their days as correspondents in Vietnam, did not know that he graduated from Boston University in 1963 with a degree in communications and broadcasting, after transferring from Syracuse University. Neither are his friends certain whether he has siblings or whether his mother is still living. "It's one of the best-kept secrets in the world," said Prof. Gordon. "My mother, Maria, tried many times to learn about his family. ... We know nothing about Craig." Toni Peabody, the wife of former Massachusetts governor Endicott "Chub" Peabody, who hired Spence as his press assistant in late 1963, says: "He was born in upstate New York, but claimed to be from a very distinguished Boston family. He had the air and graces of an old school tie -- as we used to say -- and more power to him for learning them." One close friend from the Boston days remembers when Spence drove around town on a Vespa motor scooter, paying his tuition with student loans, and listening to folk music in coffeehouses. "He was sensitive about songs and movies," she recalls wistfully. Though they've kept in touch through the years, she says she has been turned off by the name-dropping and Washington power talk. "Someplace there was a nice person," she says, "who disappeared." After working as a press secretary for Massachusetts state Speaker John F.X. Davoren for a couple years, Spence worked at WCBS in New York, and then signed on as a Vietnam correspondent for ABC in 1969-70. "He was a mystery man," remembers colleague Jim Kincaid, now an anchor of WVEC-TV in Norfolk. "Craig always looked like he had learned something that no one else knew." Trotta recalls that Spence pulled disappearing acts in Vietnam -- sometimes for weeks at a time -- leading people to think he was killed. Then he'd turn up, refusing to say where he'd been. At the U.S. Army's daily press briefings, called "The Five O'Clock Follies," Spence was a provocateur who disrupted the preceedings with ironic questions. "The Five O'Clock Follies were kind of theater to him," Trotta says. "He'd take on the big majors and incurred their wrath." Colleagues from that period also recall that he had to leave Vietnam after losing his press credentials because he had exchanged his paycheck on the black market -- a fairly common practice, but still risky. Through most of the '70s, Spence lived in Tokyo, where he worked as a radio network stringer, and made the contacts that have sustained him since. The Peabodys were living in Washington when Spence moved here. "He was a big-time mover -- a big house, limousine, a driver, and entertaining all the big nobs in town," says Endicott Peabody. "I remember looking forward to seeing him," says Toni Peabody, "but when he arrived, he was a totally different person." They recall having dinner with him once. They never went to his house. The Asian Connection Once Spence hit Washington, he quickly acquired a reputation as a legitimate Japanese business liaison and an impressive host. He used big names to draw his guests. "Sevareid was the star attraction at what amounts to the coming-out party of a new Washington host who has already been generating lots of talk," wrote columnist Maxine Cheshire in The Washington Post in 1980. "Not since Ethel Kennedy used to give her famous Hickory Hill seminars for great minds of our times during the days of Camelot has anyone staged seminars successfully on a continuing social basis in Washington." For a 1982 New York Times article headlined "Have Names, Will Open Right Doors," Spence listed his friends: Richard Nixon, John Mitchell, Sen. John Glenn and Peter Ustinov. Reporter Phil Gailey wrote that "what most impresses, if not benefits his clients, is his ability to master the social and political chemistry of this city, to make and use important connections and to bring together policy makers, power brokers and opinion shapers at parties and seminars." Spence was the U.S. representative of the Policy Study Group, a Tokyo-based nonprofit organization, the basis for his social world. PSG was funded by a mix of industries and Japanese government agencies -- including the important Ministry of International Trade and Investment (MITI), and its goal was to promote Japanese business interests by bringing Japanese businessmen together with influential Americans. Among the lecturers or seminar participants were Sevareid; Glenn; former senator Richard Stone (D-Fla.); Richard Holbrooke, then assistant secretary of state for Asian affairs; Philip Geyelin, former Washington Post editorial page editor; and Richard Davies, former ambassador to Poland; as well as those he met while briefly hosting a WRC radio talk show. Plenty of the seminar's participants began to turn up at Spence's dinner parties. Contingents of Japanese would be there too. "Craig had pulled in a bunch of us, to show Japanese friends that he had connections," said former Lt. Gen. Daniel O. Graham, former director of the Defense Intelligence Agency who went on an expense-paid working trip to Japan for PSG. "It was always a bit artificial. {Spence would say} 'Now you come over and join this group and talk to them.' " Spence was paid $10,000 to $12,000 a month by PSG for his services, according to court records. In an unusual deal -- which later soured -- Spence also persuaded Motoo Shiina, PSG's president and a powerful member of Japan's ruling Liberal Democratic Party, to dip into his personal savings and lend Spence $345,000 to buy the house on Wyoming Avenue as PSG's headquarters. Spence would live there too. The house was chosen, Spence explained in court records, because he and Shiina wanted a place "where the activities of PSG could be conducted in a sophisticated fashion and in a manner which would reflect an appearance of success and well being." His relationship with Shiina ended in 1983, when Shiina wrote to Spence, saying that PSG had become "a personal burden to me." "I have also found out that having a representative in a foreign Capital is not considered as commendable, but rather dubious behavior." Shiina's tone became more bitter a year later. He filed suit against Spence in federal court here, hoping to force the sale of the Wyoming Avenue house and to recover the purchase price. In a recent interview, Shiina's Tokyo attorney, Chikahiko Soda, said Shiina took the action in part because he'd concluded that Spence was carrying out "his own individual business" from the house. Shiina has said he stayed at the house two times while in Washington. But at some point, Shiina said in court papers, "I was advised that staying at the house while Spence was there could be damaging to my reputation and I therefore did not use the house again." He did not elaborate. Spence later countersued. Both suits were settled out of court. And under the agreement, Spence retained the house, repaid the loan and was able to pocket the profits last year after the place was sold for $900,000, according to a real estate agent familiar with the deal. The Washington Times reported that Spence had boasted to friends that he won the suit by blackmailing Shiina through threats to expose supposed irregularities in Shiina's transfer of Japanese cash here to buy the house. In a recent interview with The Washington Post, Shiina denied through his attorney that he was blackmailed and that there were any irregularities in connection with the deal. Whatever Spence might have boasted, it's not clear whether there was any blackmail. The information that the house was bought with cash -- a fact Spence thought was potentially politically embarrassing to Shiina because of Japanese currency restrictions -- was already in public court files. Not only did Shiina break with Spence but so, too, did some Washington journalists whom Spence had hired to write reports on American officials. Among them was veteran White House reporter Sarah McClendon, who said she "cut off" her dealings with Spence when she discovered her reports were not for a Japanese publication as she had believed but for Spence's Japanese clients. "I could not forget Pearl Harbor," McClendon wrote in a 1982 letter on record with Spence's Justice Department filing as a lobbyist for a foreign government. McClendon said recently in an interview: "I got disgusted by it." Meanwhile, Spence maintained strong contacts with some Japanese officials. Spence bragged to friends and reporters about what he called a close relationship with then-Prime Minister Yasuhiro Nakasone and the advice he gave him on dealing with U.S. leaders. "I told the prime minister that Nixon doesn't care for small talk but Reagan likes to chat about his old movies," he told the Wall Street Journal in August 1985. "I also advised Nakasone to stick close to Reagan and mug for the cameras." Spence continued to exist off his Asian expertise. In 1985, his foreign registry filing shows he had a $42,000 contract to advise the Japan External Trade Organization (JETRO), a Japanese government agency that lobbies here on behalf of Japanese industry. Another regular source of money has been Becton-Dickinson & Co., a New Jersey-based health care company with a plant in Japan, which paid him $50,000 a year in the early 1980s, and $250,000 a year now according to a company spokesman. As recently as December 1988 he was arranging meetings between American businessmen and Japanese and Korean politicians. "There was nothing sinister about the work," said an associate who helped Spence research issues and write reports for Japanese clients. "It was very small beer." During this same period, Spence also attempted to develop contacts with the Chinese government. He hosted a party for James Lilley, shortly before Lilley became ambassador to China. And Van Lung said that Spence continually pressed him for introductions to high-ranking Chinese Embassy staffers. "I reluctantly agreed," said Lung, who brought a number of top counselors and ministers to Spence gatherings. Among them were Chinese Col. He Ping and his wife. She is the daughter of Deng Xiaoping and he is a top Chinese arms dealer. "Spence urged me, made a special request, to get them to attend," Lung recalled. Timothy Dickinson recalled seeing He Ping -- who has been criticized back home for his enthusiastic embrace of the capitalist life style -- at several Spence parties. "He was clearly enjoying himself," Dickinson said. The Decline After not returning Richard Gordon's phone calls for several months, Spence arrived the night of Nov. 11, 1988, banging at his door. He looked horrible, says Gordon. " 'I'm terribly, terribly disturbed,' " Gordon remembers Spence saying. " 'John Mitchell died last night.' " Gordon agreed to accompany him to the funeral the next day at St. Alban's Episcopal Church. The Spence entourage had two limousines, six bodyguards, walkie-talkies. Everybody had code names like "Hawk" and "Thunderbolt." "It seemed like cops and robbers to me," Gordon says. Spence wanted to give Gordon a code name too. "I said, 'For godsakes.' " Later, Spence bragged to Gordon that his security men were more efficient than Nixon's. They got Spence out first. Former friends agree that in the last year Spence's emotional state seemed to worsen. "You were led to believe a conspiracy was going on," Dickinson says. "He alarmed his friends." There were many disturbing scenes. "He became increasingly autocratic, increasingly self-important," says Richard Gordon. "He also became increasingly paranoid, to my observation." Business deals were also falling apart -- including a proposal for a film on Korea, and his "Spence & Friends" television series. Last year his friends received an announcement: " 'I've just received the most appalling information I've received in my life,' " Gordon quotes Spence as saying. " 'I have a son. Who's alive.' " Gordon and other friends say they had never heard of the marriage. Spence later told others he had a wife in Germany named Brunhilde. They were summoned to the house to meet the teenager, who, Gordon says he was told, was raised in Atlanta by Spence siblings. Spence called him Will. "It was a command performance," says Gordon. And when they showed up and tried to talk to the youth, Spence interrupted -- once clasping his hand over Will's mouth to keep him from speaking. Says Gordon, "There the boy sat, silent as a tomb." The number of bodyguards seemed to increase as Spence's mental state declined, acquaintances said. Years ago, they were clean-cut college guys who also tended bar, parked cars and drove Spence around. Spence later started hiring Army men and Marines, especially large, well-built ones. "It got very strange the last year or two," says Trotta. "These kids were multiplying like mushrooms." Some of his security men were now wearing tiny lapel buttons, coiled plastic earphone cords, and were muttering into their cuffs, just like the Secret Service. Trotta says, "It had a Peter Sellers quality to it." The White House tours were a part of that mystique. "He said he knew a high-ranking White House official" who could arrange the tours, said one person who went on one. In reality, it appears that the groups were let in the door by Reginald deGueldre, a uniformed Secret Service officer, who has acknowledged receiving an expensive Rolex watch from Spence. At around the same time, unbeknownst to his friends or acquaintances in powerful places, Spence apparently was frequenting the male prostitution service run out of the house on 34th Place NW, according to people who helped run the service and law enforcement officials. One by one, Spence stopped seeing most of his friends -- some of whom had benefited from his largess, through trips, gifts and money -- and denounced them to other people. Of those he didn't attack, many deserted him. "People were leaving him," Trotta says. "They were afraid of him." She says he called her a month and a half ago. " 'I don't need you,' " she remembers him saying. " 'I have new friends.' " He spoke about making a grand and final gesture. To others he mentioned Aug. 15 as some kind of departure date. "He said he was checking out," Trotta says. "He made constant references to death." He played a recording of Mahler's Fifth Symphony and said he wanted it at his funeral. Gordon says Spence told him some time ago, " 'I may be disappearing soon. It will be sudden. It may appear to be a suicide, but it won't be. I may have become a hostage. Don't believe everything you hear concerning my death.' " One of Spence's last forays in public came in late May, when he took David Hackworth and Julie Sherman to dinner. Hackworth and Sherman are coauthors of "About Face: The Odyssey of an American Warrior," a Vietnam memoir of Hackworth. They met in Vietnam, where Hackworth was a maverick, highly decorated Army colonel who became famous for his criticism of American conduct of the war. Hackworth and Sherman say the night started at Spence's posh upper Massachusetts Avenue apartment. At one point Spence snapped his fingers summoning a bodyguard to produce scrapbooks heavy with party pictures. At another, he had his Maltese, Winston, demonstrate how he'd learned to sit motionless in a bag, so Spence could take the dog on airplanes. Spence brought them -- the authors, Marvin the bodyguard, and Winston -- to the Park Hyatt for dinner. A woman at the concierge's desk, who seemed to expect them, pulled out a Polaroid camera and asked Hackworth to pose with Spence. During the extravagant dinner, Hackworth and Sherman say, Spence hinted he was recording the conversation with a pen in his shirt pocket. He bragged about his connections, mentioning Ted Koppel many times. The three talked of Vietnam. Spence talked endlessly about his parties. " 'I've had enough of this life,' " Sherman remembers Spence saying. "He said to us a million times, 'I'm going to disappear.' ... And he'd lower his voice and repeat it over and over." Later, he kept offering to throw Hackworth a party. " 'A big party with real people,' " he said. Hackworth and Sherman turned him down. "We knew," says Sherman, "that nothing would come for free."