In 1976 officials at St. Elizabeths Hospital determined that one of their mental patients. Linwood Gray, was well enough to be released to continue his schooling and to "convalesce" at home.

"He has made an excellent adjustment," hospital officials wrote the U.S. District Court here. "It is our opinion that he has now recovered his sanity and will not be dangerous to himself or to others within the forseeable future." A federal judge concurred and let Gray go back on the streets on Feb. 12, 1976.

A year and a half later a federal and local law enforcement task force, determined to go after entire narcotics organizations rather than just street dealers, began discreetly asking about town for the name of the top drug dealer. The answer that kept coming back from informants throughout the city, was Linwood Gray, law enforcement sources now allege.

Those tips, in the fall of 1977, led to an extensive 15-month investigation that culminated Tuesday with the arrest of Gray and 10 others here. Prosecutors are now alleging that Gray masterminded the largest heroin smuggling ring ever discovered here, one that in the last 2 1/2 years brought at least 100 pounds of high grade heroin, worth about $30 million, to the streets of Washington. Prosecutors have also linked the alleged ring to at least two murders.

At first the law enforcement task force investigating Gray knew little about either Gray or the alleged ring other than Gray's numerous arrests on robbery charges in the 1960s, Gray's murky psychiatric history, and his legendary reputation in Southeast Washington for physical strength and violence.

The task force, consisting of a federal prosecutor, Drug Enforcement Administration agents, and metropolitan policemen, began tracking suspects connected to the ring in travels across the globe, and over the ensuing months, the same names and aliases began to appear, sources said.

By pulling hotel records in Amsterdam, checking airport arrivals and departures there and in Copenhagen, by examing airline reservations and passport applications, sources said task force members put together an alleged Gray heroin pipeline that extened from the opium fields of Southeast Asia to Washington.

Their contacts included a number of agents in long-established drug rings that brought the narcotics to Amsterdam, where Gray's couriers picked them up for delivery in Washington, often through Canda and Chicago and other major American cities, the sources said.

Instrumental to the success of this probe, sources here say, was the cooperation of authorities in Holland, Denmark, Germany, Turkey and Canada. Dutch police proved particularly helpful because of detailed records they keep of hotel visits and airport arrivals ad departures, information not dept by authorities in this country because of considerations of privacy.

One of the key breaks in the case, sources said, occurred when travelers at Amsterdam's Schipol airport repeatedly turned in cartons of Marlboro cigarettes that apparently and been abandoned in trash cans at the airport waiting areas.

Task force members said they eventually determined that most of the heroin allegedly brought home came through that airport in heroin-stuffed Marlboro cigarette packs, which were substituted for real cigarette packs just before boarding flights for the United States.

Gray allegedly established his operation through the force of his personality, and in part by buying out or taking over operatives of Earl Anthony Garner, and Warren Christopher Robinson, local drug dealers who were jailed in 1975 and 1976, respectively, according to informed sources.

Authorities have said they assume the shooting and wounding last month of Assistant U.S. Attorney Barry M. Leibowitz, who was leading the frug task force investigation, was linked to the alleged ring.

Law enforcement sources have indicated they are seeking to determine whether the murders of Ernest Minder, who was found shot to death in his white Cadillac in Southeast last October, and of Greta Terry-Sorrell, who was shot to death in her apartment in Capitol Heights in January 1977, are tied to the alleged ring. Minder was an associate of Garner's and an alleged operative in the alleged Gray ring, according to informed sources. Sorrell on several occasions brought drugs back from Europe for Gray, according to a gevernment affidavit filed with arrest warrants.

Sorrell's husband, Joseph W. Sorrell, was shot and seriously wounded at the same time his wife was killed. He is now cooperating with government investigators, according to an affadavit filed with the warrant for the arrest of Gray and oters.

Gray's attorney, Kenneth Michael Robinson, yesterday denied that his client had had anything to do with drugs, and said that "there is not one shred of evidence" to link Gray to the shooting of Leibowitz, or other murders.

Robinson charged that the government is trying "to set up" his client through criminal informants who are providing false information in return for government promises of leniency.

Gary "is not capable of masterminding such a thing (the drug smuggling ring)" Robinson said yesterday. "He's still suffering psychiatric problems." Robinson said his client recently expericnced such headaches that he was hospitalized but that doctors determined his ailment was psychiatric rather than physical.

Gary, 34, was charged with a number of crimes in the 1960s, including bank robbery, carrying a cangerous weapon, and assault. In some of these trials he was found not guilty by reason of insanity, and at others he was declared to be sane. At some of his trials psychiatrists retained by the government and by the defense offered opposite views on Gary's sanity at the time he allegedly committed crimes.

In 1968 he was committed to St. Elizabeths Hospital, where he stayed for six years. At the time of his release, other prison sentences, including a 20-year term in Maryland for robbery, had expired because they were run concurrently to the incarceration at St. Elizabeths.

Shortly after he was admitted to the mental hospital, Gray wrote a friend that he was faking mental illness, and a psychiatrist, who agreed, tried to get him released, but a federal judge ordered Gray held there.

Whatever his psychiatric condition, Gray's reputation in Southeast Washington was uncontested.

"Linwood weighed 200 pounds by the time he was 14 and he would knock you out with one punch," recalled one policeman who watched Gray as he grew up in Southeast Washington.

He weighed 250 by the time he was in his late teens, and anywhere from seven to 10 officers would be called to the scene when an arrest was needed, which helped build his toughguy reputation on the street, the policeman explained.

This policeman, who is black, said that anyone smart enough to plan bank robberies, with lookouts, and getaway routes, as Gray allegedly did, was not crazy.

"You get these white liberals in court saying, 'Oh, he says he's Frank Nitti (an Al Capone mobster), he must be a little off', and they send him to St. E's," the officer said. At trials and at St. Elizabeth's Gray said he heard voices telling him he was Al Capone, and later that he was head of the Mafia.

Prosecutors familiar with the Gray case refer to his commitment to St. Eliazabeths as a mockery of justice. They allege that they have numerous reports of Gray's involvement in criminal activity while at St. Elizabeths, though they have no evidence. They note that two of Gray's alleged lieutenants, Robert L. Stuckey and Joseph F. Wilson, who were both arrested Tuesday, were at St. Elizabeths the same time as Gray. Stuckey was a patient, originally charged with narcotics violations, and Wilson was a hospital attendant.

A St, Elizabeths spokesman said the hospital has no knowledge of any criminal activity conducted by Gray while at the institution.

In a related development at U.S. District Court here yesterday, bond was set at $50,000 each for Barbara Ann Greer, Gray's sister, and Darlene Beverly Fleming, his girlfriend. Both were allegedly operatives in the Gray ring. The other eight arrested all are jailed in lieu of bond.