WATERGATE REFORM legislation is getting a second look since two New York disco owners touched off a federal investigation with allegations that White House Chief of Staff Hamilton Jordan snorted cocaine last year. But some say the case is giving the law a bad name.

The legislation is the 1978 Ethics in Government Act. It requires that the Justice Department conduct an investigation when a charge is made against a high government official. If the attorney general can't determine that the charge is frivolous after 90 days, he must go to a special three-judge panel and ask that a special prosecutor take over the case.

The critics -- principally the Justice Department -- did not waste any time before charging that the Jordan case shows that the legislators, in their rush to atone for past mistakes, have deprived the Justice Department of its normal prosecutorial discretion.

The Justice Department protests that in the Jordan case the law has automatically triggered an FBI investigation into a puny drug violation that they ordinarily would ignore or turn over to local authorities.

And, consider Jordan's accusers, two owners of the ultra-chic Studio 54 who are under indictment for tax evasion. They let loose with their allegation during a plea-bargain session with federal prosecutors. Mitchell Rogovin of Washington, a lawyer for one of the Studio 54 owners, says he has evidence to support the charge but won't turn it over to anybody other than a special prosecutor. Also, attorneys for both men said they won't allow their clients to be questioned by the FBI unless the tax case is settled, and until then, they won't even cooperate with a special prosecutor.

There are complaints that the law is being abused and they seem well founded. The defendants and their lawyers have succeeded, for now, in shifting the spotlight to Jordan and away from themselves. And it appears that the lawyers are trying to force Attorney General Benjamin R. Civiletti to appoint a special prosecutor.

It should be no surprise to the Justice Department, however, that clever lawyers have figured out an apparent way to use the act to their clients' advantage. But the motivations of Jordan's accusers and the insignificance of their allegation are not enough to condemn the law.

Experience should be support enough for the act's basic promise: The Justice Department may have a hard time investigating its bosses in the executive branch of government. And no matter how high the degree of integrity, the public would still object to the appearance of conflict of interest.

"There are cases that the department thinks it can handle perfectly well and the public would just not agree," said one Senate source.

The drafters of the law had a simple purpose, said Sam Dash, former chief counsel to the Senate Watergate Committee. They wanted a means to deal with those occasions when "good people . . . are confronted with having to investigate their buddies and friends."

There were moves to limit the special prosecutor provisions of the act to allegations that involved abuse of power, such as bribery or other violations in connection with an official's public duty. That's how the Justice Department would have preferred it. But, eventually, Congress agreed to broaden the legislation to include any federal charge other than a "petty offense." Alleged use of cocaine is not considered petty under the law.

Dash argues that "some Watergate crimes were small crimes" and that there are good reasons for an independent look at what could turn out to be "the tip of the iceberg." And, if the basic conflict of interest argument behind the act stands up, it would apply not only to abuse of power but to any federal offense -- felony or misdemeanor -- involving high government officials.

The act could be narrowed to eliminate the Jordan type case. But it would seem that a determined accuser could make a charge fit the statute no matter how the law was limited.

The Justice Department protests that the law is so broad that crank letters can set off the initial investigative process. The fact is that since it became law the attorney general has invoked the act fewer than a half dozen times, and aside from the Jordan matter, only one of these investigations has become public.That inquiry concerned an allegation of possible campaign fund solicitation in the White House last year and was judged "unsubstantiated" by the attorney general. Presumably most of the complaints that come through the Justice Department are candidates for the trash can.

And it remains to be seen whether the act will be used as a weapon to disrupt political campaigns. But, such dire predictions are premature.

"When you get right down to it, it's a pretty damn serious thing to come to the Department of Justice and make a serious allegation about a public official," said Larry A. Hammond, deputy assistant attorney general in the department's office of legal counsel.

"I would think we should live with it," Dash said of the new law.

There are some who say that the existance of the law may work to Jordan's advantage. It was no accident that the allegation against him became public, even though the law calls for secrecy. But at least the act provides that it will be disposed of - one way or another - within 90 days by the attorney general.

Jordan, whose lawyers include former Watergate special prosecutor Henry S. Ruth Jr., will have to bear with the headlines, but he has done that before.

The real trouble is that bad cases, like the alleged snort of cocaine at Studio 54, can make the ethics law look foolish. There are reasons for making the law broad, and there are risks that go along with that decision.

Daniel M. Clements, an assistant U.S. attorney in Baltimore who supervised corruption investigations involving the General Services Administration , will join Washington's. Arent, Fox, Kintner, Plotkin & Kahn on Oct. 1 ... John T. Kotelly, a special trial attorney at the Justice Department who participated in fraud prosecutions involving Rep. Charles C. Diggs Jr. (D-Mich.) and Korean businessman Hancho Kim, will take over as deputy chief of the fraud division at the U.S. attorney's office here on Sept. 4 ... Allan M. Fox, chief of staff for Sen. Jacob K. Javits (R-N.Y.) will begin private law practice with Leighton, Conklin and Lemov on Sept. 15 ... Stanley D. Abrams, who was Montgomery County's zoning hearing examiner and part-time city attorney in Gaithersburg, recently joined Levitan, Ezrin,Cramer, West & Weinstein in Chevy Chase.