An Arlington grand jury yesterday indicted Daniel Stephen Howell, a car dealer, on charges of illegally recording his employes' telephone conversations.

Howell, 30, president of Brown Arlington Honda, was charged with four counts of intercepting wire communications and one count of possessing equipment designed for surreptitious wiretapping. Deputy Arlington Commonwealth's Attorney Kenneth E. Melson said each charge is a felony under Virginia law, and carries a maximum sentence of five years in prison and a $1,000 fine.

Howell, 30, said yesterday: "I'm innocent. I didn't do it. It's perfectly legal to record your own telephone conversations and that's all I did."

Arlington police searched the dealership, located in the 3900 block of Lee Highway, on Dec. 15 after an FBI agent told them two of the dealership's employes had complained about recordings, according to court papers. The search yielded 10 cassette tapes, a telephone amplifier, a Sony recording system and some electronic listening devices, the papers said.

The FBI agent told Arlington detectives that the employes told him they were surprised to hear their own voices and the voices of other employes on recordings that they believed were private conversations or those between salespersons and prospective customers, an affidavit for a search warrant said.

Asked about the employes' accusations, Howell said: "That's what the courts are for, to decide. I never recorded them the employes . . . . I never taped anyone else's conversations but my own."

Howell said he had the recording devices to help him verify and keep track of business transactions, especially those involving the recitation of lengthy car serial numbers. The telephone amplifier, often known as a "squawk box," was used for conference calls, Howell said.

"Believe it or not, it's pretty standard business practice," he said. "You can go out to any one of 10 retail stores in Arlington County and buy a telephone amplifier of your own and then they tell me it's a felony and I don't understand how that can be."