The Virginia state attorney general today said that Sen. Willard J. Moody of Portsmouth, one of the General Assembly's senior Democrats, violated the state conflict-of-interest law by failing to fully disclose his interest in a car dealership that sold vehicles to state and local governments.

Attorney General Gerald L. Baliles said that he would not prosecute Moody, however, because an investigation had "failed to produce sufficient information" that the legislator intended to break the law. Moody, a member of the legislature since 1955, chairs the Senate Rules Committee that appoints the Senate's ethics commission.

The language of Baliles' letter on Moody was much stronger than a second one released at the same time accusing Sen. Elliot S. Schewel (D-Lynchburg) of violating the conflict-of-interest statute but saying there is "no evidence" that the senator wilfully broke the law.

Moody, 58, a lawyer and businessman, called a news conference hours before Baliles intended to release a letter on the investigation. The senator said the letter "substantiated what I said from the beginning," and that he simply had not understood the disclosure requirements of the conflict of interest law.

"I had no more participation in the management of this company than if it had been General Motors," said Moody, who owned 50 percent of the Sun Motor Co., a now-defunct Portsmouth dealership that sold General Motors and Subaru vehicles. "This law is a trap for the unwary."

Moody also criticized newspapers, one of which, The Virginian-Pilot of Norfolk, had published the story that led to Baliles' investigation.

"Some of the print media unduly took advantage of the circumstances in playing up the failure on my part to technically comply with the law by the printing of misleading headlines and news stories," Moody charged.

Moody is no stranger to conflict-of-interest accusations. In 1977 he introduced a bill that effectively would have overturned a Virginia Supreme Court decision against one of his law firm's clients. In 1979 he actively opposed a bill that also was opposed by a transportation union whose members paid his law firm hundreds of thousands of dollars in fees each year.

A Senate panel cleared Moody last year of any conflict charges in those incidents.

Sun Motor, a Portsmouth car and truck dealership, sold vehicles to almost every local government in the Tidewater area and to the state government.

Moody said today that he does not recall the dollar amounts involved, but an official close to the attorney general's investigation said Sun Motor had sold more than $500,000 worth of vehicles to governments in the past six years.

State law permits Moody's business to conduct such sales, but requires him to notify each agency of his involvement with the company and his state position. Moody said he was unaware of that requirement until last January, and Baliles said he could not find sufficient information to contradict that statement.

"Under the act, a conviction may be obtained only where it is proven beyond a reasonable doubt that a willful violation occurred," Baliles wrote to Moody. "Accordingly . . . it was the conclusion of the Criminal Law Enforcement Division that there is not sufficient cause to proceed to seek indictments."

Schewel, 58, a member of the Senate since 1976, had asked Baliles to investigate him after saying that he, too, inadvertently may have broken the law when his Schewel Furniture Co. did business with the city of Lynchburg and the Lynchburg Training School, a state agency.

Baliles said that Schewel, like Moody, technically had violated the law by failing to disclose his position to those agencies, but Baliles added: "I am of the opinion that there is no evidence that Senator Schewel willfully violated any provisions of the Act . . . . "

Legislation that would tighten the disclosure requirements has passed the state Senate and is pending before a House of Delegates committee.