Virginia Attorney General Mary Sue Terry appointed Fairfax Commonwealth's Attorney Robert F. Horan Jr. yesterday to prosecute Democratic state Sen. Peter K. Babalas on charges of violating the state's conflict-of-interest law.

Babalas, 63, the fourth-ranking member of the 40-member Senate, is accused of improperly voting on interest rate legislation while receiving money from Landbank Equity Corp., a now-bankrupt second-mortgage firm.

Babalas, who has asserted that he is innocent and expressed confidence he will be cleared in court, declined to comment yesterday. Under state law, Babalas cannot be tried until after the completion of the current General Assembly session, which is scheduled to end March 8.

His court date has been set tentatively for May 20 in Richmond.

Babalas, if convicted, faces a year in prison and a fine of $1,000 on each count against him.

Terry, making the first major public decision since being sworn in on Saturday, said she chose fellow Democrat Horan because he "is one of the finest prosecutors in the state. He has tried dozens of white-collar cases and I know he will see that justice is done."

Terry said her office will provide technical and logistical support for Horan but that "he will function as an independent special prosecutor."

Last year Horan served as a court-appointed special prosecutor in an Alexandria grand jury investigation involving Public Safety Director Charles T. Strobel, who had been accused of prematurely terminating a drug investigation there.

A special grand jury determined that there was "no basis" for the allegations and ended the inquiry.