Maryland state Sen. Clarence M. Mitchell III (D-Baltimore) is under investigation by a federal grand jury in Baltimore for possible influence peddling, according to a report in yesterday's Baltimore Sun. The investigation has centered on Mitchell's dealings with a firm controlled by convicted Baltimore drug trafficker Melvin D. (Little Melvin) Williams, according to the report.

The U.S. attorney's office in Baltimore would not comment on the report.

The newspaper, quoting unidentified law enforcement sources, said investigators are also examining Mitchell's role in the appointment by a city housing agency of a Baltimore company to develop a housing project called LaFayette Village.

The Sun said Mitchell in May told a federal grand jury investigating Williams, who is serving 34 years on a federal narcotics conviction, that he received $5,000 from Williams' company for consulting work. The work was in connection with Williams' unsuccessful bid to get a $1.7 million loan from a Baltimore housing agency to renovate an apartment building, the Sun said.

But the paper quoted law enforcement authorities as saying that documents seized from Williams suggested that Mitchell, who is a real estate broker and consultant, received between $50,000 and $80,000 as an initial payment for his services and would have received $100,000 had the city loan been approved.

The Sun said that investigators are examining Mitchell's relationship with another Baltimore firm, unrelated to the one controlled by Williams, that was appointed the developer of a city housing project after Mitchell recommended them to housing agency officials.

Mitchell refused to discuss the case with the Sun and could not be reached for comment yesterday. However, his attorney, Abbe D. Lowell, issued a statement saying that Mitchell had done nothing wrong. "Anyone investigating impartially will have to conclude that Sen. Mitchell has done nothing worth probing," he said.

Lowell said that "because of his profile, Sen. Mitchell has been the subject of rumors and attacks before, very often by people with questionable motives. Neither Clarence's supporters nor I would be surprised to learn that he again is the subject of rumors and gossip."