The short-lived Maryland State Games, now the subject of a criminal investigation, began running into trouble when it ran out of friends.

The program took root in Maryland in 1985 as part of a national movement to establish Olympic-style sports festivals on a state level. For five years, the Maryland State Games thrived on special relationships forged by its organizers -- relationships investigators say they find curious and at times questionable.

Program records show that State Games organizers hired or did business with friends and relatives, as well as the friends and relatives of top state officials.

Problems developed for the State Games when its workers and state employees began complaining of cronyism. The complaints spurred a state review that revealed more than $460,000 in expenditures that an audit found questionable.

The auditor's report, in turn, prompted an investigation by the Attorney General's Office and led state officials to disband the program and dismiss its two top administrators.

State officials caution that many of the activities identified as questionable by the state auditor's review are far from criminal. And they say it is unfair to paint all those involved in the State Games with the same brush.

"I'd caution you about finding innuendo in a lot of this," said Paul E. Schurick, press secretary to Gov. William Donald Schaefer. "There was a legitimate and important purpose behind this activity. And the governor supported the original concept. It would not be surprising to find people who share the governor's commitment to those original ideas also helping out."

The goal of Maryland's State Games and similar programs elsewhere was typically twofold, said Thomas Osborne, president of the National Congress of State Games.

"We wanted to give more people in more age groups an opportunity to participate in Olympic-style events. And in this way we hoped to create a kind of feeder system for the U.S. Olympic program," Osborne said.

Organizing statewide games also helped states prove their worthiness in bids for the U.S. Olympic Festival and Olympic trials, events that can be lucrative for the host city. Maryland is one of five finalists to host the U.S. Olympic festival, held in years with no international Olympic Games, in 1993, 1994 or 1995.

In the early 1980s, only a handful of states offered statewide Olympic-style contests. Now 44 host such events, which involve a total of 350,000 athletes, Osborne said.

Initially, Maryland's Games were largely a private, nonprofit effort led by James E. Narron, who spent years as a recreation and parks administrator for the city of Frostburg and for Howard County. He also served on the State Commission on Physical Fitness.

In 1985, the first Maryland State Games were held at the University of Maryland's College Park campus. A largely volunteer effort, the Games had competitions in 12 sports for various age groups, according to a fiscal 1991 marketing plan prepared by Narron.

Court records show that Narron created the Maryland Games Foundation Inc. during that first year to help raise money for the Games.

In 1987, the state's Department of Health and Mental Hygiene took interest in Narron's efforts and hired him to run the project out of the office of Deputy Secretary John M. Staubitz Jr.

State officials called their decision to take over the program an attempt to promote healthy activities that in the long run would reduce state medical expenses, in part by giving young people positive alternatives to drug abuse.

Under the health department's supervision, the 1990 State Games attracted 3,000 participants and included 30 sports. The Games also became largely dependent on state money, receiving annual appropriations from the Health Department and the Department of Economic and Employment Development, the state auditor's review found. The Health Department also gave the private State Games Foundation free office space.

Narron, who remained director of the foundation, also received health department approval to use the foundation to apply for state anti-drug money.

Once in the foundation's hands, the anti-drug money could be spent without regard to state spending regulations. The state auditor's review of foundation expenditures between Dec. 5, 1988, and Sept. 12, 1990, noted some of the results: The foundation rented two condominiums in Ocean City, Md., to promote the State Games and purchased everything from T-shirts to glow-in-the-dark novelties to sell or give away to the public. Auditors could not find accurate records of the transactions.

Narron hired a brother-in-law, and did business with his brother. The foundation donated $25,000 to a local fencing academy that employed Narron's wife. He used his Frostburg connections to arrange a tentative deal to hold future State Games at Frostburg State University, from which he graduated in 1978.

Meanwhile, relatives of Narron's Health Department boss, Staubitz, received airline tickets valued at $2,490 as a reward for volunteer service. A Staubitz niece received a $3,000 scholarship. And the foundation bought three automobiles through Staubitz's father, a salesman at a Howard County automobile dealership.

Several State Games workers were longtime friends of Staubitz's, and records show he approved many of the questionable expenditures. And it was Staubitz who helped Narron's foundation borrow $125,000 from a bank. The loan has not been repaid, the audit showed.

The Games also had many connections to high-ranking state officials. The son of former state senator Harry McGuirk, now a senior aide to Schaefer, worked for the Games.

And it was not unusual for some of the governor's friends to be called upon to help the sports project. Tucky Ramsay, the wife of the federal judge who introduced Schaefer during the governor's inauguration last week, remembers being asked to help organize an international table tennis tournament in Baltimore last year that was sponsored in part by the State Games.

Ramsay, who owns a company called Presenting Baltimore!, enlisted the help of Leslie Marqua "to do the opening ceremonies." Marqua is the wife of Michael Marqua, director of the Maryland Sports Promotion program, a division of the Department of Economic and Employment Development. Leslie Marqua had helped organize parades in Baltimore, Ramsay said.

Tournament organizers, who received a $30,000 loan from the state, eventually paid Ramsay's company more than $20,000, Ramsay said.

The auditor's review prompted state officials to secure a court order taking control of the foundation away from Narron. And Narron and Staubitz were dismissed from the health department in December. Neither could not be reached for comment this week.

Narron previously has defended his hiring practices, saying everyone he employed was qualified.

The governor has not decided whether to continue the Games, but he is pressing ahead with the effort to attract the U.S. Olympic Festival to the state by 1995.

William Howard, a former State Games commission member who runs the Sports Medicine Center at Union Memorial Hospital in Baltimore, said he hopes the state does not abandon the effort because of recent problems.

"It was good for the athletes. It was a moment for people to shine in the sun and it was a way to get into the Olympic Games game," Howard said. "It wasn't all bad."