The former chief investigator in the Department of Health, Education and Welfare has said that he quit after being told by Secretary Joseph A. Califano Jr. that all of his investigations - including a major probe of a California home-care fraud case - had to be cleared by HEW's general counsel.
John J. Walsh said that as a result of Califano's instructions he temporarily discontinued the California inquiry, Califano had told him, he said, that he did not want HEW personnel investigating "a bunch of innocent people."
Califano yesterday denied any intent of stopping the Califano investigation. Through a spokeswoman, he denied saying that he wanted Walsh's investigations cleared by the general counsel. He said he merely wanted the counsel's office to be "informed" of cases being investigated.
Walsh's assertions were made in a sworn affidavit filed with the Senate Finance Committee on Thursday and made public by the committee staff yesterday.
The dispute already has delayed the committee's confirmation of Califano's choice for HEW under secretary, Hale Champion. It was postponed at the request of Sen. Herman E. Talmadge (D-Ga.), who said he wants to question Champion's prior testimony about Walsh's March 6 resignation.
Champion had testified that Walsh "was not asked to clear his work with the general counsel's office" but was only asked to keep that office informed. Talmadge said Walsh's affidavit "contains statements which appear to contradict Mr. Champion's replies to the committee."
At the center of the dispute are congressional and HEW investigations of alleged fraud in a private San Jose company that provides home health services to aged and indigent. Most of its revenue comes from federal Medicare and Medicaid.
The company, owned by Flora M. Souza, has been accused of paying her a $145,000 salary and charging exorbitant expenses to the government. In Senate hearings last week, Souza invoked the Fifth Amendment when asked about the allegations.
In his affidavit, Walsh said he began investigating potential fraud in Souza's firm in January and subsequently informed Champion that the case would be the subject of congressional hearings.
Asked about the matter at a Feb. 4 meeting with Califano and Champion, he said, he told Califano he had opened the case and had notified the local U.S. attorney and the Justice Department of the planned hearings.
"The secretary interrupted me and told me he was sorry I had done that," Walsh said, "but that henceforth he wanted 'all these things cleared through the general counsel's office' and that the reason was that he did not want HEW personnel 'investigating a bunch of innocent people.' I am quite certain that the words in quotes are exact."
Califano then instructed his acting general counsel to prepare a plan for investigating Souza, told Walsh to help with it, and said it should be brought to him for approval, Walsh said in the affidavit.
"I was greatly disturbed by this incident," he added. "First of all, there is no way that I am aware of whereby the guilt or innocence of a party can be established before an investigation is conducted. Secondly, I was discases as I had no reason to believe to clear 'all these things with the general counsel's office,'"
"I assumed that the secretary was referring to all the active criminal files to the general counsel's office there was anything special about the Souza case which would cause the secretary to remove the responsibility for directing the investigation from me and place it on the general counsel. It is a fact, however, that the Souza case was the only case mentioned specifically in my very brief meeting with the secretary."
Walsh said he gave his Souza case files to the general counsel's office and told his San Francisco investigator to discontinue. Later, he said, he was told he had misunderstood instructions about ceasing the investigation and he had it reopened.
Through the department's spokeswoman, Eileen Shanahan, Califano denied saying he had ordered any cases "cleared" by the general counsel, and said he never intended that office to control investigations.
Califano wanted that office informed of any cases likely to go to Justice for criminal prosecution, she said, out of concern about possible violation of the civil liberties of persons under investigation, and because he feels that attorneys should oversee cases prepared by investigators to make sure there is an adequate factual basis for charges.
"Walsh apparently interpreted this as an order to stop an ongoing investigation," Shanahan said.
She said Califano might have used a phrase suggesting that he did not want "innocent people" investigated, but if so, he meant it in the general sense of protecting civil liberties, not as a specific reference to the Souza case.
Walsh has returned to the staff of the Senate Permanent Subcommittee on Investigations, where he worked from 1963 to 1976; he worked for the FBI for 15 years before that. He said he took the HEW job as chief investigator on the condition that it be independent of the general counsel's office, believing investigative work is "inefficient and impotent" when controlled by general counsels.
The Finance Committee is scheduled to renew questioning of Champion next Wednesday, at Talmadge's request.
Champion issued a statement yesterday saying, "I have taken no action of any kind to slow down any departmental or other investigation in a California case or any other. Nor have I suggested to anyone else that they should do so."