Deputy Attorney General Peter F. Flaherty is pressing for the criminal prosecution of a Nixon administration official despite recommendations from several levels of Justice Department prosecutors that the case be dropped for lack of evidence.
Flaherty's intervention, the latest turn in long-running investigation of Henry Kearns, former president of the Export-Import Bank, reportedly has been heavily criticized within the department. But most officials are reluctant to talk about it for the record because the department's No. 2 official is involved.
Kearns and his attorneys have been especially upset because they were told in August that the case was being closed. Some department officials have also expressed concern that Flaherty's directive to continue the inquiry might be perceived as a political move.
The dispute centers on charges that Kearns profited improperly from the sale of stock from a supposedly "blind trust" and then lied to the Senate about it in 1973.
Though investigators felt Kearns had acted improperly, the case was considered weak legally. Sources familiar with the case said there was no evidence he used his Ex-Im position to help the company which bought the stock. Furthermore, his testimony was not under oath and the Senate interrogation was too imprecise to lay a basis for perjury-type charges.
Sen. William Proxmire (D-Wis.), chairman of the Senate Banking Committee, has ben calling for prosecution of Kearns ever since. In September, 1975, for instance, an earlier Justice Department investigation of the matter was reopened at Proxmire's insistence.
Flaherty said in a recent interview that he had talked with Proxmire about the Kearns case, but denied his decision to intervene was based on political considerations.
"It's hard to say what captures your interest in a case," he said. "I asked the senator for some transcripts of the Senate hearings to be sure I had all the information relevant to the case. About all I can say is that it's still an active and open case."
Sources familiar with the Justice Department dispute said that Flaherty urged early this month that prosecutors study obstruction of justice, mail fraud and extortion statutes as possible grounds for indicting Kearns.
There are indications that Attorney General Griffin B. Bell may have to referee the disagreement between his deputy and the department's career prosecutors.
Kearns' problems began with his 1969 Senate confirmation hearings on his appointment to head the bank, which provides financing sales.
age export and import sales.
At the time he pledged to put 100,000 shares of Siam Kraft Paper Co. Ltd. in a blind trust to isolate him from the firm which had loans from the Ex-Im Bank.
In January, 1972, and later in December of the same year, however, Kearns solicited a Japanese firm. Mitsui Co., which also had loans with the Ex-Im Bank, to buy the stock. Mitsui bought the stock in December for $500,000.
When questioned about these dealings at Senate hearings in 1973, Kearns said he had not been involved.
In a September, 1975, letter to Proxmire, then-Assistant Attorney General Richard Thornburgh noted that while there was insufficient evidence to prosecute, Kearns was "perhaps less than candid" in his answers to the Senate.
After the case was re-opened at Proxmire's insistence, it was transfered to the U.S. attorney's office in Washington from Thornburgh's Criminal Division.
There is no question that the Justice Department attorneys handling the case felt Kearns acted improperly as head of the Ex-Im Bank. In August, 1976, the department sued Kearns for $325,000, alleging he sold the Siam Kraft Paper stock at an inflated price. The suit was dismissed earlier this year.
The case still was considered too weak to support criminal charges and in July, Benjamin R. Civiletti, head of the Criminal Division, agreed with the recommendation that the case be closed.
In August, Kearns' attorneys, James E. Sharp and N. Richard Janis, wrote their client that they'd been told the Justice Department was finally closing the case, pending only the formality of informing Proxmire. Kearns responded by a letter to dozens of friends telling them he'd been cleared.
Flaherty then got involved in September and over the next month began actively pressing for prosecution on new grounds. "It's very disappointing to hear something like this happening at the 11th hour," Sharp said. "It's hard to figure Mr. Flaherty's suddent interest."
Proxmire said yesterday that he welcomed the renewed interest in the case, but justice's handling of cases involving Kearns and former Central Intelligence Agency Director Richard M. Helms "makes me wonder if we (Congress) shouldn't have our own prosecutors. It's evident that the executive branch is not that interested in prosecuting persons who lie to Congress."
Helms was fined $2,000 earlier this month after being allowed to plead "no contest" to charges he didn't testify fully to a Senate committee on covert CIA actions in Chile.