A last-minute order from top Justice Department officials last week delayed consideration by a federal grand jury in North Carolina of a proposed indictment of Smith Bagley, a socially prominent supporter and friend of President Carter.
The order, which originated with Deputy Attorney General Benjamin Civiletti, followed a request for a delay and review of the case made by Bagley's attorney over the heads of federal prosecutors and lower-ranking department lawyers, according to Justice Department sources.
Civiletti made it clear, however, that if the delay by itself would jeopardize a possible fraud indictment -- because of a grand jury expiration or statute of limitations problems -- his order should not apply and the local prosecutor should proceed.
There is no indication that the White House prompted Civiletti's action.
Yesterday, after inquiries by The Washington Post, the prosecutors in North Carolina were authorized by the Justice Department to present their proposal to the grand jury next week, sources said.
Appeals such as the one requested by Bagley's lawyer are not unusual, according to a Justice Department spokesman and others familiar with department procedure. It also is not uncommon for policy-level officials such as Civiletti to grant meetings with defense lawyers to hear out their appeals.
But the timing of the order on Feb. 28 was much less common The chief North Carolina-based prosecutor in the case, Patricia Lemley, was advised of it by Deputy Assistant Attorney General John C. Keeney just minutes before she was to begin grand jury proceedings.
Bagley, 43, and his wife, Vicki, were strong backers of Carter's bid for the presidency. After he was elected, Carter took a holiday at Musgrove Plantation, the Bagley vacation home in Georgia.
Begley also is the grandson of R. J. Reynolds, founder of the North Carolina tobacco company.
As she was pursuing the investigation, Lemley received an offer of a job purportedly with the R. J. Reynolds Co., according to the supervising U.S. attorney, H. M. Michaux Jr.
A spokesman for Reynolds last night said the company had no knowledge of such an offer, which Michaux said came through a Winston-Salem attorney, Ralph Stockton. The spokesman also said Stockton was not authorized to make any such offer.
Stockton could not be reached for comment.
Stockton's firm, according to law directories, represents The Washington Group, the Bagley company, which is at the center of the investigation, and Northwestern Bank, of which Bagley is a board member.
Michaux said Stockton, specifically mentioning the R.J. Reynolds Co., relayed the offer through him. Michaux said he then told Lemley, who rejected it out of hand. "When I told her about it, she laughed," Michaux said last night.
After being asked whether he saw any impropriety in such an offer, Michaux changed his story and said he wasn't sure if Stockton had actually mentioned the Reynolds company.
The prosecutors in North Carolina had been investigating Bagley and his Washington Group on fraud allegations for over a year, and went home from a meeting with Justice officials in Washington prepared to present their proposed indictment, sources said.
At that point, the defense lawyers already had had an opportunity to present their arguments on Bagley's behalf. His attorneys, Daniel Rezneck, of Washington, and William Osteen, of Greensboro, N.C., had asked for a meeting with Philip B. Heymann, head of the department's Criminal Division.
Heymann was leaving town on vacation, so the attorneys met with Keeney and Mark Richard, another deputy who was familiar with the case because he had been head of the fraud section, sources said.
Rezneck was dissatisfied with that meeting, and sometime between Feb. 26 and Feb. 28 asked Civliletti for a delay and hearing, citing new information he said he had learned about the proposed prosecution.
Civiletti did not want to get involved in judging the merits of the case, sources said. But it was said that he felt that grand jury consideration should, if possible, be delayed until Heymann could review it personally.
Since Heymann was still on vacation in the Virgin Islands, the prosecutors in Winston-Salem, N.C., were told, just before they were about to present the matter to the grand jury, to hold off.
Heymann said last night that there was no impropriety in the delay. "What was involved was the most common of courtesies by the Justice Department. What they [bagley's attorneys] got was a costless delay.... That we ought to do for everybody."
Attorney Rezneck said yesterday that he would not comment on any aspect of the case.
Heymann had returned from vacation March 1, considered the appeal and, sources said, rejected it.
Sources said Rezneck's appeal centered around an allegation that one of the FBI agents investigating Bagley had a conflict of interest because his mother was one involved in a land transaction with one of Bagley's companies.
Bagley's Washington Group was formed in 1972 when he and his associate, James Gilley, merged their privately owned company into a large textile manufacturer.
By 1977, Washington Group had filed for reorganization under Chapter 10 of the Federal Bankruptcy Act. It had also been sued on stock manipulation charges, and was being investigated by the Securities and Exchange Commission and the U.S. attorney in Winston-Salem, where Washington Group was based.
The SEC, sources have told the Post, is negotiating with Bagley over allegations that his company violated civil antifraud provisions of federal securities laws.
Attorneys for Bagley and the SEC are reportedly trying to work out a settlement calling for Bagley to reimburse former employes of his firm.
The criminal investigation centers around allegations that Bagley, Gilley and two banks manipulated employe funds to inflate the value of Washington Group's stock.