The indicted owners of New York's Studio 54 disco are expected to plead guilty to felony tax evasion charges Friday, according to sources.
The plea-bargaining agreement means that attorneys for Steve Rubell and Ian Schrager lost their gamble to use allegations of cocaine use by White House chief of staff Hamilton Jordan to reach a more favorable settlement in the case.
Sources said the defendants had hoped to trade testimony against Jordan for a plea to a lesser charge in hopes of keeping the club's lucrative liquor license.
Justice Department officials have maintained all along that the tax case against Rubell and Schrager was being considered independently of the charge against Jordan. One Justice official said last night that the department has refused requests by Studio 54 lawyers to say anything at the scheduled court session Friday about the "cooperation" of the two men in the Jordan matter.
Mitchell Rogovin, Schrager's attorney, told the prosecutors in a plea-bargaining session in August that Rubell had witnessed Jordan using cocaine during a 1977 visit to Studio 54. The allegation automatically triggered an FBI investigation, under the special prosecutor provisions of the new Ethics in Government Act.
Attorney General Benjamin R. Civiletti is said to be near a decision on whether to ask a special court to appoint a special prosecutor to investigate the charge against Jordan.
Sources said a preliminary FBI investigation of that charge and a second allegation of cocaine use by Jordan in California has failed to uncover evidence corroborating Rubell's accusation.
Rubell and Schrager were indicted earlier this year on charges of personal and corporate tax evasion, conspiracy and obstruction of justice. The indictment said the disco owners skimmed several hundred thousand dollars in cash from the operation of the popular nightspot and didn't report it as income on their tax returns.
Sources said the plea agreement is that Rubell and Schrager will each plead guilty to two felony counts, one of corporate and one of personal tax evasion.
Rogovin declined to comment yesterday. Roy Cohn, the attorney for Rubell, acknowledged that plea-bargaining discussions were continuing, but said, "Nothing is final until my client appears in court and enters a plea."
Cohn has said before that he disagreed with the plea-bargaining tactics of Rogovin and was anxious to take the case to trial.
Yesterday, though, he took a different tack. He said that the tax counts were "a negotiable item" but that the Studio 54 owners wouldn't consider pleading to an obstruction of justice charge.
He said "there's going to be a fight on the liquor license no matter what happens," but he said a plea to a tax charge "wouldn't have an effect" on the license.
One source familiar with the plea-bargaining sessions said Cohn became an active participant only last week. The prosecutors and Cohn and Gary Naftalis, who also represents Schrager, met with the judge in the case Tuesday for the final arrangements, the source said.
Rogovin has been quoted recently as saying he was unhappy because his plan to use the Jordan allegation wasn't working. He blamed the difficulty on Cohn, who he said leaked the original story of the charge to The New York Times.
The counts Schrager and Rubell are expected to plead to are punishable by sentences up to 5 years in prison. Sentencing by the judge in the case is not expected before January.