Biologist Richard Terman discovered substantial amounts of Kepone in mice nesting near the James River last year, an ominous sign that the toxic pesticide had begun to work its way into the human food chain.

He was certain that Virginia officials -- guardians of a $5 million fund for tracing the poisonous chemical's impact -- would want to underwrite further research into his troubling discovery.

He was wrong.

Not only did state officials reject the William & Mary College professor's application for state aid, but the official in charge of Kepone fund told Terman he found the scientist's work relatively unimportant.

Roy N. Puckett, the official who rejected Terman's application, said he did so because all of the state funds for Kepone research and related activities had been spent or earmarked for other agencies.When Terman asked for an accounting of the money, Puckett refused, insisting that the information was "considered privileged . . . and is not for public use."

Terman later discovered the state had spent nearly $500,000 of the money on a public relations campaign to promote the Virginia seafood industry, which had been hurt by disclosures that the pesticide had found its way into James River fish. He found that expenditure particularly troubling because the four-year, $353,000 research project he was proposing would have cost considerably less.

"How they can spend money for that kind of thing and yet ignore the basic question of to what extent Kepone contamination has spread is beyond me," Terman said.

The PR campaign appears to violate the criteria laid down in the 1978 "Plan for Utilization of Kepone Funds" drawn up by state officials. That plan authorizes funding for "contractual Kepone-related studies by state agencies and private consultants," language that, while broad, does not appear to justify the advertising campaign.

The Virginia Kepone fund was created in 1977 when Allied Chemical Corp. agreed to pay $5.25 million to settle a lawsuit in which it and a small chemical company were charged with 355 violations of state water pollution laws in connection with Kepone. About $500,000 of the money went to the city of Hopewell, where Allied and the other firm had produced the pesticide and contaminated the city's sewage system, as well as the James River.

The remaining $4.75 million went to the state, which decided to use the money to pay for Kepone-related costs incurred by state agencies in the course of monitoring, investigating and cleaning up the pesticide and for similar costs projected for the next three years.

As might be expected, bureaucrats from nearly a dozen state agencies had flooded the Kepone fund with requests. "It was like finding buried treasure," said one former Virginia official. "They treated it like a wish list."

One of the requests highest on the list came from the state's politically influential seafood industry, whose image was soiled and profits shrunk by the Kepone incident. The industry convinced then Gov. Mills E. Godwin to earmark $500,000 from the Kepone fund for the PR campaign.

Some state officials now concede that the expenditure, which the state Kepone plan indentifies only as a "marine resources development" project, stretched the rules, but argue that Godwin insisted on it. The former governor, who lives near the bank of a Kepone-polluted waterway, could not be reached for comment.

"I frankly thought it was a whole lot of money and I questioned the governor about it, but he said 'that's it,' so I didn't ask about it anymore," said Puckett, a Godwin appointee.

The biggest chunk of the PR money, $382,000, went to a Norfolk public relations firm for a year-long advertising campaign that didn't mention Kepone. Among other public relations expenditures were $40,000 to a nonprofit Tampa marketing firm, $24,970 to a Richmond company for a seafood marketing study, and $5,900 for publication of a seafood industry directory.

Biologist Terman became interested in state funding last year after his research showed Kepone levels of up to 18 times federal safety standards in white-footed mice captured on Jamestown Island, downstream from Hopewell.

"The mice are seed-eating animals and I was quite concerned because of the possibility that this stuff [Kepone] was moving out of the river, through plants and small animals, into the food chain," said Terman. "It's a basic ecological question that we needed to answer."

When Terman approached the Virginia Environmental Endowment, a private fund run with money Allied paid as a result of Kepone-related criminal charges, he was told to go to Puckett because the fund generally does not finance Kepone research. Puckett quickly told him all of the state money was long-since spent or budgeted.

"We didn't necessarily refuse Terman -- we just didn't have any money to give," said Puckett. "He wanted a lot of money for something that was not particularly convincing."

Terman also was irritated to learn that after he sent Puckett an unpublished paper on his findings, the Kepone coordinator immediately alerted Allied. Three Allied officials, flown in from corporate headquarters in New Jersey by private jet, met with Terman and Puckett at an Allied-sponsored breakfast in Williamsburg where they disputed some of his research.

Puckett said, "I felt a perfect right to inform Allied. . . . We [Allied and Puckett] work very closely together and we keep each other informed. Our relations are above reproach." He denied Terman's charge that he supported Allied's contentions during the breakfast, contending, "All I said was 'Good morning' and 'It was nice to have seen you'."

Puckett refused to give Terman a breakdown of expenditures from the Kepone fund, saying that as a special appointee of the governor, he was exempt from the state's Freedom of Information Act.

Terman ultimately took his research proposal to the Environmental Protection Agency, which has granted it preliminary approval. He believes state officials, who are in the process of reopening the James to commercial fishing, simply are not interested in funding any research suggesting that Kepone remains a serious environmental problem.

"It's a moral question -- how can they turn their backs on something this serious?" he asks.