When the daughter of Isaac Lea, the renowned 19th-century naturalist, bequeathed her father's treasure of more than 3,500 gems and minerals to the Smithsonian Institution in 1894, she demanded only one thing: "that it shall be kept intact . . . that no part thereof shall at any time be sold or disposed of." The national museum promised in writing to honor her condition.

It is a promise broken many times.

Museum records show that between 1974 and 1976, Smithsonian gem and mineral curator Paul Desautels routinely traded off specimens from the Lea Collection to dealers across the country. They included a brown tiger's eye found in South Africa, a 1.265-carat violet red ruby from Ceylon, and a 1.459-carat sapphire as well as carnelians, agates and a spinel.

"Nobody on the inside complained, and nobody on the outside complained," says Desautels, who says he tried to locate Lea heirs. When he couldn't, operating under a 15-year mandate of what even his superiors say was free rein to build the collection, he went ahead and made the trades.

S. Dillon Ripley, head of the Smithsonian, said late last year that he was unaware of any violation of gift agreements at the national museum. "One of the reasons I'm here is that I've always been most scrupulous about preserving the terms of a will or a bequest, making sure that nothing was tampered with . . . There have been cases which have shocked us greatly in recent years where other museums have deliberately misinterpreted a will and sold objects out of the back door to dealers. This, I think, is absolutely against all the principles of having a museum."

When informed last week that records show and Desautels confirms there was in fact a violation of the Lea Collection bequest, Ripley said, "I think you should strictly adhere to the legalities of the situation . . . I think that's [the violation] a mistake."

By all accounts, Desautels single-handedly transformed the Smithsonian's collection into the world's premier array of rare gems and minerals, which is today valued at more than $100 million. For his feat, he is recognized as the undisputed king of collection building. A mineral has been named for him (Desautelsite), his books are standards in the field ("The Gem Kingdom," among others), and his name in the gem and mineral world is synonymous with that of the Smithsonian.

But Desautels leaves a dual legacy.

Last year, in the final months before his retirement, Smithsonian auditors began raising questions that go beyond violations of a bequest to the very heart of how Desautels built the collection. Recently a federal grand jury in Washington began a broad investigation of gem and mineral transactions at the Smithsonian.

A five-month examination by The Washington Post of internal museum records, archives, IRS documents, and dozens of interviews with museum donors, curators, auditors and administrators, including 25 hours with Desautels himself, also shows:

* One of the chief instruments for expanding the gem and mineral collection was to use the collection itself as material with which to barter, exchange and sell. Unlike many curators who are extremely reluctant to part with museum specimens, Desautels says he was willing to become a speculator in the private gem and mineral market place. Using his knowledge and the prestige of the institution, he deliberately drove up mineral prices worldwide and his appraisals became gospel. For example, he says that in 1979 he set the value of some Smithsonian diamonds at about $250,000. "I just upped them 40 percent over their appraisal and made the deal and I got away with murder," he says. He then traded the diamonds at what he says was this inflated value for California gold specimens he wanted the museum to have.

* As part of his broad effort to expand and improve the collection, Desautels at times allowed the national museum to be used as a tax shelter by wealthy and prominent doctors, lawyers, bankers and businessmen.

The IRS is now challenging in court and in audits many of those deductions and saying they are excessive. In one example, four donors took about $370,000 in tax deductions in 1978 and 1979 for gifts of gems--more than five times the purchase price of those gems. These donors say the donations were independently appraised by professionals and that all deductions are proper.

* Desautels says he personally received a total of about $20,000 in consulting fees paid in monthly installments from August 1979 to January 1981 to help acquire gem and mineral specimens for a company that was offering them to investors for use as lucrative tax shelters. Desautels says he severed the relationship with the firm after he found that some specimens he helped acquire were later donated by investment groups to the Smithsonian or a Smithsonian-approved trust. Desautels found and helped the company acquire two stones for an estimated $150,000; just over a year later, when they were donated by investors, trust documents placed their value at $953,710. A spokesman for the firm offering the tax-shelter specimens says those values were determined not by the firm but by independent appraisers on behalf of the investors.

* Desautels, while a full-time employe of the Smithsonian, accepted $30,000 in 1981 from a Texas oil millionaire to help him build what is considered the finest private gem collection in the nation. Desautels says he saw no conflict because the stones he helped acquire for the private collector were too expensive for the Smithsonian, which, while rich in materials for possible exchanges, had little cash for outright purchases. He also says he had removed himself from the head curatorship a year earlier, though he remained active in collection management.

* There was no open-bidding system for exchanging Smithsonian gems or minerals. A few private dealers selected by Desautels handled most of the transactions and gained access to a ready market at the Smithsonian. In one case, a dealer made a $27,000 commission on the sale of a single stone. Desautels also said he asked for and received $4,000 from two dealers to help cover the cost of Mexican trips that were solely related to Smithsonian business.

Desautels says he also arranged for many Smithsonian officials or employes to buy gems at a wholesale rate from dealers, including a 4.95-carat rubellite that Secretary Ripley purchased for $618 on June 16, 1980. Ripley said he was not aware that he had bought the stone at a wholesale price, and said it was a gift for his wife. (There are about 140 carats in an ounce.)

* Desautels, for all practical purposes, was autonomous in overseeing the collection and making decisions on acquisitions and trades. In 1981 alone, 788 specimens were traded out of the collection, according to a 1982 internal audit. Record keeping was faulty, with only about 6,000 of the Smithsonian's estimated 10,000 gems logged in inventory records, according to that same audit. Those records had not been updated in two years.

* Desautels says he ignored the unwritten ban on selling from the gem and mineral collection and in effect disguised one sale as a permissible exchange. In this instance, he says he allowed a dealer, representing a wealthy collector and donor, to virtually shop in the national collection in 1977 and secretly sold more than $100,000 worth of specimens, several right out of the display cases. He says the payment to the Smithsonian was made in stock as an endowment gift. Desautels says he did not give up the best specimens and the museum benefited from the transaction. The donor says he did not "purchase gems directly from the Smithsonian," and that his gift to the endowment was a contribution, not a payment. Mecca of Mineral World

"If I had been given permission to buy and sell years ago," says Desautels, "we would have had a collection ten times as good because there have been many things that could have been bought on speculation, so we'd have made a lot of money, an awful lot of money. With the information we have about the sources of gems, connections at the mines, and so on, we could have built an enormous empire by buying and selling."

Says Desautels: "Yes, I have made mistakes. I don't think there's any question about that, but you have to balance those, if you have any common sense, against all that I have done."

Desautels is credited with having turned the Smithsonian into what he calls the "mecca" of the mineral world in the 25 years he served there. While such specimens as the Hope Diamond and Marie Antoinette's earrings were already part of the collection, Desautels' acquisitions are renowned: the 28,000-specimen Bosch Collection rich in European minerals, the 18,000-specimen Yedlin Collection prized for its research materials, the 67.89-carat Victoria Transvaal Diamond, four California gold specimens among the finest in the world, and a trove of colored gems without equal.

"Without sounding too egotistical, how do I say it? My hallmark has been that I have made this collection the finest collection of its kind ever assembled. That's what I wanted to do, that's what I did . . . It's been my whole life." He added, "Everybody always knew what was going on, and nobody ever said 'no.' Everybody knows I'm a big wheeler-dealer." How He Built the Collection

Desautels, a proud, soft-spoken man of 62, agreed to discuss candidly and in detail how he built the collection and to answer questions about specific transactions arising from a detailed examination of museum records.

Sitting in the den of his modest New Carrollton home, Desautels says he is bitter that the institution has failed to appreciate his accomplishments and only now, after his retirement, is questioning many of his practices. "They didn't allow me to make any mistakes, not a one. And I don't know of any activist, anybody who does anything and doesn't make mistakes . . . Even if I had done something illegal, they should certainly have known, looking at everything I was doing for the institution, that I certainly didn't intend it."

Philip S. Hughes, Smithsonian under secretary and second-in-command, says the revered national museum is partially at fault:

"I think we have been lax with regard to the gem and mineral business. We were caught up to an extent, we the institution, Paul's peers and supervisors, and so on, were caught up in this collection-building process."

Smithsonian Secretary Ripley says he encourages curators to be highly motivated and that his faith in Desautels was not misplaced. "If there is an aggressive collector among the group of curators, we tend in principle to say, 'Well, gee, this guy's outstanding because he's really gone after building up the collections.' We simply assume that everything is proper along the way."

Peter Embrey, curator of the British Museum's gem and mineral collection, has observed Desautels and the Smithsonian for years. "No other organization that I have ever heard of has a managing board that would permit that sort of wheeling and dealing that Desautels has done. No one else has had that kind of freedom from managerial control," he said.

Says Desautels, "I'm an activist, and you'll find in general an activist, when there is no policy, develops his own . . . There has been no museum policy in collection management that I'm aware of. I have made my own policy which has been recorded all through the years . . . That's why I'm a little bitter now, because they decided ex post facto 'you shouldn't have done that.' Well, why didn't you tell me ten years ago when I first started doing that?"

Smithsonian auditor Chris Peratino says: "He just operated with very few restrictions and that can lead to temptation . . . no one should have that control over operations in the Smithsonian. It just shouldn't happen." Peratino criticized Desautels' record-keeping deficiencies and some transactions in a 1972 audit. Ten years later, his department concluded in an internal audit:

"We found serious weaknesses in internal controls and inventory control which make this priceless collection susceptible to loss or unauthorized use of resources, illegal or unethical acts, and/or adverse or unfavorable public opinion."

"What was he Desautels supposed to do," asks Gary Hansen, a mineral dealer and friend of Desautels who handled many of the transactions, "sit there, which 99 percent of the people would do, and say, 'Hey, I've only got 20,000 bucks a year. I'll sit on my butt, draw my check, do a couple of technical papers, and nobody can complain because I don't have any money.' Well, that wasn't Paul Desautels. He went out there and hustled."

The Smithsonian is one of the nation's most prominent institutions, and one of the least scrutinized. Made up of a vast complex of museums, galleries, and research facilities centered in Washington, it is an enduring repository of the nation's culture, history and art. Though it was visited by more than 27 million people last year, the Smithsonian remains something of a castle of secrets.

Getting two-thirds of its support from federal funds--more than $150 million annually--the Smithsonian conducts most of its business behind closed doors. Its governing board of regents, composed of the chief justice of the United States, the vice president of the United States, three members of the Senate, three from the House of Representatives, and nine prominent citizens, meets in private. The minutes of those meetings are confidential, as are the museum's audits and records of transactions. The Freedom of Information Act, museum officials say, does not apply to them.

Smithsonian officials reluctantly acknowledged being a "federal instrumentality" in a 1977 report, but somewhat like Paul Desautels, many of the people who work there acknowledge its "maverick" status. The Smithsonian chafes under the bit of bureaucracy and regulation that reins in its federal brethren, and its administrators say occasional episodes of overzealousness--as some characterize Desautels' conduct--must be tolerated if the institution is to preserve its spirit of creativity and independence.

"The Smithsonian is neither fish nor fowl," says Desautels. "If you constrain it, you've ruined it. It's a kind of free soul and always has been for all its existence. . . that's the joy of the institution. You can become obsessed with your own little project like Dillon Ripley and the South Quadrangle an ongoing Smithsonian expansion and say 'everything else get out of the way.' But by God, he'll get it done and be remembered for it."

"I slipped through the screening process," says Desautels, who today would need a PhD to qualify for his former position. "I'm not a researcher, I'm a collection builder. I became one before there were any rules. I was brought in here to do exactly that."

Largely self-taught in mineralogy, he began collecting rocks at 13. He has degrees in chemistry and education and has taught in high school and college. He joined the Smithsonian in 1957 at a time when there was little emphasis on expanding the collection. Desautels says he decided to set an example of what could be done with limited resources.

"I have used every possible channel that I can think of except theft to increase the collections--purchase, exchange, gift, bequest, transfers, anything at all I could do legitimately to add specimens I have pursued hammer and tong."

To keep tabs on discoveries and impending sales, he says he "built an enormous network of informational contacts from every possible source you can imagine--all the way from peons in Ceylon to the president of the American Gem Society."

Desautels never had enough cash to purchase major specimens, so he says he had to rely primarily on exchanges to upgrade the museum's collection. A Broken Promise

Naturalist Isaac Lea, long a friend to the national museum, died on Dec. 6, 1886. He left his vast gem and mineral collection to his daughter, Frances Lea Chamberlain, with the wish that it go to the Smithsonian upon her death. She died in 1894, leaving these instructions:

"I give and bequeath to the National Museum at Washington, two collections of gems and quartz crystals which I received from my father, upon the condition however that it shall be kept intact in said Museum for scientific purposes, in the room in which my father's mineral collection shall be deposited . . . and that no part thereof shall at any time be sold or disposed of. And if the same shall not be accepted upon such condition, or if accepted such condition shall be broken, then I give and bequeath the same without condition, to my said husband."

On March 5, 1895, Smithsonian Assistant Secretary G. Brown Goode received the Lea Collection, "the conditions included in the bequest being fully accepted by the museum." That condition was routinely violated by Desautels. Among the gems he traded out of the museum's first notable gem and mineral bequest:

* A brown "tiger eye," found beside the Orange River, in Griqualand, South Africa. The stone was traded to dealer Hansen on Oct. 22, 1974, along with two "deep brown-red carnelians." That same year moss agates from Japan were traded to Hansen. On Nov. 22, 1976, more moss agates and two cloudy gray cabochons of quartz were traded.

* A 1.85-carat blue green spinel found in Ceylon. The stone was exchanged for specimens from Kristalle, a California dealer, on Sept. 29, 1976.

* A 1.265-carat violet red ruby from Ceylon, a .81-carat ruby, and a 1.459-carat sapphire exchanged with Pala Properties, a California dealer on March 31, 1976.

Desautels says, "I'm not in the storage business. As far as I'm concerned, anything that doesn't carry its own weight in that collection is fair game, unless there is some real reason, some real compelling reason not to do it. My judgment says, 'I've tried, I found no Lea heirs.' No Lea heir has even smelled around this institution for decades . . . these things he traded are of no value to the collection, and who the hell cares? I can convert them to something that will be good . . . "

Desautels' ability to expand the collection at little apparent cost to the Smithsonian and the collection's ever-increasing prominence won him plaudits over the years from the Smithsonian's highest administrators.

Shortly before he planned to retire last summer, his world began to unravel.

"Paul's life," said Hughes, "was the building of the collection which he did splendidly." When Hughes questioned one of Desautels' transactions, Desautels answered him with tears in his eyes, saying, "I'm proud of it. I've made my life in this. Why are you harassing me?"

Last spring auditors telephoned dealers and collectors asking to examine records of exchanges. On Oct. 26, Hughes, staff auditors and security personnel held a meeting at the Smithsonian with FBI agents, IRS agents, and Justice Department lawyers, and asked for outside help with the museum's examination of the gem and mineral transactions.

Recently Desautels has voluntarily complied with a request to supply records to a federal grand jury, as have several of those with whom he has dealt. T.J. Reardon III, an assistant U.S. attorney, confirmed that the grand jury is conducting a broad investigation of Smithsonian gem and mineral dealings, but would not elaborate.

The final assessment of Desautels' career is also the subject of discussion in the museum world he dominated for so long.

"Certainly the Smithsonian, under Paul's leadership has been universally envied," says the British Museum's Embrey, a longtime competitor, "but it hasn't added to the liking in which the Smithsonian is held, because the spinoff has been damaging to the rest of us . . . there is resentment, partly envy, but not wholly . . . .I would not be so greedy as Desautels has been in getting not just the best but the next-to-best, right down to the seventh and eighth best. There's a limit to what's reasonable."

Associate curator John White, who worked with Desautels for more than a decade and is now acting curator, says, "When you survey the image that he's built up among serious collectors, knowledgeable collectors, I think that to a man, they'll agree with me that he Desautels is the most extraordinary collection builder in the history of mineral collections." Tomorrow: The King of Gems, Part II