John Fedders, the enforcement chief for the Securities and Exchange Commission, yesterday denied that he did anything "wrong or improper" in assisting the Southland Corp. in 1977 and 1978 in an internal investigation by the firm of possible bribery, but he acknowledged that company officials might have lied to him.
Fedders, who is a subject in a grand jury investigation of the situation, testified in public for the first time yesterday about his work for Southland.
"My role in that review was to advise those who were investigating the facts," he told the Senate Banking subcommittee on securities. "My advice could be based only on information obtained by others and repeated to me. I cannot, of course, know with certainty whether anyone misled me or lied to me in 1977 and 1978."
Fedders, who was a partner in the Washington law firm of Arnold and Porter before his appointment by the Reagan administration, said that the law firm has represented Southland for many years on a number of legal matters and in 1977 was asked to assist after the SEC asked Southland to look into possible illegal payments.
Southland, one of its officials and a former New York City councilman were indicted last month for involvement in a bribery and cover-up conspiracy, and a federal grand jury investigation into the matter continues. Southland is the parent company of the 7-Eleven convenience store chain.
Fedders said he learned during the investigation of suspicions about a large legal payment in which the attorney had asked that his fee be listed as compensation for an airplane lease. But Fedders said that despite the suspicions, he eventually agreed with Southland lawyers that "there was insubstantial evidence on which to base a conclusion of illegality."
The grand jury, sitting now in New York, is looking into how much Fedders and others involved in the investigation knew when they completed a report that did not mention the possibility of bribery.
The report was shown to Southland's outside auditors and to lawyers for underwriters who were about to offer $75 million in Southland securities. Disclosure of the bribery conspiracy could have disrupted the security offering.
Fedders said he was not aware the report had been shown to those people.
Fedders also was asked about news reports that he had told his staff to stop enforcing certain corporate bribery cases. Fedders explained he did become "intemperate" in one case involving Ashland Oil Corp., but later reversed himself and told the staff to pursue the case against the firm, which was represented by his former law firm.
"Are people to assume we are condoning bribery?" asked subcommittee Chairman Alfonse M. D'Amato (R-N.Y.). "Are we saying it's open day to buy 'em and get 'em?"
"That's not what we're saying at all," Fedders replied.
The Southland indictment, which followed a three-year criminal investigation, charges that in 1977 Southland official Eugene DeFalco gave $95,500 to former New York City Council member Eugene Mastropieri, which was then laundered through a Canadian bank and returned to Mastropieri.
The indictment said Mastropieri was to keep $25,000, use $20,000 as a "slush fund" to bribe one or more New York state tax officials and kick back an undisclosed sum to DeFalco.
Fedders also acknowledged yesterday that after the internal report was completed, he advised the company to destroy all earlier drafts. An earlier federal court opinion had indicated that references to the bribery matter were deleted from an earlier draft.
Fedders said he doesn't remember seeing a draft describing the bribery conspiracy. "I did not participate in any decision to delete the Mastropieri matter from a draft of the report ," he said.