Federal prosecutors in Brooklyn were frustrated by officials in New York and Washington last year from pursuing the lines of inquiry that led a Bronx grand jury to indict Secretary of Labor Raymond J. Donovan this week, it was learned today.
Sources said government prosecutors for the Organized Crime Strike Force in Brooklyn tried to open an investigation after disclosures to them by a secret witness about a Mafia "soldier" who had been working as a subcontractor for Donovan's construction company on New York subway projects.
But the prosecutors were rebuffed, the sources said, when they tried to gain access to secret FBI tapes compiled during a 1979 electronic surveillance of the mobster's warehouse-headquarters in the south Bronx.
Those tapes, sources said, contain evidence of numerous crimes, including murder. According to Bronx authorities, they also reflect the fraudulent nature of the "minority-business enterprise" that was working for Donovan's company under the aegis of William P. Masselli, a reputed member of the Genovese crime family.
Discouraged from pursuing the cases in their office, the sources said, strike force prosecutors notified Bronx District Attorney Mario Merola's office of the secret witness who had aroused their interest: Masselli's onetime bodyguard, driver and "hit man," Michael Orlando.
A onetime FBI informer who was spurned by the bureau in 1980, Orlando had numerous stories to tell, including an account of how he killed another Mafia soldier, Salvatore Frascone, in 1978, allegedly with Masselli's help and on Masselli's orders.
Orlando had been instrumental, as an FBI informer, in the 1979 bugging and wiretapping of Masselli's south Bronx warehouse. Masselli ran his operations from there, including those of Jopel Contracting & Trucking, a subcontractor for Donovan's company, the Schiavone Construction Co. of Secaucus, N.J.
Merola said this week that he began with Frascone's murder, allegedly committed to end his grumbling about Masselli's success as a Schiavone subcontractor, and took it from there.
The result, which Donovan has denounced as a "poliical hatchet job," was the indictment this week for fraud and grand larceny of the labor secretary; his longtime partner, Ronald Schiavone; six other company executives; Masselli; his minority "partner," a black Bronx state senator named Joseph Galiber, and their two companies.
The 137-count indictment accuses each of them of defrauding the New York City Transit Authority -- and "the minorities of the City of New York," as Merola put it -- of some $8 million that was supposed to go to Jopel as a minority contractor but allegedly was pocketed by Schiavone Construction during work on a $186 million subway project.
The Masselli tapes, sources said, contain numerous references to the fraudulent nature of Jopel and its alleged origins as a mob-financed company. At one point, for example, sources said, Masselli says that Galiber, the supposed 51 percent owner of Jopel, "didn't put a penny into it." At another point, sources said, Masselli is overheard saying of Jopel: "It's not illegal -- on the surface."
Special prosecutor Leon Silverman, who in 1982 investigated alleged ties between Donovan and organized crime, had access to these recordings. But he concluded that there was "insufficient credible evidence" to prosecute Donovan for any federal crime.
Asked today about possible evidence on the tapes of federal crimes that did not seem to him to involve Donovan, Silverman said he sent copies of his "expurgated" report, four volumes in all, to agencies that might be interested, including Merola's office.
Asked whether these authorities could know of conversations and any other evidence that he did not print, Silverman said: "I'm not going to comment on that." He also would not comment on whether there was anything in his "unexpurgated report," which went to the attorney general, that would have alerted authorities to Jopel's possibly fraudulent nature.
Silverman took the position that his "mandate" under the Ethics in Government Act was confined to determining whether Donovan had been involved in any federal crimes. He noted that Merola has a much broader jurisdiction.
"I found that there was 'insufficient credible evidence' to indict him Donovan for a federal crime," Silverman said in a telphone interview.
Silverman concluded his investigation in September 1982. The Justice Department, however, said it was still looking into the status of Jopel as a minority contractor. Assistant Attorney General Robert A. McConnell informed the Senate Labor Committee in March 1983 that "the results of this part of the FBI's Masselli investigation were provided to the office of the U.S. attorney for the Southern District of New York, and a prosecutive opinion has not yet been rendered."
Rudolph Giuliani, U.S. attorney or the Southern District, said in an interview today that this was incorrect. He said the entire Masselli investigation, including all 857 FBI tapes, was shut down in late 1981 in a memo written by the prosecutor in charge, Assistant U.S. Attorney Michael Ross. Giuliani said Ross, who entered private practice that year, was unavailable for comment this week.
"There was no investigation pending in March of 1983," Giuliani said. But he said the Organized Crime Strike Force, "at the time the letter was written," had "indicated at least an investigative interest in that whole Masselli matter."
Asked why his predecessors in the Manhattan-based Southern District had closed the case two years earlier, Giuliani said he did not know.
"I do know you don't close a case you think you can make -- unless you're crazy," he said.
The head of the Brooklyn-based strike force, Edward McDonald, refused to comment on whether he had sought access to the Masselli tapes and been rebuffed. He confirmed, however, that his office had dealt with Orlando and concluded, in light of his statements about the Frascone murder, that "the best thing to do was to pursue this as a local matter.