A Spanish legislator who had business dealings here with the Washington public relations firm of Gray and Co., and with its then vice chairman Alejandro Orfila, said today that he and his company had broken with the Washington firm last November after becoming concerned over possible mismanagement in Gray and Co.'s Madrid office.

Sources close to Gray and Co. said yesterday that the firm had reached a severance agreement with Orfila, and placed a second executive on leave, because it suspected that money was being transferred from a client to the legislator, Jose Ramon Lasuen, for the purpose of influencing legislation.

Both Orfila and the other employe, senior vice president Neil C. Livingstone, who supervised the company's foreign operations, deny wrongdoing.

Orfila, former Argentine ambassador to Washington and secretary general of the Organization of American States, joined Gray and Co. early last year. He was later formally reprimanded by the OAS for accepting a salary from the public relations company at the same time he was being paid by the international organization.

The client in the disputed Spanish case was a large utility company, and the sources said that questions were raised about whether Lasuen, who also has a consulting business, was being paid to help block legislation that would nationalize the utility.

In an interview today, Lasuen said he had a legitimate business relationship with Gray and Co. for public relations work and denied that he was being paid for anything else.

Lasuen, who is an economist and a member of the conservative opposition party Popular Alliance, conceded that the work done by his firm for Gray and Co. was limited.

"I just put Orfila in touch with one or two persons who in turn could introduce him to companies that might be interested in business with Gray and Co.," Lasuen said.

In Washington, Gray and Co. said today that on Thursday, upon the advice of counsel, it had referred the matter to the Securities and Exchange Commission. A meeting with SEC attorneys is scheduled for Monday.

Sources also said yesterday that it appeared from the ongoing inquiry at Gray and Co. that $250,000 -- half of the utility company's account -- was to go through a Gray and Co. account in a Baltimore bank to be paid to Lasuen.

Lasuen said he had no knowledge of a utility company paying $500,000 to Gray and Co. and that he doubted that such a sum could be involved in an effort to head off a possible nationalization. Spain's Socialist government has ruled out taking over private companies, and nationalization is not an issue in Spain.

Lasuen said he had canceled the contract with Gray and Co. when he heard that Carter Clews, then the firm's chief executive in Madrid, was not paying his bills on time.

Clews said Saturday that he was late in paying three bills because the money arrived late from Washington.

A spokesman for Gray and Co. repeated that the firm had canceled the contract with Lasuen, and not the other way around, after the legislator failed to produce a permit required for doing business with a foreign company.

The Gray spokesman said he was not aware of any work Lasuen had done after being paid an initial $25,000. Gray and Co. also said that it has requested the $25,000 back but has not received it.

Lasuen said he did request the permit but canceled the request when he chose not to continue to work with Gray and Co.

Lasuen said he had informed the Washington firm that he is awaiting instructions on the repayment of the $25,000 once an agreement is reached on expenses incurred during their association.

"The expenses concern just three or four trips and were routine," he said.

Lasuen said that his association with Gray and Co. began before Orfila joined the firm. He had subsequently met Orfila in Madrid "two or three times," he said.