Attorney General Edwin Meese III is scheduled to testify here next week before a federal grand jury investigating the Wedtech scandal, according to informed sources.
Under increasing scrutiny because of his relationship with E. Bob Wallach, a San Francisco lawyer who worked for the now bankrupt Wedtech Corp., Meese is expected to appear before the panel Thursday, the sources said.
Meanwhile, these and other sources said, Wallach and two San Francisco businessmen, W. Franklyn Chinn and R. Kent London, have been warned that they may be indicted by a federal grand jury in New York that has been investigating Wedtech's financial manipulations. The three have already been accused in civil suits of conspiring to defraud the Bronx-based defense contracting company of hundreds of thousands of dollars in consulting fees and other payments.
Federal prosecutors in New York have been "making growling noises and everybody is growling louder," said one source familiar with the investigations. "They're saying, 'Listen, that's the firing squad out there.' "
Meese, who intervened on Wedtech's behalf in 1982 when he was counselor to President Reagan after receiving several memos from Wallach, has denied any wrongdoing. The attorney general came under formal investigation by independent counsel James C. McKay last May after acknowledging at a news conference that he ordered a 1982 White House review that led to Wedtech's obtaining a no-bid $32 million Army engine contract.
McKay has expanded his inquiry to cover other aspects of Meese's longtime friendship with Wallach, including Wallach's unsuccessful efforts in 1985 to win U.S. government support for a $1 billion Iraqi pipeline project. The expansion of McKay's investigation was reported yesterday in The New York Times.
Sources said Wallach used his ties to Meese, who was by then attorney general, to obtain a meeting in the summer of 1985 with then White House national security adviser Robert C. McFarlane about the proposed pipeline. Later, reportedly invoking U.S. national security interests, Wallach tried to get the the Overseas Private Investment Corp. to help insure the pipeline against destruction by Israel, but the project foundered while OPIC was waiting for a formal ruling from the Justice Department on the legality of its proposed involvement. OPIC asked Meese for the department's opinion in an Oct. 17, 1985, memo with a notation at the bottom indicating that Wallach was to be sent a copy of the request.
"We had been asked by the National Security Council to consider this and we considered it," OPIC general counsel Eric Garfinkel said yesterday. "But we were very, very cautious in scrutinizing the project and that's why we asked for the opinion from Justice. My understanding is that we never formally heard back from Justice. But the project at that point appeared to be dying of its own weight."
James Rocap, a lawyer for Meese, declined to comment yesterday on Meese's grand jury testimony, which will be his third this year, or any specific aspects of the McKay investigation. However, Rocap said:
"The attorney general has absolutely nothing to hide or be concerned about. He has cooperated from the beginning of the investigation and he will continue to cooperate. He is interested in having the matter concluded as quickly as possible."
McKay said "we're pushing ahead as rapidly as we can" but he declined to go into details. In recent days, however, his investigators have interviewed a number of witnesses, including McFarlane and McFarlane's lawyer, Leonard Garment, as well as former OPIC general counsel Robert B. Shanks, about the pipeline.
Garment also is a friend of Wallach and the two lawyers represented Meese in a 1984 investigation of Meese's financial dealings with a number of individuals who later got federal jobs. The independent counsel in that case, Jacob Stein, found "no basis" for prosecution, a finding that cleared the way for Meese's confirmation as attorney general.
"Bob Wallach occasionally mentioned that there was this project that had important national security benefits," Garment said yesterday. "I asked him what he was doing about it and he said, 'It's very hush-hush.' "
The proposed 540-mile pipeline, running dangerously close to Israeli territory on its way to the Red Sea, was to have been designed and built under the supervision of the Bechtel Group, a worldwide engineering company with headquarters in San Francisco. Wallach's interest in the project was as the representative of a Swiss businessman, Bruce Rappaport, and a Rappaport firm, National Petroleum Ltd.
Bechtel spokesman Tom G. Flynn said Rappaport was "recommended to us" by overseas business associates and Wallach turned up later as Rappaport's lawyer, negotiating a one-year agreement with Bechtel that was signed in London on July 16, 1985. Under it, Flynn said, Rappaport was "to arrange for the security bond or insurance or whatever it would take, and also to handle the sale of the oil."
Sources said that top OPIC officials thought Wallach was assigned by the National Security Council to work on the project and that they were not aware he was representing Rappaport.
Wallach's lawyer, Robert Kasanof, said it would be "inappropriate to comment on particular matters" while investigations were still under way. But he said that "Mr. Wallach did nothing wrong in his relationship with Gen. Meese and neither Mr. Wallach nor I have been shown a shred of evidence that suggests Gen. Meese did anything wrong."