A Rockville-based Alzheimer's disease fund-raising group already banned from soliciting money in two states is being investigated by New York authorities, according to a spokeswoman for New York Attorney General Robert Abrams.

The American Health Assistance Foundation, operated by Eugene and Janet Salta Michaels, has come under regulatory scrutiny in part because it pays more than $1 million annually for various fund-raising-related services to companies partly owned by relatives of the Michaels.

The foundation "has demonstrated massive conflicts of interest by engaging in numerous business transactions with other corporations owned" by relatives, according to the 1986 order issued by the West Virginia secretary of state canceling the charity's right to solicit there for failure to disclose the alleged conflicts.

New York officials would not disclose the precise allegations that prompted their investigation, but said they have subpoenaed all foundation books and records in connection with possible violations of state charity laws.

Foundation spokeswoman Kathy Kearns stressed last night that the subpoena from New York authorities does not allege any violation of the law. "They could be on a fishing expedition," she said.

Eugene Michaels has denied any wrongdoing, saying that all of the foundation's activities are completely legitimate and proper.

This year the Better Business Bureau, the private consumer watchdog agency, distributed reports saying that the foundation spent an excessive amount of its income on raising funds. The bureau recommends a maximum expenditure of 35 percent for charitable fund-raising costs. Of the $8 million that the foundation raised in 1987, about 38 percent went for raising funds, according to the foundation's annual report.

According to the report, about $5.1 million went for fund-raising, public education material that routinely accompanies fund solicitations and management costs.

About $2.9 million was awarded to researchers at 35 universities and medical research institutions across the nation, according to the foundation. About $1.3 million was earmarked for research on Alzheimer's disease, an irreversible neurological disorder that affects an estimated 2.5 million Americans; about $800,000 for coronary heart disease research and about $800,000 for glaucoma research.

But most of the criticism has been directed at the money paid to companies connected to Michaels family members. Of the $8 million the charity raised last year, $1.2 million went to a professional fund-raising company, Response Development Corp., operated by Janet Michaels' father, Joseph Salta, according to figures contained in the foundation's 1987 annual report. The foundation work represents about 69 percent of Salta's business, according to records on file with the Maryland secretary of state.

Salta's company then distributed $438,000 for printing costs to Direct Mail Lithographers, a Falls Church company partly owned by his sons, the report stated.

An additional $408,000 went to Direct Mail Management, a Prince Frederick, Md., mailing firm partly owned by the same two sons, Joseph R. Salta and Robert J. Salta.

An additional $60,000 went to All American Lists Inc., also headed by Joseph Salta, which compiled the mailing list for the fund-raising operation.

The foundation did not disclose these interrelationships in its 1986 annual report. It disclosed them the next year, after the West Virginia action and an investigation by Maryland authorities.

In addition to the foundation, Janet and Eugene Michaels operated a mail-processing business, Business Services Fulfillment, which received $279,000 in revenue in 1985 from charity clients who also happen to be clients of Salta's company, Response Development Corp., foundation spokeswoman Kearns said yesterday.

In 1986, Business Services Fulfillment received $100,000 from clients of Response Development Corp., Kearns said. She said the Michaelses closed Business Services Fulfillment late last year.

Eugene Michaels, in recent interviews with The Washington Post and in testimony before West Virginia's Commission on Charitable Organizations, has defended the operation, saying that the Salta family firms provide better services at lower prices than other groups and that all the transactions are "at arm's length."

" . . . The fact that RDC {Response Development Corp.} uses related parties to perform certain tasks brings significant economic advantages" to the foundation, he said in a written response to Post inquiries, "such as faster service and no-interest credit on unpaid bills."

" . . . There has been no wrongdoing, neither on my part nor on the part of any officer or employe at the foundation," Michaels wrote.

After the West Virginia order, the foundation was barred from raising funds in Illinois for failing to disclose the West Virginia disciplinary action, according to officials there.

"One of the questions on our registration form asks if the group's right to solicit has been canceled," said Christine Rosso, chief of the Illinois Charitable Trust and Solicitation Division. "The answer they -- the foundation -- filed was no. But when it came to our attention that West Virginia had canceled their right to solicit, we canceled their registration."

The foundation's position was that it had no obligation to disclose because it had appealed the West Virginia order. The foundation ultimately lost its appeal.

Maryland regulators, concerned about a failure to disclose family contracts in 1986, threatened to revoke the foundation's registration late last year, but worked out a settlement signed March 7 that requires the foundation to hire a new accountant, expand its board of directors and disclose contracts with family members.

Regulators in West Virginia and Maryland also have complained about the group's bookkeeping practices, solicitation techniques and conformity with state charity filing requirements.

Michaels said that some of the filing and bookkeeping problems that regulators have complained about resulted from the rapid growth of the foundation since 1984, when it began soliciting for Alzheimer's disease research.

Recently, the widely respected Alzheimer's Disease and Related Disorders Association, based in Chicago, published a "reader alert" in its newsletter, stressing that it has no relationship with the Rockville foundation.

Eugene Michaels, 47, works for the C&P Telephone Co. as a computer analyst. His wife Janet Michaels, 41, the executive director of the foundation, is paid an annual salary of $75,000, according to the foundation.

The foundation, headquartered in a leased office at 15825 Shady Grove Rd., was established in 1973 by Michaels and two other men to raise money for research for a range of diseases, including cancer, emphysema and leukemia, according to incorporation papers filed in the District of Columbia.

Its first campaign was for heart disease research, and like all the foundation campaigns, it was handled by Michaels' father-in-law Joseph Salta, Michaels said in a telephone interview. A foundation campaign for glaucoma was added in 1978, he said.

Income grew slowly, however. In 1979, when Michaels took over the presidency of the foundation and his wife became executive director, foundation donations for heart and glaucoma research totaled less than $500,000, according to the foundation.

By 1984, when the foundation began Alzheimer's solicitations, collections totaled $3.5 million. But with Michaels' appeals for Alzheimer's research reaching homes across America about the time that television showed the Emmy-winning Joanne Woodward movie about Alzheimer's disease, "Do You Remember Love," foundation income nearly doubled, rising to $6.8 million in 1985 and to $8 million in 1986.

"Dear Compassionate Friend," begins a recent solicitation letter to a Washington resident, " . . . The next Alzheimer's victim may be someone you love -- so please, don't delay. Send the largest gift you can manage today."

The foundation employs 14 full-time and four part-time workers.

Letters, such as the one addressed to "Dear Compassionate Friend" are developed by Response Development Corp., a professional fund-raising company started in the early 1970s by Joseph Salta and John H. Swain to handle solicitations for charitable groups. Swain has since died.

Copy writers for Response Development Corp. prepare the letters while its artists design the solicitation package. In addition to the letter or note asking for money, the package may include a newsletter discussing the disease and some of the research in progress. Michaels said he approves the final package before it is mailed.

All American Lists Inc., which shares office space with Response Development Corp. and is also headed by Joseph Salta, compiled the mailing list for the foundation. The printing of the Michaels' solicitations was done by Direct Mail Lithographers, a Falls Church company partly owned by Salta's sons. The labor to mail the printed materials was provided by Direct Mail Management, a Prince Frederick firm partly owned by the same two Salta sons.

Michaels, who is chairman of the foundation's board of directors as well as its president, said he avoids any potential conflict of interest by recusing himself from voting on renewal of the contract with his father-in-law and on matters pertaining to his wife, the foundation's executive director.

"It disturbs me when little old ladies in tennis shoes scrape together $10 and go cold in the winter time to contribute to a charity like this, when . . . they funnel huge contracts for fund-raising to their relatives," West Virginia Secretary of State Ken Hechler said.

"There is nothing {legally} wrong with having a profitable direct mail concern," Hechler said, so long as the family relationships are properly disclosed and the foundation has a "valid governing structure -- by that I mean not just members of one family pocketing profits but a genuinely independent board of directors that makes decisions, meets frequently and doesn't simply sit back and take orders from members of the family."