Yesterday's indictment of Attorney General Edwin Meese III's close friend and of his financial adviser on racketeering charges has temporarily halted independent counsel James C. McKay's probe of Meese's actions on behalf of Wedtech Corp., but Meese associates warned that the development may bring even more trouble for the attorney general.
In court papers and in a brief news conference, McKay made it clear that although he has "insufficient evidence as of this date" to indict Meese in connection with Wedtech, his investigation of Meese is far from over, and he is now focusing on matters other than Wedtech. McKay said yesterday that he thought justice could best be served by indicting E. Bob Wallach, Meese's friend of 30 years, and W. Franklyn Chinn, who handled Meese's investments, even if that meant his investigation of the attorney general is temporarily derailed.
In a statement released after McKay's announcement, Nathan Lewin, Meese's lawyer, claimed victory:
"On completing the most thorough investigation ever conducted of the personal finances of a public official, the independent counsel has determined that there is no basis in the Wedtech affair for any proceeding against Attorney General Meese. We are gratified that the major focus of the . . . investigation -- the alleged Wedtech involvement -- has been concluded at this time favorably to Attorney General Meese."
But McKay did not say his inquiry into Meese's role in the Wedtech scandal was concluded, only that it would now be set aside pending the outcome of new legal action against Wallach, Chinn and their associate R. Kent London. In announcing that he does not have sufficient evidence to conclude that Meese "knowingly participated in criminal activity in connection with his Wedtech actions," McKay added: "This is an interim and not a final decision."
McKay told reporters, "There are a number of unresolved questions on his involvement with Wedtech Corp. and other matters." McKay has been investigating Meese since May 11. In recent weeks the attorney general has appeared six times before McKay's grand jury here, testifying for many hours.
Justice Department officials, who asked to remain anonymous, said McKay's announcement yesterday will damage Meese's ability to run the Justice Department. But they added that the department is functioning smoothly, that Meese has been careful to recuse himself in areas where he could be accused of impropriety, and that he is continuing to take an aggressive role in a number of areas, including antidrug enforcement and the resolution of the recent riots of Cuban inmates in federal prisons.
Sen. Carl Levin (D-Mich.), who has held several hearings on Wedtech, said that McKay has left "the sword of criminal investigation hanging over the attorney general's head."
Wallach, a Meese friend and confidant for 30 years, became a legal adviser to Wedtech early in the Reagan administration and brought his friends Chinn and London into the company as consultants. Chinn later became a member of the Wedtech board of directors and, at Wallach's urging, a financial partner of Meese. All three are charged with racketeering and conspiracy in the Wedtech case, in part for taking money from the company intended to influence Meese's decisions on matters of importance to Wedtech.
To proceed further at this time in investigating Meese's role in Wedtech, McKay said he would have had to offer immunity to Wallach, Chinn and London, thereby destroying the New York case against them.
Adding that he has shared investigative information with Rudolph W. Giuliani, the U.S. attorney who brought the New York indictments, McKay said he believes Giuliani's case will "serve the interests of this office as well as the interests of justice."
Meese has acknowledged that he interceded on Wedtech's behalf in 1982 at Wallach's request when the Bronx-based defense contractor was trying to obtain a no-bid, $32 million Army contract. Meese was then at the White House as counselor to the president. The company went on to obtain more than $250 million in government contracts, most of them for no-bid work under the Small Business Administration's minority set-aside program.
McKay said that his inquiry into Meese's Wedtech-related activities ran into problems when Wallach, Chinn and London all refused to testify under oath before his grand jury based on their Fifth Amendment right against self-incrimination.
He said Wallach appeared before the grand jury Sept. 23, refused to testify under oath and refused to answer any questions related to his dealings with Wedtech Corp., his knowledge of Meese's financial partnership with Chinn, his dealings with Chinn and London, and his personal finances.
Robert Kasanof, an attorney for Wallach, complained yesterday that Wallach had offered to testify "without immunity and without restriction" if McKay would take jurisdiction over Wallach's part in the case. "That offer was rejected," Kasanof said. He refused to say why Wallach wanted McKay to have jurisdiction rather than Giuliani.
McKay refused to say what "other matters" his office is examining in connection with Meese. But several sources familiar with the investigation have said that one area still under investigation is the financial relationship between Meese and Chinn. Meese acknowledged last week that, without his knowledge, Chinn had occasionally invested on his behalf much larger amounts than were actually in his trust account.