James H. Lake, head of one of Washington's most prominent and politically well-connected public relations and lobbying firms, admitted yesterday he took part in an illegal campaign financing scheme to aid the brother of former agriculture secretary Mike Espy and said he is now cooperating with prosecutors.

Lake, who has played major roles in the last three Republican presidential campaigns, officially resigned yesterday from his firm, Robinson, Lake, Lerer & Montgomery, and said he will plead guilty to three criminal charges as part of an agreement with prosecutors. "This was an unlawful act," Lake said in an interview yesterday. "I very much regret it. I am very sorry."

Lake was described in court papers yesterday as a key participant in a scheme to help pay off the campaign debts of a Democratic politician he said he had never met, Henry Espy, who unsuccessfully sought his brother's Mississippi congressional seat after Mike Espy joined the Clinton Cabinet. The charges filed yesterday were the first in independent counsel Donald C. Smaltz's probe into the financial dealings of Mike Espy, who resigned under fire at the end of last year.

Lake's criminal troubles sent shock waves through Republican circles, where he is among the most well-known of GOP "communicators," having signed up with Ronald Reagan in 1976 and worked in prominent roles in every subsequent Republican presidential campaign. In the interview, Lake said he could not answer why he had risked his personal reputation and that of his firm: "I've asked myself that a million times. I just can't explain it."

According to documents filed in federal court by Smaltz's office and information from Lake and his lawyer, the scheme began in March 1994 when Richard Douglas, a senior executive with Sun Diamond Growers, asked Lake to help pay off the campaign debt of Henry Espy. According to those accounts, Douglas said Sun Diamond, a Lake client, would reimburse Lake $5,000 if he raised that amount in individual contributions to Espy.

Lake, who has represented several major agribusiness clients and has frequently lobbied the Agriculture Department over the past decade, asked four members of his firm to contribute $1,000: two of his sons, one associate who declined and Mark Helmke, an Indiana Republican who has since left the firm to play a major role in the presidential campaign of Sen. Richard G. Lugar (R-Ind.).

Lake also sent $1,000 himself.

To complete the scheme, Lake said he billed Bozell Worldwide Inc., the corporate parent of his firm, for $5,000, saying he had spent the money on Sun Diamond's behalf for a charity dinner. Sun Diamond reimbursed the firm and Lake gave $1,000 to each of the three associates who had provided the individual checks. He kept the other $2,000 for himself.

The complicated scheme was devised because federal law prohibits corporate contributions to federal campaigns, meaning Sun Diamond could not have contributed directly to Espy's campaign. Individuals are limited to a maximum $1,000 contribution, which is why Lake enlisted the help of his associates.

Douglas, who was the college roommate of Mike Espy at Howard University, said through his attorney that he has done nothing wrong. "Richard Douglas helped raise funds to defray an old campaign debt for Henry Espy. He did so openly and lawfully and I am confident that Smaltz will not find any violation of the law by Richard Douglas," said John M. Dowd, Douglas's attorney.

Sun Diamond said in a statement yesterday that it "categorically rejects any insinuation that it knowingly or willfully allowed its funds to be misdirected for unlawful purposes" and that the company would seek restitution of the money.

Smaltz's spokesman, Charles G. Bakaly III, declined to comment on the case.

For his role in the scheme, Lake has agreed to plead guilty to one felony charge of wire fraud regarding the expense reimbursement and two lesser counts of violating campaign finance laws. Lake said yesterday he has agreed to cooperate with Smaltz in any further testimony.

Over the past decade, Republicans of various standing turned to Lake for public relations crisis management. When President George Bush was sinking in the polls and scrambling to put together a new "message" to sell himself, it was Lake who got one of the first calls to head the communications team. When then-Chief of Staff John H. Sununu was on the verge of being eased out of the Bush White House, it was Lake he called on for image help. And when California Gov. Pete Wilson, seeking the GOP presidential nomination, was looking for Washington-savvy operators, Lake was one of the group he enlisted until he dropped out of the race last month.

Lake's attorney, Plato Cacheris, and others said yesterday that Lake revealed the campaign funding scheme after he and the three contributors were granted immunity from prosecution by Smaltz. But after Lake testified, sources said, Smaltz's office informed Lake's attorneys and his firm's corporate attorneys that the firm was not immune from prosecution.

Lawyers involved in the case said yesterday that Lake gave up his immunity after being assured the independent counsel's office was not going to go after the firm.

A source familiar with the criminal probe said the charges against Lake are part of a broader investigation by Smaltz's office to determine whether other allegedly illegal acts were undertaken to help retire more of Henry Espy's campaign debt, said to be about $75,000 at the time of the Lake solicitations.

Smaltz's office is also probing New Orleans attorney Alvarez Ferrouillet, who helped Henry Espy arrange a fund-raiser in New Orleans for his congressional bid and played a role in his securing a $75,000 loan after the election so he could cover emergency debts from the campaign, including a string of bad checks.

As Smaltz's investigation has heated up, he has convened a grand jury in Mississippi -- in addition to the one he has been using in Washington for the last 13 months.

"We are not threatened by the development because it has nothing at all to do with Mike Espy," his attorney, Reid H. Weingarten, said yesterday of the criminal charges brought against Lake.

Smaltz has drawn criticism for expanding his inquiry far beyond the initial question of whether Mike Espy accepted illegal gifts from firms regulated by the Agriculture Department. Smaltz is investigating the operations of Arkansas-based Tyson Foods Inc. and its ties to President Clinton, as well as business dealings of Sun Diamond, a fruit and nut producer based in California.

Recently, a federal judge took the unusual step of limiting the scope of a number of subpoenas served by Smaltz. Chief Judge John Garrett Penn of the U.S. District Court here concluded that Smaltz had gone beyond his legal jurisdiction in seeking certain information and that some of his requests were so broad as to be unreasonable. The judge also contended that some of the information Smaltz was asking for was irrelevant to the Espy case. Since then, member growers of Sun Diamond have filed additional motions seeking to restrict Smaltz's purview.

Earlier this year, Attorney General Janet Reno concluded that Smaltz did not have jurisdiction to probe Tyson's relationship with other government officials to determine whether the company had engaged in a pattern of gratuity-giving. CAPTION: FOLLOWING THE MONEY

According to court documents filed yesterday and sources familiar with the independent counsel's investigation into former agriculture secretary Mike Espy, Sun Diamond Vice President Richard Douglas contacted Washington lobbyist James H. Lake to seek help in retiring the campaign debt of Espy's brother, Henry Espy. HOW THE CONTRIBUTIONS WERE MADE: BOZELL WORLDWIDE, INC.

Bozell Worldwide Inc., the parent firm of RLLM, issues a $5,000 check to Lake for the funds purportedly spent at the dinner. Lake then reimburses the three employees and himself for the $1,000 contributions. Lake also retains another $1,000. RLLM (where Lake worked)

Lake solicits four fellow employees of Robinson, Lake, Lerer & Montgomery to each contribute $1,000 to the Henry Espy for Congress Committee, promising that their donations would be reimbursed. He also gives $1,000. One of the four refuses to participate.

Lake provides Douglas with four checks each in the amount of $1,000 payable to the Henry Espy for Congress Committee. HENRY ESPY FOR CONGRESS COMMITTEE HOW THE CONTRIBUTORS WERE REIMBURSED SUN DIAMOND

Sun Diamond issues a check for $5,000 for reiumbursement of money purportedly spent on behalf of Sun Diamond at a Washington charity dinner. BOZELL WORLDWIDE, INC. --Court documents, staff reports CAPTION: JAMES H. LAKE