U.S. to Drop Fraud Probe of Presser : Justice Department Finds Inquiry Lacks ‘Prosecutive Merit’

The government has decided to drop its 32-month-old labor fraud investigation of Teamsters Union President Jackie Presser, The Times learned Tuesday night.

Government sources said the politically sensitive case, developed by Labor Department investigators assigned to a federal strike force in Cleveland, is being dropped because the Justice Department has concluded that it lacks “prosecutive merit.”

In the wake of the decision, Ray Maria, the Labor Department deputy inspector general who oversees labor racketeering investigations, said: “We have no pending investigation of Jackie Presser.” He declined to elaborate.

‘Ghost Employees’

The decision not to prosecute Presser, President Reagan’s lone political supporter among major labor leaders, was made six months after federal prosecutors in Cleveland recommended that Presser be indicted on charges of authorizing union payments to “ghost employees.”

Presser’s alleged status as a source of information for the FBI was a key impediment to prosecution, sources familiar with the case said. It also was learned Tuesday that high Justice Department officials have ordered a new inquiry into why the FBI did not tell the department for nearly two years that Presser had acted as an informant.

Throughout the unusually long course of the investigation, Justice Department officials insisted that politics would play no role in the highly visible case. Administration officials, led by Vice President George Bush, continued to maintain contact with Presser, who served as co-chairman of Reagan’s inaugural labor committee in January.

Sensitivity Indicated

Terry Eastland, the Justice Department’s public affairs director, indicated the sensitivity of the case by declining to confirm or deny the decision or to explain the reasoning.

However, it was learned from other sources that the decision was made by Deputy Atty. Gen. D. Lowell Jensen after conferring with Stephen S. Trott, assistant attorney general in charge of the department’s criminal division. Thus, it appeared that Atty. Gen. Edwin Meese III had removed himself from the case.

Meese, at his confirmation hearing earlier this year, acknowledged that he might have called Presser early in the Reagan Administration to inform him that Raymond J. Donovan would be named secretary of labor.

Beyond questions about Presser’s political clout, the Justice Department decision is certain to be controversial because it rejected the recommendation of strike force prosecutors, whom department officials had sent back to the field to do more work, delaying the case for nearly a year.

The strike force had recommended in February that Presser be indicted on charges of fraud and conspiracy for putting “ghost employees”--cronies who are paid but do no work--on the payroll of Cleveland Teamsters Local 507, of which Presser is still secretary-treasurer.

The decision to drop the case was made less than a week after the grand jury foreman, Robert A. Reading Jr., confirmed that the jurors had complained to two federal judges in Cleveland that the Justice Department has been dragging its feet in the case.

“I have no comment at this time,” Reading said Tuesday night when asked about the department’s decision.

Washington Meeting

Department officials reportedly informed Stephen H. Jigger, the Cleveland strike force prosecutor, of the decision at a meeting in Washington on Tuesday.

The department already had dropped two proposed co-defendants, both longtime Presser associates, from the case. They are Harold Friedman, an international vice president of the Teamsters, and Tony Hughes, a former boxer and business agent for Presser.

Four alleged “ghost workers” paid by Local 507 are Allen Friedman, Presser’s uncle, who was convicted nearly two years ago of receiving $165,000 while performing no work for the union local; Jack Nardi, who pleaded guilty two years ago to receiving $109,000 as a ghost employee; and John J. (Skip) Felice and George (G. G.) Argie, both of whom were convicted of embezzling union funds. (Allen Friedman and Harold Friedman are not related.)

Full-Scale Review

In an effort to resolve the issue surrounding Presser’s informant status, key Justice Department officials have ordered a full-scale review of the FBI’s relationship with Presser and the reasons for its belated acknowledgment of his status.

Providing information to the FBI does not normally protect a person from prosecution in other crimes. But one reason why Presser was not prosecuted was that FBI officials were particularly concerned that sensitive information about other investigations might be disclosed in the course of such action.

“There are people in the Justice Department who feel they were deceived and lied to” by the FBI, said one Administration official who is familiar with the investigation.

However, sources close to the FBI’s side of the dispute said bureau officials maintain that the failure to disclose Presser’s status resulted when the Labor Department reportedly did not inform the FBI in 1982 that it was investigating Presser and other Teamster officials.

‘Lack of Communication’

“Labor didn’t tell them, and they didn’t tell Labor,” one official said. “In other words, it was a lack of communication.”

But another source familiar with the case declared: “There’s more to it than that.” The question of Presser’s status was raised directly early in the investigation, he said, “and the (FBI) categorically denied any relationship whatsoever.”

Moreover, the FBI’s conduct during a review of its files on the matter and when its agents were questioned was “more than just disingenuous,” this source said.

But several months ago, the FBI did acknowledge Presser’s role as a source of information when prosecutors for the federal strike force in Cleveland urged Justice Department superiors to authorize them to seek a grand jury indictment of the Teamster leader.

“They’ve done a 180-degree turn on it,” one source said. Investigators on the strike force have been drawn from the Labor Department’s inspector general’s office, and the FBI has played no direct role in the grand jury’s investigation.

Internal Watchdog

Meanwhile, the FBI’s internal inquiry, which is expected to be completed soon, is being conducted by its office of professional responsibility, an internal watchdog unit.

In addition to attempting to determine what the FBI disclosed about its knowledge of Presser and when it made the disclosure, the inquiry is looking into what information FBI agents received from Presser and what they told him, a source familiar with the probe said.

“Trott and Jensen are very concerned about this case, particularly about the relationship of the agents to the source,” one official noted.