Ex-Labor Secretary, Nine Others Accused of Fraud : Jury Selection to Begin in Donovan Trial

Jury selection for the trial of former U.S. Labor Secretary Raymond J. Donovan and nine others is scheduled to begin in the Bronx on Tuesday morning, nearly two years after they were indicted for fraud and grand larceny.

A potential last-minute roadblock was cleared Thursday when Supreme Court Chief Justice Warren E. Burger upheld a lower court ruling that prosecutors could use evidence and grand jury testimony gathered by a special federal prosecutor who looked into allegations in 1982 that Donovan had ties to organized-crime figures.

The special prosecutor, Leon Silverman, concluded at the time that he had “insufficient credible evidence” to indict Donovan on federal charges. But Bronx Dist. Atty. Mario Merola’s office relied on the same evidence to obtain a 137-count state indictment in September, 1984. Prosecutors said the Silverman evidence is crucial to their case.

$186-Million Project

Donovan, along with nine former business associates and two construction companies, was charged with defrauding the New York City Transit Authority of $7.4 million by submitting phony and inflated bills between 1979 and 1984 for work on a $186-million Manhattan subway tunnel project.

Prosecutors said the Schiavone Construction Co. of Secaucus, N.J., used a phony minority business company, Jopel Trucking & Contracting Co., run by William P. Masselli, a reputed Mafia member, as a front to bilk the transit authority of money intended for legitimate minority business contractors. Jopel pretended to rent and operate specialized tunnel-digging equipment that Schiavone actually owned and operated, prosecutors said.

Indicted While in Office

Donovan was executive vice president of the Schiavone company before joining President Reagan’s Cabinet as secretary of labor in 1981. He was the first Cabinet secretary indicted while in office. He resigned from the post in March, 1985, and has returned to the construction company.

FBI’s Wiretap Tapes

Besides Donovan, the indictment includes seven current or former members of the Schiavone company, the two owners of Jopel and both companies. Ronald Schiavone, chairman of the company, asked that his case be severed because he was hospitalized recently for heart problems, according to John Berard, a spokesman for Schiavone.

The central evidence in the case is expected to be dozens of wiretap tapes made by the FBI at Masselli’s Bronx warehouse in 1979 during a separate organized-crime investigation. Transcripts released last April quote Masselli as saying he was offered guaranteed profits to help the Schiavone company meet its minority contract requirements.

Donovan, 56, who is not heard on any of the tapes, has denied dealing with racketeers and having knowledge of organized-crime activity.

Prosecutors and defense lawyers said they expect the trial to last about four months.