The Justice Department has turned over information about Atty. Gen. Edwin Meese III's involvement in telephone industry issues to independent counsel James C. McKay after department lawyers uncovered evidence that Meese's actions may have violated federal conflict-of-interest laws, according to sources familiar with the inquiry.
The sources said that among the material Deputy Atty. Gen. Arnold I. Burns gave McKay last month, after an investigation by criminal division lawyers into Meese's actions while he held legal title to telephone company stock, was information that Meese associate E. Robert Wallach helped set up one meeting between Meese and telephone industry officials.
The Justice Department review was triggered by a request several months earlier by McKay, although McKay's office was not actively investigating the "Baby Bell" issue until Burns transmitted the information shortly before Christmas, sources said.
Wallach, a close friend of Meese and his former lawyer, was indicted in New York last month on racketeering charges alleging that he and W. Franklyn Chinn, Meese's former investment adviser, took payoffs from the Wedtech Corp., a bankrupt defense contractor, to influence Meese and other officials.
Meese also met with top officials from at least two of the seven regional phone companies--known as Baby Bells--in 1985 and 1986, to discuss, among other things, restrictions imposed on them under the consent decree that split AT&T;, spokesmen for Bell Atlantic and Bell South said.
At the time, Meese and his wife, Ursula, held legal title to 91 shares of stock in the seven regional telephone companies spun off in the breakup of AT&T.; The stock was worth about $14,000 when they sold it in August, 1987.
The Justice Department was then reviewing the restrictions on the Baby Bells' ability to offer long-distance services, manufacture telephone equipment and provide computer services. The department was required under the terms of the 1984 breakup to file recommendations three years later on that issue with U.S. District Judge Harold H. Greene, who presides over the AT&T; case.
On Feb. 2, 1987, the department reversed position and asked Greene to lift most of the restrictions, as the Baby Bells wanted.