Documents Indicate Fee for Wallach Aided Meese

A $150,000 payment to a longtime friend of Atty. Gen. Edwin Meese III for work on an Iraqi pipeline project--the center of a federal investigation of the attorney general--wound up in a stock-trading account that apparently was used to benefit Meese’s finances, according to documents reviewed by government investigators.

The money, a legal fee intended for attorney E. Robert Wallach, went through two accounts before being deposited in October, 1985, in a pooled account used to trade stocks on behalf of Wallach, Meese and others, the documents show.

The discovery indicates that the fees Wallach received for lobbying the White House on the pipeline project were later used to the attorney general’s financial advantage, despite vigorous denials by lawyers for both Meese and Wallach that this was the case.

Meese played an important role in securing U.S. government backing for the Iraqi pipeline, including arranging a crucial White House meeting between pipeline promoters and then-National Security Adviser Robert C. McFarlane, and discussing the project with former Israeli Prime Minister Shimon Peres.

Meese’s lawyers have denied that the attorney general knew anything about the $150,000 payment to Wallach and said he had no way of knowing of any possible benefits he might have received from the money. Meese’s finances are in a limited blind trust under which he is said to have had no detailed knowledge of stock transactions or other deals made on his behalf.

“We will categorically deny that any monies Mr. Wallach received ever went into Mr. Meese’s account or were used for his benefit,” George G. Walker, an attorney for Wallach, said in a recent interview.

But highly unusual stock-trading practices by W. Franklyn Chinn, the financial adviser who managed both Meese’s and Wallach’s money, suggest that Meese did benefit from trades made with the Wallach fee.

A Swiss financier who was the pipeline’s chief promoter said he deposited the $150,000 with Chinn, who controlled accounts for Wallach and Meese at the time. The financier, Bruce Rappaport, said he hired Wallach because of his Washington contacts, chief of whom is Meese.

Meese Helped Wallach

The payment to Chinn was made less than two months after Meese helped Wallach arrange a meeting between Rappaport and McFarlane on June 24, 1985. McFarlane assigned a National Security Council aide to find a way to insure the pipeline so that it could be financed and built. The pipeline was never constructed.

Chinn was able to pool the $150,000 with other funds and use the money to buy blocks of stock. He then could allocate the most profitable trades to Meese’s account after learning how the deals came out, according to a report by the Democratic staff of the Senate Governmental Affairs oversight subcommittee.

The Senate staff report concludes that nearly a third of the stock purchases allocated by Chinn to Meese’s account, called Meese Partners, required more money than his account contained at the time they were made.

A Justice Department spokesman for Meese dismissed the report as a partisan attack, but subcommittee Chairman Carl Levin (D-Mich.) has asked the U.S. Office of Government Ethics to determine whether Chinn’s dealings for Meese amounted to gifts or loans that should have been reported under the federal Ethics in Government Act.

Chinn Lawyer Comments

Penelope M. Cooper, one of Chinn’s lawyers, said there was nothing unethical or illegal about her client’s trading practices. She refused to discuss any aspect of the $150,000 payment from Rappaport.

A securities lawyer with a major brokerage house who has reviewed some of Chinn’s trading accounts said the $150,000 indeed could have provided a benefit to Meese as a result of Chinn’s technique.

“To the extent that you can have more money to buy stocks and you are a successful trader, as Chinn was, the logic would be that you can buy more stocks and, in that sense, it does benefit Meese,” the lawyer said.

The Senate report found similar information concerning the pooling of funds, saying: “The subcommittee staff has been told that without using the holdings of the other accounts he controlled . . . Mr. Chinn may not have been able to conduct the number of trades he did . . . on behalf of Meese Partners.”

Investigation of Meese

Independent counsel James C. McKay is investigating Meese for his role in the pipeline affair, as well as other matters. Key to the pipeline aspect of the inquiry is a 1985 memo to Meese in which Wallach cited a proposal to make payments to the Israeli Labor Party for Israel’s guarantee not to interfere with the project to be built by Iraq, its longtime enemy.

Over an 18-month period, Chinn was able to turn about $50,000 into about $95,000 through investments for Meese, a return of better than 80%. McKay and the Senate investigators are examining how Chinn achieved such an impressive return for Meese.

The Senate staff report, which was issued last week, did not mention the $150,000 from Rappaport. Interviews by The Times since then with people knowledgeable about the transactions traced the money from the Swiss businessman to Chinn’s account.

Last week in Geneva, Rappaport said the $150,000 was transferred to Chinn’s business account at the Bank of America in San Francisco in August, 1985, on instructions from Wallach.

Chinn’s Transfer of Funds

A government investigator who has reviewed the financial records of Meese, Wallach and Chinn said that on Aug. 15, 1985, Chinn transferred $150,000 from his Bank of America business account544501536maintained for his business at the San Francisco office of Bear, Stearns & Co., a brokerage house.

Chinn maintained several trading accounts for clients at Bear, Stearns, including the one for Meese. Chinn’s own account there was in the name of Financial Management International Inc., or FMII. The FMII account contained $60,000 to $80,000 before the infusion of the $150,000, records obtained by the government showed.

Chinn used the various accounts to purchase large blocks of stock on the first day they were issued. Such purchases normally are arranged in advance through brokers. The advance price is usually discounted to encourage investors to sign up early. Once the stock goes public, the price frequently rises.

By selling the stock on the same day he bought it, Chinn was able to earn substantial profits on many of the deals for Meese and his other customers. The Senate report said Chinn apparently assigned transactions to the Meese account after learning how the deals had fared, a highly unusual practice.

Chinn’s Trading Questioned

The Senate report also raised questions about Chinn’s trading because the cost of the stocks he allocated to Meese Partners often exceeded the balance in the account.

For instance, on Sept. 12, 1985, the subcommittee staff report said, Chinn bought $80,000 worth of stock for Meese Partners at a time when the account had a balance of only $51,075.

In October, 1985, Chinn transferred about $225,000 in his FMII account to Imperial Trust, a Los Angeles-based trust company. At the same time, he transferred $42,000 in the Meese account from Bear, Stearns to Imperial Trust.

The Senate staff report said an agreement with Imperial Trust allowed Chinn to break up trades into smaller lots after the transactions were completed so that the deals would appear not to exceed account balances.

Custodian for Funds

A spokesman for Imperial Trust said the company was merely the custodian for the funds and took instructions from Chinn on how to allocate trades to various accounts.

The arrangement apparently allowed Chinn to assign the best purchases to Meese’s account, possibly at the expense of others.

At Imperial, Chinn created a new account, called Sub Account B, which he used to buy and sell blocks of stock on behalf of his clients with accounts there, including Meese. The account served as a clearinghouse and had no funds of its own. The money used to purchase stock through it was the money available in the individual client accounts, the Senate staff report said.

Among these accounts was the FMII account, which contained the $150,000 payment from Rappaport.

Douglas Frantz reported from Los Angeles and Ronald J. Ostrow from Washington. Staff writer Dan Morain in San Francisco contributed to this story.