McKay Not Seeking Indictment of Meese : Decision Based on Evidence Now in Hand but Grand Jury Will Continue Its Probe

Independent counsel James C. McKay on Friday ruled out the possibility of an indictment of Atty. Gen. Edwin Meese III “based on the evidence developed to date” about his roles in a controversial Iraqi pipeline project and several other matters under investigation.

A federal grand jury’s investigation of the attorney general will continue for at least another month, but McKay said that he decided to make the unusual interim statement “because of recent media reports that an indictment is imminent.”

McKay’s statement and a decision by Solicitor General Charles Fried not to resign seem virtually certain to significantly ease pressure on Meese to step down. The developments could also forestall further Justice Department resignations that sources close to Meese had believed were likely.

Had Considered Resignation

The solicitor general, who once had suggested that the attorney general step down to end turmoil in the department resulting from Meese’s difficulties, reportedly was considering his own resignation earlier in the week. Fried, normally the fourth-ranking official at the department, is now the highest official left under Meese.

“The Meese thing is over for us. It looks to me like a two-day event,” presidential spokesman Marlin Fitzwater said Friday. White House officials in recent days have sought to portray the attention focused on Meese as having no lasting impact around the Oval Office.

Meese himself, smiling broadly at a press conference later in the day, said that he was “gratified” by McKay’s action. He said he doubts that the negative assessments expressed by Fried and two top-level officials who resigned Tuesday over Meese’s legal problems were shared widely in the department.

However, other department officials--some of whom remain staunch Meese supporters--concluded that McKay’s statement had merely “bought time” for the attorney general because the independent counsel promised that he would issue a report “covering all the matters” being investigated if he decides not to seek a grand jury indictment.

Report to Be ‘a Zinger’

“Meese may claim he’s exonerated, but that report is going to be a zinger,” said a former law enforcement official familiar with evidence collected by McKay’s investigators.

Moreover, there were indications that McKay’s statement may not quell the clamor on Capitol Hill for Meese’s resignation.

A spokesman for Sen. Dennis DeConcini (D-Ariz.), a frequent supporter of Administration law enforcement policies who earlier this week called on Meese to resign, said there would be no change in the senator’s position. He noted that DeConcini’s criticism was based on the belief that Meese can no longer lead the Justice Department.

Similarly, Sen. Carl Levin (D-Mich.), who has spearheaded a Senate inquiry into Meese’s finances, said that the attorney general should resign regardless of how McKay’s investigation ends.

“The criminal question may be unresolved for weeks or months, but the ethical question has been answered decisively,” Levin said. “The ethical clouds are so dense above the attorney general that they have become a thunderstorm.”

Deputy Atty. Gen. Arnold I. Burns, the second-highest department official, and Assistant Atty. Gen. William F. Weld, head of the criminal division, resigned Tuesday to distance themselves from Meese’s troubles. Associate Atty. Gen. Stephen S. Trott, who has not publicly commented on Meese’s troubles, is leaving for a seat on the U.S. 9th Circuit Court of Appeals.

Meese made his comments at a press conference that had been called to announce replacements for Burns, Weld and Trott, but last-minute hitches delayed the announcements until next week.

Possible Replacements

Department sources said that Arlin Adams, who stepped down last year as a federal appellate judge, is being offered Burns’ position. The sources added that Trott will be succeeded by Francis A. Keating II, now assistant secretary of the Treasury for enforcement, and that Weld will be replaced by James K. I. Knapp, now deputy associate attorney general.

But there were conflicting reports that Adams had expressed reservations about taking the job and that the White House needed more time to clear the nominations.

A senior White House official, speaking on condition of anonymity, said that Meese was sending names of candidates to fill the vacant positions to the White House but that FBI and other checks had not been completed. In the meantime, members of the White House staff in Santa Barbara, Calif., with Reagan for the Easter holiday, said they hope for a respite from the Meese controversy.

At his press conference, Meese acknowledged that Burns and Weld, when they told him they were resigning Tuesday, expressed “basic differences as to the effect that recent events have had on the department,” but Meese refused to elaborate on grounds that their remarks were “private conversations.”

Experienced Prosecutor

Sources familiar with the session said that Weld, an experienced prosecutor, told the attorney general that he would seek an indictment of Meese if he were in charge of the case, based on the facts as he knew at the time.

Before and since the meeting, Meese has consistently blamed the allegations against him on political critics and the press.

At the Tuesday meeting, Weld told the attorney general also that his longtime friend and former lawyer, E. Robert Wallach, was selling Meese’s office and that Meese had done nothing about it, according to the sources, who spoke on the condition of anonymity.

Sources who have spoken to Meese about the meeting contend that he does not recall Weld’s declaring that he would have recommended a grand jury indictment if he were prosecuting the case, but they concede that the “emotion” of the session may account for the conflict.

It was learned Friday that Burns and Weld described the meeting immediately after it ended to two of Burns’ aides, Randy Levine and Boykin Rose. The debriefing supported Weld’s version of what was said.

Interviewed on TV

Meese, at his press conference and on an ABC-TV interview with Barbara Walters broadcast Friday night, contended that it would be wrong for him to resign under fire of “false statements and false accusations.”

“I think it’s very important if we’re going to make government safe for public officials, that no person should be able to be hounded out of office by false accusations, by incessant media barrages, many of them based on distortions and falsehoods, or by political attacks,” Meese said in the interview.

He said that people from throughout the country have been “calling me to say: ‘You owe it to the Justice Department, to the President, to hang in there.’ ”

According to a poll conducted by U.S. News & World Report and released Friday, however, Americans “want Meese to resign as attorney general of the United States” by more than a 2-1 ratio. “The call for Meese’s resignation is unanimous across all ideological, political and demographic groups,” said a statement accompanying the poll’s results.

Media ‘Harassment’

But Meese drew a correlation between being a strong Reagan supporter and coming under unfair attack. “The stronger you are in that commitment” to President Reagan, “the more you’re going to get harassment by the news media, the more you’re going to get attacked by political enemies,” he said in the ABC broadcast.

McKay’s statement that he had so far uncovered “insufficient evidence to warrant a prosecution” gave no reasons for his preliminary conclusion or any details on each of the matters being investigated.

The independent counsel said that he issued his unusual statement “without outside consultation” but then noted that Meese’s lawyers had urged him to make it.

Carol Bruce, the prosecutor in McKay’s office who has been directing the Meese investigation, cited a television report which stated that McKay was “within an inch” of seeking Meese’s indictment. Because of the news report, “we were concerned about the fairness factor,” she said.

McKay, in his statement, said that, if no indictment is sought, he will refer all of the matters investigated “for review and action by the appropriate administrative authorities.”

Any such referral would come to the Justice Department’s Office of Professional Responsibility, which handles all internal inquiries, said a department official who declined to be identified. That office has handled equally sensitive inquiries that resulted in sharply critical reports on former Attys. Gen. William French Smith and Benjamin R. Civiletti.

Other Areas of Probe

In addition to the Iraqi pipeline project, a primary focus of the inquiry, Meese is being investigated by the grand jury for his unusually profitable investments and steps he took to assist the scandal-torn Wedtech Corp. and companies in which he held stock.

In the Wedtech matter, Meese is being investigated for his 1982 intervention, at Wallach’s repeated request, with the Pentagon. It led to the award of a no-bid, $32-million Army engine contract to the small, Bronx-based defense contractor. Meese, who received an estimated dozen memos from Wallach promoting the company, has said that he was interested only in assuring that Wedtech was given “a fair hearing.”

Wallach and Meese’s former investment adviser, W. Franklyn Chinn, have been indicted on federal racketeering and conspiracy charges for defrauding Wedtech.

During the meeting Tuesday with Burns and Weld, the attorney general reportedly cited the indictment of Wallach to answer Weld’s criticism that Meese had failed to do anything about Wallach’s exploitation of his office. According to sources, Weld then said he was referring to an indictment of Meese, not Wallach.

Meese also is being investigated for his investment, at Wallach’s suggestion, of about $50,000 with Chinn, which the financial adviser turned into about $95,000 over an 18-month period--a return exceeding 80%.

Meese, who had promised during his Senate confirmation hearings to avoid speculative investments in response to questions about his finances, recently praised as “conservative” Chinn’s tactic of selling new issues of stock on the same day he bought them.

Wedtech Consultant

In an interview Thursday with the San Jose Mercury News, Wallach said that he should not have involved Meese in the lucrative partnership with Chinn, who also was a consultant to Wedtech, a company that Meese had assisted.

“On reflection, a more cautious approach on my part would have been wise,” Wallach said. “A more cautious approach on (Meese’s) part would have been wise.”

McKay is examining Meese’s arrangement of a 1985 meeting between then-National Security Adviser Robert C. McFarlane and Wallach, who had been retained by a major financier in the Iraqi pipeline project to help obtain Washington support.

Also being investigated is Meese’s exchange of handwritten correspondence with then Israeli Prime Minister Shimon Peres about the secret project.

Wallach Memo to Meese

The most critical piece of evidence appears to be a memo that Wallach wrote to Meese on Sept. 25, 1985, stating that as much as $700 million in proceeds from the project over 10 years would go to Israel. In return, Israel would not attack the pipeline, which was to run close to its border with longtime enemy Jordan. The project was never built.

In the memo, Wallach wrote that he understood part of the funds would go to the Israeli Labor Party, which is headed by Peres. He referred to this as “the arrangement with Peres.”

McKay’s investigators are also looking into Meese’s support as attorney general for efforts to ease court-imposed restrictions on the so-called Baby Bell telephone companies when he owned $14,000 in stock of the former AT&T; subsidiaries. Meese obtained a waiver from Reagan’s counsel to take part in the matter, but critics say that the waiver was based on incorrect information furnished to the White House by Meese.

Staff writers Sara Fritz, Paul Houston and David Savage in Washington and James Gerstenzang, traveling with President Reagan, contributed to this article.