Counsel Says Evidence Is Inadequate to Indict Meese

Independent counsel James McKay said Friday that he has found insufficient evidence to date to warrant indicting Atty. Gen. Edwin Meese III in connection with a $1-billion Iraqi pipeline plan or a possible conflict of interest involving his telephone company stock.

Meese said he was “gratified by the action and the statement” of the independent counsel and that he would not step aside.

“It is certainly my intent to carry on my duties as long as the President wants me to,” the embattled attorney general told a news conference.

McKay said his report was an interim one and that his investigation was continuing.

Still Investigating

“The grand jury’s investigation is not yet complete” as to the pipeline probe, the telephone stocks and other matters, and will continue at least through the end of April,” McKay’s statement said. A source close to McKay’s investigation would not provide details of these matters, but said they were all felony cases.

The grand jury is expected this month to hear testimony from Meese, his wife, Ursula, and U.S. Circuit Judge Douglas H. Ginsburg, former head of the Justice Department’s antitrust division that handled the breakup of American Telephone & Telegraph Co. while Meese held telephone stock.

Even though McKay’s announcement was an interim report, it was an enormous boost to Meese, who has been reeling from bipartisan calls in Congress for him to quit in the wake of the resignations Tuesday of two of his top aides.

No Consultation

McKay told a news conference that he decided to issue his statement on Friday “without any outside consultation,” but he acknowledged that Meese’s attorney has asked several times for such a public statement, including “quite recently.”

A source close to McKay said Meese’s attorneys “have known of this decision for a period of time.” The source said they argued that McKay should tell the public as well because “we know it and you know it.”

This source said of McKay, “He’s concerned about the fairness factor. . . . He didn’t want people speculating about what he would or would not do with respect to these matters.”

The source said McKay could be reappointed or could retain his appointment to deal with any evidence that might surface after the grand jury is dismissed. McKay’s staff is debating whether to say in his public report that he might have obtained an indictment but did not do so because he was uncertain of winning a conviction, the source said.

Key Figures Balk

Several key figures in the criminal investigation of Meese, including his longtime friend, E. Robert Wallach, and Meese’s former financial manager, W. Franklyn Chinn, have refused to cooperate with McKay’s inquiry. Wallach and Chinn are under indictment in the Wedtech scandal.

The aides who stepped down Tuesday were concerned that Meese’s legal problems--he has been under criminal investigation for nearly 11 months--are hurting the Justice Department’s operations and image.

Among those who resigned was Assistant Atty. Gen. William Weld, who oversaw all federal criminal investigations, and Deputy Atty. Gen. Arnold Burns.

Meese had planned to announce replacements for Burns, Weld and departing Associate Atty. Gen. Stephen Trott, but the announcement was called off at the last minute without explanation.

Replacement Expected

The replacement for Burns was expected to be Arlin Adams, a former U.S. circuit judge in Philadelphia, department sources said. The replacement for Wells is to be James Knapp, a deputy in the Justice Department’s tax division who formerly worked in the criminal division. The replacement for Trott is to be Francis Keating, an assistant Treasury secretary for enforcement.

Meese would not discuss the reasons why the two top aides left, claiming that his conversations with them were confidential.

But he said he was “convinced” that his management “is supportive . . . and I’ll leave it at that.”

Meese told reporters that for him to resign would be “incompatible with the actual state of affairs,” and he cited “broad support” from law enforcement officials, from within the Administration “at the highest level” and from members of Congress.

The White House declined comment on McKay and Meese’s statements. And after President Reagan arrived at his mountaintop ranch near Santa Barbara, Deputy Press Secretary Leslye Arsht said only that “the President was notified by phone in the air. We have no reaction. He has always said he has confidence in Meese.”

More Good News

Meese received other good news Friday when Solicitor Gen. Charles Fried said he would remain at the Justice Department, even though Fried reportedly urged Meese to resign earlier in the week.

“I have concluded that while I am able to lead” the solicitor general’s office, “I should continue to do so,” Fried said. The New York Times reported that Fried had urged Meese to quit Wednesday but that Meese had rejected the suggestion. Fried’s statement did not endorse Meese.

The independent counsel said that if at the end of his investigation there remains “insufficient evidence to warrant a prosecution as to these or any other matters,” he will issue a report covering all the matters that have been under investigation.

“Based on the evidence developed to date, he (McKay) does not intend to recommend that the grand jury return an indictment against Meese as to the ‘Aqaba pipeline’ matter or as to matters relating to Mr. Meese’s investments, including the so-called ‘Baby Bells’ matter,” McKay’s statement said. The latter reference was to conflict-of-interest allegations stemming from Meese’s ownership of stock in companies created by the breakup of AT&T;, or “Ma Bell,” while he was in a position to make policy aiding those companies.

Procedures Cited

If McKay issues a report without obtaining an indictment, McKay said he would “refer all of those matters for review and action by the appropriate administrative authorities,” an apparent reference to Office of Government Ethics procedures.

The ethics office has put its investigation on hold of Meese’s initial failure to disclose investments in the “Baby Bell” companies pending McKay’s probe, said deputy director Donald Campbell.

If that proceeding is revived, the office could move to have Meese make a complete disclosure of those holdings, Campbell said.