Allegations Against Meese, Others in Collapse of Software Firm : U.S. Probing Possible Perjury in Inslaw Case

Government lawyers are investigating possible perjury by officials during sworn testimony about a firm’s charge it was driven into bankruptcy by the Justice Department.

Sources who spoke only on condition they not be identified said the Justice Department’s public integrity section is examining conflicting testimony by two former federal bankruptcy trustees and Justice Department officials during a U.S. Bankruptcy Court proceeding last year involving Inslaw Inc.

Public integrity investigators also have allegations in the Inslaw case against Atty. Gen. Edwin Meese III. Those allegations were relayed to the public integrity lawyers by independent counsel James C. McKay, who has been investigating Meese for almost a year.

“We are not conducting an investigation with respect to the Inslaw matter,” said Carol Bruce, McKay’s deputy. “Any information we have received relating to it we have referred to the Justice Department’s public integrity section.”

Inslaw alleges that Meese arranged to have their attorney, Leigh Ratiner, dismissed from his Washington law firm in 1986 after Meese discussed the case with one of Ratiner’s partners, Leonard Garment.

Garment, who described the allegation as “pure baloney,” said he was interviewed by public integrity lawyers about the allegation two months ago.

If the public integrity section finds the allegations about Meese are serious enough to warrant further investigation, it would send them back to McKay, according to a source close to the independent counsel.

Revenge Alleged

The perjury investigation is the latest twist in a complicated case in which Inslaw Inc. charged--and a bankruptcy judge, George F. Bason Jr., found--that the Justice Department stole computer software the company had provided under a $10-million contract with the department.

Bason ruled that the villain was a fired Inslaw employee who went to work for the Justice Department with a consuming desire for revenge.

Bason ordered the government to pay Inslaw $6.8 million for use of the software. He ruled last June that the Justice Department had engaged in “trickery, fraud and deceit’ to steal the software. The case has been appealed.

Lawyers for Inslaw have alleged that Cornelius Blackshear, a former U.S. trustee, lied in sworn depositions when questioned about an attempt to force Inslaw’s liquidation, sources said.

But the inquiry is focused on all the conflicting testimony in the case.

Blackshear, a bankruptcy judge in New York, changed his testimony about events that occurred when he was a U.S. trustee, in an affidavit and a second sworn deposition.

Inslaw, which filed for reorganization under the U.S. Bankruptcy Code in early 1985, charged in another action before Bason that the Justice Department had deliberately withheld $1.77 million in payments on the contract to computerize 94 U.S. attorneys’ offices.

Last year, Bason accepted Inslaw’s contention that Thomas J. Stanton, head of the Executive Office of U.S. Trustees, also tried to pressure Blackshear into helping liquidate Inslaw’s assets--a move that would have put the company out of business.

Retracted Testimony

When he announced his decision, Bason rejected Stanton’s sworn denial of Inslaw’s allegation that he had asked Blackshear to send his chief deputy to Washington to convert Inslaw’s bankruptcy reorganization into a liquidation proceeding.

“I found Mr. Stanton’s testimony in crucial respects to be evasive and unbelievable . . . the court simply finds that testimony to be utterly incredible and unworthy of belief,” said Bason, who left the bench earlier this year when his court appointment was not extended.

On March 25, 1987, Blackshear testified in the deposition that he refused Stanton’s request because it was improper. The next day, Blackshear signed an affidavit to retract the testimony, stating that he was confusing Inslaw with another bankruptcy matter.

Blackshear gave a subsequent sworn deposition consistent with the affidavit. Both of the judge’s depositions were given in Blackshear’s chambers. He did not return a reporter’s repeated telephone calls.

Bason noted that Blackshear changed his testimony after receiving two telephone calls from William C. White, then the U.S. bankruptcy trustee in Alexandria, Va., who allegedly refused Stanton’s initial request to liquidate Inslaw.

“The inference is rather strong that Mr. White was trying to persuade Judge Blackshear that Mr. White’s recollection was correct and Judge Blackshear’s recollection was incorrect,” Bason said in his June 12, 1987, ruling from the bench.

“I believe that Judge Blackshear’s original testimony is accurate and his recanted testimony is inaccurate,” Bason said, calling the judge’s recantation “an honest mistake.”

Evidence of Retaliation

Bason also found that White may have mistakenly remembered events when he denied that Stanton pressured White to liquidate Inslaw. Bason ruled that “people do have a capacity to forget things when it is painful for them to remember--or maybe even inconvenient for them to remember.”

The judge found there was “clear and convincing” evidence that Stanton retaliated by White’s refusal by refusing to expand White’s staff in Alexandria.

Anthony Pasciuto, a former Justice Department official who also testified in the Inslaw case, meanwhile, has provided a fresh allegation that Blackshear lied when he retracted his first story.

Pasciuto, who had been Stanton’s deputy director for administration, charged that Blackshear told him last summer, “I felt the easiest thing I could do was recant.”

“I felt less people would be hurt if I just bailed out,” Blackshear was quoted as saying in a letter by Pasciuto’s attorney, Gary Simpson, to the Justice Department.

“I thought that by changing my story I would hurt less people,” Simpson quoted Blackshear as telling Pasciuto.

Retreated From Story

Pasciuto has since joined a New York financial firm. He left the government after the Justice Department’s Office of Professional Responsibility tried to dismiss him for violating department rules by talking about the Inslaw case with William Hamilton, the company’s president, and Hamilton’s wife, Nancy.

Pasciuto told the Hamiltons last year that he had information from Blackshear about pressure to liquidate the firm. But he retreated from this story during his courtroom testimony.

On the verge of tears in Bason’s courtroom, Pasciuto had testified that he made up the story because he was angry with Stanton about delaying his long-awaited promotion.

Simpson included the charge about Blackshear in a March 17 letter he wrote to then-Assistant Atty. Gen. Arnold I. Burns to protest plans to fire Pasciuto, who was allowed to resign.

The conflicting testimony of Blackshear, White, Stanton and Pasciuto is the subject of the public integrity inquiry, according to sources.

Bason ruled that Stanton sought to liquidate Inslaw to “curry favor” with higher Justice Department officials after he spoke with C. Madison Brewer, who administered the Inslaw contract. His conduct has been the subject of a long-standing investigation by the department’s Office of Professional Responsibility.

In a subsequent ruling last year, Bason concluded that Brewer was “consumed by hatred and an intense desire for revenge” because he had been fired by Inslaw before going to work for the Justice Department.

Bason ruled that Brewer and others in the department stole enhancements to Inslaw’s case-tracking computer program known as PROMIS and engaged in “an outrageous, deceitful, fraudulent game of cat and mouse” designed to destroy Inslaw.