Defense Scandal Heats Up, Reagan Calls In Top Aides : President ‘Upset’ by Revelations

An upset President Reagan summoned top Administration officials to the White House today to demand a vigorous investigation into the unfolding scandal over allegations of defense-contracting fraud, his spokesman said.

White House spokesman Marlin Fitzwater said Reagan met at 9:15 a.m. in the Oval Office with Vice President George Bush, Atty. Gen. Edwin Meese III, FBI Director William S. Sessions, U.S. Atty. Henry Hudson, Assistant Atty. Gen. Edward Dennis, the head of the Justice Department’s criminal division, and other key officials to stress his call for an exhaustive investigation.

Reagan, who had not been informed of the 2-year-old investigation until Wednesday, directed the Justice Department that day “to leave no stone unturned” in ferreting out the alleged bribery in securing defense contracts, which Sen. John W. Warner (R-Va.) characterized as “rampant bribery in the government.”

“I’m shook to the shoes about this fraud case,” Warner said Wednesday, apparently unaware that a television microphone was picking up his remarks. He said there were “many cases where they paid $500 to $1,000 to a government employee for providing proprietary information and then went out and sold it for $40,000 to $50,000. They buy them cars, pay their bills.”

Reagan ‘Is Upset’

Warner, a former Navy secretary, made the remarks to Sen. Sam Nunn (D-Ga.) during a Senate committee hearing.

Fitzwater said the investigation already launched is widespread in “depth and scope.”

“The President is upset by the revelations of this investigation,” Fitzwater said. “From the previous reports we’ve already seen . . . we’re aware of the breadth and scope of this investigation.

“But it certainly poses an internal security problem and broad fraud and abuse problem of dimensions that have to be dealt with forthrightly,” the White House spokesman said. He said he was not at liberty to expand on any details when asked what the internal security problems were.

Fitzwater said that during the 30-minute Oval Office meeting, the officials basically “summarized the status” of the investigation initiated by the Naval Investigative Service and pursued by the FBI. “We can’t go into any details of the investigation . . . in terms of what was told to the President,” he added.

200 Subpoenas Served

The Justice Department served about 200 subpoenas Wednesday and today on military contractors and individuals, following up on 38 searches Tuesday at the homes and offices of at least five military officials and dozens of consultants and contractors, department sources said.

Administration sources said indictments are expected soon, possibly beginning within three to four weeks.

Congressional sources said the newly disclosed inquiry into allegations of bribery and corruption in the procurement of electronics and aircraft systems could soon spread to Capitol Hill with searches in the offices of several members of Congress or their aides.

The 2-year-old investigation began to become public Tuesday when agents of the FBI and Naval Investigative Service conducted three dozen court-ordered searches in 12 states and in Washington, confiscating records from the offices of two senior Pentagon officials, a number of private consultants and 14 defense contractors.

A knowledgeable source said the investigations revolve around half a dozen high-priced defense industry consultants, including Melvyn Paisley, the Navy’s former procurement chief who left the Pentagon in the spring of 1987 and now consults for McDonnell Douglas and other contractors.