Bradley, Coelho Targets of U.S. Criminal Probe

Preliminary criminal investigations of both Los Angeles Mayor Tom Bradley and House Majority Whip Tony Coelho (D-Merced) have been opened by the Justice Department in Washington in connection with their financial dealings with Drexel Burnham Lambert, Inc., The Times has learned.

Although details of the investigations are not known, a central question being examined is whether Bradley and Coelho, who have acknowledged that they made investment deals through Drexel Burnham, illegally received preferential treatment. The inquiry is also expected to examine whether investment opportunities may have been made available to the two Democratic officeholders with the hope or expectation of favored treatment from them in return.

The decision to open a preliminary investigation of Bradley represents a significant step beyond the decision last week by the U.S. attorney’s office in Manhattan to subpoena records of the mayor’s transactions with Drexel Burnham.

That subpoena was issued in connection with a “broad-based” inquiry into the investment firm’s dealings with politicians. Launching a preliminary investigation, by contrast, is the first official step in the Justice Department’s formal procedure for deciding whether the facts warrant no further action or instead justify launching a full-scale grand jury investigation leading to possible criminal prosecution.

Because of the sensitivity of even preliminary investigations of political figures, they normally are authorized only after a thorough study and after the attorney general gives his approval. The Justice Department treats such investigations with utmost secrecy.

The preliminary investigations of Bradley and Coelho are especially sensitive since they involve a Republican Administration examining the conduct of two of the nation’s more prominent Democratic officials.

The Justice Department declined to comment on the matter.

Bradley spokesman Bill Chandler said that “the mayor has no knowledge of any such investigation.” Bradley has regularly refused to discuss specifics of his holdings until the investigations into his conduct are completed.

Coehlo was unavailable for comment, but a spokesman, Fred Hatfield, said that the congressman is certain he is not the subject of a preliminary investigation.

Whatever the outcome of the preliminary investigations, the decision to launch them is another political blow to both men, whose financial dealings have come under increasing scrutiny in recent weeks.

The investigations are being conducted in Washington by the Justice Department’s Public Integrity Section against the backdrop of an unusual disagreement between U.S. attorneys’ offices in Los Angeles and New York over whether facts in the case warrant such serious action, sources said.

In Los Angeles, U.S. Atty. Robert Bonner reportedly concluded that the available facts did not warrant preliminary inquiries.

However, sources said that in New York, Acting U.S. Atty. Benito Romano concluded that facts developed in his office’s long-running investigation of Drexel Burnham warranted inquiries into transactions with the investment firm by both Bradley and Coelho. But Romano’s office lacked venue to pursue the investigations because the transactions involving the two Democrats took place in Los Angeles.

To resolve the issue, sources told The Times, the Public Integrity Section--a Justice Department unit responsible for looking into allegations of corruption against judges and other political figures--studied the two cases and concluded that it should take jurisdiction and conduct preliminary investigations.

Regardless of the outcome of these investigations, both Bradley and Coelho face other official inquiries involving their investments and public disclosure requirements that could cause political and legal problems.

Bradley, who last month won an unprecedented fifth term as mayor of Los Angeles, faces several investigations.

The Securities and Exchange Commission has reviewed records that indicate that the mayor may have received favored treatment on at least one occasion in 1986, when he invested in Worlds of Wonder, a Fremont-based toy firm whose stock jumped 50% on the first day it was sold to the public in June, 1986.

An inquiry into the allegations against Bradley by City Atty. James K. Hahn revolves around tens of thousands of dollars in fees that Bradley collected for serving on the boards of Far East National Bank and Valley Federal Savings & Loan Assn., both of which had dealings with the city.

Bradley, as well as Coelho, also may face questions about financial dealings involving Columbia Savings & Loan Assn., a Beverly Hills firm being investigated in connection with Drexel’s indicted “junk bond” king, Michael Milken, a friend of Coelho’s.

A source close to the mayor has said that the office of Columbia Vice Chairman Abraham Spiegel served as a conduit of information between Bradley and one of his stockbrokers.

Spiegel’s son, Columbia Chairman Thomas Spiegel, a close associate of Milken, has acknowledged assisting Coelho by recommending--and then helping finance--a highly unusual purchase of a $100,000 junk bond issued by Drexel Burnham.

Coelho has admitted that he bought the junk bond with the help of a $50,000 loan from Columbia that he failed to disclose as required by law.