Thornburgh Asks Special HUD Probe Counsel : Housing program: At issue is whether former Secretary Samuel R. Pierce Jr. made grants out of political favoritism.

Atty. Gen. Dick Thornburgh Thursday asked a special court to appoint an independent counsel to investigate whether former Housing and Urban Development Secretary Samuel R. Pierce Jr. conspired with other HUD officials to defraud the United States.

Thornburgh asked the three-judge panel to name a prosecutor to look into the way Pierce and other HUD officials under former President Ronald Reagan handled the Moderate (income) Rehabilitation Program, a multimillion-dollar housing program.

However, the attorney general said he had found “no reasonable grounds” to further investigate whether Pierce had perjured himself in testimony before a House Government Operations subcommittee.

Thornburgh acted in response to a request last Nov. 3 by a majority of the Democrats on the House Judiciary Committee. They sought an outside investigation of whether Pierce and HUD officials “conspired to deprive the United States of their loyal and faithful services” by making HUD grants on the basis of political favoritism and without regard to federal law.

Their request triggered a preliminary inquiry by Thornburgh under the Ethics in Government Act. They also asked that the perjury allegations be examined.

Thornburgh noted that an April, 1989, audit of the Moderate Rehabilitation Program by HUD’s inspector general cited “a widespread perception among (housing) developers and persons in local Public Housing Authorities that the funds were being disbursed in disproportionate amounts to projects backed by prominent Republicans acting as consultants or by former HUD officials.” The audit covered the years 1984-1988.

Although Thornburgh did not specify what other former HUD officials should be scrutinized, he told the special court that Deborah Gore Dean, Pierce’s executive assistant from June, 1985, through July, 1987, had been quoted as saying the program was “set up and designed to be a political program” that was run “in a political manner.”

Both Pierce and Dean invoked their Fifth Amendment protection against self-incrimination in refusing to testify last year before the employment and housing subcommittee, headed by Rep. Tom Lantos (D-San Mateo), which was looking into HUD’s critical audit of the program.

Thornburgh, who served alongside Pierce in the Cabinet during the last six months of Reagan’s presidency, complained to the judges that he had “very little latitude” in deciding if an outside prosecutor was needed.

Thornburgh said he had to seek the appointment “unless I can determine that there are no reasonable grounds to believe that further investigation is warranted.”

He also complained that he was not permitted to use such law enforcement tools as grand juries, immunity grants or issuing subpoenas.

Pierce supplied written answers to questions submitted to him during the inquiry, but he and Dean declined to be interviewed by the Justice Department, Thornburgh said.

Robert E. Plotkin, Pierce’s attorney, voiced disappointment that an independent counsel had been sought “at all,” but praised Thornburgh’s conclusion that “the ridiculous perjury charges are without any merit.”

Plotkin, who declined to discuss why Pierce had refused to be questioned by Thornburgh’s investigators, noted that the attorney general “felt constrained by the limits of the statute” in seeking the appointment, adding that there was “no mention of any overwhelming evidence that Pierce did anything wrong.”

Lantos, the House subcommittee chairman, said he welcomed Thornburgh’s decision, adding that “an independent counsel is in the best position to fully investigate and resolve questions of possible criminal wrongdoing.”

Pierce, the only black in Reagan’s Cabinet who served throughout both terms, initially testified before the House panel last May that he did not have “hands on” involvement in the Moderate Rehabilitation Program.

The House Judiciary Democrats cited five instances in which Pierce allegedly intervened personally in decisions on various HUD programs.

Thornburgh, contending there were no reasonable grounds to further probe perjury, said three of the five instances involve Pierce’s alleged intervention in programs other than moderate rehabilitation.

Moreover, Pierce’s statement disclaiming “hands on” involvement “is fundamentally ambiguous, which makes a perjury prosecution essentially impossible,” the attorney general said.

Under the law, however, the three-judge panel, in naming an outside prosecutor, is free to structure the inquiry any way it chooses.

Thornburgh’s decision marked the second time that an independent counsel has been sought during the Bush Administration. Last year, independent counsel Dan K. Webb decided there was no evidence to support prosecuting James W. Cicconi on charges he accepted a $5,000 loan from a Baltimore brokerage that required no repayment.

Cicconi, who is a presidential assistant and deputy to chief of staff John H. Sununu, was accused by a former chairman of the brokerage who is serving a 12 1/2 year prison term for fraud and racketeering.