Investigation of Ex-HUD Chief Pierce Grows : Ethics: Dealings with his former New York law firm and a onetime aide will now also come under the scrutiny of an independent counsel.

The 10-month-old federal investigation of former Housing and Urban Development Secretary Samuel R. Pierce Jr. was expanded Monday to include Pierce’s relationship with his former New York law firm and potential fraud in a fourth housing program.

The investigation now will include Pierce’s dealings with Battle, Fowler, Jaffin & Kheel, the law firm, and with Lance Wilson, once his executive assistant at HUD.

In 1989, the housing subcommittee of the House Government Operations Committee heard allegations that Wilson, after leaving HUD to join the New York investment banking firm of PaineWebber Inc., recommended that Paine Webber hire Pierce’s former law firm to help underwrite HUD bonds.

Subsequently, PaineWebber received a $1.3-million contract to advise HUD on bond sales. The banking firm and the law firm both denied any improprieties in the arrangement, as did Wilson.

In November, 1989, the House panel, in a unanimous report, charged that “during much of the 1980s, HUD was enveloped by influence peddling, favoritism, abuse, greed, fraud, embezzlement and theft.” It concluded that Pierce had helped steer federal funds to his former law firm as well as to friends and well-connected Republican consultants.

The scope of the investigation was also broadened Monday to include the multifamily housing coinsurance program during Pierce’s eight years at HUD’s helm during the Ronald Reagan Administration. Under the coinsurance program, HUD guaranteed mortgages for developers who build apartment projects for low-income families.

Earlier, the House panel heard allegations that Pierce, against the advice of HUD officials, rescinded the suspension of a firm that was one of the largest participants in the coinsurance program. The firm later defaulted on $500 million in loans coinsured by HUD.

The inquiry’s expansion is the second since an independent counsel was appointed last March to investigate Pierce’s conduct. It also gives investigators the authority to try to determine whether Pierce or other HUD officials or associates committed perjury or other crimes in connection with the coinsurance program and three others already under investigation.

Atty. Gen. Dick Thornburgh requested the expansion of the investigation from the U.S. Circuit Court of Appeals for the District of Columbia. The three-judge panel oversees the work of independent counsel Arlin M. Adams.

Previously, Adams was authorized to investigate allegations of favoritism involving the moderate rehabilitation program, the urban development action grant program and the HUD secretary’s discretionary fund.

Adams, a former federal judge in Philadelphia, was appointed by the appellate panel after a congressional committee had heard evidence that lucrative loan guarantees, rent subsidies and tax credits routinely had been granted to developers who had Republican connections.

All programs in which abuses were found were either abolished or drastically revised by the current HUD secretary, Jack Kemp, who succeeded Pierce.

Adams, in a brief statement, said that he would pursue the new areas “with all due diligence.”

“This thing is going to go on for another two years,” lamented an attorney for a former Pierce aide, who declined use of his name.

Paul L. Perito, Pierce’s attorney, discounted the expansion of the inquiry by saying it was mostly an effort by the court to clarify Adams’ mandate.

“The expanded order is neither an indictment nor a conviction,” Perito said. “We are fully confident that at the conclusion of this expanded investigation the independent counsel will find that Secretary Pierce did not violate any federal laws.”

Staff writer Ronald J. Ostrow contributed to this story.

BACKGROUND

In 1988, the inspector general of the Department of Housing and Urban Development issued reports alleging favoritism in the awarding of housing grants during the administration of outgoing HUD Secretary Samuel R. Pierce Jr. The reports prompted hearings by a House panel, which in November, 1989, concluded that during Pierce’s tenure, HUD was “enveloped by influence peddling, favoritism, abuse, greed, fraud, embezzlement and theft.” The committee referred a list of allegations to the Justice Department for review. A panel of appellate judges last March appointed Arlin M. Adams to begin a criminal investigation of Pierce.