‘October Surprise’ Inquiry Hits Obstacle : Congress: Republicans block move to launch Senate investigation into the alleged 1980 hostage scheme. Plans for the probe are now in limbo.

Charging that Democrats were trying to “finance a fantasy,” Senate Republicans on Friday blocked an investigation into allegations that Ronald Reagan’s 1980 campaign conspired with Iran to delay the release of American hostages until after the November election that unseated President Jimmy Carter.

By a vote of 51 to 43, the Senate failed to overcome a Republican filibuster of a measure that would have authorized $600,000 for a formal inquiry into the so-called “October Surprise” by the Senate Foreign Relations Committee’s subcommittee on Near Eastern and South Asian Affairs.

With five of the Senate’s 57 Democrats absent, the nearly straight party-line vote fell nine short of the 60 votes needed to end the filibuster led by Republican committee members Richard G. Lugar of Indiana and Jesse Helms of North Carolina.

The Republican position was angrily reiterated earlier by Sen. Mitch McConnell (R-Ky.), who said the rumors of an arms-for-hostages deal ultimately designed to prevent Carter from being reelected had been kept alive over the years by the “ravings” of “liars, felons and flat-out flakes.” The Senate, he said, “should not finance a fantasy.”

Sen. Terry Sanford (D-N.C.), the subcommittee’s chairman, countered that the allegations were so serious that the only way to lay them to rest was through an investigation empowered to examine secret documents and subpoena reluctant witnesses.

“Two things did occur,” Senate Majority Leader George J. Mitchell (D-Me.) added. “We know the release of the hostages was delayed until moments after President Reagan took office and we know that shortly after taking office President Reagan authorized the transfer of arms to Iran.”

Only an investigation can determine whether those two events “occurred independently and totally coincidentally, or as a result of a secret agreement,” Mitchell said.

Although the failure to overcome the filibuster threw those efforts into political limbo in the Senate for at least the remainder of the year, congressional attempts to investigate the allegations will continue. Democrats are expected to push through a similar resolution next week that would authorize a parallel investigation in the House, and Senate sources say Sanford’s subcommittee may still move forward with a scaled-back inquiry using existing committee funds.

However, with Republicans refusing to cooperate, the highly partisan cast the issue has taken underscores the political perils that Democrats may court if an elaborate and expensive investigation leads nowhere and ultimately is perceived as no more than an election-year ploy.

Earlier in the day, Republicans sought to frustrate Democratic attempts to create the momentum for a favorable vote against the filibuster by invoking a rarely used Senate rule to force the suspension of an hearing by Sanford’s subcommittee into the “October Surprise” allegations.

Under the rules, committees must have the Senate’s permission to hold formal hearings when Congress is in session. Although such permission usually is granted routinely, any senator may keep a hearing from taking place by filing an objection with the Senate leadership.

Gary Sick, a former National Security Council aide whose research into the “October Surprise” allegations prompted calls for congressional investigations, was testifying before the subcommittee when a Republican senator whose name was not disclosed filed an objection.

That prompted an outraged response from Sen. John Kerry (D-Mass.), who accused the Republicans of “running scared” and keeping the Senate from doing its duty because of fears of what the probe might uncover.

“If I were a Republican with nothing to hide and nothing to fear, I’d be screaming for an investigation as fast as it could take place. . . . What are they frightened of?” Kerry asked.

Before the hearing ended, Sick told members of the panel: “Based on my research, I believe there is substantial evidence that a secret deal was carried out during the election of 1980.”

Sick, who served in the Carter, Gerald R. Ford and Reagan administrations, noted that a key figure in the alleged scheme was under federal surveillance at the time and that sealed records of this person’s movements could shed new light.

Cyrus Hashemi, a New York businessman whom Sick said acted as an intermediary with Iran for both Carter and Reagan, was under FBI and Customs Service surveillance in October, 1980.

Hashemi has since died. But sealed records from a telephone tap and a surveillance camera in his office could confirm or disprove allegations others have made about his activities, Sick said. Those records could be made available to an official investigation with subpoena power, he suggested.