Judge Charges Justice Dept. Misconduct : Court: Ruling in payola case leaves prosecutors without key witness. Controversy helps prompt new federal guidelines on internal investigations.

Federal prosecutors are scrambling to salvage a major payola case that was gutted by a Los Angeles judge who chastised the Justice Department for pursuing the case in an unethical manner.

“This is a case where the government’s misconduct was as outrageous and egregious as anything that I have seen,” said U.S. District Judge James M. Ideman, a 1984 appointee of President Ronald Reagan with a reputation as a tough law and order judge.

“The misconduct was extremely premeditated; it was repeated over and over again over a period of weeks and even months,” Ideman said at a hearing earlier this month. “The government having been caught with smoking gun in its hand denied that--first denied that it had a gun, and then they denied that it smoked . . . and to this day the government has not admitted their fault.”

The stinging rebuke Ideman issued Dec. 6 was only the most recent he has leveled in a high-profile prosecution that was filed four years ago against Joseph Isgro of Glendale, who was once one of the nation’s leading independent record producers.

The troubled prosecution against Isgro is one of several recent instances in which the actions of government attorneys have been harshly criticized by federal judges, prompting Atty. Gen. Janet Reno to announce last week that the Justice Department would swiftly change procedures to expedite internal investigations of alleged misconduct by department lawyers.

After a lengthy investigation, the government lodged a 57-count indictment against Isgro in November, 1989, charging him with racketeering, conspiracy to defraud Columbia records, making undisclosed payola payments to radio stations, mail fraud, filing false tax returns, conspiracy to distribute cocaine and conspiracy to impede the Internal Revenue Service.

Isgro pleaded not guilty and contended the government was using him as a “fall guy,” rather than prosecuting major record company officials who were involved with payola.

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Ten months later, in September, 1990, Ideman dismissed the case against Isgro and two other men after learning that veteran Justice Department lawyer William S. Lynch, who had been sent from Washington to be the lead prosecutor, concealed information that cast serious doubts on the merits of the case. Prosecutors are required by law to turn over any material that might exonerate a defendant.

Ideman ruled that Lynch violated Isgro’s rights by failing to disclose that in an earlier San Francisco case the record promoter’s former tax lawyer, Dennis DiRicco, had given testimony which Ideman characterized as “a complete and detailed denial of any wrongdoing . . . by any of the defendants in this case.”

The judge emphasized that at a subsequent Los Angeles grand jury session, Lynch “extracted . . . diametrically opposed testimony” from DiRicco that played a key role in obtaining an indictment against Isgro.

Ideman said the government had attempted to lull the defense with “false assurances” that there was no exculpatory material and that Lynch “engaged in active misrepresentation to the court regarding the existence of such material.”

The judge’s denunciations were particularly embarrassing to the Justice Department because Lynch had been brought in specially to handle the Isgro case, after the department fired veteran organized crime prosecutor Marvin Rudnick, one of the attorneys who had spearheaded probes into possible organized crime penetration of the record industry. Rudnick, now in private practice in Pasadena, has consistently maintained that he was simply doing his job and said department officials sacked him in response to pressure that his investigations were getting too close to people in high places.

Two years later, in September, 1992, a federal appeals court reinstated the Isgro case, saying recent Supreme Court decisions restricted the ability of federal judges to dismiss cases because of prosecutorial misconduct.

The appeals court said Lynch’s actions “clearly rose to an intolerable level,” despite the prosecutor’s assertion that he had made an honest mistake, and suggested the Justice Department examine his conduct and that Ideman should consider sanctioning him. Nonetheless, the appeals court said it would be an unwarranted windfall to the defendants to dismiss the case because they had not been legally prejudiced by Lynch’s misconduct.

Ideman delivered his latest salvo after Isgro’s attorney, Donald M. Re, asked the judge to use his supervisory powers to dismiss the case again. Ideman said he disagreed with the appeals court and considered its ruling so loose as to encourage unethical conduct by prosecutors. But he said he was bound to follow it.

“I frankly would like to dismiss the case again, not because I want to give a particular break to these defendants . . . but to send a very clear message to the Department of Justice,” Ideman said. “From Idaho to Chicago to San Francisco, these cases are popping up all over the country, and the thinking of some of us on the bench is perhaps this is a symptom of a Justice Department that is simply out of control.”

Ideman specifically said that his comments regarding the Isgro case were limited to Lynch and that he was not making any criticism of Assistant U.S. Atty. Drew Pitt of Los Angeles.

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Although he declined to dismiss the case, Ideman took other action that was almost as severe. He ruled that in a new trial scheduled for Jan. 18 the government could not present any testimony from DiRicco. Moreover, Ideman told prosecutors they could not call any new witnesses, who might fill in critical holes created by DiRicco’s absence.

“I don’t want them (the government) to have improved their position” by additional investigation conducted while the case was on appeal after it was dismissed because of government misconduct, the judge said.

The government has until Jan. 5 to file a notice of appeal on Ideman’s ruling. Pitt said an appeal might be filed because the judge’s action “guts the indictment.”

He said he considered Ideman’s ruling prohibiting new witnesses unusual and said it represented a windfall to the defendants. “I have never seen it before,” Pitt said.

Asked if the government could go forward without DiRicco, Pitt responded in an interview: “We’re evaluating that now. There are some counts that will be in trouble. . . . A judgment call has to be made whether to go forward and take our lumps,” without the key witness.

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At the Dec. 6 hearing, Ideman acknowledged the severity of his ruling. “If Mr. DiRicco does not testify, apparently it will have a very deleterious effect on your case on some counts and maybe most counts, but I think the price is worth paying,” the judge said. “The citizens of this country should be entitled to think that its attorneys and its Department of Justice operate under the very highest standards.”

Ideman also accused the Justice Department’s Office of Professional Responsibility of engaging in a whitewash by failing to complete its internal probe of Lynch’s actions 39 months after the judge first dismissed the case because of the prosecutor’s misconduct.

“From the attitude the Justice Department has taken in this case, I guess they feel that being a prosecutor means never having to say you’re sorry,” the judge said. Pitt said he had asked why the investigation had not been concluded and was told by department officials that the probe had been suspended while appeals in the Isgro case were pending and that the appeals had not been concluded until last May.

Reno responded to the criticism by saying: “Delays in evaluating allegations of professional misconduct, such as the delay described by Judge Ideman, are not acceptable.” She issued a statement saying that the department’s policy would be changed immediately and that whenever a federal trial judge seriously criticizes the department, the Office of Professional Responsibility should launch an investigation and complete it expeditiously regardless of whether the judge’s decision is being appealed.

A Justice Department spokesman said this week that department officials did not anticipate concluding the internal investigation of Lynch’s conduct before the end of the year.