Inquiry Into Campaign Funds Use Adds to Barry’s Woes : Probe: Authorities are looking into claims that money was misused and alleged attempts to silence a witness. D.C. mayor says he welcomes investigation.

Three months after Marion Barry’s triumphant return as mayor of this city following his imprisonment and treatment for cocaine use, federal authorities have launched a new investigation that raises questions about his future and that of a city that appears to be sliding into financial oblivion.

The FBI and local police are looking into reports of illegal use of campaign funds and alleged attempts to silence a witness by providing an arranged job. The episode includes several familiar features of the Barry scandal of several years ago, including a police “security detail” whose duties appear to go beyond physical protection.

There is also a leading role alleged for Cora Masters Barry, the woman who helped Barry in his much-acclaimed redemption from substance abuse. She is a college professor whom he married after his release from prison.

Barry’s return to the mayor’s office, after a stepping-stone stint on the City Council, stands as one of the most remarkable comebacks in recent political history--sometimes compared to that of the legendary James Curley, who once ran Boston from a jail cell.

The investigation being directed by U.S. Atty. Eric H. Holder Jr. has many wondering what will come next.

Barry’s new legal problems stem from allegations that his wife illegally converted some of his campaign funds for use by a relative.

The FBI and metropolitan police detectives are seeking corroboration for statements by a former housekeeper that Cora Barry directed her to divert a $2,000 political donation to the mayor’s brother-in-law and that the housekeeper later was pressured by Barry’s police security detail to retract her statements.

For the 59-year-old mayor, the new difficulties arise at a bad time.

With the city mired in debt, Barry is jousting with a newly minted congressional control board that is likely to impose tight constraints on his fiscal decisions--a severe setback to advocates of home rule. Anything that further tarnishes Barry’s image puts him in a weaker position vis-a-vis Congress, according to his supporters.

The federal inquiry also will intensify the spotlight on the man directing it, U.S. Atty. Holder, who--like Barry--is black. Holder has won immediate respect from District of Columbia residents and law enforcement officials for his authoritative handling of such high-profile cases as the indictment of former Rep. Dan Rostenkowski (D-Ill.), the once-powerful chairman of the House Ways and Means Committee.

The principal elements of the Barry case:

* Statements by former housekeeper Barbara Mouring that she and her teen-age son laundered a campaign check for Barry’s wife, first revealed by the Washington Post, would amount to a violation of both federal and local campaign finance laws.

* The FBI’s political corruption squad, working with local authorities, has subpoenaed records of the Washington business political action committee, which supported Barry in the 1994 election and worked closely with his campaign. The PAC allegedly wrote a check payable to Mouring’s son Darin so he could convert it to cash and, at Cora Barry’s direction, give the money to her brother, Walter Masters. Darin Mouring told the Post he never did any work for the committee.

* Barbara Mouring’s statements also implicate Barry’s security detail--members of the District of Columbia Police Department assigned to protect the mayor--in questionable actions going beyond their mission by trying to pressure Mouring to retract.

* In addition, Mouring claims that Yong Yun, a local businessman who has supported Barry, recently offered her a job as part of a concerted effort by those around Barry to obtain a retraction of her charges. Yun has denied doing so.

* Cora Barry has called Mouring a liar and denied knowledge of any cash given to her brother, Walter Masters. Barry says he welcomes Holder’s investigation because “there’s nothing been done wrong here.” He says that his wife will be cleared.

A central question to be resolved by investigators is the credibility of Mouring, 38, who worked for the Barrys as a live-in housekeeper from last July until two months ago, when she and the mayor’s wife said they had an unspecified falling-out. Mouring and her son have been kept in protective custody while the investigation continues.

Cora Barry has told reporters that she had tried to help Mouring with a housekeeper job while the latter was on probation for a misdemeanor theft charge.

The mayor’s wife herself has legal troubles in her background. Once head of the city’s Boxing and Wrestling Commission, she resigned in 1987 after pleading guilty to double-billing the city and a boxing organization for $2,680 in travel expenses. She was put on a year’s probation after paying restitution.

Yun has acknowledged that he met with Mouring recently to offer her a job. But he insisted to reporters that the offer included no conditions, such as recanting statements that were damaging to the Barrys.

However, the Post said one of its reporters overheard part of Yun’s conversation with Mouring from about 10 feet away in a parking lot and that the offer was linked to a retraction.

The investigation that led to Barry’s indictment and conviction on misdemeanor cocaine charges five years ago caused some complaints that the mayor had been “set up” by the FBI and a Republican Administration. The current inquiry, however, is not being pursued by federal authorities alone. It pointedly includes a squad of D.C. police detectives and is being run from the fifth floor of metropolitan police headquarters.

Further removing any element of race from the public’s perception, Holder--the federal prosecutor--is African American, unlike his two predecessors under Republican presidents. And Greg Jones, who heads the FBI’s public corruption squad in its Washington field office, also is black.

D.C. Police Chief Fred Thomas, who is black, announced last week that two veteran members of Barry’s security detail were being temporarily reassigned while authorities looked into Mouring’s allegations that the principal security officer had sought to pressure her into a retraction.

That officer, Ulysses Walltower, who was temporarily reassigned by Thomas after Mouring’s complaints, had contradicted other witnesses at Barry’s 1990 trial by testifying that he never saw Barry use cocaine or do anything illegal. Described as intensely loyal to Barry, Walltower rejoined the mayor’s detail after Barry completed his prison sentence and was reelected as mayor.

In his inaugural address last Jan. 2, Barry linked his own recovery and reelection to the city’s bouncing back from its problems.

“If Marion Barry can do it, our entire city can get up off its knees and rise up and believe in itself again and do for itself again,” he said.

But hard realities have set in. Reflecting the sad state of the city’s finances as it faces a $722-million budget shortfall, three Wall Street credit rating services have downgraded the city’s credit worthiness. The latest move came earlier this week when the Standard & Poor’s ratings group lowered D.C. bonds to “junk” status.

The mayor, after initially refusing to address Mouring’s allegations, went on local television last week to say: “I welcome the investigation. The truth will come out.”

He continued: “Nothing was done that was illegal or wrong by anybody except Mrs. Mouring in her desperation. . . . She said to several people she was going to try to embarrass us.”