Special Counsel Sought in Ronald Brown Probe : Cabinet: Atty. Gen. Reno seeks full investigation of commerce secretary’s finances. He denies any wrongdoing.

Atty. Gen. Janet Reno has asked for appointment of an independent counsel to determine if Commerce Secretary Ronald H. Brown has violated federal law in his private financial dealings or in his reports of those transactions, the Justice Department said Wednesday.

Reno, announcing the conclusion of a 90-day preliminary inquiry by the FBI, said that a full-scale grand jury investigation by an outside counsel first should consider whether Brown broke any laws “with his acceptance of things of value” from businesswoman Nolanda Hill and a company in which both formerly held an interest.

The investigation also should focus on allegations that Brown filed inaccurate annual financial disclosure reports as a Cabinet member and made false statements on his loan application to purchase a townhouse two years ago, the attorney general said.

Brown--the fourth high official of the Clinton Administration, including the President, to be placed under such scrutiny--said he was disappointed by Reno’s action but expressed confidence he would be exonerated.

“I have never engaged in any official act to further my personal financial interests, there have been no conflicts of interest and I have complied in good faith with my financial disclosure obligations,” Brown said in a statement.

President Clinton, whose financial affairs before he came to Washington are being examined by an independent counsel in the Whitewater case, gave Brown a vote of confidence and said that he should remain in office during the inquiry.

“Secretary Brown’s success as secretary of commerce is unparalleled,” the President said. “Through his service, the department has expanded opportunities for American businesses in this country and abroad. I know him to be a dedicated public servant.”

Besides investments by Clinton and his wife, Hillary Rodham Clinton, in an Arkansas real estate venture, other independent counsels are investigating the activities of Housing and Urban Development Secretary Henry G. Cisneros and former Agriculture Secretary Mike Espy.

Cisneros is under investigation for allegedly providing the FBI with false information about thousands of dollars that he paid to his former mistress, Linda Medlar, and Espy resigned last year following allegations that he had accepted favors from companies regulated by his department.

Under provisions of the Ethics in Government Act, a three-judge federal panel is expected to follow Reno’s recommendation by naming an outside counsel for the Brown inquiry with assistance from a grand jury and a team of FBI agents.

Brown, the former Democratic National Committee chairman and key player in Clinton’s 1992 election, will be investigated for his business activities chiefly in communications and investments before he joined the Cabinet early in 1993.

Questions have been raised about a large payment he received from Hill, a former business partner, when he severed his ties to their Washington-based First International Communications Corp., which owned television properties and was involved in investment banking.

Although Brown invested no money in the venture, Reno said that the buyout of his 50% interest brought him nearly $500,000. It included Hill’s repayment of a $190,000 loan for which Brown was responsible, and which she made while defaulting on a $24-million obligation to the government by another of her companies, Corridor Broadcasting.

“During our preliminary investigation,” Reno said, “we received information challenging the $1-million valuation of First International. We also received information that the money used to pay Secretary Brown had been taken from other corporations owned or controlled by Hill [and] that there may have been some linkage between the payments to Secretary Brown and his official position.”

Although Brown was cooperative, “a number of witnesses have declined to cooperate fully,” Reno said. It is essential, therefore, for a special counsel to have the services of a grand jury to try to enforce cooperation, the attorney general said.

Reno said that these complex financial transactions by Hill as well as Brown should be fully examined. In addition, Brown’s failure to report them completely and accurately should be investigated, although “there is evidence tending to suggest that Secretary Brown lacked criminal intent in his failure to disclose this information,” she said. His omissions would not be illegal if they were found to have been inadvertent or accidental.

Another inaccurate disclosure that should be investigated, she said, is Brown’s mislabeling of the location of property held by Potomac Housing Fund Ltd., in which Brown held an interest.

The Times disclosed last month that Brown reaped generous tax breaks from this investment, which he reported as being situated in Potomac, Md., a high-income community outside Washington. However, the property in question actually is located in a low-income neighborhood of Landover, Md., and has been declared partly “unfit for human habitation,” according to court records.

Although “these inaccuracies may not have been deliberate,” it should properly fall to an independent counsel to determine if any “material, willful misstatements” were included on Brown’s financial disclosure reports taken as a whole, the attorney general said.

As to another Times disclosure--that Brown failed to report that his interest in Kellee Communications Inc. was linked to AT&T--Reno; cleared Brown of any impropriety. Critics noted that Kellee, which operated pay telephones at Los Angeles International Airport, was a business partner of AT&T;, which had important financial interests pending at the Commerce Department.

However, Reno said, “we found no support” for any conflict of interest affecting Brown in this instance.

“Our investigation revealed no direct or indirect connection between Kellee’s enhanced business and the secretary’s efforts on AT&T;’s behalf,” she said.

Finally, the attorney general reported, a special counsel should investigate false statements found when Brown applied for a loan in January, 1993, to purchase a townhouse in the Washington area.

Times staff writer Ronald J. Ostrow contributed to this story.