FBI to Open New, Expanded Probe of China Spy Case : Inquiry: Officials to examine more than 500 possible suspects with access to nuclear secrets. Investigation shifts from focus on one scientist, Wen Ho Lee, at Los Alamos.

A three-year FBI investigation of an alleged Chinese spy at Los Alamos National Laboratory has been so mismanaged that the bureau plans to totally restart the high-profile probe by examining more than 500 potential suspects at scores of sites across the country, government officials said Wednesday.

The vastly expanded inquiry will start by screening all individuals who had access to design secrets about America’s most sophisticated thermonuclear weapon, the submarine-launched W-88 warhead, officials said. That includes personnel at other Energy Department labs and facilities, the Defense Department, the Navy and private contractors, such as Lockheed Martin Corp.

The dramatic shift in the investigation is a major embarrassment for the FBI, which had focused on former Los Alamos nuclear scientist Wen Ho Lee as its only espionage suspect since the “Kindred Spirit” investigation began in 1996. Lee has not been charged with a crime, and officials said that the probe has stalled for lack of evidence.

U.S. Atty. Gen. Janet Reno and FBI Director Louis J. Freeh met with Energy Secretary Bill Richardson on Tuesday to personally deliver the unexpected news, and Freeh or his aides appeared Wednesday in closed-door briefings before the Senate intelligence committee and other congressional panels. The White House also was briefed.

One official who attended a briefing said that the original allegation--that a Chinese spy had penetrated Los Alamos and stolen W-88 secrets for Beijing--has effectively evaporated. The charge was the subject of frightening national headlines and near-daily congressional hearings last spring.

“I think they’re basically saying: ‘Perhaps this never happened,’ ” the official said. He added that FBI and Justice Department officials who conducted the classified briefings were unable to answer many of the lawmakers’ questions.

“It’s like a deer caught in the headlights,” the official said of the FBI. “They don’t know whether to go forward or backward.”

Officials said the FBI will add agents and other investigative resources in an attempt to jump-start the probe by starting from scratch. The Energy Department, which runs the laboratories and facilities that develop, build and maintain the nation’s nuclear arsenal, will provide technical support.

Officials said the FBI conceded during the briefings that an initial Energy Department administrative review of the alleged leak had focused only on Los Alamos and that the FBI had accepted that as the basis for its own field investigation. The FBI also acknowledged that the bureau had not listened to dissenting views on the case and wasn’t initially aware that so many people in so many places had access to W-88 secrets.

The FBI did not return repeated calls seeking comment.

Officials said the Justice Department still has not ruled out prosecuting Lee for mishandling secret nuclear weapon information by downloading classified files into an unsecured computer. Lee, a Taiwanese-born scientist who worked at Los Alamos for 20 years after becoming a naturalized American, was fired in March for violating security rules. He has denied any wrongdoing.

“We continue to hope that the Department of Justice will drop its investigation of Wen Ho Lee and focus its resources on determining whether someone else may have disclosed information,” said Mark Holscher, Lee’s lawyer in Los Angeles.

Government sources familiar with the investigation have increasingly expressed doubt that an espionage case can be made against Lee, although prosecution on lesser security violations has not been ruled out.

“Sometimes we can identify both the crime and the criminal too quickly,” said Sen. Patrick J. Leahy of Vermont, the senior Democrat on the Senate Judiciary Committee. “I think this is a case that, as more and more information comes out, it cries out for reevaluation.”

Leahy and Judiciary Committee Chairman Orrin G. Hatch (R-Utah) both said a majority of lawmakers want an expanded and more thorough investigation.

The U.S. intelligence community has concluded that China obtained some classified information on America’s W-88 warhead. The evidence comes from a 20-page classified Chinese military document that the CIA obtained in 1995 and that contained previously unpublished data about the warhead, including the shape of its components and precise width of the casing that surrounds the weapon’s atomic trigger.

But experts are sharply divided over how China obtained the material--and how useful it has been to Beijing’s military modernization.

The decision to shift the investigation comes three months after President Clinton’s Foreign Intelligence Advisory Board publicly raised questions about the FBI investigation of Lee. In a report last June, the board noted that technical information about the W-88 “had been widely available within the U.S. nuclear weapons community,” including the Defense Department, Energy Department and numerous private contractors, as early as 1983.

However, “only one investigation was initiated . . . on only one category of potential sources, the bomb designers at the national labs,” particularly at Los Alamos, the advisory panel said.

“A subsequent investigation by the Senate Governmental Affairs Committee also identified numerous flaws in the FBI investigation, including the decision to target Lee as the only suspect.

The news broke as the Senate voted overwhelmingly Wednesday to approve a defense funding bill that includes a plan to create a semiautonomous agency within the Energy Department to run the nation’s nuclear weapons complex. The plan is a direct outgrowth of the espionage scandal at Los Alamos and congressional hearings that highlighted organizational problems at the Energy Department.

The reorganization plan, which will create the National Nuclear Security Administration, passed the House last week and now goes to the president.

“This plan takes a giant leap toward solving these problems by establishing a clear chain of command, one where accountability is no longer in question and the line of authority leads directly to the top,” said Rep. William M. “Mac” Thornberry (R-Texas), an architect of the plan.