Inquiry Launched Into Coelho Fund Misuse Allegations

Criminal investigators at the State Department are investigating allegations of fiscal irregularities involving Tony Coelho, chairman of Vice President Al Gore’s presidential campaign, but Coelho’s lawyer said Thursday that the former California congressman does not intend to step down.

“No one has asked him to step aside and he has no intent to step aside,” said Stanley Brand, Coelho’s personal lawyer. “This won’t amount to a hill of beans.”

Gore’s campaign spokesperson also expressed continued confidence in Coelho but news of the criminal investigation stirred immediate interest in the camp of Texas Gov. George W. Bush.

The investigation centers on allegations that Coelho misused government funds when he was head of the U.S. mission to the World Exposition in Portugal in 1998.

Questions surrounding Coelho’s direction of the Portugal expo first arose last October when a report by the inspector general of the State Department criticized him and his staff for lax management, overspending, nepotism and other financial arrangements.

Auditors found that Coelho stayed in an $18,000-a-month apartment in Lisbon, hired his niece and two stepsons of the U.S. ambassador, misused donated airline tickets and left the government liable for part of a $300,000 loan that he had guaranteed personally.

The State Department’s criminal inquiry, which apparently began almost immediately after completion of the inspector general’s report, was reported Thursday by the National Journal on its Web site.

Coelho’s attorney questioned the timing of the report, which could focus renewed interest on possible ethical lapses in the Gore camp.

“Al Gore seals up the nomination and, lo and behold, two weeks later this gets printed,” said Brand, formerly the top Democratic lawyer in the House of Representatives. “Isn’t that strange? It’s a political hatchet job.”

In December, Coelho was interviewed by investigators for about two hours and he turned over “a couple of inches” worth of documents that were subpoenaed by the State Department, Brand said.

But the attorney said he is confident that nothing will emerge to warrant criminal charges.

Brand said that in October, Coelho paid off the outstanding $120,000 of the $300,000 loan “from his own pocket, out of his own personal bank account.” The loan was used to finance the building of a 60-foot-long sculpture at the expo to symbolize Portuguese immigration to the United States. Private donations to the memorial were used to pay off the loan but they fell short of the needed total.

Brand also defended Coelho’s $18,000-a-month apartment, which was billed to the government, saying that it was used by Coelho and his staff to house and entertain expo sponsors and official guests.

“I’ve never understood why that was a problem. It was used for official purposes,” he said.

Officials at the State Department and the Justice Department, which sources said has been kept apprised of the inquiry, refused to comment.

But State Department investigations into such activities are far from unusual.

The most recently published semi-annual report from the department’s Office of Inspector General, shows that 32 formal, full-scale investigations were opened in the six-month period from late 1998 to early 1999, while 117 others are pending.

A department official said that “an indication of suspicion” that a regulation or law had been violated was enough to trigger a preliminary investigation. If warranted, this would then be followed by a full-scale inquiry.

Coelho, a controversial figure known for his deft political maneuvering, has been dogged by financial questions for years. The chairman of the Democratic Congressional Campaign Committee in the early 1980s, Coelho abruptly resigned his Merced-based seat in Congress in 1989 after he was linked to the purchase of a controversial $100,000 junk bond from a California savings and loan that was in trouble with regulators.

In the Portugal matter, Brand said that Coelho informed Gore of the allegations against him.

Coelho has proven unpopular at times as head of Gore’s campaign, but some observers said that this latest episode does not appear likely to cost him his high-profile job.

Gore campaign spokesman Chris Lehane said, “Tony is doing a great job day in and day out. And he is going to continue doing a great job.”

As for the impact on Gore’s presidential campaign, one pollster said that lasting damage is unlikely unless Coelho’s troubles somehow are tied directly to the vice president and his own actions.

“It obviously hurts, but it’s not the be all and end all,” said Ed Carpalus, an independent pollster in Michigan. “To the average person, who the hell is Tony Coelho?”

But Bush campaign spokesman Ari Fleischer called the news “very troubling.”

Fleischer noted that news of the Coelho investigation broke on the same day that the Justice Department announced it has opened a criminal inquiry into allegations that the White House withheld e-mails subpoenaed in several criminal investigations.

“This is just the latest in a series of ethical revelations that keep sending signals about the vice president’s fitness for office,” Fleischer said.

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Times staff writers Mark Z. Barabak and Tyler Marshall contributed to this story.