Denying any wrongdoing, Atty. Gen. Edwin Meese disclosed for the first time Monday details of his financial dealings with W. Franklyn Chinn, a San Francisco investment adviser who until recently handled a blind trust for Meese to avoid any potential conflicts of interest.
The attorney general, who listed handsome profits from stock trades made for him by Chinn, asserted in a report that ”no funds were actually invested in Wedtech Corp. or in any company related to Wedtech,” a scandal-ridden defense contractor.
Meese has acknowledged he helped Wedtech win a no-bid $32 million Army contract when he was White House counselor in 1982.
Instead, Chinn, a former Wedtech director, invested about $54,000 of Meese`s money in newly issued securities of 23 other companies and in two money-market accounts, a report released by Meese`s attorneys said.
Chinn typically bought and sold the securities on the same day, and turned Meese`s $54,648 into $91,141 between May, 1985, and March, 1987. That amounts to a return of 67 percent.
According to the document prepared by his attorneys, ”Meese never participated in any `matter` before the Department of Justice regarding FMII,” which is Financial Management International Inc., Chinn`s investment firm.
”Nor, given the nature of the investment strategy,” the report said,
”was there any possibility of actual conflicts of interest with respect to the stocks actually purchased and sold.”
And when informed in early April that Chinn might be a subject of a Wedtech investigation by the U.S. attorney in New York, the report said,
”Meese promptly recused himself from the Wedtech investigations.”
But Meese`s attorneys acknowledged that the attorney general had
”inadvertently omitted” Chinn`s firm from an official list of companies in which he might have a possible conflict of interest.
The document also portrayed the attorney general as financially unsophisticated and raised other questions about his effort to insulate himself from his investments:
— Meese initially transmitted all his telephone and energy stocks to Chinn, except for 17 shares in new phone companies created as a result of industry reorganization. Meese never was able to locate the stock
certificates, so Chinn could not sell them.
— Chinn used John McKean, a San Francisco accountant, to prepare the most recent financial statements for the partnership, after using another accountant for earlier statements. Meese was investigated in 1984 by an independent counsel, who did not charge Meese with any crime for admittedly helping McKean obtain an appointment to the governing board of the Postal Service after borrowing $80,000 through McKean`s firm.
— A copy of the agreement covering the partnership with Chinn, called
”Meese Partners,” indicated that Chinn was to begin investing Meese`s money only after filing a certificate of limited partnership as required under California law. But a recent check of records in the county recorder`s office in San Francisco revealed no such filing.
Independent Counsel James McKay began an investigation in May of Meese`s dealings with Wedtech, a defense contractor based in Bronx, N.Y. that is the target of two other federal probes. McKay also is investigating the lobbying activities of Lyn Nofziger on behalf of Wedtech shortly after he resigned as White House political director in 1982.
Chinn was a consultant to Wedtech, and later a director, when Meese and his wife established a limited partnership in May, 1985, with FMII. The Meeses announced last May that they would terminate the relationship on June 30.
Under their agreement with FMII, Chinn initially sold a number of stocks and bonds Meese`s wife had inherited from her family and reinvested $50,662 of the proceeds in 1985 and $3,986 in 1986.
The Meeses withdrew $11,500 of their profits in 1985 and $5,000 in 1987. Despite the withdrawals, the document indicates that the value of the assets had grown to $74,641 by March 31, 1987.
”Over time, he generated enough income through such short-term trades to provide a good return for the Meeses and for his own corporation,” the attorney general`s attorneys said Monday. ”Mr. Meese, pursuant to the blind nature of the limited partnership, had no knowledge of what strategy Mr. Chinn was utilizing or what transactions were being conducted for the limited partnership.”
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Meese`s attorneys stated that the limited partnership owned stock ”for only 19 days of the 760 days of its existence.” For the remainder of the time, their report said, its asset was cash, held in interest-bearing accounts at Bear, Stearns & Co. and at Imperial Trust Co. in San Francisco.
According to the report, Chinn`s firm received fees of $2,800 in 1985 and $2,400 in 1986. FMII`s fee for handling the Meeses` money in 1987 has not been determined, but the report said it would not ”substantially exceed” the prior amounts.
The document also criticized the Office of Government Ethics for informing Rep. Gerry Sikorski (D., Minn.) last month that there was a flaw in Meese`s reporting of the partnership with Chinn. David Martin, director of the office, told Sikorski in a letter that it never would have approved such an arrangement and that Meese should have reported what securities were invested in to avoid any possible conflicts of interest.
If the ethics office ”believed, as its letter of June 26, 1987, to Congressman Sikorski indicates, that there was some flaw in the reporting of the limited blind partnership,” the report said Monday, the ethics office
”had a duty to notify Mr. Meese of that conclusion and invite a response.”
But the report emphasized that there is nothing in the ethics law requiring that a partnership, such as the Meeses`, list all its transactions. The report by Meese`s lawyers shows that Chinn brought in as much as $12,571 for the Meeses on a day of investing their money. That profit came Feb. 11 from the purchase and quick resale of stock in British airways.
Some of the purchases involved the stocks of well-known entities, such as Firemans Fund Corp. and Rockefeller Center Properties Inc., while others involved little-known companies.
The report shows that Chinn lost money on only five of the 23 deals.
In buying and reselling on the same day, Chinn apparently was trying to take advantage of a quick rise in value that often accompanies the
introduction of new stock issues.
Former investors said he also used the same highly speculative technique when he was portfolio manager in the late 1970s for a small investment fund named Hillsborough Partners.
Two investors sued the fund`s general partner, David Meid, to try to recover their money after the fund suffered sharp losses in 1978. Sources have identified Meid, who now works for Bear Stearns, as the broker who executed Chinn`s trades on behalf of the Meeses.
Meese has said he invested his money with Chinn at the recommendation of San Francisco lawyer E. Robert Wallach.
Investigators have said Wedtech paid Wallach, a law school classmate of Meese`s, several hundred thousand dollars to lobby Meese on the firm`s behalf while Meese was White House counselor.