Investigation of HUD in Full Swing

THE independent-counsel investigation of corruption at the Reagan-era Department of Housing and Urban Development (HUD) is proceeding full-speed ahead.

Yesterday, another trial was set to begin: Developer Victor Cruise, a business partner of GOP political consultant Paul Manafort, faces four felony counts in United States District Court in Washington for allegedly lying to a grand jury about his role in seeking HUD funds for a low-income housing project in Savannah, Ga.

Mr. Cruise's trial comes just a week after three other men were convicted of giving illegal gratuities to a top HUD official. But the three, including Lance Wilson, a one-time chief assistant to former HUD Secretary Samuel Pierce, were cleared of more serious charges of wire fraud, conspiracy, and bribery. Grand jury meets tomorrow

Teresa Duggan, a spokeswoman for independent counsel Arlin Adams, says the investigation is proceeding and "will involve more indictments." A federal grand jury is scheduled to meet tomorrow to hear evidence in the case.

Informed sources do not believe the independent counsel has sufficient evidence yet to move against either Mr. Pierce or former Sen. Edward Brooke (R) of Massachusetts, a prominent lobbyist on behalf of firms that received HUD funds in the 1980s.

Instead, speculation about who will be the next target centers around Philip Winn, a former assistant secretary of housing who was US ambassador to Switzerland from 1988 to 1989. Business associates of Mr. Winn may also be targeted.

After leaving HUD, Winn ran a Denver-based development firm called the Winn Group, which received about $163 million in federal subsidies and tax credits, congressional investigators say.

The Winn Group partners included many former HUD officials, including J. Michael Queenan, a former director of the housing-development division at HUD's Denver regional office, and Mr. Wilson, convicted of influence-peddling last week.

Winn is "a natural" to be indicted, says Stuart Weisberg, staff director of the House Government Operations subcommittee that probed influence-peddling at HUD.

"The Winn Group received more [in HUD funds] than any other development group. The only group more successful during that period of time was the Harlem Globetrotters," he says.

A source close to the case confirms that the independent counsel has "been threatening an indictment of Winn for six months."

Winn and his lawyers could not be reached for comment. But an attorney for Mr. Queenan said he had not been notified that his client might be indicted.

Winn's role in alleged influence-peddling at HUD has come to light because several former associates have been convicted or indicted in the HUD scandal:

* Silvio DeBartolomeis, a former HUD official, admitted to receiving a $20,000 loan that was "facilitated" by Winn as compensation for Mr. DeBartolomeis's services in getting HUD funds for the Winn Group. DeBartolomeis is cooperating with prosecutors.

* Benton Mortgage Company, which ran low-income housing developments in Oklahoma and Texas, worked on at least one project with Winn. Benton pleaded guilty in June 1992 to concealing payments to former HUD officials who acted as project consultants. The company agreed to pay a $1 million fine and to cooperate with the independent-counsel investigation.

* Another Winn associate was Thomas Demery, a one-time top aide to Pierce.

According to a 19-count felony indictment of Mr. Demery, he accepted the free use for a week of a condominium and car partially owned by Winn in the ski-resort town of Vail, Colo. In return, the indictment charges, Demery helped Winn's company obtain millions of dollars in HUD funds for projects in Aurora, Colo., and Richland, Wash.

* Wilson was a former partner in Winn's development firm. In 1989 hearings, Rep. Tom Lantos (D) of California, chairman of a House Government Operations subcommittee, charged that Wilson got a large equity interest in some of Winn's projects in return for using his political connections at HUD to secure federal funds.

Most of the allegations against Winn and many other figures in the scandal revolve around HUD's "model rehabilitation program," which has since been abolished. Under that program, Pierce's department awarded hundreds of millions of dollars to local housing authorities around the country. The authorities were then supposed to use a competitive-bid process to dole out the subsidies to owners of low-income rental properties who fixed up and improved their buildings.

Instead of awarding funds on the basis of merit, investigators charge, the money was often given out to companies that hired consultants politically well-connected to Pierce's department.

Mr. Adams has looked into corruption allegations at HUD since 1990. He has 19 attorneys on his staff who have spent $8 million on the investigation. Four defendants, including DeBartolomeis and Benton Mortgage Company, have pleaded guilty.

But the only HUD-related investigation to go to trial ended last week with a jury acquitting the defendants of most of the charges. Although Adams praised his prosecutors' work in the case, defense attorneys claimed the trial was a defeat for the independent counsel. Case called `overtried'

"They overcharged and overtried the case and they got only one felony conviction," said Martha Rogers, an attorney for Wilson. Ms. Rogers said she would appeal the verdict.

Besides the trial set to start yesterday, two other prominent figures in the HUD case have already been indicted. Demery will go on trial in April. Still awaiting trial is Deborah Gore Dean, a former executive assistant to Pierce who is charged with 13 felony counts.

Sources close to the case say that the independent counsel has been pressuring those involved in the HUD scandal to plea-bargain by accepting dismissal of most of the charges against them in return for testimony implicating Pierce in the corruption.

Rogers said the independent counsel had offered a deal to Wilson, but he had refused because "he said I can't dishonestly give up someone." Deal offered to HUD aide

A similar deal was offered to Ms. Dean, sources say. Her attorneys turned down the offer for two reasons. First, the independent prosecutor wanted her to plead guilty to at least one felony count, which would have left her facing time in jail. Second, her attorneys felt that Dean could not implicate Pierce without "massaging" her testimony, in the words of one source.

However, observers believe the independent counsel may be hoping that if Demery or Dean is convicted - and receives a heavy sentence - one aide may decide to cooperate with prosecutors.

Another possible target of the independent-counsel probe is former Senator Brooke. In November, Elaine Richardson, a former executive assistant to Brooke, admitted that she lied to conceal his behind-the-scenes involvement in securing HUD rehabilitation funds for a large development project in Worcester, Mass.

Since Ms. Richardson's plea bargain implicated Brooke in possible illegal activity, observers believe that the former senator may be a prominent target for the independent prosecutor. Brooke's attorney, Frank Knight, refused to comment on the case.