Rogue Justice What Really Sparked the Vendetta Against INSLAW By MAGGIE MAHAR TWO weeks ago, "Barron's" told the story of INSLAW, a small software company that landed a $10000000 contract with the Justice Department in 1982. Bill Hamilton, INSLAW'S 42-year-old founder was jubilant when Justice bought the Prosecutor's Management Information System (PROMIS), which he had spent his life--and his life's savings--building. But then things took a mysterious and nasty turn. Justice began withholding payments. Contract disputes multiplied. Threats accelerated. Bill Hamilton couldn't understand what was happening or why. But he knew INSLAW's cash flow was shriveling. By 1985, INSLAW was in financial shambles, and Bill Hamilton ended up in federal bankruptcy court. And there, last fall, a federal bankruptcy judge handed down an astonishing ruling. Judge George Bason found that the Justice Department had purposefully propelled INSLAW into bankruptcy in an effort to steal its PROMIS software through "trickery, deceit and fraud." On Feb. 2, 1988, Bason ordered the Department of Justice to pay INSLAW about $6800000 in licensing fees and roughly $1000000 in legal costs. He postponed a decision on punitive damages--which could run as high as $25000000. Trial testimony revealed an unexplained series of "coincidences" surrounding the INSLAW case, including the fact that Justice appointed C. Madison "Brick" Brewer to oversee the INSLAW contract. Brick Brewer had worked for Hamilton--until Hamilton fired him in May 1976. After listening to Brewer's testimony, Judge Bason wrote that he could not understand why Justice picked a man "consumed by hatred" to administer the contract with a former employer. He also couldn't fathom why top department officials ignored complaints from INSLAW attorneys when Brewer began withholding payments. "A very strange thing happened at the Department of Justice . . .," observed Judge Bason, leaving open the question as to just why, at the highest levels, the U.S. Department of Justice condoned a vendetta against a small, private U.S. company. It was November of 1987 when Judge Bason rejected a Justice Department motion to liquidate INSLAW. Not quite one month later, Judge Bason learned that he would not be reappointed to the bench. In the past four years, only four of 136 federal bankruptcy judges seeking reappointment have been turned down. Bason was replaced by S. Martin Teel, one of the Justice Department attorneys who unsuccessfully argued the INSLAW case before him. Bason observes that the Justice Department will now have a "third bite of the apple" on the question of punitive damages. Judge Teel has recused himself from the case, and the Justice Department is appealing. So INSLAW vs. the United States of America hangs in limbo. The INSLAW case also left a Justice Department whistle-blower waiting for the verdict on his 21-year career. When "Barron's" began reporting the INSLAW story two weeks ago, we interviewed Tony Pasciuto. Pasciuto revealed how a Justice Department colleague responsible for paying contractors' bills said he divided them into three piles: "One pile he would pay right away, the next pile when he got around to it, and then he opened a drawer and pointed to some invoices in the drawer and said, `These invoices may never get paid. If you're on the bad list you go in this drawer.'" INSLAW was on the bad list. Pasciuto also repeated what he had been told by Cornelius Blackshear, a federal judge and former U.S. Trustee based in New York. Blackshear had confided that his Justice Department superior in Washington was pressuring him to send someone down to D.C. to help liquidate INSLAW. Apparently, Washington wanted to make sure that the job was done. When INSLAW's lawyers deposed Blackshear, he confirmed the story. During INSLAW's suit, Judge Blackshear recanted. Meanwhile, about one hour after Pasciuto was subpoenaed to testify, his superiors in the Justice Department offered him a long-awaited transfer to Albany, N.Y. Feeling scared and "out there all alone," Tony Pasciuto bought a house in Albany and changed his story. Close to tears, he recanted on the stand. Judge Bason recalls the scene: "Mr. Pasciuto seemed to be basically a very honest person who had been caught up amongst a gang of very tough people--and he just didn't know what to do." According to Pasciuto, after he testified, Judge Blackshear met him at a party and said, "I'm sorry. . . . These people came up from Washington and the U.S. Attorney's office. I got confused. I thought that by changing my story I would hurt less people." When "Barron's" read Pasciuto's version of the conversation to Judge Blackshear, a weary-sounding Blackshear confirmed it: "I don't remember the specifics word for word. But I do remember the conversation. And I don't have any problems with what Tony remembers." Meanwhile, after Tony Pasciuto recanted in court, the Justice Department told him, "Sorry, the procedure was changed. No transfer to Albany." Then, B. Boykin Rose, one of the Justice Department officials who resigned last week, wrote a letter to Deputy Attorney General Arnold Burns--another member of the Justice group who bailed out--recommending that Pasciuto be fired. When "Barron's" last talked to Pasciuto, he was commuting from the new house in Albany to a job in Washington, where he said, "I feel like I'm under house arrest." And he was awaiting the end of his 21-year career in government service. "My boss, Thomas Stanton, can't fire me," Pasciuto explained. "The Deputy Attorney General, Arnold Burns, will fire me. How does it feel to know that the Deputy Attorney General of the United States wants to destroy a GS15? It's scary. It scares me to death." Last week, Burns led the dissidents out of the department. Tony Pasciuto's tale is chilling. And it raises two equally disquieting questions: Why did the U.S. Department of Justice want to liquidate Bill Hamilton's software company? And, how high did the coverup of the scheme to destroy INSLAW go? WHEN six Department of Justice officials resigned last week, department spokesmen insisted that they were NOT leaving because they feared Attorney General Edwin Meese was about to be indicted. Nor had they beaten their wives--should anyone ask. But, according to "Barron's" sources inside Justice, their exodus represents the climax to a much larger, subterranean game of musical chairs that has been going on in the Department of Justice for the past 18 months. "I know of at least 50 or 60 career government employees who have been reassigned or forced out," says one department insider. Another charges the department with using FBI background checks in order to manufacture reasons for forcing employees to leave. "They're trying to find--or force--openings for political appointees that they want to bury as what we call 'moles' in the department," explains a longtime Justice Department hand. "They bury the moles so that the next administration can't find them." The moles, he goes on, are political appointees who are moved into GS (government service) jobs normally held by career government employees. "It could take the next administration two years to figure out who are the career employees and who are the political appointees dropped into their slots," he says. "In the meantime, the moles will be in place--and they'll have the historical knowledge of how the organization works--everyone else will be gone." But even while the moles are burrowing in, the rumor among them is that sunlight is about to flood the shadowy reaches of the department. For last week's resignations suggest that Special Prosecutor James C. McKay is coming closer to addressing the question: "Was there justice at Justice during the past four years?" The INSLAW affair suggests a disquieting answer, for the virtually unpublicized case serves as a window on how Justice did business during the Meese years. In his blistering ruling, Judge Bason charged that the department committed a series of "willful, wanton and deceitful acts . . . demonstrating contempt for both the law and any principle of fair dealing." Originally, Bill Hamilton, INSLAW's founder, thought that only one mid-level Justice Department official was willfully and deceitfully out to get him: C. Madison "Brick" Brewer, the former employee whom he had fired. When Hamilton and his wife, Nancy, put their six children in the family station wagon and drove to a federal court on June 9, 1986, to file a suit against the United States government, they firmly believed that Brewer was their nemesis. But as the trial progressed, their certainty gave way to doubts. Why did Justice put Brewer in that critical and, under the circumstances, highly improper position--and allow him to remain? Why did the Justice Department refuse to settle? Why were the government's lawyers, seemingly not satisfied with bankrupting INSLAW, pressing so hard to liquidate the company? When the trial was finally over at the end of 1987, Bill and Nancy Hamilton had won their case, but they still wanted to know why their company was near ruin. So they followed the counsel of Elliot Richardson, one of their attorneys: They sat down at their dining room table, made a list of all the anomalies in the baffling case, and tried to puzzle out the mystery. "These were all things we were aware of, yet until you organize them and put them side by side, you don't see them," Hamilton observes. "But seeing the strange incidents and coincidences all together, suddenly it popped out at me. There was a coverup--and it wasn't just to protect Brick Brewer. For instance, someone had persuaded Judge Blackshear to recant under oath within 48 hours of his original deposition. Who would have that power? You don't do that to a federal judge to protect Brick Brewer--it's too risky. That's when I became convinced then that there was criminal liability at the highest levels of the department. Then, I started to look at the pieces. And, every time I picked up a rock and turned it over, it seemed to fit." Now, looking back five years, Bill Hamilton believes he understands the reasons for the oppressive behavior of the Justice Department. And he thinks he had an early warning about the department's methods. But he didn't take the warning phone call seriously. As Bill Hamilton tells it, it was April of 1983, and he was sitting in his office--right across the street from the "Washington Post"--when he received the call from Dominic Laiti, chairman of Hadron Inc. "Laiti identified himself, and said that Hadron intended to become the leading vendor providing software for law enforcement nationwide," Hamilton recalls. "He said they had purchased Simcon, a manufacturer of police-department software--and Acumedics, a company that provides computer-based litigation support services for courts. `Now,' Laiti told me, `we want to buy INSLAW.'" "I told him he had just described our ambition," Hamilton relates. "We intended to become the major vendor of these software services ourselves--and we were not interested in being acquired." But Laiti kept pushing, and, according to Hamilton, boasted, as he remembers, "We have very good political contacts in the current administration--we can get this kind of business." The words would reverberate in Hamilton's memory later, but, at the time, he didn't heed the implicit threat. He just repeated, "We're not interested in selling," whereupon, he says, Laiti retorted, "We have ways of making you sell." The story sounds fantastic. Laiti calls it "ludicrous." Is Hamilton making it up? "I would think the whole tale was fantasy-- if I hadn't been involved in investigating the Iran-Contra affair," confides a Senate staffer now involved in an investigation of the Justice Department's software contracts. And Judge Bason states that Hamilton was a levelheaded witness with a scrupulously honest memory: "I was particularly impressed in the last phase of the trial," Bason recalls. "Hamilton could very easily have testified positively in a way that would have been favorable to his case--to an extent of about $1000000. Instead, he testified, `This is my best recollection--but I am not sure.' The contrast between that and the government witness who was so obviously disingenuous!" The call from Hadron was strange, so Hamilton remembered it, but in 1983 he shrugged it off. "I politely, but firmly, cut off the conversation. I'd never had a conversation like that with someone in the software industry. I thought Hadron must be new to software--maybe they were used to an industry where this kind of talk was more prevalent." But now, Hamilton surmises that his troubles may have begun with that phone call. Within 90 days of Laiti's threat, he says, the Department of Justice mounted its attack. And, Hamilton alleges, the attack ultimately became a vendetta, a vendetta that could have been inspired by the convergence of three interests: Hadron, the brazenly aggressive competitor controlled, from behind the scenes, by a Meese crony from his salad days in California: Dr. Earl Brian. Brick Brewer, the embittered former employee who, as project manager, was in a strategic position to do INSLAW harm. D. Lowell Jensen, then the deputy Attorney General, and a ghost from INSLAW's own California past. Jensen had developed a software product to compete with INSLAW and lost--back in the 1970s when Jensen was a D.A. in Alameda County. But Jensen did have the good fortune to meet Ed Meese in the D.A.'s office. So years later, Jensen became top-ranking member of the "Alameda County Mafia," which found a home in the Ed Meese Justice Department. When Bill Hamilton sat down, in good faith, to negotiate a deal with the Justice Department, the people on the other side of the table were not dispassionate government officials. They were instead a hostile crew, inspired apparently by old scores and private interest. Whether carefully organized or spontaneously launched, the attack was successful--for a while, anyway. When the principals and the department were suddenly in danger of exposure, Hamilton charges, the cover-up spread out to embrace the Justice Department bureaucracy, the IRS, and Jensen's successor--former Deputy Attorney General Arnold Burns--one of the six who quit last week. "They circled their wagons," Judge Bason wrote. The defense became an offense, and an attorney, a Justice Department whistle- blower, and the judge himself all lost their jobs. Today, only two of the three have found work. Hamilton is luckier. IBM has become INSLAW's savior--rescuing the company from the auction block, and vindicating the worth of its product. Meanwhile, some Senate staffers looking into the INSLAW case believe that it raises questions about Project Eagle, a much larger scheme to computerize the Justice Department, the $200000000 contract is scheduled to be awarded before the end of the year. The deeply troubling questions about INSLAW remain. If anything, they are magnified by last week's departures from Justice: "Why?" and, "How High?" "Start," Bill Hamilton says, "with Hadron." For Hadron is indeed, as Laiti allegedly boasted, "well-connected in the Administration." It is controlled by Dr. Earl Brian, the longtime friend of Ed Meese who owns Financial News Network ("Barron's," Feb. 29[, 1988]). In fact, business dealings between the Meese family and Brian's company imperiled Meese's 1984 nomination. And Hadron, Hamilton charges, is one of the keys to the mystery of why INSLAW became the victim of rogue justice. Hadron boasts a history replete with acquisitions, lots of government business--and brushes with the SEC. The outfit emerged in 1979 from the ashes of Xonics, a notorious high-tech fiasco founded and headed by a colorful wheeler-dealer named Bernard Katz. "Barron's" described Xonics in 1976 as a company with a knack for "recognizing income as fast as possible and deferring expense as long as it decently could." In 1977, the SEC brought a lawsuit against Xonics, accusing top management, including Katz, of fraud and manipulating the stock's price, in part by using Xonics stock to acquire other firms. Besieged by two shareholder suits, Xonics agreed to a permanent injunction in April of that year. The company did not admit to any wrong-doing. But the nimble survived. In 1979, Dominic Laiti gathered a group of former Xonics executives, and bought Hadron. By 1983, the company was lauded in the press as "an investment banker's dream." For the child had, it appeared, inherited the parent's acquisitive streak, snapping up nine companies in just three years. The offspring did run into a few SEC snags of its own, however. In 1981, the SEC ruled that the limited partnerships Hadron had set up to fund its R&D efforts were in truth a form of loan financing rather than a source of revenue. By 1982, Hadron had lost $4500000 and another shareholder suit was pending. But by 1983, Dominic Laiti's group appeared to be on a roll, acquiring their way into an exciting new industry: lasers. Laiti was quoted as saying, "There's the potential for very, very rapid growth." Unfortunately, the roll turned out to be a very, very rapid roller-coaster. By February of 1984, Hadron was announcing sale of its "money-losing laser-equipment division." In the third quarter a year earlier, Hadron had earned a penny-a-share profit, but by early 1984, it was sinking $1200000 into the red. Hadron's ups and downs continued: a loss of $231000 for the 1986 fiscal year, a profit of $852000 a year later--despite a 13% decline in revenues. Since 1979, the price of Hadron's stock has followed the same pattern, swinging wildly from its high of 6 1/8 in December of 1980 to a low of 3/4 in March of 1985. In the past couple of years, the stock has been trading in a narrower range between 3/4 and 1 11/16, and an investor complains that as far as he knows, the company hasn't had a shareholders' meeting since 1983. "I'm not so much perturbed that they don't meet--I wouldn't care if they never met, if the the stock were up around $5 or $6," this sizable holder laments. Still, Hadron has kept bouncing back--with a little help from Uncle Sam: namely, contracts with the Pentagon, a fat settlement with the Agency for International Development and, most recently, a gigantic contract with, yes, the U.S. Department of Justice. Hadron's government connection can be traced to Earl Brian, who was president of Xonics, Hadron's parent, until October of 1977. Brian slipped away from the company discreetly, just six months after Xonics rolled over and agreed to the SEC injunction. Brian was never charged with any wrongdoing; four Xonics officers were required to sign the consent decree, and he was not one of them. Ostensibly, Dominic Laiti led the investor group that then rescued Hadron from the ruins of Xonics, but somehow Brian managed to keep his hand on the levers. Today, Laiti--the man who allegedly phoned Bill Hamilton--is Hadron's chairman, but Brian's business- development company controls four of the six seats on Hadron's board. In March of 1981, Brian resigned from Hadron's board in order, he said at the time, "to divest himself of Hadron to facilitate future transactions" between his business-development company, Infotechnology, and Hadron "under the Investment Company Act of 1940." But by January 1984, Brian was back on Hadron's board, and, according to the 1987 annual report, he's still there, though Hadron is continuing to do deals with Infotech. In October 1987, Hadron sold Atlantic Contract Services to Infotech at book value for a combination of cash and Infotech common stock in a deal valued at roughly $300000. "Brian does an awful lot of buying and selling," the disgruntled Hadron shareholder observes. "He's making money at it, but I'm not sure his shareholders are making money. I know that, as a shareholder of Hadron, I'm not making any money." Still, in the spring of 1987 Hadron moved into the black in large part because it received $1600000 from the Agency for International Development. The AID settlement came after the U.S. government cancelled a Hadron subsidiary's business with Syria. But the AID money wasn't the only lucky boon from Uncle Sam. The government has long been a Hadron client: In the 1987 fiscal year, approximately 34% of the company's revenues came from the Department of Defense. And most recently, a Hadron subsidiary, Acumedics, locked up a $40000000 contract with the Department of Justice. Hadron never did acquire INSLAW. But there's more than one way to skin a Justice Department software contract. Last October, Hadron's Acumedics division signed the $40000000 deal to provide automated litigation-support services for Justice's Land and Natural Resources division. When the Acumedics contract was awarded, competitors groused that the bidding process was unfair. Justice officials respond that all bids went through a stringent review process. "There was absolutely no pressure on me. It was one of the cleanest procurements I've been involved in," recalls Steve Denny, the contracts officer on the case. Justice Department officials also pointed out that the $40000000 deal was essentially a continuation of a 1983 contract. Acumedics began doing business with the Justice Department in 1970 as an 8(a) minority business. In 1983, Acumedics was acquired by Hadron--and lost its 8(a) status. But even without the favored status, Hadron somehow managed to hold onto the business, and win a four-year competitive bid contract. Shortly after the acquisition, Earl Brian reappeared on the Hadron board, and, recalls a former Hadron executive, told the board, "If we needed any help in marketing at Acumedics, he had been a member of Reagan's Cabinet, he knew people--and would be willing to make phone calls." The Hadron alumnus adds: "He was just being nice." According to Federal Computer Week, a trade publication: "A competitor for the 1983 contract, who declined to be named, said his company no longer bids on Justice Department contracts. He explained that, after losing the 1983 contract to Acumedics, `We took a look at their bid compared to ours, and it was about $1500000 over ours.'" Now, the size of Acumedics's newest deal with the government has raised old questions about the man behind the Hadron subsidiary, Dr. Earl Brian, and his connection to Ed Meese. A venture capitalist, and former neurosurgeon, Dr. Brian practiced medicine in Vietnam, then returned to the States, where he became health and welfare secretary in then-Gov. Reagan's California cabinet. There, he served with Ed Meese, Reagan's chief of staff until 1979. Today, Brian owns and oversees Infotechnology (which controls Hadron), the Financial News Network, and, most recently, he headed up an investment group that bought the right to run United Press International. The Brian connection became an embarrassment during Ed Meese's confirmation hearings when Meese acknowledged that his wife, Ursula, borrowed $15000 from a Meese adviser, Edwin Thomas, in order to buy stock in Brian's company. Coincidentally, just six months later, Brian lent $100000 to Thomas, who by then needed money himself--and had become a member of the White House staff. Neither Meese nor Thomas listed the loans on their financial disclosure statements. Meese paid no interest, and Thomas only partial interest. Following a six-month investigation, independent counsel concluded that there was no basis for criminal charges against Meese, and while "inferences might be drawn from Mr. Thomas's contact with Dr. Brian . . . whether Mr. Thomas or Dr. Brian committed a violation of law was not within our jurisdiction. Even if we were to make an assumption that Mr. Thomas might have been acting on insider information, we have been given no evidence by the SEC." Bill Hamilton learned of the connection between Hadron, Brian and Meese only after the INSLAW trial ended. But then remembering what Hadron's Chairman Dominic Laiti said about being politically connected--not to mention "ways of making you sell"--Hamilton thought he glimpsed an ominous pattern. Hamilton believes the Justice Department mounted its attack 90 days after the Hadron phone call, "with the apparent objective of forcing INSLAW either to agree to be acquired, or into bankruptcy." Earl Brian, Hamilton is convinced, would have been happy to pick up INSLAW cheaply--at a liquidation sale. Moreover, Hamilton has reason to believe that the No. 2 man in Justice, D. Lowell Jensen, wasn't at all disposed to save INSLAW from the auction block. For, years earlier, Jensen had competed with INSLAW's product, PROMIS, head-on. While holding public office in Alameda County, Calif., Jensen was promoting a rival software, DALITE, that he hoped would be used statewide. Jensen lost. Jensen served as Alameda County district attorney in the early 1970s and during that time he tried to persuade other DA offices to adopt DALITE, the case-tracking software system that he helped develop. To that end, Hamilton alleges, Jensen urged the California District Attorneys Association to incorporate. By incorporating, the association would be in a position to apply for grants, receiving and administering funds needed to finance DALITE training statewide. But, Hamilton recalls, the very month that the association finally incorporated, the Los Angeles District Attorney's office, the state's largest, chose INSLAW's PROMIS software--dashing Jensen's hopes for DALITE. Larry Donoghue, now deputy district attorney for the County of Los Angeles, remembers the keen rivalry. He was in charge of selecting software for the L.A. office at the time, and he recalls visiting Alameda County while making on-site inspections: "Jensen called me into his office and I went away feeling what I regarded to be unusual and significant pressure to select the DALITE system. But PROMIS was a more suitable system for a large office. After I made the recommendation to L.A., I remember my conversation with Joseph Busch, who was district attorney there at the time. I said, `Joe what's your reason for hesitating?' He said, `Larry, there is resistance to my selecting PROMIS.' The resistance couldn't have come from within the L.A. office," Donoghue adds, "no one there knew anything about software. By a process of elimination, it must have come from Alameda County." When "Barron's" attempted to reach Jensen for a reply, his office stated that, because the INSLAW case is still pending, he could not comment. But during the trial, Jensen conceded that he had been a critic of INSLAW's software. Yet, he insisted, DALITE was not a commercial product available for sale to the public, and he had no financial interest in it. Jensen didn't own DALITE any more than Bill Hamilton owned PROMIS when he first invented it. Like DALITE, INSLAW's PROMIS began as a government product. Bill Hamilton developed it while working as a consultant for the U.S. District Attorney's office in D.C. in 1970, and improved it while working for a not-for-profit company funded by the Justice Department. PROMIS became commercial software only after Hamilton left this last job in 1981, formed INSLAW, and raised private funds to refine PROMIS. The software then became a proprietary, and highly profitable, product. Presumably Jensen might have had the same luck with DALITE--if PROMIS had not won the California race. Instead, Jensen remained at his post in Alameda County for 12 years. And from 1959 until 1967, Ed Meese served with Jensen, as an Alameda deputy district attorney. When Ronald Reagan became President, Ed Meese recommended that his former colleague, Jensen, be appointed assistant Attorney General in charge of the Criminal Division. In 1983, when Rudolph Giuliani resigned as associate Attorney General--the No. 3 spot in the department--Jensen ascended to that post. So in early 1984, when Edwin Meese became Attorney General, his old Alameda County compatriot was already in place. And Jensen was not alone. A network, nicknamed the Alameda County Mafia, already was ensconced in Justice. No fewer than six former Alameda County law-enforcement officials held positions ranging from deputy assistant attorney in the tax division, to commissioner of naturalization and immigration. The former Oakland deputy police chief had snagged a spot as director of the National Institute of Justice. Under Meese, Jensen rose to No. 2, and developed a reputation as a buffer between Ed Meese and his critics. The 58-year-old Democrat was described as "soft-spoken" "apolitical" and a "gentleman of the old standard" in a 1986 "New York Times" tribute, which added, "Colleagues say that Mr. Jensen, better than anyone else at the Justice Department, knows how to duck." The Justice Department's diplomat had to duck when congressional investigators looking into the Iran-Contra affair reportedly found a Justice Department memo dated March 20, 1986, saying that Deputy Assistant Attorney General D. Lowell Jensen was giving a "heads-up" to the National Security Council, warning that Miami federal prosecutors were on Ollie North's trail. Bill Hamilton believes Jensen displayed the same talent for diplomatic bobbing and weaving throughout the INSLAW affair. When Hamilton pieced together the anomalies, he realized Jensen's rise to power occurred in the fateful spring of 1983, when he received the call from Hadron, and all of his troubles began. "Jensen was promoted to associate Attorney General in May or June of '83--and that's when all the contract disputes came up," Hamilton points out. Jensen exhibited a strong interest in the software contract and even served as chairman of the PROMIS oversight committee. In December of 1983, INSLAW's counsel, Elliott Richardson, and Hamilton met with the assistant Attorney General for administration, Kevin Rooney. They expressed their concern that Brick Brewer, the project manager on the INSLAW contract, was biased against the company because Bill Hamilton had fired Brewer some years earlier. Rooney testified in a deposition that, a week later, he told Jensen's oversight committee that Richardson's proposal seemed reasonable. It appeared that the dispute could be resolved. But Rooney left the committee meeting early. After he was gone, Hamilton says, "Mr. Jensen and the other members of the committee surprisingly approved a plan to terminate the word-processing part of the INSLAW contract with the department's Executive Office for U.S. Attorneys." In March of 1983, Hamilton alleges, Bill Tyson. formerly director of that Executive Office, told Hamilton that a Presidential appointee at Justice was biased against INSLAW. In March 1987, Tyson sent a handwritten letter to Jensen, reassuring him that he had denied this allegation under oath--and that he had not named Jensen as the appointee in question. He also sent a note to Deputy Attorney General Arnold Burns. In a deposition, Tyson was asked: "Did either Mr. Jensen or Mr. Burns ask you to write the letter?" "No sir." "Did you not realize that by writing a letter to Mr. Jensen of this type informing him of your intended testimony that he would then be able to develop his testimony to be consistent with yours?" "That was not my intention." "But as an attorney, you realize that is a possibility, more than a possibility?" "Well, that was not my intention. . . ." In his ruling last September, Judge Bason characterized portions of Tyson's testimony as "so ludicrous that there is no way I can believe anything that the man has to say." A month before writing the notes, Tyson was removed from his position in the Executive Office for U.S. Attorneys, and he and his secretary were exiled to Justice's Immigration and Naturalization Service--though in positions commensurate with their grade levels. By protesting too much, Tyson could seem to further implicate Jensen. But, the answer to "How High?" leads even higher. Ed Meese himself may have been involved in a push to force Leigh Ratiner, INSLAW's litigating attorney, off the case. Ratiner had been a partner at Dickstein, Shapiro, & Morin for 10 years when Elliot Richardson recruited him to take on INSLAW. Dickstein, Shapiro was the law firm of Chuck Colson, of Watergate notoriety. Colson brought in its principal client, the Teamsters Union. More recently, Dickstein, Shapiro became known in the loop as Leonard Garment's firm. Garment, a former colleague says, has been described as "the only attorney in Washington who will put a senator on hold to take a call from a reporter." Garment was former White House counsel to Richard Nixon, and represented Meese during his confirmation hearings. Meese and Garment put their heads together again after Ratiner filed a complaint in the INSLAW case that named Meese's longtime friend and deputy Attorney General, Jensen. Ratiner, an aggressive attorney with a reputation as very bright, ego-driven, and a loner within the Dickstein, Shapiro firm, relished being viewed as a maverick. So he was displaying his usual independence when he filed the complaint that named Jensen early in October 1986. On Oct. 12, the "L.A. Times" ran a story airing the INSLAW case and the former rivalry between Hamilton and Jensen. On Oct. 23, Ratiner was asked to leave the law firm. Between Oct. 12 and Oct. 23, Ed Meese talked to Garment about the case. In a pre-trial interrogatory, Ed Meese conceded that he had a "general recollection of a conversation with Leonard Garment in which Mr. Garment mentioned that he had discussed INSLAW with Arnold Burns." Arnold Burns, the deputy Attorney General who resigned last week, replaced Jensen when Jensen left Washington to take a federal judgeship in San Francisco in the spring of 1986. When "Barron's" asked Leonard Garment about the conversation, he emulated D. Lowell Jensen. He ducked. "I know there was a suggestion by Meese--or one of his staff--saying he met and spoke to me about INSLAW. Oh, he said it in pre-trial interrogatories? Then . . . it was a question of his recollection." Garment was more emphatic regarding Ratiner's removal. "No one in the Justice Department or the whole U.S. government or the whole USA suggested to me that anything should be done with Ratiner. Nor do I remember mentioning INSLAW to Meese," he continues. "Look--I met with Meese around the date he mentioned, and I discussed with him a matter of foreign policy. I was on my way to Israel. . . . Memory is so tricky, but I don't have the slightest recollection. . . ." Finally, Garment collected his recollections and summed up his position. "As Sam Goldwyn said, `Include me out.'" Ratiner's exit settlement with Dickstein, Shapiro bars him from discussing how and why he left. But Hamilton believes that Burns and Meese expressed dismay at the fact that he had turned the spotlight on Jensen. After Ratiner gave up the case, the firm continued to represent INSLAW, but Hamilton feels their support waned. In January of 1987, Dickstein, Shapiro urged him to settle with Justice for $1000000--of which about half would go to pay Dickstein, Shapiro's fees. A few days later, Hamilton switched attorneys. In September, Judge Bason awarded INSLAW $6800000- -plus attorneys' fees. During the trial, Tony Pasciuto's boss, Thomas Stanton testified to another reason why Meese might have been interested in the INSLAW case: INSLAW could besmirch the U.S. Trustee program. The U.S. Trustee's Office had been recently set up to administer bankruptcies nationwide, and it was Meese's baby. Meese made the decision to take the Trustee program national--even though his predecessor, William French Smith, had planned to ditch the pilot Trustee program. Two of Pasciuto's former colleagues in the Justice Department allege that the move to keep the U.S. Trustee program was flagrantly political. "It was a way of getting cronies into office. There would be 50 or 60 positions to be filled," one asserts. Stanton, the director of the Trustee program, seemed well-protected within Justice. This former Pasciuto colleague adds: "It was always puzzling to me how he got away with what he got away with. He'd do things that were blatantly wrong and no one would question him--it's kind of scary." Another former employee confirms, "Irrespective of the law, or anything, if Stanton wanted something, he had the ear of the right people at the highest level--straight from Burns to Meese. If he could not get what he needed, he went to Burns." Outside Justice, bankruptcy attorneys like Patrick Kavanagh, a solo practitioner in Bakersfield, Calif., worry that the Trustee program "concentrates so much power in one government department. . . . It's supposed to act as a watchdog over lawyers and trustees, but the problem is it's more. It has a considerable amount of power to control the administration of cases." When a case moves from bankruptcy to liquidation, the U.S. Trustee's Office names the trustee, who converts the assets, oversees an auction, and retains appraisers who will put a price tag on the leavings. The U.S. Trustee's program also links Justice and the IRS. "The thing that's a little frightening about it is that the U.S. Trustee department sees itself as part of the tax-collecting function of government," observes Charles Docter, the bankruptcy attorney representing INSLAW. "The Justice Department represents the IRS, and the IRS is often the biggest creditor in a liquidation. In the INSLAW case, tax collectors seem unusually determined to see their debt paid immediately. "The IRS showed up in Bill Hamilton's office the day after the trial ended in August. Ultimately, they would demand that he personally pay the $600000 that INSLAW owes," says Docter. "Usually the IRS calls us before coming to see one of our clients," he notes. "We talk to them on the phone and get it straight." Hamilton doesn't have the $600000 in his personal savings account. But Docter responded to the pressure by writing a letter in which INSLAW promised to pay the withholding portion of the taxes within 30 days. "Normally, the IRS would wait that long." he says. "Instead, on the 28th day, they went out and filed to convert INSLAW from Chapter 11 to Chapter 7." Once again, they were trying to liquidate INSLAW. Lately, Docter reports, an aggressive IRS has been pursuing withholding taxes by going after the individual who owns a company, "but normally they don't go for the jugular immediately and file for a motion to liquidate." Still on the bench, Judge Bason managed to stop the IRS push to liquidate INSLAW. When the tax collectors filed to convert INSLAW to Chapter 7, Docter recalls having a memorable conversation with an attorney from the Justice Department's tax division. Docter chided the attorney from Justice, saying: "Look, the judge has already found that you tried to steal the software through `trickery and deceit.' Isn't it about time you stopped this heavy-handed stuff? Doesn't anyone in the department have enough guts to say, `We have to start handling this like lawyers?' The whole thing is just completely sullying the Justice Department." Docter states that the attorney from Justice replied: "I don't set policy around here. The Attorney General does." And, Bill Hamilton remembers, Ed Meese approved the Justice Department bonuses awarded after the trial was over, in December of 1987. Three of the six who received bonuses were involved in the INSLAW case: Stewart Schiffer, who directly supervised the INSLAW litigation, received $20000. Michael Shaheen, head of the "Office of Professional Responsibility," $20000. Shaheen wrote a letter to Arnold Burns on Dec. 18 recommending that whistle-blower Pasciuto be fired for exercising "atrocious judgment" in telling the Hamiltons what he knew. Lawrence McWhorter, Brick Brewer's boss, $10000. McWhorter, Judge Bason noted, said, "`I don't recall' or `I don't know' something like 147 times in his deposition." The court found McWhorter's testimony to be "totally unbelievable." Arnold Burns, deputy Attorney General until just last week, headed up the panel that received recommendations for Justice bonuses. With no help from Uncle Sam, Bill Hamilton earned his own bonus. IBM has plans to enter a $2500000 deal with INSLAW that will bail the firm out of bankruptcy. "About $1000000 will be used for software development to integrate INSLAW's products with IBM's own database software," Hamilton says, "and $1500000 will be used to finance INSLAW's reorganization." Details are still being negotiated. "IBM's law firm has drawn up a contract. We expect to have it signed in two or three weeks," Hamilton adds. In a 1981 speech, Edwin Meese had lauded INSLAW's work on PROMIS as "one of the greatest opportunities for success in the future." It seems he was right: The IBM deal provides the clearest evidence of all of the product's continuing value. Still, the IRS persists in demanding immediate payment--even though the pending IBM contract, not to mention the $8000000 owed by Justice, suggest that INSLAW will be able to pay its tax bill. Charlie Docter, INSLAW's attorney, comments on the IRS posture: "The whole thing smacks of a police state. This case scares the hell out of me. ' "Scary" is the word most often used by victims of the INSLAW affair. They are angry, but they also can't quite believe it happened. That the U.S. Justice Department could engage in a vendetta that would end the career of a federal judge, bankrupt a company, force a partner out of his law firm, cause another federal judge to recant under oath and reach down and wreck the career of a 21-year government-service employee--that's the stuff of a spy novel, set, one would hope, in another country. But resignations en masse from a Department of Justice inhabited by "moles" suggest alarming facts, not diverting fiction. Bill Hamilton's story is not based on imagination. It's based on experience, and there's considerable circumstantial evidence that he could have been the victim of a California cabal encompassing onetime members of the Reagan gubernatorial cabinet, and alumni of the Alameda County Mafia. Ed Meese belonged to both groups. Why did INSLAW rate the attention of such a powerful group? INSLAW was, one Senate staffer suggests, the leading edge of Justice's $200000000 "Project Eagle," a plan to computerize the department's tax division, criminal division and the 94 U.S. Attorney's offices. INSLAW predates the four-year-old Project Eagle, and might well offer an easy entry to any company that wants to participate in that program. The Justice Department has taken pains to say that INSLAW is not involved in Project Eagle. But Senate staffers looking into both INSLAW and Project Eagle aren't so sure. Project Eagle seems part of the same pattern of musical chairs: John J. Lane, a respected deputy assistant Attorney General for information technology, left last summer, and according to Government Computer News, Justice has lost its four IRM (information resources management) officials with the longest service in the past year. When Lane left, Justice reorganized its computer operations and created a new position, naming Stephen R. Colgate, who had been director of the Treasury Department's Office of Finance, to head Project Eagle. Asked about his priorities, Colgate was quoted in the trade publication as saying that, for the leadership of the department, "Eagle is the No. 1 priority. Eagle is the technology legacy that this Administration wants to leave behind." A member of Sen. Christopher Dodd's staff who has been looking into the INSLAW case for more than a year takes a more cynical view: "If you wanted to wire [fix] something, this would be the project," he confides. "It's been anticipated for a long time. And, it's a lot of money. So, if you wanted to wire something . . . this would be the one." These days, however, it's unlikely anyone at Justice wants wire anything. Today, there's a new agenda: Everyone is either burrowing in, or getting out. And, before leaving, there's an urgent desire to tidy up. Justice had announced its intention to fire Tony Pasciuto two months ago. But in the end, just a week before Deputy AG Arnold Burns resigned, he agreed to meet with Pasciuto's attorney, Gary Simpson, to hear Pasciuto's side of the case. Five or six officials from Justice were in the room; another three or four--including one who had recommended firing Pasciuto-- waited nervously in the hallway outside. "I was on a roll," confesses Simpson, who is normally matter-of- fact. "It was something else. I was accusing them of all sorts of things, and no one stopped me." Justice ultimately proposed a painless solution: Pasciuto should walk away, go work somewhere else, and they'd acknowledge he had been a good employee. During the meeting, Simpson did most of the talking. "Burns was really taking it on the chin," he recalls. "He jerked back a couple of times, but he didn't say anything. More than once, he nodded assent. When I stated that Blackshear had recanted, he nodded again. And," Simpson concludes, "Burns didn't look like he was hearing any of it for the first time." Where Are They Now? LEIGH RATINER has left the practice of law. The man who once negotiated the Law of the Sea treaty for the U.S. government now runs his own business, LSR Enterprises, a maker of filing systems for lawyers. JUDGE BASON, who was denied reappointment as a federal bankruptcy judge, is still unemployed, and looking for work. Judge Bason has no regrets, though he concedes he does not relish controversy. Indeed Judge Bason tried to have himself taken off the INSLAW case when it first came up. "I talked to the chief justice of the District Court and said, `This has the potential of becoming a very hot potato.' I wasn't sure I wanted to get involved in it." George Bason is not, by temperament, a fighter. "My wife tells me I'm very stubborn," the 56-year-old former law professor confesses. "It takes me a long time to make up my mind about things and I tend to reserve judgment until I know as much as I can. But when I make up my mind, I'm very firm. To a very aggressive person I may give the impression of being a pushover, and when I prove not to be one, such people can be very angry." TONY PASCIUTO is luckier. He has been offered a good job at a large financial firm based in New York. If he takes it, he'll be making a lateral move from Justice into the private sector. Meanwhile, his attorney, Gary Simpson, awaits final word on Pasciuto's honorable discharge from the department. The papers are scheduled to be signed today.