the INSLAW Case: part I of "BARRON'S" 1988 2-part piece
U.S. Deptartment of Justice != "with liberty and justice for all"
although these 2 articles are dated by more than 3 1/2 succeeding
years-worth of newer revelations and mounting evidence of cynical
corruption at the highest levels of the executive branch, as well
as linkages into the judicial branch of the u.s. government, they
still provide very useful and well-researched background material.
In his decision, [federal bankruptcy judge George] Bason compares
the Justice Department to someone who decides to test drive an
automobile: "So the customer drives off with the car and this is
the last the dealer ever sees of him. I think that is approximately
what the Department of Justice has done in this case."
First of a 2-part piece which began in the March 21, 1988 issue of
"BARRON'S NATIONAL BUSINESS AND FINANCIAL WEEKLY"
Did the Justice Dept. Deliberately Bankrupt INSLAW?
By MAGGIE MAHAR
"A VERY strange thing happened at the Department of Justice . .
What that very strange thing was was described in clear and
exhaustive detail in Judge George Bason's blistering ruling before
a packed Washington, D.C., courtroom last September. In a quiet
voice, Bason, a 56-year-old federal bankruptcy judge with a
reputation for being meticulous in his judicial approach, told the
astonishing story of INSLAW vs. the United States of America.
In his ruling on the case, Bason explained how "through
trickery, deceit and fraud," the U.S. Department of Justice "took,
converted, stole" software belonging to INSLAW, a Washington-based
computer software firm. In 1982, INSLAW signed a $10 million
contract to install its case-tracking software, PROMIS
(Prosecutor's Management Information System) in the Justice
Department's offices. But instead of honoring the contract, Bason
asserts, Justice officials proceeded to purposefully drive the
small software company into bankruptcy, and then tried to push it
into liquidation, engaging in an "outrageous, deceitful, fraudulent
game of cat and mouse, demonstrating contempt for both the law and
any principle of fair dealing."
Ultimately, the series of "willful, wanton and deceitful acts"
led to a cover up. Bason called statements by top Justice
Department officials "ludicrous . . . incredible . . . and totally
Some of the evidence against the department came from one of its
own. During the course of the litigation, Anthony Pasciuto, deputy
director of the department's Executive Office for United States
Trustees, met secretly with INSLAW'S president, William Hamilton.
At that breakfast meeting at the Mayflower hotel, Anthony Pasciuto
told Hamilton and his wife, Nancy, how the Justice Department had
pressured Trustee officers to liquidate their company. Later, a
superior confirmed Pasciuto's story. But at the trial, a horrified
Pasciuto listened while his superior changed his testimony. Close
to tears, he, too, recanted.
Judge Bason believed Pasciuto's original testimony however. On
Feb. 2, 1988, he ordered Justice to pay INSLAW about $6.8 million
in licensing fees and roughly another $1 million in legal fees.
Bason wasn't sure whether he could assess a department of the U.S.
government with punitive damages. If so, damages could run as high
as $25 million. Bason struggled with that legal question and
finally postponed the decision to a later date.
Now, no one knows how Judge Bason would have ruled on the
question of damages. In November, Judge Bason rejected a
Department of Justice motion to liquidate INSLAW. A scant one
month later, the Harvard Law School graduate and former law
professor discovered that he was not being reappointed. The
decision to replace him followed from a recommendation made by a
four-man merit selection panel appointed by the chief circuit
judge, Patricia Wald, a former Justice Department employee. The
panel was headed up by District Judge Norma Johnson, another former
Justice Department lawyer.
Judge Bason stepped down in February. He was replaced by S.
Martin Teel Jr., 42, one of the Justice Department lawyers who had
unsuccessfully argued the INSLAW case before Bason. Even jaded,
case-hardened Washington attorneys called the action "shocking" and
INSLAW'S case will be assigned to another judge for disposition
of damages. Meanwhile, the Justice Department is appealing Judge
Bason's initial $8 million award to U.S. District Court. And, last
week, the Internal Revenue Service descended on the Hamiltons,
demanding that the bankrupt company pay $600,000 in back taxes--
"I restrained the IRS from going after the Hamiltons
personally--just a few days before I left the bench," Bason
recalls. "But that restraining order lasts only 10 days. I don't
know what's happening now."
"It seemed as if the controversy was winding down," observes
INSLAW'S former attorney, Leigh Ratiner. "It would follow a
natural course in the press, and then fade from view." Inslaw
would become another shocking event that slinks off into obscurity:
Someone occasionally might dimly remember and idly ask, "What ever
did happen to Bill Hamilton and those INSLAW people? A real shame
. . . I heard the judge was back teaching law somewhere. . . ."
But at the end of last week Anthony Pasciuto instructed his
lawyer to write a letter to Deputy Attorney General Arnold Burns.
Pasciuto has decided to tell the full story that he began telling
at the Mayflower last spring. And, in an interview with "Barron's"
at the end of the week, Pasciuto explained how the Justice
Department black-listed INSLAW. It was a tale that involved two
U.S. trustees, a federal judge who told two versions of the same
story, and a Justice Department that routinely refused to pay
certain suppliers: "If you're on the bad list, you go in this
drawer," another Justice Department employee explained to Pasciuto.
Pasciuto knows what happened--but not why. In the trial, INSLAW
claimed that C. Madison "Brick" Brewer, the Justice Department
employee responsible for administering the department's $10 million
contract with INSLAW, held a grudge against the company: INSLAW's
Hamilton had fired Brewer in 1976. But since the trial, Hamilton
has become convinced that Brewer alone could not have been that
powerful. Bason's removal and Pasciuto's account suggest that what
motivated the remarkable behavior of the Justice Department was
something of greater moment than a middle-level employee's petty
Indeed, three people have lost their jobs as a result of the
INSLAW scandal--but not paradoxically, those responsible for the
scandals. The trio of victims includes Judge Bason and Pasciuto--
who received notice that he would be fired after he testifed, and
just two days after Judge Bason was informed that he would not be
reappointed. The third casualty of the Inslaw affair was Leigh
Ratiner a former partner at Dickstein Shapiro and Morin, the firm
that represented Edwin Meese during his confirmation hearings for
Why Bason and Pasciuto got the axe can easily be inferred.
Ratiner's forced departure is a little more complicated. In
January 1986, Elliot Richardson asked Ratiner to take on INSLAW'S
defense. Ratiner agreed, and named D. Lowell Jensen, then the
Deputy Attorney General, and a long-time Meese friend, in a
complaint. Not long after, Meese discussed the case with another
Dickstein, Shapiro partner, Leonard Garment, the attorney who,
along with E. Robert Wallach, represented Meese in his confirmation
hearings. Meese acknowledged the conversation in a pretrial
interrogation. Shortly thereafter, his partners at Dickstein,
Shapiro asked Ratiner to resign.
The Senate's Permanent Subcommittee on Investigations is now
looking into INSLAW--a sign that the lawmakers, too, think that the
whole story of the "something strange" that happened in the Justice
Department has yet to be told. The Hamilton's attorneys aren't
sure why a department of the U.S. government wanted to liquidate
their company. Anthony Pasciuto doesn't know. Judge Bason is
still trying to piece together who had it in for him and why. But
Bason, Hamilton and the attorneys involved in the case are
beginning to define the pieces of the puzzle with some pointed
Why did the Justice Department hire Brick Brewer, a former
INSLAW employee, to supervise a contract with his former employer?
"The person is going to be biased in favor of the former employer-
-or he is going to be biased against the former employer," Bason
pointed out in his decision.
The judge also noted that D. Lowell Jensen, the former deputy
Attorney General named by Ratiner in his complaint, was questioned
on this issue. Jensen, now a federal judge in California,
"recognized the general principle that it is a bad idea" to hire a
former employee, disgruntled or otherwise, for such a task, Bason
observes. But, Bason wrote, he was amazed to find "no hint in
Jensen's testimony that he recognized there was any possible
applicability of that general principle to the case of Mr. Brewer
Hamilton discloses that Mr. Jensen himself was already familiar
with INSLAW. Hamilton ran into Jensen in the early 1970s, when
Hamilton was developing PROMIS, the case-tracking system that he
contracted to sell to the Justice Department. At that time,
Jensen, a long-time friend of Ed Meese, was district attorney in
Alameda Country in northern California, developing his own
computerized case-tracking system, DALITE. Jensen competed with
Hamilton's PROMIS head-on-head. PROMIS won.
Hamilton and others familiar with the case ask: Could Jensen
still be feeling competitive? People who have "tracked" the INSLAW
case point to the coincidences of timing: INSLAW'S problems with
the Justice Department erupted soon after Jensen was promoted to
Associate Attorney General--the No. 3 person in the department--in
Hamilton reveals another curious coincidence: About 90 days
before the Justice Department contract began to fall apart, he
received a phone call from Dominic Laiti, chairman of Hadron Inc.,
a company in which Earl Brian, a long-time Meese colleague, holds
an interest (see "Brain's Meese Connection" posting following this
one, from Barron's Jan. 11, 1988 issue). Brian's Infotechnology
controls four of six seats on Hadron's board. Laiti told Hamilton,
according to Hamilton, that Hadron intended to become the dominant
supplier of computer software and services to law enforcers and
courts and related agencies, and that Hadron wanted to buy INSLAW.
"We have ways of making you sell," Hamilton quotes Laiti as saying.
Laiti insists: "I have no memory of this. It all sounds
ridiculous to me."
The bizarre web of coincidences and connections includes AT&T.
AT&T had a contract with INSLAW and, during bankruptcy proceedings,
declared itself a major creditor. Then, Hamilton alleges, AT&T's
attorney began to behave less like someone representing a creditor
interested in salvaging the company than like an attorney for the
Justice Department bent on liquidating it. More coincidences:
AT&T's outside counsel, Ken Rosen, was with an obscure New Jersey
firm, but formerly had been a member of Deputy Attorney General
Burns's New York law firm. Rosen's co-counsel, Shea & Gould, is
not AT&T's usual outside counsel, either, though it is the firm
used by Earl Brian.
Bason questions the failure of high Justice Department officials
to take any action to investigate serious allegations of
misconduct. Both Hamilton and his attorney, Elliot Richardson,
complained about Brewer's handling of the contract, and requested
"There's such a contrast between the total inaction on the part
of Justice Department regarding Mr. Brewer--and the hammer and
tongs approach they're using with Mr. Pasciuto," Bason observes.
Last Thursday, Pasciuto's attorney, Gary Simpson, delivered his
letter to Deputy Attorney General Burns--and met with the Senate
committee. At the end of the week, that committee met with Bason,
as well. Senator Nunn's committee may find some answers--and ask
more questions--that will illuminate this bizarre story.
For now, Pasciuto does know what happened to him and his tale
provides a window on the strange thing that happened to INSLAW.
In March of 1982, William Hamilton could probably envision his
face on the cover of Fortune. He had just won the $10 million,
three-year contract with the Justice Department to install PROMIS
in the department's 20 largest U.S. Attorney's offices, and to
develop a separate program for its 74 smaller offices. Hamilton,
who had contracts with private firms as well, now had a deal with
the nation's premier law firm: the Department of Justice.
PROMIS was unique, and those 94 U.S. Attorney's offices
represented an entering wedge: Hamilton could dream of capturing
the federal judicial system's entire caseload. In the fiscal year
October 1, 1982, INSLAW's revenues went up about 35% to $7.8
million, with more than half of those revenues coming from the
Justice Department contract.
But then, that funny thing happened. The Justice Department
began postponing payments. In July 1983, Hamilton says, the
department suspended nearly $250,000 in payments, alleging that the
company was overcharging the government for time-sharing. In
February 1985, the government terminated the contract with smaller
offices that had been generating revenues of $200,000-$300,000 a
INSLAW's cash flow shriveled. By Feb. 7, 1985, the government
had withheld $1.77 million. Inslaw twisted and turned, trying to
negotiate with the Justice Department, desperate to find out what
went wrong. Finally, in financial shambles, INSLAW filed for
bankruptcy in late February. The Department of Justice kept the
INSLAW software--and kept on using it.
In his decision, Bason compares the Justice Department to
someone who decides to test drive an automobile: "So the customer
drives off with the car and this is the last the dealer ever sees
of him. I think that is approximately what the Department of
Justice has done in this case."
In last week's letter to Deputy Attorney General Burns from
Pasciuto's attorney, Gary Simpson, Pasciuto suggests a pattern of
harrassment that helped drive INSLAW into Chapter 11. According to
Pasciuto, in June of 1984, Robert Hunneycutt, who worked in the
Department of Justice's finance offices, told him about his
practice of dividing contractors' bills 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.'"
Hunneycutt then identified such invoices as belonging to companies
on the "bad list."
"Mr. Pasciuto asked who was in that pile," the letter to Burns
goes on, "and he said that INSLAW was an example and that `People
in the U.S Attorney's offices don't like INSLAW they are in this
pile. . . .'"
When "Barron's" phoned Hunneycutt, he returned the call, and
left this message: "Mr. Hunneycutt knows nothing." In a
subsequent conversation, he denied the conversation with Pasciuto.
But Hamilton claims that the Justice Department was trying to
starve INSLAW. They didn't just push to bankrupt the software
firm, he insists, they wanted to liquidate it, converting it from
Chapter 11 to Chapter 7, as soon as possible. Why? Hamilton
speculates that Justice may have wanted to push INSLAW into an
auction where PROMIS could be purchased cheaply by someone that the
department viewed more favorably.
Indeed, the Justice Department did move for liquidation. And on
St. Patrick's Day 1987, Anthony Pasciuto met with the Hamiltons at
the Mayflower and gave them a fuller picture of what was happening
to them. A mutual friend, Mark Cunniff, executive director of the
National Association of Criminal Justice Planners, asked Pasciuto
to go to that breakfast meeting at the Mayflower.
"I said, `Don't you know what you're asking me to do?'"
Pasciuto recalls. "He said, `I know.'"
"I knew him for 19 years," Pasciuto explains. "I said, `Mark,
I'm doing it for you--and for these poor people.' I knew they had
five kids," adds Pasciuto, a graying 44-year-old All-American "nice
guy" with a strong Boston accent, and an open, slightly pockmarked
face. Pasciuto has been married for 21 years, in government
service for 21 years, and still wears his class ring--U. of Mass.,
So, at the Mayflower, Tony Pasciuto remembers he tried to help
Bill and Nancy Hamilton--and confirmed their most paranoid
fantasies: The Justice Department was out to get them.
At the meeting with the Hamiltons Pasciuto told them that his
boss, Thomas Stanton, director of the Justice Department's
Executive Office for U.S. Trustees, was pressuring the federal
trustee overseeing the INSLAW case. William White was being
pressed to liquidate INSLAW. According to Pasciuto, in 1985 White
told him that he was resisting the pressure. As a result, White
informed Pasciuto, Stanton denied White's Alexandria office
administrative and budgetary support and, at the same time, tried
to have an assistant from the U.S. Trustee's office in New York
take over the case and convert it.
The Hamiltons were told by Pasciuto that Cornelius Blackshear,
the U.S. trustee in New York at the time of INSLAW's Chapter 11
filing, knew all about Stanton's plan. Pasciuto said that Judge
Blackshear had repeated this tale of pressure in the presence of
United States Court of Appeals Judge Lawrence Pierce in the judge's
chambers in Foley Square in New York. Pasciuto also told the
Hamiltons that the Justice Department had blacklisted INSLAW on the
department's computer system procurements.
On March 25, 1985, INSLAW's lawyers deposed Blackshear, and he
confirmed the story of pressure to liquidate INSLAW. The very next
day, March 26, Blackshear met with a Justice Department
representative, and signed a sworn affidavit, recanting, and saying
that he had confused INSLAW with another case--United Press
International, which had also been involved in bankruptcy
proceedings in Judge Bason's court.
"I know the difference between UPI and INSLAW, I'm not that
dumb," Pasciuto observes. He spells it out with a finger: "U--P--
Cornelius Blackshear left his position as United States Trustee
and became a United States bankruptcy judge the following fall.
According to Pasciuto, Judge Blackshear discussed INSLAW in
Judge Pierce's chambers. But when questioned on the point, Judge
Pierce told "Barron's": "I have made it my business not to get
into the particulars of whatever Tony [Anthony Pasciuto] got
himself into the middle of. Apparently, he thought his employer
was doing something that was not kosher. I told him I didn't want
to know about it--if he needed to, he should hire an attorney."
When "Barron's" offered to recount the details Pasciuto
allegedly discussed in his presence, the judge grew agitated:
"Don't tell me--I don't want to hear it. I don't want to know
"I did ask him for help--six months before it all happened. I
didn't know what to do," Pasciuto recalls. "Judge Pierce and I go
back to the time when I was an assistant dean at the School of
Criminal Justice in Albany--in 1972. He was a visiting faculty
member for one year. We became good friends. I considered him a
In his ruling, Judge Bason noted that Blackshear had given "two
different versions of the same event" and decided that other
evidence supported the first version. White also denied the story
of political pressure in court and Judge Bason asserted in his June
1987 ruling, "What I do believe is that Mr. White has a capacity to
forget . . . a capacity which probably all humans share to some
degree or another."
Judge Bason went on to point out: "Mr. White has just recently
joined a large law firm that practices primarily in Virginia and
primarily in bankruptcy matters. Mr. White's future with the firm
that he so recently joined could well be dependent on income-
producing work that he does. . . . It seems to this court that Mr.
White is not in a position at this point in his career to
jeopardize his relationship with the U.S. Trustee's office in
Alexandria, and for him to testify in a way that would be strongly
disliked and disfavored by the Executive Office for U.S. Trustees
could well have an adverse impact on the relationship between the
executive office and the Alexandria office and, in turn, a
relationship between Mr. White and the Alexandria office."
But in late spring of 1986, White was still a U.S. Trustee, and
Pasciuto recalls one more incident involving INSLAW. White called
Pasciuto and asked for an extra filing cabinet for his INSLAW
files. "I said, `You've got plenty of them over there,'" Pasciuto
recalls. White responded, "I know, but I need another one because
I need to put all the INSLAW files in one cabinet and lock it."
White was discreet. So, on June 1, 1987, when Anthony Pasciuto
walked into that packed D.C. courtroom to take the stand in the
INSLAW case, he knew that White would not support his story. He
also knew that Judge Blackshear had changed his original story. As
Pasciuto's lawyer puts it in the letter to Burns: "Mr. Pasciuto
was now the only person with recollection of conversations with
U.S. Trustees in which Mr. Stanton was identified as having put
pressure regarding the INSLAW case. Other people's recollections
were being erased by mechanisms best known to them."
Pasciuto's boss, Stanton, apparently put his own pressure on
Pasciuto. Beginning in 1985, according to the letter to Burns,
Pasciuto began reporting his concerns about substantial deficits in
the U.S. Trustee's office to Stanton. In 1986, Pasciuto spoke to
the Department of Justice's finance staff and by late 1986, he says
he had gone on record with the Office of Professional
Responsibility about financial indiscretions by Stanton. According
to Pasciuto, Stanton in September 1986 called him a "traitor."
Pasciuto began actively looking for other employment, including a
job as Assistant U.S. Trustee in Albany, N.Y. But no transfers
were available for Anthony Pasciuto--until he was subpeonaed to
testify in the INSLAW case.
"Within an hour of receiving that subpeona to testify, Mr.
Pasciuto was given a copy of an appointment paper for a job as the
Assistant United States Trustee, Albany, New York, signed by Mr.
Stanton," Simpson, Pasciuto's attorney, reports in last week's
letter to Burns. After the trial was over, however, Pasciuto was
told that the procedure "was changed" and that the deputy Attorney
General would have to sign off on the form. That never happened.
But Pasciuto, who believed the signed appointment papers, sold
his house in Maryland for $200,000 and bought a house in Albany for
$250,000. On the day the movers came, he was told that the sale of
the Maryland house had fallen through. "We had to move, we had to
carry two houses--and we couldn't even move into the Albany house
yet because the owners wouldn't be moving out for a month," Tony
Pasciuto recalls. "So, we stayed with in-laws for a month." That
was May 22, 1987. Nine days later Tony Pasciuto walked into court.
When he entered the court room on June 1, 1987, Pasciuto was not
represented by counsel. According to Simpson, his attorney: "The
Justice Department attorney who was handling the INSLAW case, Mr.
Dean Cooper, did not prepare him well for his trial testimony. The
paralegal who was taking notes during the witness preparation says
that he has lost the notes of that meeting."
When the questioning began, Pasciuto must have realized that the
Justice Department attorney was not going to guide him gently
through his story. One of Cooper's first questions was "whether
[Pasciuto] had been seeing a doctor about a stressful condition."
In his letter to Burns, Simpson explains: "Mr. Cooper
apparently knew that Mr. Pasciuto had been seeing a psychiatrist in
connection with personal problems that he had been experiencing and
Mr. Pasciuto . . . now knew that the United States Department of
Justice was prepared to stoop to the level of bringing his personal
problems into the INSLAW case to get him to be careful about what
Apparently, the tactics worked. Pasciuto recanted, saying that
the statements he made to the Hamiltons at the Mayflower were made
in an effort to hurt Stanton, who was blocking his promotion.
Judge Bason remembers 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. He
was a career federal employee and he was petrified. He probably
had a vision of losing his job, his marriage, everything. Probably
he thought the only way he could save anything was to recant. I
had to adjourn at one point during his testimony--he was close to
But Pasciuto didn't save his career. And now, in the letter to
Burns, he has come forward to make a full disclosure.
Last week's letter to Burns contains a compelling, painful
vignette of a chance meeting between Pasciuto and Blackshear, about
a month after the trial, on July 11, 1987. If Hamilton felt
floored by Pasciuto's testimony, so Pasciuto must have felt
betrayed by Blackshear's change of heart. The meeting was awkward.
As Simpson tells the story in the letter to Arnold Burns, it was
six in the evening, when Pasciuto and his wife were leaving the
home of a mutual friend, Harry Jones, now U.S. Trustee for the
Southern District of New York. Judge Blackshear came up to Tony
Pasciuto, put his arm around him, and said, "I am sorry, it will be
Pasciuto replied: "No, it is not going to be all right, they
are going to fire me."
Blackshear responded, "They are not going to fire you. Don't
they know how much you know?"
Pasciuto: "Yes, but they don't care."
Blackshear: "But you told the truth."
Pasciuto: "Of what importance is the truth if everyone else is
Blackshear: "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. I didn't know you were subpoenaed
until I saw your testimony, which was sent to me by Barbara
Pasciuto: "Do you remember what we talked with Judge Pierce
"I wanted to see if he was going to continue his crap," Pasciuto
recalls. "But he dodged--literally backing away from me--saying,
again, `They sent someone from Washington and someone from the U.S.
Attorney's office. I felt the easiest thing to do was recant. I
felt less people would be hurt if I just bailed out.'"
In Simpson's version, Judge Blackshear had received two
telephone calls from William White the day he changed his story.
White told him he had the wrong case.
Pasciuto, exclaimed, sarcastically: "What! They asked you
about converting *another* case [from Chapter 11 to Chapter 7]?"
Blackshear, waving his hand: "I don't want to get into it and
who the hell cares?"
Today, after listening to Simpson's version, Blackshear states:
"I don't remember the specifics, word for word, but I do remember
having that conversation. And I don't have any problems with what
Recalling the scene, Pasciuto says: "You know, even now--I'm
not angry. I can't help it. I'm not. Blackshear is basically a
wonderful person. It's sad--I'm sorry, I'm not angry. It really
is sad. I feel devastated."
Tony Pasciuto now has a house in Albany, and soon will have no
job either in Washington or New York. Over the past nine months,
he has spent $12,000 commuting from Albany to the job he still
clung to in D.C. Legal fees are draining his savings--the bills
total $25,000 so far. "We're lucky that my wife and I were always
frugal and have the money saved," he says proudly.
But Tony Pasciuto is frightened. "At work, ever since I got the
letter saying they were firing me, I've felt like I was underhouse
arrest," he relates. "People come by my office to see if I'm
there. If I leave, I have to sign out. Everyone is supposed to,
but normally very few people sign out. If I don't, they try to
track me down. If I go to the Men's Room, they come looking for me.
"I'm just a GS 15," adds Pasciuto, referring to his level in
government service. "Stanton, my boss, can't fire me. Stanton
made the accusations, but 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 GS 15?
It's scary. It scares me to death."
Subject: the INSLAW Case: part II of "BARRON'S" 1988 2-part piece
Keywords: U.S. Deptartment of Justice != "with liberty and justice for all"
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
Conclusion of a 2-part piece which appeared in the April 4, 1988 issue of
"BARRON'S NATIONAL BUSINESS AND FINANCIAL WEEKLY"
This part was the cover story with the following title emblazzoned
above the seal of the United States Department of Justice:
Rogue Justice: Who and What
Were Behind The Vendetta Against INSLAW?
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 $10 million 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
$6.8 million in licensing fees and roughly $1 million in legal
costs. He postponed a decision on punitive damages--which could run
as high as $25 million.
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
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
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
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
"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
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
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
"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
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
"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
"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 $1 million. 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
"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 $200
million contract is scheduled to be awarded before the end of the
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
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 $4.5
million 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
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 $1.2 million into the red. Hadron's ups and
downs continued: a loss of $231,000 for the 1986 fiscal year, a
profit of $852,000 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
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
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
"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 $1.6 million 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 $40 million 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 $40 million deal to provide
automated litigation-support services for Justice's Land and Natural
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 $40
million 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 $1.5 million 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
The Brian connection became an embarrassment during Ed Meese's
confirmation hearings when Meese acknowledged that his wife, Ursula,
borrowed $15,000 from a Meese adviser, Edwin Thomas, in order to buy
stock in Brian's company. Coincidentally, just six months later,
Brian lent $100,000 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
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
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
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
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?"
"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
"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 $1 million--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 $6.8 million-
-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
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 $600,000
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 $600,000
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
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
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
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
Stewart Schiffer, who directly supervised the INSLAW litigation,
Michael Shaheen, head of the "Office of Professional
Responsibility," $20,000. 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
Lawrence McWhorter, Brick Brewer's boss, $10,000. 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
With no help from Uncle Sam, Bill Hamilton earned his own bonus.
IBM has plans to enter a $2.5 million deal with INSLAW that will
bail the firm out of bankruptcy. "About $1 million will be used for
software development to integrate INSLAW's products with IBM's own
database software," Hamilton says, "and $1.5 million will be used to
finance INSLAW's reorganization." Details are still being
"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 $8 million 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
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 $200
million "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
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
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.
if you've made it to the end of these 2 articles, you understand that there
are a lot of questions Ms. Mahar leaves open-ended since, during the spring
of 1988 when she wrote this, many aspects of this situation were still
grinding on and had not achieved the clarity now more evident. obviously,
3 and a half years later, and a great deal more known about this story,
there is much that Ms. Mahar was only able to intimate for lack of more
concrete evidence that has since become available. if any of you are
interested in following up on any of the points raised in these 2 articles,
i'd like to suggest at least a couple of obvious starting points. Maggie
Mahar writes that
Bason questions the failure of high Justice Department officials
to take any action to investigate serious allegations of misconduct.
and alludes to the Senate Permanent Subcommittee on Investigations, chaired
at that time by Sam Nunn:
The Senate's Permanent Subcommittee on Investigations is now
looking into INSLAW--a sign that the lawmakers, too, think that the
whole story of the "something strange" that happened in the Justice
Department has yet to be told. . . . At the end of the week, that
committee met with Bason, as well. Senator Nunn's committee may
find some answers--and ask more questions--that will illuminate
this bizarre story.
why not call up Senator Nunn's office and ask "what happened?" "what did
you find out? what did you conclude? is there a report you can send me?"
also Senator Dodd's office should be called:
A member of Sen. Christopher Dodd's staff . . . has been looking
into the INSLAW case for more than a year . . .
to see if the member she alludes to is still there or ever wrote up a
report of their examinations.
yer friendly neighborhood ratman
ko.yan.nis.qatsi (from the Hopi Language) n. 1. crazy life. 2. life
in turmoil. 3. life out of balance. 4. life disintegrating.
5. a state of life that calls for another way of living.