Political Figures Face Probes : Wedtech’s Desire to Move Up Mires Firm in Scandal

NEW YORK —  John Mariotta, a Puerto Rican immigrant, has come a long way since he opened a small machine shop in a South Bronx garage.

Despite his lack of formal schooling, Mariotta built his little company into a $250-million federal defense contractor that provided much-needed jobs in his economically depressed area. On a stop in the Bronx during his 1984 reelection campaign, President Reagan hailed him as “a hero for the 1980s.”

Today, Mariotta is a nearly broken man. His business, Wedtech Corp., is in bankruptcy, and he is waiting for an expected federal grand jury action in connection with allegations that Wedtech fraudulently won no-bid federal contracts reserved for minority firms.

Mariotta does not face this difficulty alone, however. Also implicated in the scandal are a bevy of political figures, including former White House political director Lyn Nofziger and Rep. Mario Biaggi (D-N.Y.). And a special Justice Department anti-corruption unit has begun investigating the Wedtech connections of Atty. Gen. Edwin Meese III.

Wedtech is being examined in New York by U.S. Atty. Rudolph W. Giuliani, the Labor Department’s office of labor racketeering, the FBI and the Internal Revenue Service. There is a separate New York state probe, another federal investigation in Maryland and a related inquiry in Washington by a court-appointed independent counsel.

How could a company with such modest beginnings get into so much trouble?

In the opinion of some, Wedtech Corp. sought to grow too fast and used unsophisticated and illegal methods to try to compete with larger, more established companies.

Frustrated by its inability to get the major government contracts that would boost it into the big leagues of military manufacturers, it allegedly curried--and sometimes bought--the influence of high-level people who get it there.

“This place was like a candy shop in the Bronx. People were lining up to seek money and other goodies from the company,” said Martin R. Pollner, an attorney who is trying to pull Wedtech out of bankruptcy.

‘Willing to Pay Big Bucks’

A federal investigator, who declined to be identified, agreed. “When word got out that Wedtech was on the make,” he said, “a lot of people tried to take advantage of them. These well-connected folks saw Wedtech was willing to pay big bucks to gain influence in Washington.”

So far, former Bronx borough President Stanley Simon and two prominent Maryland political figures, Clarence Mitchell III, a former Democratic state senator, and his brother, state Sen. Michael B. Mitchell, have been indicted on Wedtech-related charges.

More indictments are expected soon, according to sources close to the investigations.

Four former Wedtech executives, who pleaded guilty to bribery conspiracy charges three months ago, are cooperating with authorities.

The recipients of alleged pay-offs and other benefits have not yet been named. But Mario Merola, the district attorney in the Bronx, said: “We are probably looking at more than a dozen people,” including “federal, state and city officials.”

Biaggi Declares Innocence

Of the prominent figures whose names have emerged in the Wedtech scandal so far, Biaggi has declared his innocence of any wrongdoing and Simon quit his borough post to fight the allegations. The Mitchells have denied criminal conduct but declined to discuss the case. Nofziger has refused all comment.

Meese, who has not been accused of receiving any financial benefits, has denied any direct connection with the firm and denied any improprieties.

It is not clear exactly when the transformation began for Wedtech--from the model small business that epitomized Reagan’s doctrine of private-sector initiative, to the model of ambitious corruption that would eventually occupy scores of investigators and defense lawyers.

In the late 1960s and 1970s, the company principally manufactured machine parts, sheet metal products and bridge supports.

But by the time the Reagan Administration took office in 1981, associates say, Mariotta had decided it was time for the company to move up. He “wanted to get a fair break, a fair hearing” in trying to win federal contracts for his small firm, one associate said.

“His feeling was, ‘The doors are always open to General Dynamics and the other big guys, but I need to do something special to get access to the key decision-makers,’ ” according to Mariotta’s attorney, Jeff Glekel. Glekel declined to let Mariotta speak to a Times reporter.

Solicitation Alleged

Investigators allege that officials of Wedtech, which was then known as Welbilt Electronic Die Corp., began soliciting officials in local and federal government for help in getting a number of military contracts available to minority-owned businesses.

On another front, the company began seeking an entry to the White House to pursue one particularly coveted prize--a five-year, $31-million contract to produce small gasoline engines for the Army.

In the White House effort, investigative sources said, Mariotta first enlisted help from Philip Sanchez, a Fresno, Calif., consultant whom Mariotta had met in Latino business circles.

Sanchez, whom the Administration once considered for secretary of housing and urban development, sent a memo to fellow Californian Nofziger, then a top Reagan aide, suggesting that Mariotta be invited to Washington to meet the President.

In the March, 1981, memo, which has been obtained by authorities, Sanchez said a presidential photo session with Mariotta could “yield significant political pluses for our Administration” in influencing Latino voters.

About the same time, a San Francisco attorney, E. Robert Wallach, was put in touch with Wedtech by a friend.

‘Hot Minority Company’

Wallach said in an interview that he looked into the firm and found it to be a “hot minority company, taking people off welfare and getting them off drugs.” He said he later mentioned it to the White House.

“If these guys (Wedtech principals) were crooks, I missed it,” he said. “They impressed the hell out of me--a dynamite urban zone project that was working.”

Meese, then counselor to the President and a close friend of Wallach, has since acknowledged that he took steps to get Wedtech “a fair hearing” by the Pentagon on its bid for the small-engine contract.

The Pentagon, however, contended that the firm’s price was too high.

According to investigative sources, Ed Thomas, then Meese’s deputy, asked former Cabinet secretary Craig Fuller to look into problems the company was having in seeking the contract.

Fuller and Fred F. Fielding, then White House counsel, objected to White House intervention in such contract matters in memos they wrote, according to investigative records.

Meese has said he was never aware of those protests. And in May, 1982, investigators say, Meese’s then-deputy, James E. Jenkins, called a meeting at the White House “to discuss financing for Welbilt in connection with its proposal to the Army for a military engine contract,” according to a Justice Department statement filed in federal court.

Army, SBA Attended

Representatives of the Army and the Small Business Administration attended the session, along with company officials.

At the same time, Nofziger also allegedly was pressing the company’s case. After leaving the White House in January, 1982, he had opened a Washington-based public relations firm that began helping to promote the company’s interests. Mark A. Bragg, Nofziger’s partner in the business, sat in on the White House meeting.

After the session, according to investigators, Nofziger sent a letter to Jenkins, followed by a phone call, urging him to help the firm get the engine contract.

Whether the appeal made the difference is not clear. But the company got the contract, and Nofziger and Bragg each were given $350,000 worth of company stock the following year when Welbilt went public and rechristened itself as the Wedtech Corp., Nofziger’s associates have confirmed.

With an Army contract under its belt, Wedtech--with the support of the SBA--next began building pontoon bridges for the Navy and a smoke-grenade launcher for the Army under minority business contracts totaling more than $140 million.

But legal problems began to loom. Since Mariotta’s 51% ownership of the firm was diluted by the public stock offering, Wedtech no longer was minority-owned, by the SBA’s definition, and the agency began proceedings to disqualify the company.

Never Bought Stock

To deal with this problem, company officials allegedly told the agency that they were transferring enough of their own stock to Mariotta to bring his holdings up to his previous 51%. However, Mariotta never actually bought the stock.

Investigators say the company also made arrangements with a number of officials, whom sources say included Biaggi, to lobby the SBA on its behalf, allegedly in exchange for financial benefits.

However, the firm finally agreed to terminate its minority status in March, 1986. Early this year, company officials acknowledged in court that they had defrauded the SBA by getting minority contacts for which they were not truly eligible.

The company’s activities already had attracted the attention of federal and local investigators, who began investigating how it had received contracts and who might have received financial benefits for their assistance.

A number of connections between the company and those involved in the contract push emerged.

After leaving the White House in May, 1984, Jenkins was hired as Wedtech’s Washington marketing director last year.

Sold Stock He Received

Wallach had been retained by the firm and received Wedtech stock that he said he sold for “$600,000 and something” and legal fees that he would not specify.

There has been no suggestion that Meese received any financial benefits. However, on April 8, Meese removed himself from any role in the federal investigations of Wedtech, after learning that Wallach had become a subject of one investigation. Meese acknowledged that in May, 1985, he had invested $60,000 (from stocks he had sold to fulfill a pledge to the Senate Judiciary Committee) in a “limited blind partnership” in Financial Management International Inc., a consulting firm headed by W. Franklyn Chinn of San Francisco. Three weeks earlier, Chinn had become a financial adviser to Wedtech. He was put in touch with the firm by Wallach.

Meese’s spokesman has said that he is now considering withdrawing his $60,000 investment from Chinn’s firm, even though Wallach has said that Chinn assured him none of Meese’s money went into Wedtech.

Of his contacts with Wallach, Meese has acknowledged that he received “half a dozen memos over a year and a half or so” from Wallach about the company but asserted: “There was very little conversation about doing anything for Wedtech per se. It was more a matter of Wedtech, which had been a company that the Small Business Administration had kind of looked on as symbolic of minority enterprises which were successful . . . that Mr. Wallach was keeping me informed from time to time.”

Chinn and Wallach have been designated “subjects” of a New York federal inquiry into Wedtech--prosecutor’s terminology for those whose conduct is within the scope of a grand jury’s investigation. It is not known whether any allegations of wrongdoing are being considered against them.

It was recently disclosed that the Justice Department’s public integrity office has been quietly examining Meese’s Wedtech ties and the fact that he did not remove himself from the Wedtech investigations until April 8. That “threshold inquiry” will determine whether there is reason to turn the matter over to an independent counsel for further investigation.

Independent Counsel Probe

Another inquiry is being conducted in Washington under court-appointed independent counsel James C. McKay. McKay is seeking to determine whether Nofziger’s contact with the White House was in violation of the federal Ethics in Government Act, which prohibits former government officials like Nofziger from lobbying their former agencies, in this case the White House, for 12 months after leaving government service.

Biaggi, who was indicted in March by a separate federal grand jury for bribery and conspiracy in connection with alleged efforts to help another New York company, is a chief target of the Wedtech New York federal panel and action is expected soon, official sources said.

Simon has been accused by a federal grand jury in New York of extorting cash and other benefits from Wedtech to push its case with the SBA. The Mitchells have been charged by a federal grand jury in Baltimore with taking part in a scheme to head off a congressional investigation into whether Wedtech benefitted from improper White House intervention.

Authorities have not indicated whether Jenkins is being investigated in the probe.

At a press conference last month, Meese defended his former aide, who has not publicly commented on the matter. He said that Jenkins became associated with Wedtech “long after he had had any contact with the Wedtech matter in the White House and also a long time after he had left the White House. . . .”

“It would not at all be unusual, I think, for a person who did a good job at the White House and who was in the business of consulting to be consulted by people who had learned of their expertise while they were in the White House. That happens all the time,” Meese said.

In Mariotta’s case, investigative sources said his case is now being weighed by the New York federal grand jury.