When Subpoenaed in 1990,
Watt Made the Wrong Call
Decision Became Turning Point in Counsel 's Probe
By Toni Locy
Washington Post Staff Writer
While the fight over documents that often rages between prosecutors and grand jury witnesses is an age-old one, it gets especially messy when prosecutors begin to think they are being played for fools.
Such was the case when former interior secretary James G. Watt encountered the independent counsel charged with investigating massive corruption at the Department of Housing and Urban Development. Watt, the Reagan administration's chief flamethrower, got hit with a 25-count felony indictment charging him with lying to Congress and a grand jury and obstructing prosecutors.
So how did this bitter contest end with such an extraordinary whimper this week as a new prosecutor agreed to drop the felony charges in exchange for Watt's guilty plea to a single misdemeanor? Were his legal problems merely the result of a personality conflict in which Watt's arrogance grated on prosecutors used to witnesses caving into their powers? Or was the original indictment against Watt seriously flawed, as his lawyers have suggested?
A review of court records and interviews with lawyers familiar with Watt's case—considered the biggest catch in a $20 million investigation—indicate that it may have been a little of all of the above.
Watt's troubles began when he received a Mary 23, 1990, subpoena from a federal grand jury here investigating political favoritism and mismanagement at HUD. Watt, 57, should have called a lawyer, but it simply wasn't his style to allow someone else to speak for him. Instead, the fourth-generation Wyoming rancher grabbed his phone and called a prosecutor working for newly appointed independent counsel Arlin M. Adams, a former federal appeals court judge assigned to investigate HUD.
By far one of the Reagan administration's most controversial officials, Watt was under fire nearly nonstop as interior secretary because of his outspoken and sometimes offensive style. He resigned as the Senate prepared to take a vote of condemnation for his description of a coal advisory commission as "a black . . . a woman, two Jews and a cripple."
Watt's decision that day to deal with the subpoena himself turned out to be a turning point in Adams's investigation. What Watt said that day, in subsequent conversations with the prosecutor and in a June 6, 1990, letter about what records he did or did not have and would turn over became fuel for the felony charges nearly five years later.
Watt would insist later that he told the truth but simply forgot that he had several other documents that prosecutors considered key evidence against not only Watt but also others. In the 1990 letter, Watt had insisted that he had few documents of "marginal, if any, relevance" to the grand jury.
But he had more than a few. During a search of his family garage early last year, Watt found documents including letters he had written to then-HUD Secretary Samuel R. Pierce Jr., another focus of Adams's investigation, as well as to business associates and a HUD undersecretary about certain projects of interest to clients of Watt, a consultant. When Watt turned them over, prosecutors were incensed.
Within a few months, Watt was indicted, charged with lying to Congress and the grand jury about his consulting work and use of his HUD political connections to help private landlords and developers obtain millions of dollars in low-income housing funds.
In a vitriolic news release last February Adams accused Watt of betraying the public trust by ensuring that scarce HUD funds were awarded to "Favored insiders, rather than the needs of the poor." Adams did not return phone calls this week. But Adams was most bitter about Watt's failure to turn over documents. The independent counsel even blamed Watt for dragging out his investigation, which began in 1990, and driving up its expense. Its cost increased $3 million since last January, a month before Watt's indictment.
The nearly 60-page indictment depicted Watt as arrogant in his efforts to thwart investigators, telling Congress he did not meet with HUD officials when the grand jury said he did and insisting that he kept no records of his consulting business.
To illustrate Watt's arrogance, the grand jury cited his response when asked by a prosecutor if he kept a record of a conversation he had with Pierce about a Maryland project. He said: "I intentionally don't make such memoranda so that lawyers like you won't be able to get them."
Watt and his lawyer, William Bradford Reynolds, a Justice Department official in the Reagan administration, countered by portraying Adams as a "runaways" independent counsel. They described Adams as the perfect example of everything wrong with the powerful special prosecutors who answer to no one once they are appointed to investigate allegations of corruption by the politically connected.
Adams left the job last summer and the case was taken over by Larry D. Thompson, a former Atlanta prosecutor. Thompson did not respond to a request for an interview.
In the end, other events forced Thompson and his team to take a hard look at their case, and whether they could win.
Reynolds, for his part, praised Thompson for having the courage to make the deal with Watt after realizing that two key chunks of the case were in danger. Late last year, U.S. District Judge Royce C. Lamberth dismissed seven of the 25 felony counts, including two that dealt directly with Watt's handling of the 1990 grand jury subpoena.
Lamberth, in a Dec. 4 ruling, said he believed he had to dismiss those counts because of a U.S. Supreme Court ruling last year that said a criminal statute that had become a favorite tool among prosecutors in bringing political corruption cases no longer could be used against people who allegedly lied to grand juries or congressional committees. The court said prosecutors could still use the statute against people who allegedly lied to executive branch agencies.
Even though Lamberth left the bulk of the case intact, Thompson's troops were very attached to the two counts that stemmed from the subpoena. Because prosecutors are part of the executive branch of government and because they felt it set a bad precedent for someone to get away with lying to them, they thought Lamberth was wrong and appealed his decision to the U.S. Court of Appeals for the D.C. Circuit.
But Lamberth refused before Christmas to put the trial, scheduled for Jan. 8, on hold while the appeal was being resolved. Reynolds then made his move for the plea, seizing on Lamberth's ruling that if Watt lied to the prosecutors, he lied to them as agents of the grand jury, not as members of the executive branch. After much intense wrangling with not only Thompson but also with his own client, Reynolds struck the deal.
He chuckled at the suggestion that he negotiated a sweetheart deal for Watt. "It was just dumb luck," Reynolds said. "Dumb luck."
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