Author : Harry Martin
Date : 03/15/91
Desc : Federal Corruption Series Part II

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HOW THE JUSTICE DEPARTMENT USED THE BANKRUPTCY COURT
By Harry V. Martin
Second of a New Series
(c) Copyright Napa Sentinel, 1991
March 15, 1991
Reprinted with permission of the Napa Sentinel


The corruption of the bankruptcy system is endemic of a political
patronage system with its roots going back to former U.S. Attorney
Edwin Meese, according to many former employees of the Department of
Justice. The INSLAW case--reported last week in the "Napa Sentinel"--is
a microcosm of the entire system.

As a result of the INSLAW cases, many heads in the Justice Department
were lopped off. When Judge George Bason, a bankruptcy court judge,
refused to liquidate INSLAW, ruling instead that the Department of
Justice used deceit, trickery and fraud, he was only one of four who
were not re-appointed to their jobs. A total of 132 were re-appointed.

But to show the collusion of the Justice Department, when it removed
Judge Bason from the bench after his ruling against them and for
INSLAW, they had S. Martin Teel appointed to the bench to replace
Bason. Who was Teel? He was a Department of Justice attorney who
unsuccessfully argued the INSLAW case before Judge Bason.

Tony Pasciuto admitted that he was ordered to pressure the bankruptcy
judge to rule against INSLAW. After being subpoenaed by INSLAW's
attorney, Pasciuto was offered a long-awaited transfer by the Justice
Department from Washington, D.C. to Albany, New York. Pasciuto bought a
home in Albany and then changed his testimony. After the testimony was
completed, the Justice Department cancelled his transfer. Pasciuto had
to commute from Albany to Washington.

Former Attorney General Elliott Richardson made a list of the
baffling questions of why the Justice Department wanted INSLAW declared
insolvent and why it wouldn't pay a $6.8 million settlement to the
small company. INSLAW received an offer to sell their company and they
refused. The buyer informed the company that he had powerful political
influence and "We have ways of making you sell." Within 90 days of that
threat, the Justice Department commenced its attack on INSLAW.

The company that made the attempt to buy INSLAW had financial
connections to Meese and some of Meese's cronies. When the battle
ended, INSLAW was broke, an attorney, a Justice Department
whistleblower and a judge were out to work, but INSLAW was saved by a
corporate giant--IBM--who rescued the company virtually from the
auction block.

The company that allegedly made the threat was Hadron. It has had
brushes with the Security Exchange Commission, it has gone to the brink
of being broke and one of its companies has been accused by the SEC of
fraud and manipulation of stock prices, the company lost $4.3 million
in one year. It soon sunk $12 million in the red.

But once Meese became Attorney General, Hadron suddenly received
lucrative Pentagon contracts, along with the Agency for International
Development. The company was also awarded a $40 million contract from
the Justice Department, despite protests against the bidding process.
One member of Hadron's board was Dr. Earl Brian, who was in Reagan's
California cabinet along with Meese. Meese was chief of staff in
California. The Deputy Attorney General was D. Lowell Jensen, who had
competed against INSLAW years earlier. The person in charge of making
Justice Department payments for INSLAW's software--and who didn't--was
an employee who had been fired from INSLAW. Jensen was also in trouble
when the Senate was investigating the Iran-Contra scandal. Apparently
the Senate committee discovered a memo written by Jensen to the
National Security Council warning that the Miami federal prosecutors
where on Ollie North's trail. The memo revealed that the Justice
Department, who was supposed to prosecute the Iran-Contra affair,
actually was tipping off the government in advance.

One Justice Department official testified at the INSLAW hearing that
INSLAW's software could be dangerous. Thomas Stanton testified "INSLAW
could besmirch the U.S. Trustee program." The program is so
sophisticated that it could trace all assets, track all trustees and
judges. Another Justice Department employee stated that 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...
it was Meese's baby." The official also stated, "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."

The Meese program would concentrate too 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. Trustees office names the trustee,
who converts the assets, oversees the 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 a part of
the tax-collecting function of government. The Justice Department
represents the IRS, and the IRS is often the biggest creditor in
liquidation," states a leading bankruptcy attorney.
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