Old Skeletons Rattle the CIA

By Ed Magnuson

A spymaster is jettisoned and a chief threatened

At first it looked like a fleeting flap, handled swiftly and skillfully by the Administration to limit the damage. Max Hugel, a millionaire merchant with no visible qualifications to hold his post as director of clandestine operations for the CIA, had been publicly accused of illegal stock manipulations by two vengeful Wall Street brokers who had gone bankrupt trying to promote stock in Hugel's former business. Denying any wrongdoing, Hugel nevertheless promptly resigned as the CIA's deputy director of operations and was quickly replaced by a career CIA operative, John Henry Stein. Sighed a White House aide with relief: "The matter is closed."

But by week's end CIA Director William J. Casey, 68, a Reagan political crony who had appointed Hugel against strong opposition within the CIA, and with little if any White House support, was in trouble too. He was the focus of an investigation by the Senate Intelligence Committee, which is dominated by Republicans and headed by Senator Barry Goldwater. The probe also had the backing of Senate Majority Leader Howard Baker. All this was happening despite the insistence by a White House press spokesman that "the President has full confidence in Mr. Casey."

At issue was Casey's judgment in selecting the brash and arrogant Hugel, 56, for such a sensitive job. It entailed deploying CIA agents around the world, recruiting spies behind the Iron Curtain and giving the go-ahead for all covert operations. Also under study was the CIA's apparent failure to uncover allegations of serious impropriety in Hugel's business practices when the agency ran its customary background check. One main objective of the screening process is to find out if a prospective CIA official could in any way be blackmailed--and "blackmail" was precisely what Hugel last week accused his former business associates of having threatened.

Beyond Casey's unfortunate choice of Hugel, whom he asserts he met when both worked in Reagan's presidential primary campaign, the director's own business ethics will be scrutinized by Senate Investigators. They came under question in a civil suit filed against him in 1974 by investors who had lost heavily when a New Orleans-based agricultural firm of which Casey was a director went bankrupt. Casey had disclosed the existence of the lawsuit on a routine form sent to the Senate Intelligence Committee after his confirmation hearings last January, but the committee did not question him about it. Last week it was revealed that a New York federal judge had found merit in other directors had knowingly circulated false and misleading information about the business. (Judge Charles E. Stewart Jr. issued his decision last May, but no reporter considered it significant enough to produce a story.)

Casey's bad week began when the Washington Post reported the bitter accusations against Hugel leveled by two brothers, Thomas and Samuel McNeil, who also produced 16 damaging tape recordings of their telephone conversation with Hugel in 1974 and 1975. They claimed that when Hugel headed Brother International Corp., which he had founded in 1954 to distribute Japanese sewing machines, typewriters and other consumer products, he repeatedly fed them inside information on the company's finances and prospects so they could promote the stock. They contend that he secretly funneled $131,000 into Thomas McNeil's brokerage firm, disguising the money as a personal loan to Samuel McNeil, so that the brokers could trade in the stock. This would give other potential investors the illusion of market interest in the company. They also charged that Hugel had persuaded another business associate to buy 15,000 shares of stock in five separate purchases to manipulate the stock's value.

All the efforts eventually failed. Hugel moved on to a high-paying position in another firm, Centronics Data Computer Corp., of Hudson, N.H., and pressed the McNeils to repay the loans. In a Dec. 13, 1974, recording, Hugel claimed that the McNeils' lawyer "had the nerve to threaten me with some goddam cockamamie lawsuit." Fumed Hugel: "I'll kill that bastard . . . I've revealed nothing to you guys I did nothing wrong." Hugel repeated his denials of any wrongdoing to Post reporters, although he did not deny that a voice on the recordings was his. He said he was puzzled by some of the conversations and could not recall others. In an unpublished autobiography Hugel boasts: "I have an excellent memory . . . virtually a photographic memory."

The Brooklyn-born Hugel's driving personality, rather than any notable talents, apparently helped him achieve both wealth and his brief eminence in Washington. As a New Hampshire businessman, Hugel's aggressive style impressed William Loeb, ultraconservative publisher of the Union Leader in Manchester. Loeb pushed Hugel for a position in Reagan's New Hampshire primary race, and Hugel was named Reagan's Nashua campaign chairman, an obscure spot that he resented. Says former Republican Governor Hugh Gregg: "In terms of the nitty-gritty of the campaign, he had nothing to do with Reagan's victory. He's a creation of Mr. Loeb's."

But Hugel won over Casey with his eagerness to get things done and his obvious loyalty. One gusty day, Hugel's toupee flew off as he obligingly chased after his boss's windblown hat. When Casey decided last February to make Huge his administrative director, the White House raised no objection. Hugel's job did not require Senate confirmation, and thus there were no fears at the White House of a public ruckus over his lack of relevant experience. When, in mid-May, career officers at the CIA objected to elevating Hugel to the top clandestine operations post, Casey argued that someone from outside the CIA was needed to shake up the covert side of the agency. But CIA veterans conveyed their displeasure to some of the "old boys" on the outside. One such gripe, reported Cord Meyer, a former CIA official, was that Hugel "had an extraordinary gift for profanity, which he substituted for thought."

Casey last week refused to discuss his problems over past business practices. The lawsuit involved an agribusiness firm named Multiponics, which was set up in 1968 to acquire land owned by the company's founders and to operate it jointly in farming and related ventures. Casey was a director and one of the founders, in vesting $145,614 in the company, which also assumed a mortgage debt on his land of $301,000. The company tried to raise money by issuing stock privately in 1968.

Judge Stewart ruled that the circular announcing the stock offering failed to disclose that about $2.7 million in mortgage debts had been assumed by the firm. The circular also said that the company owned seven operating farms, while the judge determined that two were not in operation, one was operating at a loss and two were operated by sharecroppers rather than by the experienced managers mentioned in the circular. While Casey's lawyer last week contended that Casey had been a "passive investor" who relied on others to prepare the stock circular, Judge Stewart noted that Casey and the other directors had attended a meeting at which copies of the offering "were distributed and fully discussed."

Multiponics went bankrupt in 1971, and Casey lost most of his investment. Reviewing an attempt by Casey and other directors to reorganize the bankrupt company a year later, District Judge Herbert Christenberry in New Orleans also had concluded that they had driven the corporation "deeper and deeper into debt" by managing in a "pattern of self-interest." A puzzling irony in Casey's involvement in the lawsuit is that it involved questionable dealings in sales of stock--and he was considered such an expert on these matters that he was made director of the Securities and Exchange Commission by President Nixon in 1971.

The new attention to Casey's past comes just as he was earning grudging praise from CIA hands for getting the agency more funds despite the Reagan budget cuts. He also seemed to be leading the CIA away from the distraction of recurring headlines and back to doing its job quietly and better. But with a congressional investigation looming, the nation's shrouded intelligence agency was once again all too visible.

--By Ed Magnuson. Reported by Laurence I. Barrett and Jonathan Beaty/Washington

With reporting by Laurence I. Barrett, Jonathan Beaty

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