AL'S CASH MACHINE

By MICHAEL WEISSKOPF AND VIVECA NOVAK WITH MICHAEL DUFFY/WASHINGTON

Like the divinity student he once was, Vice President Al Gore took refuge in his work last week, avoiding reporters and talking about trade, global warming and America's great rivers--anything but campaign-finance reform. Nearly everyone else was talking about it, though. Republicans uncovered new evidence that Gore might have known that some of the "soft" money he solicited in 46 telephone calls to donors in 1995 and 1996 wound up in the wrong bank accounts at the Democratic National Committee--raising questions about the legality of the calls themselves.

For the second week in a row, Gore clung to his defenses: that he didn't know where the cash had ended up, and that he had broken no laws with his fervent fund raising on federal property. Gore, say his allies, cares far more about fiber optics and digital libraries than soft money and matching funds. On ethical issues, said a longtime aide, "he never gets close to the line."

Maybe not, but perhaps that's because he's always had Peter Knight. One of Gore's longtime advisers and his principal fund raiser, Knight tends to the darker side of Gore's world. It was Knight, the Clinton-Gore campaign manager in 1996, who prepared many of the "call sheets" that Gore worked from when dialing for dollars. Now, after Attorney General Janet Reno has begun a preliminary review of those calls under the independent-counsel law, government sources tell TIME that Justice is also probing Knight's multilayered connections to a Massachusetts manufacturer that won $33 million in federal contracts and regulatory breaks from the Clinton Administration while the firm and its officers raised or gave a total of $132,000 for the President and his party in the last election.

Knight, working as the firm's lobbyist, smoothed the way for the donations, the contracts and an unusual personal visits to the firm's headquarters by Gore himself. The little-known Knight probe, under way for some time, could draw the Vice President deeper into a scandal that has its roots in Bill Clinton's last election but may have its greatest impact on Al Gore's next. In a TIME/CNN poll last week, Gore's approval rate dipped to 51%, the lowest level since March. If the next presidential election were held today, pitting Gore against Texas Governor George W. Bush, 44% of those polled said they'd vote for Bush, vs. 43% for Gore.

Successful politicians have long relied on discreet aides to perform some of the onerous money-related chores of modern political life. But Knight is the epitome of a new generation of moneymen in both parties whose work doesn't end with the election; it really just begins. Fund raisers who once shelved their donor lists between elections now turn donors into clients on whose behalf they lobby the very same politicians for whom they were raising cash just weeks before. It's a seamless loop of influence peddling--donors get access, candidates get money; and lobbyists get rich.

And because much of the horse trading is done far from the Senate floor or the Oval Office, politicians get deniability. But the Gore-Knight link is hardly arm's length. Knight, 46, went to work for Gore 20 years ago as a top aide in the House and later the Senate; today he is the man who many say is Gore's political alter ego, the smooth operator within Gore's tight-knit inner circle. His name turns up everywhere; he was even on Gore's 1989 trip to Taiwan that was led by overzealous fund raiser John Huang and included a stop at the headquarters of the Buddhist sect whose Southern California temple was host to Gore for his notorious "donor-maintenance" event in April 1996.

The rise of Peter Knight is an arc defined by Gore. Shortly after directing Gore's failed 1988 presidential bid, Knight decided to try his luck at the influence game. Thanks to an old friend and fellow Cornell alumnus, Ken Levine, he landed in 1991 at the Washington firm Wunder, Diefenderfer, Cannon & Thelen. Several partners in the firm, recognizing that Knight's tie to Gore had potential, kicked in about $7,000 each of their own money, in addition to what the firm was offering, to help bring Knight in. Until mid-1992, though, Knight was "negative" at the firm--his billings failed to cover his pay and his share of the firm's expenses.

Then his fortunes changed. In July 1992 Clinton tapped Gore to be his running mate, and Knight's career promptly took off. He took a leave from the firm to manage the vice- presidential campaign for Gore. After the election, he became deputy director of personnel for the transition, helping salt Gore loyalists throughout the federal bureaucracy and playing a role in the appointments of top officials like Federal Communications Commission Chairman Reed Hundt, EPA Administrator Carol Browner and Assistant Energy Secretary Tom Grumbly.

When Knight returned to his firm, the Gore connection paid off. His portfolio of clients bulged with companies wanting a leg up with Gore or his allies. Telecommunication firms lined up to see Hundt; environmental companies came with pleadings for Browner and Grumbly. In short order, Knight was the top-billing partner at the firm, routinely grossing a seven-figure sum. At a firm in which, as a former partner put it, "you eat what you kill"--that is, you pocket everything after deducting your expenses and a share of the firm's overhead--Knight had hit pay dirt. In 1995 he billed $2.9 million. At one point Knight even garnered a $1 million "success fee" for helping a client achieve a particular outcome, according to several former partners.

His work for Molten Metal Technology, a Massachusetts environmental-technology company, hit the trifecta, bringing cash to the firm, funds to the Clinton-Gore campaign and special financial rewards to Knight. It was a dicey political mixture that landed him in the sights of not only the Justice Department but also Representative Tom Bliley's Commerce Committee and Senator Fred Thompson's Governmental Affairs Committee, which will take his deposition this week.

Molten, which is betting big money on an experimental process that is supposed to neutralize toxic wastes in a bath of red-hot iron, hired Knight just as he came off his stint as talent scout for the new Administration. Right away the company had big plans for him to help it pull the right levers with the government, according to an internal Molten memo. But Knight's role was larger than that of the traditional lobbyist, more like that of a corporate impresario. When the company needed credibility to build early capital, Knight arranged for Grum-bly of the Energy Department to attend the plant's ribbon-cutting ceremony, at which he touted the firm and suggested it could qualify for up to $200 million in grants from his department. When Molten sought equal billing with incinerators as a cleanup method for toxic waste, Browner met with the company's top executives and later signed off on a regulatory classification, rare for a process not yet in full commercial operation. It was Knight, congressional investigators say, who helped land a $460,000 Energy Department contract to demonstrate Molten's technology at a government laboratory. Most of the government strokes were promoted by the company as an endorsement, which sent the company's stock soaring.

This served to enrich Knight even further. His consulting agreement with Molten was highly unusual and gave him more than the typical incentive to make his pitch. Along with a $7,000 monthly fee, Knight was given options to buy at least 40,000 shares of Molten, firm documents show. In an April 1996 letter awarding Knight more stock options as he was leaving to run the Clinton-Gore re-election bid, company president William Haney showed just how valuable he thought Knight would be to the company: "Our objective is to keep you...with us right up until you are Secretary of State."

Knight did develop a taste for foreign policy while on Molten's payroll. With the signing of NAFTA and its environmental sidebars in 1993, the firm saw a big market in Mexico for its toxic waste-eating machine. It also saw a big marketing opportunity in the Vice President's visit to Mexico in December of that year. Two days before the trip, Knight wrote Gore's counsel Jack Quinn suggesting that Gore put in a good word for the company with President Carlos Salinas regarding a cleanup job that was the "type of project where U.S. technology can promote NAFTA goals," according to a copy of the letter obtained by TIME. Quinn, now a lawyer and a lobbyist, says he doesn't recall Gore or anyone on the Veep's staff making any overture to Mexico on behalf of the company. Gore's spokesman says the same.

But Knight was persistent. Two years later, according to internal Molten documents, Knight began working on ways to court Molten's largest potential customer in Mexico--the state-owned oil company, Pemex. To prove it could do the work, Molten set out to perform a "feasibility" plan. And to engage Mexico's top environmental officials, it asked U.S. Ambassador Jim Jones, an old Gore ally in Congress, to hold a luncheon at his Mexico City residence. One corporate E-mail to Knight thanked him for "helping us" with Jones and a U.S. agency that granted Molten $280,000 to help finance its study. Jones says he can't recall a lunch but does remember meeting executives of the American firm and promoting its interests with Pemex.

Knight moved next to the Commerce Department, where he escorted Molten officials for a briefing by trade officials on Mexican environmental-cleanup opportunities the same year. In July 1996, Commerce Secretary Mickey Kantor called Pemex's director general to plug the company and its bid for toxic-waste work in Mexico. Pemex has indicated a strong interest in the project but has yet to announce a decision.

Congressional investigators are also looking into swings in Molten's stock prices and the timing of Knight's own stock sales--and whether they are tied to favorable action by the government that he helped facilitate. Separately, Molten's shareholders have filed five class-action lawsuits alleging, among other things, that the company misrepresented the commercial viability of its waste-processing technology to investors and that several of its officers and directors cashed in their shares a year ago at artificially inflated prices, using insider information.

Molten's story intrigues investigators because it also seems to hint at a larger pattern. Records show that Knight lobbied Grumbly in Lockheed Martin's fight to hold on to its $40 million-a-year fee to manage an Oak Ridge, Tenn., research facility. Lockheed got an extra five years of work in two Energy Department awards that coincided with big D.N.C. donations--$15,000 given 13 days before a two-year extension in 1995, and $125,000 within weeks of the 1996 decision to add three years more to the contract. A Lockheed spokesman denied any link.

Knight declined to be interviewed for this article but issued a statement. "Even in this intensely political environment," Knight said, "I am confident that any fair-minded and objective examination of my work will demonstrate that I have always acted in accordance with the highest ethical standards." Knight also said he had "never talked to the Vice President about any federal contract on behalf of any client" and that he never "helped arrange a government contract or grant in exchange for political contributions."

But the quest for money never stops. In fact, few fund-raising appeals have been as bold as the one launched suddenly last spring asking donors for a tax-deductible $10,000 to help fix up the Vice President's residence on the grounds of the Naval Observatory. The letter arrived on desks all around Washington amid stories about the Democratic Party's intense scouring for cash in the 1996 campaign; it struck even hardened Washingtonians as audacious. The signature on the letter? Peter Knight's.

--With Michael Duffy/Washington