The Secretary Bows Out

Since he took a leave of absence from his post as Secretary of Labor nearly six months ago, Raymond J. Donovan, 54, has been spending much of his time at his Short Hills, N.J., home waiting for word that he could go back to work. A grand jury in New York had indicted him last October on charges of fraud and larceny in a scheme involving his New Jersey construction company, but Donovan was confident that the case would be thrown out of court. Not so. Last week a New York State Supreme Court justice phoned to tell Donovan, who happened to be in Washington at the time, that he would not dismiss the indictment; Donovan would have to stand trial. Hours later, the Labor Secretary became the first sitting Cabinet member in U.S. history to resign in the face of criminal charges.

Shortly after he heard from the judge, Donovan requested an audience with President Reagan. At the White House, Donovan told Chief of Staff Donald Regan that he wanted to devote all his time and energy to his defense and to spare the Administration further embarrassment. "The President has been far too generous," Donovan said. Indeed, since Donovan's Senate confirmation hearings in 1981, when the businessman was accused of having ties with organized crime but was not indicted, Reagan has voiced unwavering support for his Cabinet member. In a ten-minute Oval Office meeting that a presidential aide described as "emotional but not teary," Donovan told Reagan of his decision to step down. White House officials stressed last week that the President had never sought the Secretary's resignation. Said one aide: "If Donovan had wanted to, Reagan probably would have let him stay on."

A few hours after their meeting, Reagan once again defended the Labor Secretary. "Ray Donovan has not been convicted of anything," he said in a written statement. "No less than any other American, he is entitled to the & benefit of a presumption of innocence." As Donovan prepared to return home, he repeated his claim of innocence: "I have not violated any law and I am confident that a jury will find me not guilty after hearing all the evidence."

Donovan and nine co-defendants have been charged with grand larceny as well as 125 counts of falsifying business documents and eleven counts of filing phony papers with government agencies. The men allegedly defrauded the New York City Transit Authority on a $186 million subway contract awarded in 1978 to the Schiavone Construction Co. of Secaucus, N.J. At the time, Donovan was executive vice president and one of two controlling stockholders in the firm. Donovan tried to have his indictment dismissed, partly on the ground that it was politically motivated. The head prosecutor, Bronx District Attorney Mario Merola, is a four-term Democrat. Merola last week called Donovan's complaints of political bias "ludicrous."

Donovan's problems began in 1976, when William Masselli, a soldier in the Genovese Mafia family, took over a small construction firm that held subcontracts on large Schiavone projects. When Schiavone won the subway contract, Masselli was given a piece of the action. U.S. law requires that any contractor receiving a federal public works grant must award 10% of the business to minority-owned companies. Since 80% of Schiavone's contract was federally financed, the firm had to find a minority subcontractor. So Masselli created the Jo-Pel Contracting and Trucking Co. and claimed that at least 51% of it was owned by Joseph Galiber, a New York state senator who is black. Merola claims that his evidence shows that Galiber, while drawing a $700-a- week salary as Jo-Pel's president, had no equity in the company.

The prosecution charges that Schiavone, to prove it was giving its fair share of work to minority contractors, reported falsely to the New York City Transit Authority that Jo-Pel had paid more than $90,000 a month to rent tunnel- digging equipment. Schiavone had actually allowed Jo-Pel to use the equipment free of charge. In all, Schiavone collected some $12 million for work it claimed Jo-Pel had done. According to Prosecutor Merola, however, Jo- Pel's effort was worth only about $4 million.

Merola claims that he gained significant evidence against Donovan and the other defendants from a 1979 FBI wiretap on the telephone at Masselli's Bronx meat-packing warehouse. In 1981, after Donovan had faced confirmation by the Senate as Labor Secretary, the FBI advised the lawmakers about his alleged organized crime connections but for some reason did not mention the incriminating wiretap. Nor did the FBI reveal that it was aware, as the Senate considered Donovan's qualifications, that "possibly fraudulent schemes" to hike minority participation in the Schiavone subway work had been disclosed by the recorded conversations. The bureau failed to act then on the evidence that, more than three years later, produced Merola's indictment.

In one of the wiretapped talks released by the FBI to Bronx prosecutors, Masselli describes the Jo-Pel operation and speaks of his bond with Schiavone executives: "They trust me, them guys. I'm the only guy they'll work with." The D.A.'s office also claims that Donovan cosigned a $200,000 check to Masselli as payment in the equipment-rental agreement.

Union leaders were generally pleased with Donovan's resignation. As Labor Secretary, he was seen as being more an advocate of Big Business than of the labor movement. He softened enforcement of occupational safety and health regulations and of fair labor standards. He also allowed the Labor Department's budget to be cut from $30.1 billion to $23.5 billion and its work force trimmed from 22,000 to fewer than 18,000. One of Donovan's harshest critics, AFL-CIO President Lane Kirkland, said last week that his organization "hopes that the President now will appoint a person who enjoys the respect and confidence of labor as well as management and the public at large."

At week's end the Administration said it had no shortlist of potential successors to Donovan. Labor Under Secretary Ford B. Ford, who has run the department in his absence, is not considered a candidate. "The President would have been reluctant to have us looking around until Donovan had decided (to resign) on his own," according to one Administration official. Said another: "The search for a replacement starts tomorrow."