DALLAS -- Federal officials are continuing their investigation of former Missouri treasurer Wendell Bailey despite dismissal of an indictment that accuses the two-term Republican of money laundering and misusing his office for political purposes.

Earlier this week, U.S. Attorney Stephen Hill suddenly withdrew corruption charges against Bailey for procedural reasons and asked a federal judge to dismiss the indictment. which was handed down by a grand jury May 11.

The two-count indictment alleged that Bailey converted political campaign funds to his personal use and misused state employees and equipment in his unsuccessful 1992 political campaign for governor of Missouri.

Although the indictment was dismissed Monday, sources close to the investigation told the Kansas City Star that the withdrawal of charges was not a retreat. Rather, it was a tactical maneuver to bring more charges against and reindict Bailey, who worked for Llama Co., an Arkansas-based investment banking firm, until he resigned on the day of the indictment.

In a statement issued Monday, Hill said: "The dismissal of this indictment was requested for court procedural reasons only. In no way should this action be interpreted as a signal that a criminal investigation has been terminated."

The statement also said: "Although we would like very much to explain our reasons for seeking the dismissal of the indictment, the rules of federal criminal procedure prohibit us from doing so at this time."

Bailey, 53, who served as treasurer from 1984 to 1992, could not be reached at his Willow Springs, Mo., home. But on May 11, he pleaded not guilty to the indictment, and at the same time resigned his job as marketing director for Llama Asset Management.

Bailey was hired by the Fayetteville, Ark., firm to bring in new clients for the its fixed-income, money management services, and had worked there for less than a year before resigning, said David EIder, the chief financial and administrative ofricer for Llama Co.

"We don't think it is appropriate to make further comments," EIder said.

The investigation into Bailey's campaign and use of the Missouri treasurer's office follows similar controversies in Missouri and Texas. In Texas, a federal judge dismissed charges against U.S. Senator Kay Bailey Hutchison, who was accused during the past year of using state equipment and staff for political purposes when she was Texas treasurer.

"These types of situations occur from time to time, but I don't think it is pervasive," said Milton Wells, a director of federal relations for the National Association of State Treasurers. "It sporadically shows up on the radar screen."

The probe into Wendell Bailey's alleged actions follows the imprisonment of former Missouri attorney general William Webster after he pleaded guilty last summer to charges of misusing his office for political purposes. Both Bailey and Webster vied for the Republican nomination for governor in 1992.

Although many details were not available on the allegations against Bailey, a release issued by the U.S. Attorney for the Western District of Missouri said that Bailey misused state employees and equipment in his political campaign from 1988 to 1992.

"More specifically, through the public corruption charge, the United States will allege that from 1988 to 1992, Bailey directed employees of the Missouri state treasurer's office to run a fund-raising operation for his political campaign, using state telephones and computers, within the Missouri state treasurer's office in Jefferson City, Mo.," the U.S. Attorney said on May 12 when the indictment was announced.

Those charges would have carried a maximum of 30 years in prison without parole, plus up to $750,000 in fines.

Hill's office said the investigation has been handled by the Missouri State Highway Patrol, the criminal investigation division of the Internal Revenue Service, and the U.S. Postal Inspection Service, with assistance from the Missouri attorney general" office.

Investigators returned to the state treasurer's office to get additional records on Tuesday -- the day after the indictment was dropped -- said Dan Barber, communications director for current Missouri Treasurer Bob Holden.

In the meantime, the St. Louis Post-Dispatch reported that the federal grand jury investigating Baile also looked into the political activities of another Republican, Richard B. Grisham, the former director of the state motor vehicle commission.

The grand jury is scheduled to rereconvene in Springfield on June 15, and as a result, any additional charges or reindictment of Bailey would not occur before then.

Holden called the allegations in the grand fury probe "regrettable."

"When this happens in political life, it further erodes public confidence," he said.

Holden said he has given his staff instructions that "no one is to do campaigning on state time." Holden's political activities are handled by a part-time student who is paid with campaign funds and works outside the treasurer's office.

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