New York City Comptroller Elizabeth Holtzman has hired lawyers at Davis Polk & Wardwell to represent both her and her campaign as a city investigation continues into conflict for interest allegations surrounding the selection of an underwriter for city bond deals, officials at the comptroller's office say.

The inquiry by the New York City Department of Investigation emerged in May, following reports that Holtzman's office had recommended the appointment of Fleet Securities as a co-manager of city bond sales after the firm's corporate affiliate, Fleet Bank, made a $450,000 loan to Holtzman's failed campaign for the U.S. Senate in August 1992.

The Department of Investigation has confirmed it is conducting an investigation into Holtzman, the comptroller's office's selection of Fleet Securities, and the loan made by Fleet Bank to the campaign.

Daniel F. Kolb, a senior partner at Davis Polk and coordinator of its litigation practice area, said lawyers at the firm including himself were hired to represent "Elizabeth Holtzman personally and the campaign in reference to the Fleet matter." Holtzman appointed the firm about six weeks ago, following the onset of the city Department of Investigation probe, he said.

"Liz is just taking the usual precautions," Kolb said yesterday in a telephone interview. "We don't regard the investigation on the merits as serious."

Kolb said the Department of Investigation is investigating charges that Holtzman violated city charter conflict of interest regulations. The city charter prohibits city officials from using public office for personal gain. The department did not return telephone calls yesterday.

Both the comptroller's office and finance officials representing Mayor David N. Dinkins select Wall Street firms for the lucrative bond underwriting positions.

Holtzman has said the selection of Fleet Securities was made by Darcy Bradbury, deputy comptroller for finance. At the time firms were appointed to the city's general obligation bond syndicate, Bradbury said she did not have knowledge of the loan to the Holtzman campaign.

Fleet was later dropped from the city's co-manager ranks, but allowed to join its selling group.

As for the firm hired to represent Holtzman and her campaign, Davis Polk was ranked by Crain's New York Business as the fifth largest New York area law firm in 1992 according to the number of attorneys employed. The American Lawyer ranked the firm eighth in 1992 in terms of gross revenues, which reached $267 million.

In December 1992, lawyers at Davis Polk contributed $2,000 to help repay debt left from Holtzman's failed Senate campaign, documents show.

Maerwydd McFarland, a spokeswoman for Holtzman, said she did not know how much the firm was charging Holtzman or the campaign or how the fees would be paid. She did not return telephone calls to provide the information.

McFarland said Holtzman chose to hire an outside counsel, instead of relying on her office's general counsel for legal advice, because much of the legal work involves campaign issues that are not directly related to matters involving the comptroller's office. Holtzman is currently running for her second term as city comptroller.

McFarland said yesterday that Holtzman "didn't have any representation for a long time," and that the decision to hire lawyers at Davis Polk was made after the Department of Investigation began requesting documents from her campaign office.

"The DOI needed documents from the campaign office, and there's a very small staff" there, McFarland said.

But one sentor litigation specialist at a New York-based law firm sod the comptroller "has hired [Davis Polk] to do something more substantial than making" photo-copies. "While it doesn't mean she is in trouble, she wants the matter to be handled competently."

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