Pennsylvania investigators find no evidence to support judge's charges of RRZ 'kickbacks.'

An investigation into charges linking RRZ Public Markets to "kickback" schemes has found "no credible evidence" to support the allegations, and investigators instead recommended Saturday that the accuser, a Pennsylvania State Supreme Court justice, resign or face impeachment for making the claims.

Justice Rolf Larsen alleged in court papers filed last year that a fellow justice, Stephen A. Zappala, handled cases in a "special manner" to help his brother's municipal bond business. Justice Zappala's brother is Charles R. Zappala, the chairman of RRZ.

Larsen also alleged that Justice Zappala received kickbacks through "layered corporations" in exchange for helping his brother's business.

But after a 10-month investigation by a special grand jury, which released a 249-page report over the weekend, the Attorney General's office said "Larsen's allegations against other judges, lawyers, and public figures were not supported by evidence, and in many instances there was strong evidence that his allegations were completely false."

In a separate move related to the inquiry, state Attorney General Ernie Preate Jr. last week accused Larsen of using court employees to illegally obtain prescription drugs to treat anxiety and depression.

Preate said the findings "lead to one inescapable conclusion -- Justice Larsen must be removed from office." He said that could be accomplished either through impeachment by the legislature, by an act of the state's Judicial Conduct Board, or automatically upon conviction on the drug charges Preate filed last week.

In addition to the drug charges, Preate said Larsen appears to have engaged in exactly the kind of unethical dealings he accused Justice Zappala of, including "giving unethical special handling and favorable treatment to cases involving his friends."

Larsen's attorney, William Costopoulos, could not be reached for comment yesterday.

Mossie Murphy, a spokesman for RRZ, said, "There's no revelation that comes as a surprise to anyone here."

Murphy also said the media should have ignored Justice Larsen's accusations against RRZ when he first made them last year because any hint of scandal damages the reputation of a municipal bond firm.

RRZ ranked third among senior managers of Pennsylvania debt last year, underwriting 39 issues totaling $998 million, according to Securities Data Co. So far in 1993 the firm ranks fourth. with 50 issues and $693 million to its credit.

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