WASHINGTON -- The practice by some investment bankers of entertaining their government clients came under scrutiny yesterday as the fraud and conspiracy trial of former PaineWebber Inc. Vice President Lance Wilson entered its fifth week before the U.S. District Court here.

Arlin Adams, the independent prosecutor, charged that Wilson provided an illegal gratuity to a government official by paying for an overnight theater trip to New York for Dubois Gilliam, a former Housing and Urban Development Department deputy assistant secretary who is the government's key witness.

Gilliam was instrumental in awarding federal grants to housing projects in which Wilson had a business interest. Also, PaineWebber co-managed a $15.8 million tax-exempt bond offering for a Florida housing project approved with Gilliam's help.

Gilliam testified that in September 1986 he and his wife flew to New York from their home here, saw the musical "Cats," and had dinner with Wilson and his wife, all at Wilson's and PaineWebber's expense.

Deputy prosecutor Roscoe Howard characterized the outing as an illegal gratuity aimed at obtaining a favor from a HUD official. But Wilson's attorney, Theodore Wells of the New Jersey firm of Lowenstein, Sandler, Kohl, Fisher & Boyle, said there was nothing out of the ordinary with the outing.

"It was not uncommon for investment bankers to engage in business entertainment," he said. Wilson never asked for anything in return for the trip, he said, and Gilliam testified that he never explicitly offered anything.

"I did not view it as a kickback, bribe, or gratuity at the time," Gilliam said in cross-examination.

On another key point in the trial, Gilliam, who is testifying under a grant of immunity, said that former HUD Secretary Samuel Pierce awarded grants to Florida housing projects partly as a favor to Wilson, who was Pierce's chief of staff before joining PaineWebber.

Projects that the Reagan administration housing secretary rewarded in part because of his close relationship with Wilson were the Wedgewood Plaza apartments complex and a related mall development project in Riviera Beach, Fla., as well as the Belle Glade apartments project in Palm Beach County, Gilliam said. Gilliam also said he helped engineer the approval of the grants because he expected to receive a 2% kickback with each award.

Wilson had a 15% ownership interest in the Riviera Beach housing project, built by his partner and co-defendant, Leonard Briscoe, and PaineWebber co-managed the project's bond offering. Defense attorneys pointed out that Wilson's interest in the project was disclosed in the bonds' offering documents.

Gilliam testified that Pierce showed leniency toward the Wilson-Briscoe housing projects despite numerous questions the HUD staff had raised about their eligibility for Urban Development Action Grants.

But Pierce drew the line against any further favors for the alleged co-conspirators after stretching the department's rules to reward the Belle Glade project in March 1987, Gilliam said.

According to Gilliam, Pierce said he had been hearing reports about abuses by Briscoe in connection with some Fort Worth projects. "Briscoe is a crook and I'm tired of hearing from you guys. You tell Lance that this is the last one," Gilliam contended the secretary told him.

Wilson's and Briscoe's attorneys strenuously objected to Gilliam's testimony about Pierce's remarks, pointing out that Gilliam's recollections were "hearsay" and would not be corroborated by the secretary himself, who so far has not testified. But Judge Stanley Harris overruled their objections, saying Pierce's remarks had a bearing on subsequent actions taken by Gilliam.

After the meeting with Pierce, Gilliam testified that he did not press the secretary to approve any further grants for Wilson-Briscoe projects. Pending before the secretary at the time was an unusually large request for $34 million in funding for Briscoe's Overton Ridge apartments project in Forth Worth. Wilson had provided an $80 million bond financing commitment letter for the project. But it never received funding.

"In the end, I held the Overton project back. I felt that would be taking it too far," Gilliam said.

Gilliam testified that the Overton Ridge commitment letter -- as well as the Belle Glade commitment letter, which Wilson also wrote on PaineWebber stationary -- were "phony" because he had asked Wilson to write them regardless of the financial viability of the projects.

Gilliam said he instructed Wilson in a phone conversation not to make the financing commitments contingent on getting credit enhancement for the bonds. He said he told Wilson that PaineWebber would not be held to the commitments, regardless of what was promised in the letters.

But Wells, Wilson's attorney, said the former PaineWebber executive never agreed to Gilliam's terms, and Gilliam conceded in cross-examination that Wilson did not verbally respond when Gilliam gave him instructions over the phone.

Wells pointed out that after Wilson submitted a Nov. 25, 1986, letter stating that PaineWebber was not conditioning its commitment to Overton Ridge on obtaining credit enhancement, for example, Wilson wrote a second letter in January 1987 that discussed the possibility of obtaining a letter of credit. Wilson also talked about the need for insurance with the Overton project's reviewers a HUD, Wells said.

"This shows that whatever Gilliam said" about Wilson's role in the alleged conspiracy, "Lance was doing something else," Wells said.

Gilliam also admitted in cross-examination that Wilson was not present at a key meeting in Atlantic City, N.J., in the spring of 1986, when Gilliam allegedly sealed an agreement with Briscoe to engineer grant awards for his projects in exchange for kickbacks. While others at the meeting suggested that Gilliam get Wilson involved in the scheme, Gilliam testified that Wilson never agreed to be involved.

"Lance never told me he would be on the team," Gilliam told the court.

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