FBI ties renew questions on 75 State Street scandal

As an FBI supervisor, John Morris was overseeing an investigation of then-Senate President William M. Bulger in 1986 when a gift arrived from the politician's big brother, gangster James J. ``Whitey'' Bulger -- a $5,000 cash bribe.

Morris accepted it, as he had others. This spring, the retired FBI agent admitted he had earlier taken two $1,000 payoffs from the notorious South Boston crime boss.

But the previously undisclosed timing of the $5,000 payment -- combined with revelations last week about William Bulger's knowledge of his brother's ties to the FBI -- are raising renewed questions about the thoroughness, vigor, and impartiality of the FBI probe of William Bulger in the 75 State Street scandal of the late 1980s.

Raising further questions is the disclosure that a second key official involved in the 75 State Street investigation, former federal prosecutor Jeremiah T. O'Sullivan, was involved in the FBI's dealings with Whitey Bulger dating to the early 1980s, when O'Sullivan was the region's top Mafia prosecutor.

In 1989, having risen to interim US attorney, O'Sullivan worked in tandem with Morris on the critical reexamination of the 75 State Street affair, a case involving charges of extortion and influence-peddling that gripped Beacon Hill and the Boston political establishment at the time. The review cleared William Bulger of wrongdoing.

These are the kinds of connections that can be made today as a result of FBI agents' testimony and once-secret FBI files that are being unsealed during ongoing US District Court hearings in Boston. And the web of interlocking relationships does not end with Morris and O'Sullivan.

There is former FBI agent John Connolly, the longtime ``handler'' of Whitey Bulger, who is also a friend of William Bulger. Though Connolly later denied Morris's account, Morris testified recently that during the 75 State Street probe, Connolly came to the white-collar crime squad and talked to Morris about William Bulger.

``Connolly approached me and asked me what the Senate president should do, that he's been asked to submit to an interview, and what did I recommend that he do,'' Morris said.

Under further questioning, Morris acknowledged that the overture by an FBI agent from another squad, acting on behalf of a subject of an investigation, was irregular.

The new nuggets about William Bulger have mostly tumbled out at the margins of the hearings, whose primary focus is to examine every wrinkle in the FBI's nearly 20-year relationship with Whitey Bulger and his associate, Stephen ``The Rifleman'' Flemmi. Judge Mark L. Wolf ordered the hearings, which began in January, to consider a defense claim that racketeering charges against Whitey Bulger, Flemmi, and two other underworld figures should be dismissed due to FBI misconduct and an FBI promise of immunity from prosecution.

In this context, the references in court to both Bulgers, to overlapping government officials, and to 75 State Street are intriguing asides. But they are intriguing nonetheless. In short, the fate of the 75 State Street case in late 1988 and early 1989 ended up in the hands of a top government prosecutor and a corrupt FBI supervisor, both of whom were involved in the FBI's long and questionable relationship to Whitey Bulger -- an association that until now was buried inside secret FBI files and never talked about publicly.

William Bulger became embroiled in the 75 State Street case through his boyhood friend and former law partner Thomas E. Finnerty. In the mid-1980s, Finnerty, a former prosecutor with little to no experience in real estate development, was involved with controversial developer Harold Brown in the development of 75 State Street, an office building in downtown Boston.

Brown would later claim that Finnerty, citing his influence with Bulger, had threatened to ruin the $286 million project unless Brown cut him in as a partner. In the summer of 1985, Brown made a payment of $500,000 to Finnerty, and within days, Finnerty paid Bulger nearly half of the money.

Finnerty would later say he had a contract with Brown to serve as a consultant for the project and denied any wrongdoing. Bulger said the money had been a loan from Finnerty, an advance against a legal fee he had earned from another case but for which he had not yet been paid. Bulger later repaid Finnerty with interest, saying he did so as soon as he learned Brown was the ``remote source'' of the funds.

By mid-1986, however, a federal investigation into possible extortion was under way, with Brown cooperating as part of a larger federal probe into city development deals. Finnerty and Brown also filed civil lawsuits against one another, and the whole matter spilled into public view in a Globe Spotlight Team story in early December 1988.

Morris was serving as the supervisor of the FBI's white-collar crime squad at the time, and he oversaw the closing of the 75 State Street inquiry days before the Globe story appeared, a move made without the FBI ever having questioned William Bulger.

Then Brown, in a sudden turnaround, opted to settle the civil lawsuit with Finnerty by paying him $200,000 -- over and above the $500,000 paid earlier.

But following the media accounts detailing the dispute and an ensuing public outcry, the case was reopened by O'Sullivan, who had left the New England Organized Crime Strike Force to become the acting US attorney. William Bulger was interviewed, although the reinvestigation consisted largely of this two-hour session with two prosecutors and two FBI agents at the law offices of Bulger's attorney, R. Robert Popeo, according to sources. In March 1989, O'Sullivan concluded there was insufficient evidence to seek federal indictments for extortion against either Bulger or Finnerty. ``It was not a close call; it was a clear call,'' O'Sullivan said.

Two months later, William Bulger was a featured speaker at the retirement party for FBI agent John Cloherty, a former member of the organized crime squad and a friend of Connolly.

In recent weeks, during the extraordinary federal court hearings, Morris confessed to a darker side. In testimony given under a grant of immunity from prosecution, Morris admitted to committing various crimes, including taking $7,000 in payoffs from Whitey Bulger.

Until 1985, when he took over as supervisor of the white-collar crime squad, Morris had spent most of his career in the Boston FBI's organized crime unit. He had been Connolly's boss, and he had gone along on a number of encounters with Connolly, Whitey Bulger, and Flemmi. They all had dined together; Morris had hosted dinners at his home.

Morris testified that the first time he took money from Whitey Bulger was in 1982; he testified he asked Connolly to get $1,000 from Bulger so he could fly his girlfriend to Georgia to visit him at a law enforcement conference.

The second payoff came in 1984, after Morris had left the organized crime unit. This time, Morris testified, Connolly delivered a case of wine from Bulger and Flemmi, and at the bottom of the box Morris found $1,000 in cash stuffed in an envelope.

The third and largest payoff was for $5,000 while Morris was supervisor of the white-collar crime squad. The money followed a homecooked meal. ``After dinner, Connolly and Flemmi got up and walked out of the apartment,'' Morris testified in April. ``Bulger hung back, and as he was putting his coat on, he pulled out an envelope and gave the envelope to me. He said, `Here, this is to help you out,' and walked out the door.''

During the court hearings, Morris did not put a date on this final payoff, describing it as coming sometime after the 1984 money. But in an interview last week, one of his lawyers, Michael Collora, said the $5,000 in cash was handed over to Morris ``in late 1986'' -- meaning this last batch of Whitey Bulger money came during the early part of the FBI's probe of 75 State Street, and William Bulger and Finnerty.

Connolly has so far refused to testify at the current court hearings, citing his Fifth Amendment privilege against self-incrimination. In out-of-court comments to reporters, he has called Morris a liar.

But Morris had still more to say about Connolly, this time about Connolly's actions during the renewed 75 State Street probe in early 1989. And during Morris's testimony on April 27, Judge Wolf himself took over some of the key questioning about 75 State Street, Connolly, and Bulger:

Wolf: Did you also communicate through Mr. Connolly to William Bulger confidential information concerning the status of the investigation of William Bulger?

Morris: Connolly approached me and asked me what the Senate president should do, that he's been asked to submit to an interview, and what did I recommend he do? And I told Connolly that I recommended that he submit to an interview.

Q: Did you tell him why?

Morris: Because I didn't feel that the case was very strong. I didn't think that he could hurt himself. I thought it would be to his advantage to submit to the interview and put an end to the public clamor.

Q: Other FBI agents, were they in the habit of coming to you and asking you for the results of investigative efforts in an effort to advise an individual who may be a target whether he should submit or not to an interview process by the FBI?

Morris: No, sir.

Meanwhile, the current court hearings have also revealed new information regarding O'Sullivan's involvement in the FBI's long history with Whitey Bulger. Morris testified that in 1979, he and Connolly went to O'Sullivan and urged the prosecutor to keep Bulger and Flemmi out of an imminent indictment in a horse race-fixing case. Morris said he ``indicated'' to O'Sullivan that the two were FBI informants. The plea succeeded, and Bulger and Flemmi were named only as unindicted co-conspirators.

Other once-secret FBI documents, along with other agents' testimony, demonstrate that O'Sullivan played a key role in ongoing discussions in the early 1980s about how best to handle State Police suspicions that the FBI was protecting Bulger and Flemmi, and also about whether the FBI should either retain Bulger as an informant or cut him loose.

Lawrence Sarhatt, the FBI agent in charge of the Boston office in 1980, testified in January he could not recall whether he and O'Sullivan actually referred to Whitey Bulger by name during telephone discussions about Bulger's status, but that O'Sullivan strongly urged the FBI to keep him.

It did. During a string of successful Mafia prosecutions in the mid-1980s, Bulger and Flemmi were on board as FBI informants, contributing secretly to O'Sullivan's glory. By 1989, O'Sullivan oversaw the federal review of the 75 State Street case, which ended when he concluded that no indictments were warranted. Though he hinted strongly that ``power brokering,'' which he equated to influence peddling, had been part of the deal, he told reporters that power brokering was not necessarily a crime.

``No witness has even alleged that state Senator Bulger was criminally involved in this matter through his relationship with Mr. Finnerty, and any inferences that he was so involved are not supported by the weight of the evidence,'' said O'Sullivan at the press conference on March 31, 1989. In January 1992, Attorney General Scott Harshbarger announced that a separate state review had also exonerated Bulger.

Now in private practice at Choate, Hall and Stewart, O'Sullivan was expected to be a key witness at the ongoing federal court hearings, but in early March, he suffered a heart attack and then an adverse reaction to medication.

This week, one of his partners, Hugh Scott, said O'Sullivan was ``heading home, where he will continue to recuperate. It would be an incredibly inappropriate time to talk to him about any substantive stuff.''

Despite new evidence linking O'Sullivan to the FBI and Whitey Bulger, O'Sullivan previously has denied any knowledge of that arrangement. ``I don't buy it,'' he said in a 1988 interview shortly before a Globe Spotlight Team story disclosed the FBI's ties to Bulger.

Then last summer, O'Sullivan hedged; he told FBI investigators that while he might have thought Bulger and Flemmi had been FBI informants, he was ``never specifically told that'' while he was a government prosecutor.

Asked through a spokesman to comment on Morris's admissions about taking payoffs during the State Street investigation, and his brother's involvement with the FBI, William Bulger declined.

Bulger retired from the state Senate in January 1996 and is now president of the University of Massachusetts. During the height of the 75 State Street case in early 1989 he made little public comment beyond strongly denying any role in the project. He was more expansive in his 1996 memoir, ``While the Music Lasts.'' He devoted most of a chapter to the affair, condemning the Globe's coverage and describing the hardship the case caused him.

But he left many questions about his connection to the case unanswered. In his book, Bulger writes at length about college tuitions and his financial straits being the basis for taking a loan from Finnerty. But in fact, $225,000 of the Brown money that he had received from Finnerty went into a conservative Fidelity tax-exempt bond fund, another $7,000 was used to purchase a share in a Chicago-based cable television company, and $15,000 went to himself in a check on which he was the payee.

The memoir includes next to nothing about Whitey Bulger and the FBI, or the overlapping interests of agents like Connolly and Morris and the two Bulger brothers. Morris does get a mention: the book notes that Morris was disciplined following the 75 State Street case for leaking to the Globe the fact that William Bulger had finally met with FBI agents for an interview.

To this day, Connolly insists the former Senate president never knew of his brother's ties to the FBI. Even so, it is not as if William Bulger could not have surmised something was up.

Last week, retired FBI supervisor James Ring testified he had gone along to one of the dinners Connolly arranged with Whitey Bulger and Flemmi. The dinner, he testified, was at Flemmi's parents' house in South Boston, and at one point, in popped William Bulger from his home across the way.

Suddenly, there were William Bulger, Whitey Bulger, Stephen Flemmi, and at least two FBI agents. ``These people were not consultants. They were not friends,'' Ring testified Wednesday about his chagrin at the manner in which Connolly socialized with his informants.

The entire scene, said Ring, was ``stupid.''

Gerard O'Neill of the Globe staff contributed to this article.