Blum Not Subject of Probe, His Lawyer Says : Investigation: Feinstein’s husband is the largest shareholder in a firm that may be censured by the SEC. But the agency has no reason to cite him personally, his attorney contends.

The Securities and Exchange Commission may censure a company whose largest shareholder is Richard C. Blum, the husband of Democratic gubernatorial nominee Dianne Feinstein, but the agency has no reason to cite Blum personally, according to Blum’s lawyer.

The company, San Francisco-based URS Corp., disclosed in a quarterly financial statement last month that it was being investigated by the SEC.

“They (the SEC) may bring a proceeding about the company,” Blum’s lawyer, Michael R. Klein, said in an interview this week. “But we’re talking about No. 1, no issue whatsoever involving Richard Blum, as a matter of conduct. . . . No suggestion during the course of the investigation that Richard Blum was ever a subject, a target, a focus of that investigation.

”. . . The SEC really owes it to him and to the public debate in this state to be more clear about that,” said Klein, a securities specialist for the Washington law firm of Wilmer, Cutler & Pickering.

Officials of the SEC, as a matter of policy, refused again on Wednesday to confirm or deny the existence of a current investigation involving URS, an architectural and engineering firm.

The SEC on Oct. 2 rejected a Freedom of Information Act request by The Times for records related to the URS investigation on grounds that their release “could reasonably be expected to interfere with enforcement proceedings.”

The Times last week reported that the financial statement filed in late September by URS stated that the SEC investigation was continuing. That story quoted Blum, who described himself as a victim who neither knew of, nor participated in, any alleged improprieties at URS.

Blum’s business relationships have become an issue in the California governor’s race because he is an important fund-raiser and he and Feinstein have loaned about $3 million to her campaign.

According to URS’ September financial statement, the SEC was continuing an investigation that resulted in civil-law actions last May against four former top executives of URS, including the firm’s chief executive officer. Blum was not cited.

The four executives were accused of issuing six “false and misleading” statements during 1986 and 1987 that overstated the company’s revenue and earnings by $13.4 million.

Don Winks, a spokesman for URS Corp.’s headquarters, said, “It certainly is a possibility that the SEC, without assigning any individual responsibility, could enjoin the company from doing it again.”

Saying that “the staff of the commission has not completed its investigation,” URS’ September financial report said that the SEC investigation encompassed “issues” raised in a class-action lawsuit settled by URS last year for $19.3 million.

The class-action lawsuit, which named URS, Blum and eight other executives or directors of the company as defendants, alleged that the company’s “false and misleading” financial representations were intended, in part, to inflate the value of the firm’s stock.

Los Angeles securities law expert Irving M. Einhorn said that shareholder class-action suits typically name directors as defendants. Sometimes, he said, directors are named because they hold the title, but other times they are named because they “are alleged to have some say in the management, some control.” Einhorn was the SEC’s regional administrator in Los Angeles from 1984 to 1989.

This week, Blum said that his purchase of about $3.8 million of URS stock during 1987 and 1988, on behalf of himself and investing clients, shows that he was a victim. Blum this year increased his leading stock ownership of URS from about 10% to about 80%.

Blum said he was victimized because the stock price plummeted after the firm agreed last year to restate its 1984, 1985 and 1986 financial statements to correct the allegedly false and misleading reports.

Blum and other members of the URS board of directors had voted June 13, 1988, to dismiss the company’s outside auditing firm, Touche Ross, during a dispute over whether the 1986 financial statements should be revised.

Touche Ross auditors felt that revenues and earnings had been overstated and sought to amend the 1986 financial reports to reflect that, SEC records show. URS officials instead wanted to address Touche Ross’ concerns by reflecting them in the 1987 financial statements.

Blum said he supported the dismissal of Touche Ross on the advice of his top company executives, including Arthur H. Stromberg, then the chief executive officer and chairman of the board. Stromberg, among those cited last May by the SEC, has not responded to phone calls.

“Management’s official response was, ‘The auditors are being unfair to us,’ ” said Blum, who, as of Nov. 1, 1987, was the firm’s vice chairman and was chairman of the board’s Executive Committee. “. . . And they were very upset about having to restate 1986 earnings. . . . When you’ve been with somebody for 10 years (as) an investor in the company, and they basically do what they say they’re going to do, after awhile, you’re inclined to kind of give them the benefit of the doubt.

”. . . And maybe I wasn’t looking as carefully as I should have been at URS,” he said. “So, when Stromberg said to me, ‘Gee, what Touche Ross wants to do here is outrageous,’ here’s a guy who, you know, he had a good batting average with me.”

Blum, URS’ highest-paid financial consultant during the 1980s, said that his advice in that capacity has centered on potential mergers, acquisitions and divestitures.

In a related development, the SEC on Sept. 26 voted to approve an administrative order involving two of the Touche Ross accountants who signed off on URS’ financial statements in 1986, but who balked at doing so, beginning in January, 1988.

The SEC censured the two auditors, saying they should not have approved the financial statements presented by URS’ executives in 1986.

A spokesman for Touche Ross, which is now known as Deloitte & Touche, noted that the firm was not cited.

Klein, Blum’s lawyer, said he believes the SEC may censure URS and tell the company “what the company ought to have done, or should do in the future, with respect to the accounting issues.” Klein said there should be no inference of wrongdoing on Blum’s part.