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The federal agent who posed as a crooked contractor to bribe public officials in "Operation Plumline" has served a 45-day suspension for breaking FBI regulations during the probe, law enforcement officials said Thursday.

Officials close to the case said the FBI's disciplinary action could be the death blow for the 1985 corruption investigation that was once heralded as a landmark for Buffalo-area law enforcement and later criticized after charges against nine defendants were dismissed.

Special Agent Michael Falcone of New York City, who was temporarily detailed to Buffalo for the undercover FBI assignment into alleged corruption in the construction industry and public works projects, was suspended in May after a lengthy internal probe into "irregularities" in his Plumline expense accounts, according to two law enforcement officials who asked not to be quoted by name. The irregularities involved travel and restaurant expenses, one of the sources said.

Falcone did not return phone calls to the New York FBI office and could not be reached for comment. FBI spokesmen in Buffalo, New York and Washington all refused to confirm or deny the report.

"We never discuss personnel actions against any FBI agent," said Harry Mount, supervising agent of the FBI's national press office in Washington.

U.S. Attorney Dennis C. Vacco also refused to confirm or deny the reports. But Vacco confirmed he has been examining reports on Falcone's conduct as part of an overall review of the Plumline investigation.

The review is being conducted to help him decide whether he should pursue new indictments against Plumline defendants who have already had the charges against them dismissed, Vacco said.

Agentin'Plumline'Case"At this point, any questions about Agent Falcone are part of our overall review of the Plumline cases," Vacco said. "We're reviewing all aspects of the investigation, including Falcone's participation. This is a delicate matter."

Vacco said he hopes to decide within the next two weeks whether to pursue any new Plumline indictments or to drop the probe.

Terrance M. Connors and Joel Daniels, Buffalo attorneys who represent Plumline defendants, said the disciplinary measures against Falcone have further undermined the credibility of the troubled probe.

Falcone had been the government's key undercover investigator and witness in the 15-month investigation, the lawyers said.

"It's ironic that the fisherman has been caught in his own net," Connors said. "I think this guts the credibility of the entire investigation. It comes down to his (Falcone's) word against the people he investigated."

"For the defense, this is good news," Daniels said. "It provides you with ammunition you can use to shatter the government's case. An agent who has (allegedly) submitted false expense reports in effect has stolen money. That hurts his credibility."

Falcone's difficulties are seen in the law enforcement community as the latest in a long line of troubles plaguing the investigation.

The Plumline case was described by federal law enforcement officials as "the most penetrative governmental fraud inquiry" in local history when they announced the indictments of local politicians, contractors and a transit official in a Nov. 20, 1985, press conference.

Falcone portrayed Mike Fazio, a corrupt employee of John Gross, a Niagara Falls plumbing contractor who worked in the investigation as an FBI informant. Gross and Falcone -- as Fazio -- met and helped arrange bribes and kickback payments among contractors and public officials, the FBI said.

But prosecutors ran into difficulties in 1986 and 1987, when U.S. District Judge John T. Elfvin dismissed charges against all nine defendants for insufficient evidence or procedural errors. In several cases, Elfvin ruled the prosecutors had incorrectly charged the suspects under a section of law that applies only to federal government officials.

The dismissals left hard feelings on both sides; defense attorneys accused Gross and Falcone of creating crimes, prosecutors were unhappy because they never got a chance to air the evidence in trials.

There has been one guilty plea. Former Niagara Falls Councilman Joseph Smith admitted to a bribery charge and in June was sentenced to three years' probation.

Smith admitted that in 1985 he accepted a $6,000 kickback from Falcone to help a Tonawanda contractor get quick payment of a $111,000 cost overrun on a city waste water treatment plant project.

The other eight cases have been dormant since Elfvin dismissed them more than a year ago. Vacco, who took office in June, has been examining the Plumline file to decide whether to seek new indictments in some or all of the cases.

Connors said he hopes the U.S. Attorney's office has learned a lesson from what he called the "indictment at any price" investigation and will drop the matter.

"I'm not going to respond to rumors in the legal community," Vacco said. "Whatever decision I do make will be based on a review of the facts."

Law enforcement officials said John L. Duffy, special agent in charge of the Buffalo FBI office, had pressed for the internal probe of Falcone's expense accounts. But Duffy also refused comment on the suspension or the investigation that led to it.

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