April 3 (Bloomberg) -- Attorney General Eric Holder, taking charge of a U.S. Justice Department wounded by allegations of partisanship and overreaching, pledged to exercise care in managing a stepped-up drive against public corruption.

Holder, who decided this week to abandon the government’s case against ex-Senator Ted Stevens, a Republican from Alaska, because of prosecutorial missteps, said he expects the government to be fair in its pursuit of corruption.

“We can have a huge impact on the lives of people, and particularly public officials who only have their good reputation,” Holder, 58, said yesterday during an interview at a law-enforcement conference in Cuernavaca, Mexico. “We have to be careful on how we indict these cases, how we investigate these cases, how we try them.”

The new attorney general has also promised to restore morale at the Justice Department, which has been frayed by charges of political interference that led Alberto Gonzales to resign as President George W. Bush’s attorney general in 2007.

The Stevens case, prosecuted by the Bush Justice Department, is the latest instance of a high-profile prosecution upended by alleged government misconduct.

In 2007, U.S. District Judge Lewis Kaplan in New York said it was “outrageous and shocking” for prosecutors to threaten indictments against KPMG LLP if the accounting firm paid the legal bills of its employees. The department’s tactics prompted Kaplan to dismiss criminal tax charges against 13 former executives accused of participating in an illegal tax shelter.

Eight Cases

In a Jan. 21 opinion, Mark L. Wolf, chief federal judge in Massachusetts, complained of an “egregious” failing by a prosecutor “to disclose plainly exculpatory evidence.” Wolf listed eight cases since 2002 from what he called a “dismal history” of similar omissions by federal prosecutors in Boston.

The judge cited the cases in ordering the government to show why a prosecutor shouldn’t be sanctioned for withholding evidence in the case of a man accused of illegal gun possession.

In reply, U.S. Attorney Michael Sullivan said the prosecutor’s “mistakes” don’t warrant sanctions by the court. Sullivan said in a Feb. 10 pleading that the episode was “regrettable but did not result in prejudice to the defendant.”

Former Prosecutor

The Justice Department tried unsuccessfully to prosecute Richard Convertino, a former U.S. prosecutor in Detroit, for withholding evidence in a terrorism trial. After dropping the case against the defendants, the department accused him of obstructing justice and making false statements at the 2003 trial.

The Justice Department’s internal watchdog, the Office of Professional Responsibility, is investigating allegations by former Alabama Governor Don Siegelman that he was targeted for prosecution because he is a Democrat. Siegelman is appealing a ruling by a three-judge federal appeals court that upheld his conviction. Democrats in Congress have also questioned the merits of the prosecution.

“What’s happened over the last 10 years is that prosecutors have seemed to have forgotten that their main job is to see that justice is done and instead focused on winning the case at any cost,” said Michael Madigan, a former prosecutor and Washington criminal lawyer who represented one of the former KPMG partners.

Sending a Message

In the interview, Holder revealed plans for a crackdown on white-collar crime -- corporate fraud, mortgage fraud and public corruption -- in cooperation with local and state law enforcement. Holder said he hopes to announce the details soon.

He also said he was “not hoping to send a message” in dropping the Stevens case.

Still, “when I find an instance where I think the Justice Department has made mistakes,” he said, he wouldn’t “hesitate to do what I think is appropriate.”

“Certainly mistakes were made” in the Stevens prosecution because the government didn’t disclose evidence that might have made a “substantial impact on the case,” he said.

Stevens’s defense lawyer Brendan Sullivan Jr. told reporters this week the way the Justice Department prosecuted his client “provided a warning to everyone in this country that any citizen can be convicted if the prosecutor ignores the Constitution.”

Reporting Gifts

Stevens, 85, was convicted in October of failing to report $250,000 worth of gifts on his financial-disclosure forms. The gifts included renovations to his home paid for by an oil- services company. Days later, he lost his bid for re-election.

Holder said he will await the results of a Justice Department investigation before determining if there was wrongdoing.

Defense lawyers say the Stevens case highlights a frequent failure of prosecutors to turn over evidence that might help exonerate the accused.

Forty-five years after the Supreme Court mandated such disclosure in its Brady v. Maryland decision, prosecutors still “think that is an annoyance,” said Arkansas defense lawyer John Wesley Hall, president of the National Association of Criminal Defense Lawyers.

Complying with the legal obligations of “Brady is the single hardest problem -- legal and moral -- for prosecutors,” said Harvard law Professor Philip Heymann, a former deputy attorney general in the Clinton administration. “It haunts prosecutors.”

To contact the reporters on this story: James Rowley at jarowley@bloomberg.net and Justin Blum in Cuernavaca at jblum4@bloomberg.net

Last Updated: April 3, 2009 00:00 EDT