A lawyer for Annapolis businessman Jerome Hardesty spoke out for the first time yesterday, saying his client is "cooperating fully" with federal officials investigating operations at his two prominent restaurants.

"We have from Day One," said George Petros, an Annapolis attorney who represents Hardesty. "Obviously, we're hoping that in the end, the allegations or whatever the beliefs [federal officials] have at this time are not proven to be correct and the matter is resolved favorably for Hardesty."

Internal Revenue Service agents are investigating whether hundreds of thousands of unreported dollars have been siphoned from Middleton Tavern, O'Brien's Oyster Bar and Restaurant and the Mid-Atlantic Wine Festival -- which Hardesty runs -- say sources familiar with the investigation.

The sources, who spoke on the condition of anonymity, say officials are checking whether restaurant and festival records were altered to underreport large amounts of cash that were funneled into real estate investments in Costa Rica. IRS agents searched both restaurants, Hardesty's Annapolis house and the Cape St. Clair home of his longtime assistant, Christina L. Nokes, last week.

No charges have been filed, and Nokes and Hardesty have repeatedly declined to comment.

Petros disputed some details in the Sun's report yesterday on the investigation, saying that Hardesty has not yet closed on the deal to purchase a house in Costa Rica.

The Sun reported that two weeks ago Hardesty bought a large estate called the "House of Flowers" on a golf course in Costa Rica, staffing it with armed guards and servants.

"He has a contract to purchase the house," Petros said. He added that because of the investigation, "everything is on hold."

Petros also asserted that the house is not staffed with armed guards. He said the house is "in a country-club type of setting" and is owned by an American.

Petros said he did not know when the investigation would end. Stephen Schenning, first assistant U.S. attorney, would not comment on the investigation. But he did say that generally, tax-related investigations could take months or years to complete.

At the end of such cases, Schenning said, IRS officials have to file a "special agent report" to be reviewed by oversight committees within the IRS and the Justice Department.

Hardesty opened Middleton Tavern in 1968 with various family members but has owned the business exclusively since the 1970s, when he bought them out.

Hardesty must file incorporating documents of his two restaurants to the IRS by March 11, a source familiar with the investigation said yesterday. IRS agents took Hardesty's passport during last week's search, the source said.

News of the investigation came with a certain irony for some Maryland winery owners who took on Hardesty in 1997 in an effort to gain control over the festival and bigger profits.

Hardesty kept control, but only after saying that the festival made little money and would sink if wineries got any bigger cut.

"I've been in the forefront of trying to arrange a better deal for the wineries with Jerry Hardesty for quite a few years," said Rob Deford, chairman of the Wine Festival Committee for the Association of Maryland Wineries.

"We know the economics of wine festivals quite well. His claim is that there isn't much money left over at the end of the day, and the wineries have said the contrary."

Deford said the Maryland wineries decided after 1994 to stop participating in Hardesty's festival because he was offering them a "dramatically different" deal that was significantly lower than what organizers of similar events in the region put on the table.

Eric Aellen, owner of Linganore Winecellars near Mount Airy, the state's largest winery, said he has tried to stay out of the conflict because Hardesty has treated him well.

But he said the similarity between the wine industry's complaints over the years and the IRS investigation is easy to see.

"We never did understand if you have 16,000 people paying $16 per person," he said, "and have all those vendors coming through, how a person couldn't be making money."

Pub Date: 3/03/99