By Angela Couloumbis and Craig R. McCoy, The Philadelphia Inquirer

HARRISBURG, Pa. — Pennsylvania Attorney General Kathleen Kane said Monday that she believed leading Philadelphia Democrats ensnared in an undercover sting operation committed crimes, but that the case against them was so badly mishandled by her predecessors that it could not be prosecuted.

Responding to a report in Sunday’s Philadelphia Inquirer that five public officials, including four state legislators from Philadelphia, were captured on tape accepting cash, gifts or money orders, Kane said she had no choice but to shut down the investigation.

While saying public corruption made her “sick to her stomach,” Kane said the sting was flawed and tainted by racism, and could not have led to successful prosecutions.

“There is nothing we can do to salvage this case,” she said.

Yet the state’s top state prosecutor acknowledged that the tapes made during the course of the investigation had captured criminal activity.

“I believe that we have evidence that certain legislators were taking money, and that’s a crime,” Kane told reporters at a late-morning news conference in Harrisburg.

She said that eight people in all were captured on tape, but she did not say who they were.

Kane, a Democrat, has maintained that the undercover investigation was poorly managed and badly executed, and relied on an undercover operative whose credibility had been compromised.

Prosecutors in the Attorney General’s Office who launched the case in 2010 have countered that the sting operation was solid, and say Kane shut it down for political reasons.

They also say that she faced a conflict in the case, as two people who supported her 2012 campaign for attorney general had previous dealings with the sting operation’s undercover agent, a little-known Philadelphia lobbyist named Tyron B. Ali.

Given the dispute, the nonpartisan Committee of Seventy in Philadelphia on Monday urged the Legislature to allow for the creation of an independent counsel to conduct “a fair and nonpartisan” investigation into why the sting case was closed.

“This is a highly unusual matter where traditional investigative authorities who might review the integrity of the sting operation and its dismissal — both of which are under attack — are compromised,” Zack Stalberg, the committee president, said in a statement.

Kane vigorously defended her office’s record of pursuing public corruption cases.

“It is loud and clear,” she said. “We made no decisions based on political parties.”

She said that upon taking office last January, she directed her top staff to review the case file. That review, she said, showed that the case would never hold up in court. Among the reasons it would fail, she said: Ali’s credibility was “horrendously tainted.”

Before he agreed to cooperate with state prosecutors, Ali had been facing charges in a $430,000 state fraud and theft case.

Those charges, Kane said Monday, were dropped by the sting investigation’s lead prosecutor, Frank G. Fina, just weeks after she was elected.

“This was the deal of the century,” said Kane. “Over 2,000 charges were dropped against this man.”

Fina now heads the public-corruption unit in the Philadelphia District Attorney’s Office.

Kane has also said that the agent who accompanied Ali as he carried out the sting told law enforcement officials that top prosecutors instructed him to target African-Americans, and ignore illegal acts by whites.

Kane said she had documentation to support her assertion that racism marred the sting, but was examining whether she could release it.

Kane reiterated that two other law enforcement agencies, including unidentified federal authorities, had reviewed the case and determined it was flawed and not suited for prosecution. She has declined to identify the officials who made such a determination or to say which agency was involved.

On Monday, the special agent in charge of the FBI in Philadelphia, Edward J. Hanko, said his office had looked at the case but had made no judgment on whether it was suitable for prosecution.

Hanko said he was never asked to examine the case to see if there were crimes that could be prosecuted. Rather, he said, his focus was on whether any federal laws might have been broken. He concluded the case was best left to the state.

He said that taking on the sting investigation would have required a busy FBI to repeat work already completed by state officials. “We’d have to go back and retrace everything,” he said.

Hanko said agents on his staff decided it was unwise to “jump in at the twelfth hour.”

The U.S. Attorney’s Office in Philadelphia has declined to comment on the sting investigation or to say whether it had made a judgment about the merits of the case.

At her news conference, Kane said that in the absence of prosecution, she would press the state Ethics Commission to investigate whether lawmakers broke ethics laws. None of those who sources said received money or gifts reported doing so on annual disclosure forms.

Sources familiar with the sting have told The Inquirer that prosecutors amassed 400 hours of audio and videotape that documented at least four city Democrats taking payments in cash or money orders, and, in one case, a $2,000 Tiffany bracelet.

People with knowledge of the investigation said those caught on tape included former Traffic Court Judge Thomasine Tynes, who acknowledged that Ali gave her the bracelet.

Four state lawmakers took money, the sources said. State Rep. Ronald G. Waters accepted multiple payments totaling $7,650; State Rep. Vanessa Brown took $4,000; State Rep. Michelle Brownlee received $3,500; and State Rep. Louise Bishop took $1,500, said people with knowledge of the investigation.

House Minority Leader Frank Dermody (D-Allegheny) issued a statement Monday saying he was troubled by the allegations.

“If it’s true that any legislators accepted gifts without reporting them, they should correct that reporting mistake,” he said.

The four legislators could not be reached for further comment Monday.

Bishop has told The Inquirer that she does not know Ali and did not accept money from him. Brownlee has said she does not recall accepting cash or money orders from Ali, while Waters has said he may have received something from Ali for his birthday.

Brown has declined to answer any questions. Her attorney has said she did nothing wrong.

Republicans in the House have called on Kane to provide a fuller explanation of her decision not to prosecute the case.

One former prosecutor was unpersuaded by the attorney general’s decision to abandon the case.

L. George Parry, a former federal and city prosecutor, said Monday that he could not understand why the case was dropped.

Though Kane cited Ali’s credibility as a problem, Parry said, “I’ve yet to meet an informant that didn’t have lousy credibility.

“That’s one of the defining attributes of being an informant,” said Parry, now in private defense practice. “That’s why you wire them, to see if what they say is true.”

Photo: Scott* via Flickr