Sources: FBI Lacked Evidence Against Page Six Scribe

Had there been clear-cut evidence that New York Post gossip writer Jared Paul Stern had tried to extort money or demand a bribe in exchange for ceasing negative portrayals of a supermarket billionaire, the FBI was prepared to arrest Stern as soon as the words tumbled out of his mouth in a secretly recorded meeting at the billionaire's Manhattan loft, a senior law enforcement official told ABC News.

But there was not. And the billionaire, Ron Burkle, has now taken his case to the media, specifically to a rival tabloid -- the New York Daily News -- fueling a bruising, old-fashioned war for readership and advertising.

While the entire affair may at first seem like a sordid tempest in a tabloid, it throws a harsh light on the practices of celebrity and entertainment journalism -- where gift-taking and special treatment for reporters, as well as gift-giving and special treatment for guests and subjects of flattering cover stories -- are routine but usually hidden from readers and viewers.

According to law enforcement officials, an FBI agent and a federal prosecutor listened in, made suggestions and gave advice during the second of two videotaped interviews between the aggrieved billionaire and the sketchy scribe.

But there was not enough evidence to bring the reporter in on charges, and now the case is in the preliminary stages of an FBI investigation to determine whether there ever will be enough to bring to a federal grand jury and win an indictment.

Burkle spokesman Michael Sitrick contended to ABC News that the investigation is on-going.

Stern: I Was 'Set Up'

Stern has come out swinging against Burkle, telling ABC News, "I was the one who was targeted'' and claiming he was "set up'' by Burkle.

Stern said that Burkle contacted him last summer through a mutual friend in an effort to reduce the number of negative items appearing about him on Page Six.

On a videotape recorded by Burkle's security cameras and partially transcribed in the New York Daily News, Stern is reportedly heard describing working with the Post's Page Six as a "little like the mafia … a friend of yours is a friend of mine."

Stern's attorney Joseph Tacopina goes even further, charging on Monday that "he was entrapped by a paranoid billionaire with an ax to grind and secrets he was desperate to protect.''

"As to what occurred in the meetings between Messrs. Burkle and Stern," the statement added, "the tapes are very clear as to what Mr. Stern said and what he didn't say. They are also clear with respect to what Mr. Stern meant.''

Stern has retained Joseph Tacopina, the high-profile defense attorney who represents former New York City Police Commissioner Bernard Kerik and Joran van der Sloot, the Dutch teen believed to be the last person to see Alabama teen Natalee Holloway alive on the island of Aruba last spring.

'True Nature of the Relationship'

In an interview with ABC News' senior legal correspondent Chris Cuomo over the weekend, Stern previewed his defense. He promised a "strong statement setting forth the true nature of the relationship and my feelings about being the one who was targeted."

Stern repeated to ABC News his claim that his "main interest'' in Burkle was as an investor in Stern's clothing line, Skull & Bones. Burkle's spokesman flatly denied that Burkle was interested in the clothing line.

In an effort to support Stern's case, a source close to Stern provided an e-mail dated July 25, 2005, to ABC News, in which a Burkle employee offered to buy 60 shirts worth $5,700 from Stern's line. It is unclear who the shirts were for.

Stern said Burkle initially contacted him in the summer of 2005, through a mutual friend, to initiate discussions on how to "fix [Burkle's] Page Six problems."

Conversations between Burkle and Stern were recorded by security cameras in Burkle's rented New York loft at least twice, and those tapes have been turned over to the FBI, which is investigating, sources told ABC News. An FBI spokesperson declined to comment, but sources said the government is reviewing the tapes to determine whether a case against Stern could be made.

According to Sitrick's statement, "After both the FBI and the U.S. attorney's office viewed tapes of the meetings and all of the e-mails (including wire-transfer instructions) in their entirety, the U.S. attorney's office contacted the New York Post and requested a meeting to ask for the Post's cooperation in its probe and help in preserving evidence. We believe these actions speak for themselves."

Sources close to the investigation say that an FBI agent and an assistant U.S. attorney were present in the room during the entire March 31 encounter. Despite that, law enforcement sources point out that the way the tapes were made could pose problems with any future prosecution.

'I Can Solve These Issues'

In the latest excerpts from the tapes made by Burkle and first reported by New York Daily News staffer William Sherman, Stern and Burkle apparently refer to longtime Page Six editor Richard Johnson and other reporters working for the column, according to the Daily News report.

"I can solve these issues for you,'' Stern said during their March 31 meeting, according to Sherman's report.

"Yeah, a consultant said to, you know, your media companies, for instance," Stern said.

"Well, like Current TV, I have Current TV," Burkle countered.

"Yeah, OK,'' Stern said. "Yeah, that is something we should definitely do and we should start to work on something sooner rather than later."

At another point in the Daily News transcript, Burkle asked, "So I get to choose today whether I want to be a friend or do I want to be an enemy?"

"You gave me ideas yesterday,'' Burkle replied, according to a Daily News transcript. "You tell me I have to pay Richard Johnson $100,000 to be something somewhere ...

Stern replies, "Right, um.''

"And if I choose to be a friend I need to pay you, and if I choose to be an enemy, you just write things?" Burkle said.

"Yeah, I mean, we can still be friends, but we're not going to be as good friends," Stern said.

Later, according to the Daily News transcript, Stern allegedly told Burkle that he has influence over Johnson.

"Richard [Johnson] is not going to do anything to go after you from that point," Stern said. "He is not going to do it. I have worked with him for 11 years and, um, if I ask him not to do it, he won't do it.''

Page Six Fixture

New York Post officials have said that the paper's relationship with Stern is limited, but it goes back a long time. Stern has worked with Johnson on the column for more than a decade, and former Page Six staffers told ABC News he has been a regular fixture on Page Six for many years, often editing the page in Johnson's absence.

Gary Ginsberg, an executive vice president at News Corporation, which owns the Post, reportedly called Stern a part-time employee.

"No one's trying to make any excuses for his alleged behavior, but in terms of what it means for the franchise, I think the franchise is as strong as any in journalism," Ginsberg told The New York Times. "This is highly aberrational."

ABC News' Chris Francescani is a former New York Post reporter.