Sources: FBI Lacked Evidence Against Page Six Scribe

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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.

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