Diary's ambiguous entries dressed as meat for Operation Cheetah: Jonathan Foster examines the way a flamboyant and conspicuous lifestyle in left-wing politics became embroidered with rumour and innuendo

OPERATION CHEETAH never sated its appetite for big prey. It stalked Merseyside for nearly three years, ranged as far afield as London and Derbyshire, but never seized anything more juicy than the diaries Derek Hatton kept in his desk drawer.

Two ambiguous entries in 1987 formed virtually the entire prosecution case in the fraud trial of Mr Hatton and three co-defendants which ended yesterday. An investigation which at one stage caught the scent of 50 corrupt land deals ended up concentrating on paperwork for a couple of bomb sites licensed by Liverpool City Council for operation by Mr Hatton's tailor as temporary car parks.

Between 1990 and 1992 Merseyside police fraud sqaud made three spectacular raids involving up to 280 officers. They arrested 40 people, but charged only seven. The cost of the inquiry may never be known - lawyers' fees for the trial alone total more than pounds 2m.

Cheetah began work with 30 detectives in June 1990 against a backdrop of exotic rumour in a city of romantic oral tradition, into which the affairs of Derek Hatton were embroidered. 'Degsy', who could have been an actor and always was, rejoiced in publicity from the moment in 1979 when he was elected to the city council, the double-breasted front man for Militant tendency.

By 1985, Mr Hatton was deputy leader and mouthpiece of a Labour administration that went over the top in its budget brinkmanship. For 18 months, Mr Hatton stood simultaneously in the pantheon of Red heroes and in the dock for Trotskyist wrecking. He acted the part, but it was melodrama.

Mr Hatton, 45 and now unemployed, first attracted the attention of Special Branch as a troublesome community worker in Sheffield and, later, Kirkby, a new town just north of Liverpool. But neither Special Branch, which took closer interest in him after 1985, nor Militant placed him high in the revolutionary hierarchy, which had usurped its most popular policies from a separate Labour grouping led by Tony Byrne.

Stories about the flamboyant and conspicuous Hatton lifestyle, the social merged with the political, filtered into the local media. Some were supplied by Mr Hatton, including unattributable accounts of which turn the council's confrontation with Margaret Thatcher's government would take next.

After Mr Hatton and most of his Labour council colleagues had been disqualified from holding office and disciplined by their party, a codified policy of land sales was adopted by Keva Coombs, the new council leader. It claimed that sales of land for less than notional 'market prices' were a legitimate form of economic pump-priming. Cheetah learned of the Coombs doctrine and was never to find much evidence that it had been breached illegally.

But, since 1985, the police had heard a lot of damning hearsay. Mr Hatton had been investigated twice, in 1985 and 1986; no charges were brought, nor an end to the rumour and insinuation. There were the supermarket deals for Asda and Sainsbury, the foreign holidays for Mr Hatton, his council expenses, Wimpey's success in winning contracts to build new houses, nursing home developments, an amusement arcade.

Characterised in his political dealings by the strong-arm caucus, Mr Hatton was in 1990 still assumed by his opponents to have borrowed those tactics for his business career.

That had begun formally after he was kicked out of political life in 1987. His Settleside public relations company, its principal asset the Hatton network of contacts inside the municipal buildings, lasted for three years until blighted by the events of 26 October 1990.

'We had heard during that summer that the police were investigating again,' Peter Quinn, Mr Hatton's solicitor, said. 'We wrote to them offering them co-operation and access to files. They said they would look at the papers. The consequences were farcical.' Instead of accepting quietly Mr Hatton's offer, Operation Cheetah did it the spectacular way. It gathered 60 search warrants and 280 officers for raids on 61 addresses in north-west England, including the Hatton home and office.

Clive Atkinson, assistant chief constable, announced the priority. 'Merseyside police are determined to get to the bottom of recurring allegations which have riddled the city.' At the trial 28 months later, the prosecution case was derided by defence counsel as a 'barrel-scraping exercise'.

The 50 lines of initial inquiry became a focus on 17 large land deals, then six main allegations against Mr Hatton, plus two general charges of conspiracy which are outstanding. He was sent for trial charged on just three counts of conspiring to defraud Liverpool City Council through land deals.

Mr Hatton's diary contained the abbreviations 'H' and 'JN' along with the figures 1,000 and 50 respectively.

These, the prosecution claimed, represented payments by Mr Hatton to Hannah Folan and John Nelson, former Labour councillors whose power in committees had been instrumental in issuing licences for the car parks to John Monk, a businessman - and tailor to the Hatton wardrobe. The Hatton hieroglyphics were the quintessence of the Crown's case. All three were charged jointly with Mr Hatton.

Roy Stewart, a builder who employed Settleside's public relations expertise at the time he bought the Stonedale Crescent land, was charged jointly with Mr Hatton and Ms Folan. The judge threw out that charge for lack of evidence.

Many lawyers, including implacable opponents of Mr Hatton in Liverpool, had written off Operation Cheetah as a disaster before the trial opened in January. Even if all three charges had been successful, the sums involved in the two car park licenses were so small in terms of land value and alleged bribes and the evidence so ambiguous that prosecution was scarcely justified.

It was only during summing up by Rodney Klevan QC, for Mr Hatton, that another diary entry was revealed - 1,000 from H. Was 'H' paying back 1,000? Was 'H' Ms Folan? 'This case doesn't deserve any defendant gracing it by giving evidence,' Mr Klevan said, after Mr Hatton and his co-defendants decided not to take the stand.

Merseyside Police said yesterday their investigation liaised closely with fraud investigators from the Crown Prosecution Service. During two years, Cheetah collected 6,000 names, collated details of about 574 vehicles, took 1,080 statements and ended up with bundles totalling 6,300 documents. There was no special reason for beginning Cheetah, they said, just the rumours.

Cheetah seized more than 1 million pages of documents and collated thousands of names. Every item, the flesh of the case and the detritus, was fed slavishly in to Holmes, the major incident computer system. Many of those close to the case believe the computer ran the inquiry, insisting rigorously that an ever- widening number of contacts be interviewed.

Mr Klevan, barrister for Mr Hatton, mocked the prosecution as mercilessly as his client ever berated a Tory or Liberal councillor. Going ever deeper into the barrel for a scraping exercise, the Crown's case was like 'the circus bicycle with the uneven wheels - it lurches, almost falls and is kept upright only by the skill of the rider', Mr Klevan said.

In that closing speech, he stopped short of accusing his client of sharp practice. Mr Hatton was the man you would speak to, the man who knew councillors, a bombastic and aggressive lobbyist ready to shout at Ms Folan as she sat beneath a hair dryer. His information was worth a lot on the market place.