April 14, 2006 at 04:00 AM EDT

It’s got everything that made Watergate great and more. Charges of illegal wiretaps. Muckraking journalists. Unindicted co-conspirators. Not to mention paranoid (studio) presidents. Honestly, if it weren’t for the palm trees and Hummer limos, you’d swear this was Washington, D.C., circa 1972.

We’re talking, of course, about the Anthony Pellicano scandal. Hollywood has been gossiping about it for three years, since it was revealed that the investigator to the stars had been allegedly bugging phones and committing crimes to help lawyers win cases for celebrity clients. (Pellicano pleaded not guilty.) But it was last week’s charge against Die Hard director John McTiernan that changed everything, ratcheting up the heat on the Pellicano affair to a near-boiling point. For the first time, a famous person — okay, not a movie star, but a hugely successful action director — was facing a possible prison term. Maybe as much as five years. (He’s scheduled to be arraigned April 17.) And suddenly, everyone saw just how big, and ugly, this thing might get.

”I can’t think of any scandal in my 25 years that approaches this at all,” says Michael Jackson’s former attorney Mark Geragos, who is now representing Keith Carradine in a civil suit against Pellicano, claiming he was allegedly wiretapped during his divorce proceedings. ”It’s unprecedented in Hollywood. On a Richter scale, with 10 highest, I’d say this has been an 11.”

It certainly dwarfs the Heidi Fleiss hoo-ha of 1993 (if discovering hookers in L.A. even counts as scandal). It’s bigger than the 1977 David Begelman affair — a case that involved a studio chief getting caught forging checks. What makes the Pellicano flap so potentially damaging is its wider swath of destruction. Pellicano was everywhere. He worked for Tinseltown’s most famous lawyer, Bert Fields. He’s connected to the man now running Paramount, Brad Grey. According to reports, he indirectly toiled for Tom Cruise, Barry Bonds, and John Travolta. (See sidebar, below.) He was Hollywood’s most powerful PI. Almost everyone knew him?by reputation, at least?as the tough guy who carried around a baseball bat.

What most folks didn’t know was just how underhanded Pellicano may have been. Four years after his 2002 bust — when the police reportedly found hundreds of hours of taped conversations in his office, not to mention explosives — the feds alleged that the detective had bugged telephone calls in a number of high-profile disputes. The prospect of those chats getting leaked isn’t the worst part. The lawyers and clients who hired Pellicano could go to jail if prosecutors can prove they knew he was, in fact, engaging in illegal activities. Scarier, if he’s convicted, every case Pellicano ever worked on — every divorce, property dispute, movie script battle — could now be considered tainted. Some might even have to be reopened and reargued.

Thus, ”Hollywood’s Watergate,” a scandal so radioactive that almost everybody EW talked to admitted to worrying about it, but almost nobody wanted their name in this article. ”When Watergate started, very few people took it seriously,” says one of the few who didn’t mind chatting on the record, Allan Mayer of Sitrick and Company, a PR firm specializing in crisis containment. ”Same thing at the beginning of Pellicano: People rolled their eyes. But then, as more meat got put on the bones, people began seeing there really is something serious here.”

You May Like