NEW YORK, Feb 7 (Reuters) - Federal prosecutors have requested a probe into whether a lawyer for former New York State Senate Majority Leader Pedro Espada Jr is able to provide unbiased representation in light of her ties to the company from which Espada is accused of embezzling more than $100,000.

In a letter sent Tuesday to U.S. District Judge Frederic Block, attorneys from the U.S. Attorney's Office for the Eastern District of New York said Espada attorney Susan Necheles had "several significant conflicts of interest" that may interfere with her ability to represent Espada in his upcoming trial.

Espada, a Democrat who previously represented the Bronx in the New York Senate, and his son, Pedro Gautier Espada, have both been charged in an 18-count indictment in connection with what prosecutors say was a scheme to siphon more than $100,000 in federal funds from Soundview Healthcare Network, a nonprofit health-care network that Espada founded in 1978.

One of the potential conflicts facing Necheles is her past work as outside counsel for Soundview, according to the letter. She represented Soundview in connection with the New York Attorney General's Office probe into Espada's alleged misallocation of its funds, as well as a separate probe by a federal agency into Soundview's compliance with federal funding regulations, the letter stated.

Necheles also represented or helped find representation for several key Soundview employees who may be called as government witnesses during Espada's trial, the letter said. Her discussions with them "risk making Ms. Necheles a sworn or unsworn witness" at the trial, according to the letter, and may also impair cross-examination of those witnesses.

'DUTY OF LOYALTY'

Soundview may also stand to benefit financially from Espada's conviction, prosecutors argued in the letter. Espada's employment contract with Soundview provides a generous severance package that could possibly cost the company "millions of dollars" in future litigation if Espada walks free, prosecutors said.

"Ms. Necheles owes a duty of loyalty to Soundview to which she must remain faithful," the letter stated. "That duty has the potential to limit the zealousness with which she defends Espada."

Prosecutors said they are seeking the appointment of an independent lawyer to advise Espada on the possible conflicts, and a hearing into whether Necheles can stay on as Espada's attorney despite any key testimony she may be called upon to provide.

Necheles said in an interview with Reuters that she did not believe the government had set forth anything to indicate a real conflict and planned on addressing the issues raised with the court.

"It is surprising that on the eve of trial the government is taking facts that it has known about for years and all of a sudden arguing that there may be a conflict in me representing Espada," Necheles said.

Jury selection for Espada's trial is currently scheduled to begin on March 12.

The case is United States v. Espada, in the U.S. District Court for the Eastern District of New York, no. 10-985.

For the U.S.: Assistant U.S. attorneys Carolyn Pokorny, Roger Burlingame and Todd Kaminsky.

For Espada: Susan Necheles and Thomas Thornhill of Hafetz Necheles & Rocco.

(Reporting by Jessica Dye)

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