October 30, 1995 12:00 PM

FOR A WOMAN BENT ON REVAMPING HER TATTERED IMAGE, it was a disastrous development. On Oct. 8, the Duchess of York arose to a fresh scandal involving John Bryan, her onetime “financial adviser,” who had been photographed kissing her feet on a 1992 holiday in France. This time, Bryan, 40, allegedly had offered cocaine and prostitutes to lure backers into a Las Vegas real estate deal. As it turned out, the “investors” had been reporters for the tabloid News of the World, which published its version of the tale under the headline “Fergie’s Ex in Vice and Drugs Shame.”

Ironically, at the time the story appeared, England was awash in rumors of a reconciliation between Fergie, 36, and Prince Andrew, 35. The two had gone to Spain’s Costa del Sol for a week in August with Eugenie, 5, and Beatrice, 7, and later lingered in Seville for five days alone. In mid-September came reports that Fergie plans to move back to Andrew’s Berkshire home next summer. Then, on Sept. 30, Andy and his newly slim wife (who has lost 35 pounds with the help of a yearlong diet and a trainer) appeared at the Hampshire wedding of two of his former staffers. As usual the couple seemed in high spirits.

But that bonhomie could disappear if Bryan continues to provide fodder for Fleet Street. In April the public prosecutor’s office began an investigation into Oceonics Deutsch-land, the Frankfurt-based construction company in which he was a partner—and which had run up $15 million in debt since July 1994, when there was $9 million in its coffers. On June 15, Allan Starkie, co-owner of Oceonics, was hospitalized in Frankfurt following a suspected suicide attempt. After he recovered, German police charged the 37-year-old American (still in custody in Frankfurt) with fraud and embezzlement. Bryan, who insisted in the Daily Mail that Oceonics was “completely legitimate,” wasn’t charged, but chief prosecuting attorney Job Tilman told PEOPLE, “I wouldn’t rule out the possibility.”

Bryan’s run-in with the News of the World cast further doubt on his credibility. In October, a pair of reporters posing as investors interested in the proposed $130 million Countryland Hotel and Casino on the site of the shuttered El Rancho Hotel met with him in Los Angeles. (Whatley Investments, a firm that Bryan co-owns, reportedly is putting $9 million into the project.) By their account, Bryan asked whether they wanted cocaine and sent two prostitutes to their hotel rooms. He also promised to invite them to dinner with Fergie, whom he called “my girlfriend.”

Bryan dropped from sight after the story appeared and has offered no public response. As for the duchess, she has tried to distance herself from him since June, when she told Today that he would no longer be involved in her business affairs. “Fergie gave him the sack completely four or five weeks ago,” says a friend. “She feels sickened at the way he has used her, and she has now got rid of him on a personal as well as a business level.”

Even if she manages to free herself from Bryan, she will face other obstacles in returning to the royal fold. The Queen reportedly plans to stipulate that even if the Yorks should reconcile, Fergie will never be allowed to resume her official duties. “The Duchess will be told that her presence is not required…at royal events,” the Mail on Sunday reported on Oct. 8. “The Royal family has already suffered far too long at her hands.”

Of course, Fergie also has enemies outside the palace: They include some royal-watchers who maintain that her chumminess with Andrew—from whom she receives only child support—is inspired less by love than by her debts and nostalgia for royal life. “Fergie loves the power, the adulation, the deference and the wealth,” the Daily Mail noted on Oct. 4. “But-does she love her husband?” One chum, at least, doubts that Fergie intends to resume her romantic life with the prince: “They do get on extremely well, but she just does not want to know about him sexually,” she says.

Perhaps, but Andrew himself seems ready to give the marriage another try. Still apparently besotted, he has yet to form another lasting liaison. In any case, there is plenty of time for second thoughts—and dire predictions about Bryan’s next move (which, some suspect, may involve a tell-all). As the Daily Express noted on Oct. 11, “Before Prince Andrew permanently reinstates his flighty wife…he ought to raise his eyes to a position somewhere above her head where he will see a sharp implement hanging by a hair. [It is] Fergie’s Sword of Damocles, and [it] has John Bryan’s name carved into the steel.”