Dittel FSG60M radio issue...

I have an interesting radio problem hopefully one of you have solved... My transmitted audio signal is clipping. It 'breaks up' intermittently during the transmit cycle. After many hours of checking everything, I found an interesting correlation. When the radio squelch circuit is turned off (via front switch), it transmits just fine - perfect clarity. When the squelch circuit is turned on (switch all the way up), it is intermittent. I adjusted the squelch pot several times with no change in the results. I don't understand how the squelch circuit is affecting the transmit side of the radio. Anyone come across this? Have a solution?