Sue Hartigan <[EMAIL PROTECTED]> writes:
New York Times..By JEFF GERTH and STEPHEN LABATON
LITTLE ROCK, Ark. -- After 30 months a federal grand jury here
has nearly completed its examination of evidence compiled
by
Kenneth Starr that President and Hillary Rodham Clinton and
their aides
have long sought to suppress embarrassing details of their old
financial
dealings with the owners of a corrupt savings and loan
association in
Arkansas.
Lately the most visible part of the
investigation by Starr, the Whitewater
independent counsel, has been the work of
a Washington grand jury examining
whether Clinton or his aides tried to hide a
relationship between the president and Monica Lewinsky. But it
is Starr's
prosecutors here in Arkansas who have worked longest, looking
into the
possibility of a larger pattern of evasion, an effort to
obscure the Clintons'
involvement in the failed Whitewater land venture and its link
to the
savings and loan, Madison Guaranty.
Now Starr must decide whether that effort -- including a
memorandum
drafted by Mrs. Clinton and labeled by government regulators
as meant
to "deceive federal bank examiners" -- amounts to a criminal
cover-up,
or simply reflects an acceptable exercise in political damage
control.
Starr has not announced what he will do about the work of the
Arkansas
grand jury, which will finish its term on May 7 and has sent
no signals that
new criminal charges will be brought. But he is required under
the
independent counsel law to submit a final report to the
special court that
supervises him. And if he determines that Clinton may have
committed an
impeachable offense, Starr must outline the evidence to
Congress.
For years, prosecutors have examined whether the Clintons
played a role
in trying to cover up a criminal conspiracy in Arkansas in the
mid-1980s.
Interviews with witnesses and lawyers involved in the $30
million inquiry,
as well as a review of previously overlooked public records,
reveal that
the Clintons and aides have deflected inquiries and given less
than
forthright accounts about ties to James McDougal and his
former wife,
Susan, the Clintons' partners in the Whitewater Development
Co. and the
operators of Madison Guaranty.
The pattern investigators found, which included disappearing
documents,
began when Clinton was governor of Arkansas, ran through his
1992
campaign for president and continued in Washington after he
took office
and faced federal investigations, including those involving
his dismissal of
the White House travel staff and the 1993 suicide of Vincent
Foster Jr.,
one of the first family's closest aides.
The destruction or disappearance of documents has made it
difficult for
investigators to reconstruct the events that are the focus of
Starr's inquiry:
a decade-old scheme by McDougal to bail out both the teetering
Whitewater investment and his savings and loan, which
ultimately failed,
costing taxpayers more than $60 million.
The Arkansas phase of the investigation has resulted in
several criminal
convictions, including those of the McDougals; Jim Guy Tucker,
the
governor who succeeded Clinton; and David Hale, a former local
judge,
on fraud and other charges.
The convictions have been a mixed blessing for Starr. They
forced
recalcitrant defendants to cooperate and provide new
information about
the Clintons. But Starr faces the problem of deciding whether
he can
build a case against the president or first lady that is based
largely on the
testimony of criminals he convicted.
Starr's inquiry faces other hurdles that make it difficult, if
not impossible,
to file new criminal charges. McDougal died last month. Mrs.
McDougal
has refused to respond to questions before the grand jury.
Hale's current
finances are under attack. And Tucker's cooperation has been
described
by other witnesses as only moderately helpful.
Among the new details about the bad deals and the resulting
investigation, from both witnesses and the records, are these:
-- McDougal's efforts to regain his financial footing were
rooted in two
large land deals on the outskirts of Little Rock that were
more closely
connected than previously known. One, known as Castle Grande,
was
seen as a way to recapitalize the ailing savings and loan. But
the deal,
examiners later concluded, was a sham. The other, Lorance
Heights, was
intended to be the last-ditch effort to rescue Whitewater,
bought with
part of a fraudulent $300,000 loan to Susan McDougal.
-- McDougal told prosecutors that he kept Clinton apprised of
efforts to
rescue Whitewater and discussed those with him on the day the
Lorance
Heights deal was signed. The president has denied under oath
that he
knew of the efforts.
-- Mrs. Clinton did legal work for the utility that was to
provide Castle
Grande and Lorance Heights with water and sewer service and
was
critical to the developments' success. The utility, bought as
part of the
sham deal, was partly owned by Tucker. He recently appeared
before
the grand jury here following a plea deal in which he agreed
to cooperate
with investigators.
-- Officials of the Federal Deposit Insurance Corp. have told
the
Arkansas grand jury in recent months that a document drafted
by Mrs.
Clinton in 1986 was used "to deceive regulators" about the
financing of
the Castle Grande deal. The officials initially concluded that
Mrs. Clinton
had done little work for Madison and Castle Grande. But they
changed
their view after examining her billing records, which
disappeared for
several years before turning up in the White House study. Mrs.
Clinton
has said she does not remember drafting the document or
performing
other work on Castle Grande.
-- In a previously undisclosed court record, a Whitewater
prosecutor
told the judge in 1996 that an effort by Clinton to silence
McDougal
during the 1992 campaign -- after McDougal first talked to
reporters
about the Whitewater project -- implied "an attempt to cover
the
conspiracy" of crimes committed by McDougal and others.
-- Last summer, a briefcase belonging to Foster, the former
deputy
White House counsel who killed himself in 1993, was found in
the attic of
his old house here. It contained documents that raise
questions about
Mrs. Clinton's accounts of her legal work for Madison,
according to
witnesses.
Clinton's allies see Starr's inquiry differently. The only
pattern they
describe is of endless subpoenas issued by a partisan
prosecutor trying to
turn political activities and personal friendships into
felonies.
"Mr. Starr," said Lanny Davis, the former White House special
counsel,
"lacking evidence of crimes that would withstand scrutiny,
stretches,
almost desperately, to take political behavior that is routine
in our system,
and attempts to create a criminal offense. Where he suspects
cover-up,
without any real evidence of it, is in fact politicians and
lawyers
attempting to make the best of a given set of facts."
Near the southern border of Little Rock along U.S. Highway
65-167 lies
nearly 2,000 acres of wilderness that in the 1980s McDougal
saw as
salvation. This was the land that came to be known as Castle
Grande and
Lorance Heights. If McDougal could buy that tract and develop
it, while
providing water and sewer lines to the new houses, he could
use the sales
of lots to help bail out his other ventures. His failing
savings and loan was
under scrutiny from examiners, and the Whitewater company he
and the
Clintons co-owned until 1992 -- begun so hopefully in 1978
with a
230-acre tract they had bought in the Ozarks -- was by then
overwhelmed by debt.
But Arkansas regulations prevented Madison from buying the
land. So
McDougal hired Seth Ward, a wealthy local businessman, to act
as a
straw man. Ward's son-in-law, Webster Hubbell, was a partner
at the
Rose Law Firm along with Mrs. Clinton and Foster.
In October 1985, Ward spent $1.15 million to buy roughly half
of Castle
Grande and its sewer and water system. A Madison subsidiary
spent
$600,000 to buy the rest of the land and took an option to buy
most of
Ward's stake.
Examiners concluded that the deal was a sham. Ward had
borrowed the
money risk-free from Madison, putting up no money of his own.
Within a
few weeks of the initial transaction, McDougal's friends and
political allies
began to snap up parcels of the property, usually at inflated
prices and,
as Ward had, with Madison loans.
The biggest loan, for $1.05 million, went to a company formed
by
Tucker and R.D. Randolph, a close Clinton associate, to buy
the water
and sewer system. The two also used a $150,000 loan from
Capital
Management Services, the investment company run by Hale, to
finance
the $1.2 million sale.
Tucker's company, Castle Water and Sewer, became crucial to a
second
deal McDougal had devised, the purchase of 800 acres just
south of
Castle Grande that he called Lorance Heights. The Whitewater
company
bought the tract in March 1986 for an initial $25,000 payment.
The
money came from the fraudulent $300,000 loan that Hale had
made to
Mrs. McDougal.
In a recent appearance before the federal grand jury in Little
Rock, the
former top loan officer for Madison recounted how McDougal
believed
he could use his ties to Clinton to make the project a
success.
The loan officer, H. Don Denton, recalled in a recent
interview that early
in 1986, he and a friend had driven a Jeep Cherokee through
the mud to
the site near Lorance Creek. He said he told the grand jury
how he
wondered aloud where McDougal would be able to get the money
he
would need to develop Lorance Heights.
"Don't worry about that," Denton recalled being told by the
friend --
Randolph, who was cutting down trees and building gravel roads
in the
area. "With the governor owning half of this, we won't have
any problems
getting a bank in the state to finance it."
Starr has obtained fraud convictions against the McDougals,
Tucker and
Hale in connection with Castle Grande.
Clinton provided videotaped testimony for the McDougals' trial
in which
he said he was unaware of the Lorance Heights deal. He also
said he
was unaware of Hale's unlawful loan. McDougal initially
supported
Clinton's account but after his conviction said that Clinton
knew about
both the deal and the loan. Hale has also said that Clinton
knew about
the loan.
The business relationship between the Clintons and McDougals
escaped
public notice until the 1992 presidential campaign, when
McDougal,
upset because he felt he had been used and abandoned by the
Clintons,
divulged some details about the Whitewater project to The New
York
Times.
The Clintons and their closest associates wanted to keep
McDougal
quiet, according to campaign records. Hubbell, whom Clinton
later
brought to Washington to work at the Justice Department, was
concerned that the Castle Grande deal might be scrutinized,
according to
one witness.
Soon after the first article about Whitewater was published,
in March
1992, McDougal was approached by Randolph and another close
Clinton associate and urged to stop providing information to
reporters.
Clinton, in testimony prepared for McDougal's criminal
conspiracy trial,
recounted how he had sent Randolph to see McDougal.
"I asked R.D. if he knew what was going on, if he knew how Jim
was
doing and if he knew what motivated the article," Clinton said
in
testimony that the judge ruled inadmissible in the trial
itself. He went on,
"And I might have asked him to, you know, talk to him and see
if we
could have no further damaging articles, but I don't remember
exactly
what I said."
A prosecutor said in a court record that the testimony implied
that
Clinton's request of Randolph was part of a "post-conspiracy
act to
conceal or frustrate the government's efforts." At the time,
however, there
was no government investigation of McDougal or of Madison.
There were other efforts during the campaign to keep the
relationship
between the Clintons and Madison quiet. Foster and Hubbell
removed
files from the Rose Law Firm in 1992 that shed light on Mrs.
Clinton's
legal work for Madison. Some, such as her billing records,
remained
hidden until 1996. Others did not surface until last summer,
when
Foster's wife, Lisa, turned over the briefcase she had found
in her attic in
Little Rock.
One document in the briefcase, according to a witness who
recently
appeared before the grand jury, raised questions about Mrs.
Clinton's
account of how Madison came to hire her firm. She said during
the
campaign, and again in 1994 when federal investigators were
examining
the firm's work for Madison, that a junior associate had
brought in the
business, that she had acted only as the billing partner.
In 1992 McDougal told reporters that Clinton had asked him to
have
Madison hire Mrs. Clinton because she needed the work, and his
savings
and loan had put the firm on a monthly retainer. During his
trial in 1996,
McDougal slightly altered his account, saying that he had made
the
suggestion that Mrs. Clinton be retained. Mrs. Clinton has
said that the
retainer agreement was set up because an earlier bill from
McDougal's
bank was unpaid. That assertion came into question with the
discovery of
the paid bill in Foster's briefcase.
As part of the effort to explain how Mrs. Clinton came to
represent
Madison, the Clinton campaign staff interviewed her law
partner,
Hubbell, who had reviewed the firm's records. One campaign
memorandum to the Clintons that was given to the grand jury by
a
witness spelled out five versions of the retainer arrangement,
given over
three weeks by Hubbell.
Although Castle Grande and Lorance Heights never surfaced in
1992,
the news accounts about Whitewater and Madison prompted a
federal
investigation of the savings and loan. The inquiry led to the
appointment
of an independent counsel. It was virtually inevitable that
Castle Grande
and Lorance Heights would be scrutinized: the latter was
Whitewater's
biggest investment and the former was Madison's biggest loss.
The investigation unfolded slowly. Under pressure from
Congress,
regulators looked into the Rose firm's work for Madison. Mrs.
Clinton
was interviewed by investigators and responded to written
questions
about her work for Madison. Her answers were supplied before
her
firm's billing records surfaced.
After investigators had completed their reports, they told
Congress in the
summer of 1995 that they had uncovered "no evidence that she
worked
on Castle Grande." But after the billing records were turned
over to
investigators in January 1996, that federal investigation was
reopened.
Later that year, officials of the inspector general's office
of the FDIC
came to a different conclusion. "Madison Guaranty used a
document
drafted by Mrs. Clinton to deceive federal bank examiners"
about
payments to Ward that were part of the Castle Grande scheme,
they
wrote in a report to Congress.
The federal investigators who changed their conclusions about
Mrs.
Clinton appeared earlier this year before the grand jury in
Little Rock to
discuss their work, according to witnesses. Now her legal work
on
Castle Grande, and Clinton's possible knowledge of the
fraudulent loan
used to finance the Lorance Heights deal, have become central
issues for
Starr.
At first, in interviews with investigators starting in 1994,
Mrs. Clinton
denied working on the Castle Grande project. Then she said she
knew it
by another name and handled only a few obscure aspects of it.
Her
account came into question for the first time when the billing
records
surfaced.
A forensic analysis of the records found that Mrs. Clinton's
fingerprints
appeared on 2 of 108 pages. One page was a summary of her work
for
Madison; the other described her billings on Castle Grande,
according to
congressional investigators.
The billing records also show that Mrs. Clinton had numerous
conversations with Ward during pivotal points in the deal.
The task of reconstructing Castle Grande has been difficult
for
investigators because Mrs. Clinton decided in July 1988, three
years
after the deal, to destroy her files on Madison and Castle
Grande. Mrs.
Clinton has said she dumped the records as part of an effort
by the Rose
Law Firm to reduce its file load.
--
Two rules in life:
1. Don't tell people everything you know.
2.
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