By Susan Schmidt and Peter Baker
Susan McDougal, the former Whitewater business partner of the Clintons who has refused for nearly two years to testify before a grand jury about the president's financial dealings, was indicted yesterday by independent counsel Kenneth W. Starr on charges of criminal contempt and obstructing his investigation.
The indictment, handed up by the Little Rock Whitewater grand jury just days before it is set to expire, includes a new allegation: that McDougal obstructed justice by refusing to answer questions about a cryptic handwritten note she wrote on a $5,081 check in 1983 that said "Payoff Clinton." McDougal was also charged with two felony counts of contempt for twice refusing to testify in 1996 and again last month despite a court-ordered grant of immunity.
The indictment could mean years more behind bars for the 43-year-old McDougal. She has already served 18 months for civil contempt for refusing to testify in Starr's investigation, is just starting a two-year term for a bank fraud conviction Starr won against her in 1996 and faces a state trial in California on unrelated embezzlement charges.
McDougal has refused to testify about the Clintons' financial dealings, she has said, because Starr is trying to force her to falsely implicate the president and the first lady. If she doesn't do so, McDougal insists, Starr will charge her with perjury.
Minutes after yesterday's indictment, Starr's spokesman told reporters outside the federal courthouse in Little Rock that President Clinton had "inject[ed]" himself into the feud between McDougal and prosecutors. "The Office of Independent Counsel requested that the president urge his former business partner, Mrs. McDougal, to testify truthfully before the grand jury. That request was rejected," said Starr aide Charles Bakaly, adding that Starr wrote to the White House counsel's office five separate times after hearing Clinton refer in interviews to Starr's efforts to obtain McDougal's testimony.
But lawyers for Clinton quickly bristled at the suggestion that the president had implicitly encouraged McDougal to stay silent, with White House counsel Charles F.C. Ruff calling that idea "reckless and irresponsible."
Some legal experts called the indictment heavy-handed, and McDougal attorney Mark Geragos said of yesterday's indictment, "Not only is it unprecedented, it's shameful." Geragos argued that Starr "has got no business investigating anything to do with Whitewater," citing allegations that the independent counsel has a conflict of interest related to charges that cooperating witness David Hale was paid off by conservatives.
Geragos dismissed the handwritten notation Starr's office produced about Clinton as "more of their nonsense, I'm sure."
The new charges against McDougal come as Starr wraps up the Arkansas phase of his long-running Whitewater inquiry. The grand jury in Little Rock is scheduled to expire Thursday, and yesterday's action follows by less than a week a new tax evasion indictment of Webster L. Hubbell, another Arkansan who has figured centrally in the long-running Whitewater investigation. However, Starr has another grand jury in Washington that will continue to hear Whitewater testimony.
Starr's prosecutors have been frustrated in their efforts to gain the cooperation of both Hubbell and McDougal as they investigate real estate dealings involving the Clintons and legal work that Hillary Rodham Clinton did for the McDougals' now-defunct savings and loan, Madison Guaranty, owned by Susan McDougal and her late husband, James B. McDougal.
Prosecutors have tried to learn whether the Clintons told the truth about those dealings under oath, including President Clinton's videotaped testimony at the McDougals' 1996 bank fraud trial. Clinton said then he had no role in helping Susan McDougal obtain a fraudulent $300,000 loan, part of which went to benefit the Whitewater Development Corp., which was jointly owned by the Clintons and the McDougals. Clinton also testified he never had any loans or financial dealings with Madison Guaranty.
Included in the indictment is a partial transcript of McDougal's appearance before the grand jury two weeks ago, during which prosecutors questioned her about the $5,081 check, drawn on her then-husband's account and signed over to Madison Guaranty. The memo section of the check had the notation "Payoff Clinton."
Prosecutors told McDougal they were interested in the check because it relates to Clinton's videotaped trial testimony.
"Since your last appearance before the grand jury in September 1996, we have been able to obtain a copy of this check and confirm it's your handwriting on the check. You signed this check, correct?" a Starr prosecutor asked.
When she refused to answer, one of the prosecutors said: "Mrs. McDougal, the reason we're asking you about this check, and we have more checks that we could show you if you'd like to see those."
"I'll see anything you got. I won't answer your questions," McDougal shot back.
The indictment said McDougal even refused to answer questions posed directly to her by several of the grand jurors, who tried to assure her that they, not Starr, would decide on the merits of her testimony.
Some criminal law experts said yesterday it was permitted but highly unusual to prosecute someone for criminal contempt after they have finished serving a civil sentence for the same refusal to testify.
Said St. John's University law professor John Q. Barrett, "I don't understand why he would want his office to get bogged down in a criminal prosecution of her. In terms of leverage to get her testimony, which is really what Starr's eye needs to stay on, I don't see anything having leverage with this person. She just seems dug in. . . . Sometimes prosecutors do just run into that kind of thing and the thing to do is, with frustration, walk away."
Meanwhile, Starr's prosecutors sparred with the White House yesterday over what role if any Clinton had in bolstering McDougal's resolve not to testify.
"Whether intentionally or not, the President has injected himself into this matter," Starr wrote in an Oct. 23, 1997, letter the most recent in a series of five he sent to the White House. "He has made public comments that could reasonably have had the effect of bolstering Ms. McDougal's obstinacy, thereby impeding this federal investigation."
White House counsel Ruff yesterday denied the suggestion that Clinton was subtly influencing McDougal to remain quiet. "The president has always urged everyone to tell the truth," said Ruff. "At the same time, he understands that it is not appropriate for him to intervene personally in this matter. Any suggestion by the Office of Independent Counsel or its public relations adviser that the president should do otherwise is reckless and irresponsible."
David E. Kendall, the president's private attorney, disputed the idea that Clinton had injected himself into the McDougal investigation. "This claim is wholly false," Kendall said yesterday, adding that McDougal has been "represented by her own counsel."
McDougal's brother, Bill Henley, told a TV interviewer she would never cooperate with Starr: "It wouldn't have mattered if the president of the United States personally had gone to Susan and begged her on his knees to speak to the grand jury."
McDougal is serving a two-year federal sentence for bank fraud, the result of her 1996 conviction in the bank fraud case brought by Starr against her, her late ex-husband and then-Arkansas Gov. Jim Guy Tucker. James McDougal subsequently became a cooperating witness until the time of his death two months ago; Tucker became a cooperating witness earlier this year.
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