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Clinton Discussed Loan, Hale Testifies

By Susan Schmidt
Washington Post Staff Writer
Wednesday, April 3 1996; Page A01

The star prosecution witness in the Whitewater case today laid out under oath a story he has told repeatedly before, that then-Gov. Bill Clinton pressured him to make a fraudulent $300,000 loan and specifically asked that his name be kept out of the transaction.

David Hale, the former owner of a government-funded lending company who has pleaded guilty to two felonies, testified in U.S. District Court here that he met with Clinton and his Whitewater business partner James B. McDougal in early 1985 in a sales trailer at a real estate project south of Little Rock.

The meeting, one of two direct contacts Hale claims to have had with Clinton about the matter, was to discuss the structuring of a loan through Hale's company, which was supposed to lend money only to small or disadvantaged businesses.

Hale said that in discussing the loan, Clinton insisted, "My name cannot show up on this." The loan, backed by the federal Small Business Administration, was made to Master Marketing, a company owned by Susan McDougal, then McDougal's wife. But Hale said he expected the proceeds to go to James McDougal and Clinton, and that they would be responsible for paying it back. The loan was never repaid.

Hale said Clinton at one point offered "raw land" in Marion County, Ark., as security for the loan. The Whitewater property owned by Clinton and his wife, Hillary, in partnership with the McDougals was in that county.

Hale's testimony, which is to continue Wednesday and may last all week, offered a dramatic public airing of charges that the former municipal judge and state Democratic Party insider first brought forth two years ago. His charges are the only direct allegation of wrongdoing by Clinton in the Whitewater affair, and they have been adamantly denied by the president, who has said he never discussed the loan with Hale.

Hale told the court that the loan discussed at the meeting was part of a larger loan-swapping scheme that he arranged with Jim Guy Tucker, the Democrat who succeeded Clinton as governor, and McDougal, then the owner of Madison Guaranty Savings & Loan, the now-defunct institution at the heart of the Whitewater affair. Tucker and the McDougals are on trial on charges of bilking Hale's firm and McDougal's S&L of more than $3 million.

Clinton told federal S&L investigators in a deposition last year that he never pressured Hale for loan money. He has said publicly that Hale's story is "a bunch of bull" fabricated to help him engineer a plea bargain with Whitewater independent counsel Kenneth W. Starr.

Hale last week was sentenced to 28 months in prison for defrauding the SBA, which had provided his company funds to be lent to disadvantaged small business owners.

Today, in his second day of testimony, a weary-looking Hale said McDougal told him that money was needed to "clean up some members of the political family."

Hale said that he, McDougal and Tucker hatched a plan over Tucker's kitchen table whereby they would sell real estate owned by Hale for an inflated price to a straw buyer, with Madison providing the mortgage. The $500,000 profit from the sale was injected into Hale's company, allowing it to obtain $1.5 million in matching funds from the SBA, Hale testified on Monday. Some of that money went into the Master Marketing loan and other loans to Tucker and McDougal.

In describing the Master Marketing loan, Hale said he got a call from McDougal asking that he come out one evening to meet him and then-Gov. Clinton at the sales trailer at Castle Grande, a 1,050-acre commercial and residential project McDougal was developing in a swampy area southeast of the city.

Hale said they chatted a while about politics and then he quoted McDougal as saying, "We ought to get our business done. What we're gonna do is put this in Susan's advertising company." They were seeking $150,000, but McDougal later asked Hale to increase the loan to $300,000.

Clinton, Hale said, offered to put up land as security, but McDougal said "his and Susan's financial statement was strong enough to handle it and they didn't need additional security." Hale also said that when Clinton expressed concern that his name not appear on the loan, McDougal said, "I've already taken care of that."

Hale said they put the loan in the name of Susan McDougal's company because that would look better to the SBA, which requires that borrowers be "socially or economically disadvantaged."

Hale was not asked whether he knew what the loan proceeds were actually used for.

He also testified that after McDougal had been ousted from Madison, Tucker came to him "fighting mad" because Susan McDougal had taken an $85,000 commission on Madison's sale to Tucker of a utility system at Castle Grande, one of the transactions involved in the indictment. Hale said Tucker was concerned the commission would attract auditors' attention and "that could cause everybody to get in trouble and go to jail."

Copyright 1997 The Washington Post Company

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