Hillary Clinton and the Whitewater Controversy: A Close-Up
By David Maraniss and Susan Schmidt
In the four years that Hillary Rodham Clinton has been
Her partisan critics, the first lady has said, are so intoxicated by what they believe is the scent of scandal that they ignore exculpatory evidence and are impossible to satisfy; as soon as one accusation dissolves, they grasp for another line of inquiry that might embarrass her and President Clinton. Whatever mistakes she might have made, she says, were the result of naivete. If she appeared secretive or defensive, she says, it was because she overestimated the "zone of privacy" that is allowed public figures. And exacerbating her troubles, she has concluded, has been a Washington culture that "thrives on rumor, gossip and innuendo."
In a television interview with Barbara Walters in January, the first lady recited a favorite children's verse to explain her predicament:
As I was standing in the street as quiet as could be,
The image is of a mere bystander, a good person victimized. But an examination of Hillary Clinton's public statements suggests someone less passive in her behavior, less consistent in her answers, and less committed to full disclosure than the figure in her own self-portrait. Some of her responses have been thrown into doubt by newly released documents or the testimony of other Whitewater figures. Her wording seems alternately terse and lawyerly, providing the narrowest possible answers, and unabashedly political, ornamented with asides and anecdotes.
What is less clear from the documented record is why Hillary Clinton has responded the way she has. Has she been rattled less calculating and more confused? Is she hiding something? If so, is it a potential legal problem of her own or her husband's? Or is it simply an embarrassment? Or is the whole thing, as her lawyer said in a somewhat different context, another of the meaningless mysteries of Whitewater?
When considered in isolation, many of the questions to which Hillary Clinton has had to respond especially those involving small-time transactions in provincial Arkansas more than a decade ago might appear minor. Many people, perhaps most people, forget events that occurred long ago and say things occasionally that are later contradicted by records or the memories of others. But when the questions and answers involving her are viewed in their totality, they appear more significant. One minor issue sets the context for the next and, stitch by stitch, a pattern emerges. That larger pattern has drawn the scrutiny of independent counsel Kenneth W. Starr, whose investigators are engaged, among other things, in a task unprecedented in modern times: determining whether the president's wife committed perjury, made false statements or obstructed justice.
Hillary Clinton's role in Whitewater has been a source of constant debate and helped make her one of the most controversial first ladies in American history. Her business and legal dealings, of Byzantine complexity in the first place, have become even harder to assess because of the intense politics of the situation: Every statement and event is seen through the partisan filters of Washington.
This article is an attempt to analyze her responses to Whitewater inquiries. It is not a complete study of her involvement in the events that have come to be known as Whitewater, but focuses on one aspect: her legal representation of James B. McDougal and Madison Guaranty Savings & Loan. Based on an examination of the relevant public documents, it lays out at length the details necessary to try to evaluate the different statements she has made. It also addresses questions about her possible motivations. The first lady declined to be interviewed for this report. White House lawyers Jane Sherburne and Mark Fabiani were interviewed and provided documents that they felt supported Hillary Clinton's statements.
For all but two years between 1979 and 1992, Bill Clinton was the governor of Arkansas and Hillary Rodham Clinton was the state's first lady. She was also practicing law in Little Rock at the Rose Law Firm, the oldest in the state and one with deep and effective connections to the state's power elite. Shortly after joining the firm, Hillary Clinton was made a partner, but how much work she did was determined by her outside activities. She spent most of 1983 on leave heading an education reform task force for her husband, and devoted large chunks of 1984 campaigning for his reelection. It was just after that period, in early 1985, that she became a senior lawyer, called a billing partner, in Rose Law Firm's account with James McDougal and his Madison savings and loan. Since 1978, she and her husband had been partners with McDougal and his wife, Susan, in the Whitewater real estate venture.
Why and how did Hillary Clinton take on McDougal and Madison as her client? It seems like a minor question, but in fact goes to the heart of how she conducted herself as a lawyer who happened to be the wife of the state's most powerful political figure. One issue is whether she sought out business that carried with it questions of conflict of interest. Another is whether McDougal, who was already carrying the bulk of the financial burden of the Whitewater land deal with the Clintons, tried to throw savings and loan work to Hillary Clinton at a time when his thrift was in danger of collapsing at taxpayer expense.
In the first three years of the Whitewater controversy, between 1992 and 1995, when she was asked how she became the billing partner on the Madison account, Hillary Clinton said that it came about because Richard Massey, a young Rose Law Firm associate, asked her to help him out. That happened in 1985, at a time when Madison was in troubled financial condition and looking for ways to raise new capital. Massey, according to the first lady, had talked to John Latham, Madison's chief executive officer, about ways the firm could help the thrift, then went to her to talk about it. The first lady offered a detailed description of this episode at her nationally televised news conference in April 1994:
"There was a very bright, young associate in our law firm who had a relationship with one of the officers at Madison, a young man whom he had known. They began talking. . . . Those two young men thought that it would be legal under Arkansas law for a savings and loan to issue preferred stock, but there was absolutely no law on that. And so they couldn't be sure. But they decided that what they wanted to do was to ask the person who regulated the savings and loans whether it was legal. . . . The young attorney in question [Massey] needed a partner to serve as his backstop, and that was one of the rules of our firm. He knew that I knew Jim McDougal. He also knew that Jim had been a client of our firm in the past. This was not a new representation. So he came to me and asked me if I would talk with Jim to see whether or not Jim would let the lawyer and the officer go forward on this project. I did that, and I arranged that the firm would be paid a $2,000 retainer. And that was ordinary and customary."
The following year, in an interview with Resolution Trust Corp. (RTC) investigators, Hillary Clinton added new details to this account. She said Massey asked her to help him because McDougal owed the law firm money from a previous case and she was the person who could most effectively get him to pay the outstanding bills. As she put it: ". . . certain lawyers of the law firm were opposed to doing any work for Jim McDougal or any of his companies until he paid his bill and then only if Madison Guaranty agreed to prepay a certain sum to the firm once a month to cover fees and expenses. . . . I believe Massey approached me about presenting this proposal to Jim McDougal because he was aware that I knew him. I agreed to see McDougal. I visited him at his office on April 23, 1985, and told him that I understood Latham wanted Massey to do some work for Madison Guaranty, but that our firm would not let Massey proceed until the previous bill was paid and some kind of prepayment arrangement was worked out for new work the firm might do."
Massey for the most part remembered the events differently when he was asked about them in an appearance before the Senate Whitewater committee on Jan. 11, 1996. He said that he did not believe he was responsible for signing up Madison as a client and that he could not recall having a conversation with Hillary Clinton in which he asked her to help him bring in the Madison work. In questioning by Michael Chertoff, the Republican counsel, Massey said he did not remember any discussion in which he said there was a problem with McDougal and his past debts to the law firm that could be resolved if Hillary Clinton became the billing partner.
"That is not my recollection. I do not remember . . . a proposal in hand to her and discussing with her that there were partners in the firm that were dissatisfied with McDougal, and here's a proposal and let's work it out. I have no recollection of that," Massey testified.
Later in his testimony, when he was questioned by the Democratic counsel, Richard Ben-Veniste, Massey said it was possible that he talked with Hillary Clinton about McDougal. He also characterized the recruitment of Madison as a team effort.
One month after Massey's testimony, when Hillary Clinton was interviewed again by lawyers for the RTC, she modified her story. She said it was not Massey but Vincent Foster, another Rose partner, who went to her originally to discuss how they could sign up Madison despite McDougal's past billing troubles. Foster had been the billing partner in earlier work Rose had done for McDougal's first financial institution, Madison Bank & Trust.
"I believe it was Vince Foster who came to me, who said that Mr. Massey wanted to do this work, but the partners didn't want him to do it," Hillary Clinton said in her sworn interview with the RTC. "We had a very high regard for Mr. Massey, who was quite an energetic and accomplished first-year associate, already teaching a securities course at the law school and attracting people who wanted his advice, like Mr. Latham. And I was asked, as someone who knew McDougal, if I could intervene and perhaps set up an opportunity for Mr. Massey to do this work."
Foster committed suicide in 1993.
On the question of whether Hillary Clinton was brought into the case because, as she said, she knew McDougal and could get him to pay back his old debts, the testimony conflicts somewhat, but much of it throws her version into doubt. Documents show that she had been involved in 1983 in helping the law firm recover overdue payments from McDougal. And in questioning by Ben-Veniste, the Democratic counsel, David Knight, who headed Rose's securities division, said that he had a brief conversation with senior partner C. Joseph Giroir before Rose resumed its relationship with Madison. Giroir, he said, mentioned to him that "there had been some sort of billing problem on work" previously done by the firm for McDougal. Several others involved recalled the overdue bills situation differently from the first lady.
Ronald Clark, Rose Law Firm's chief operating officer, said in an interview that McDougal's outstanding legal bills amounting to $5,000 were paid off in November 1984, several months before Hillary Clinton said she became involved in the matter.
Gary Bunch, president of Madison Bank & Trust, formerly known as the Bank of Kingston, the McDougal enterprise that had owed the money to Rose Law Firm, said Hillary Clinton was not involved in getting the bank to pay off the outstanding bill. He also said in an interview that he believed the bill was paid in the fall of 1984, not the spring of 1985, when the first lady became involved with Madison. The bank was "a little draggy" paying it, Bunch said, because the bank had lost a lawsuit in which Rose had represented it and then had lost the appeal.
McDougal, whose animosity toward the first lady colors anything he says about her, also recently disputed her description of their conversation on overdue bills. In an interview with the Associated Press, he told a reporter: "For your story, say 'When asked: Do you recall the conversation [about paying old bills] in Mrs. Clinton's answer?' McDougal answered no."
It was McDougal who first disputed Hillary Clinton's account of the genesis of her legal representation of him. In several press interviews over the past four years, he told the same story: that one day in August 1984 then-Arkansas Gov. Clinton jogged over to the Madison offices in Little Rock, plopped down in a leather chair and told McDougal that his wife needed some new clients because she was not bringing enough money into the firm. McDougal said he agreed that he would try to find legal work for Hillary Clinton. That satisfied the governor, who departed, leaving behind a sweat stain on the new chair.
McDougal revised part of his story last month when he testified at his trial in Little Rock. Now he said that he not Gov. Clinton first broached the subject of Madison sending some work Hillary Clinton's way. But he left unchanged the rest of the scene. His suggestion, he said, came during a visit where Clinton mentioned that his wife needed to recruit more clients. During his videotaped testimony as a defense witness at McDougal's trial, President Clinton said he did not recall the meeting. When the prosecuting attorney asked him if that meant McDougal was lying, Clinton said no, it was possible for people to have different recollections.
For his part, Latham offered testimony that presented yet another version, though it seemed to correspond most closely with McDougal's on one point. In an interview with the RTC's inspector general's office on July 12, 1995, he said the Madison work did not simply result from a discussion with Massey, his friend from their days at Central Arkansas University, about the issuance of preferred stock, as Hillary Clinton had said. According to the RTC report: "Latham said that at one time, date not recalled, James McDougal suggested that Madison Guaranty use Rose for some of the legal work at the institution. Latham said that, 'McDougal had friends over there, he suggested we use them.' Latham said when asked who the friends were that it was Hillary Rodham Clinton and others."
In the end, then, many of the details in Hillary Clinton's version of how and why she took on the Madison account differ from the recollections of the others, though no one seems to remember the events precisely like anyone else. Perhaps the first lady in this case has the most accurate memory. Perhaps she shaped her answers to make it appear that she played a passive role and was only helping out others, when that was not the reality. If that is the case, what might have motivated her to tell that story?
By the time she was asked questions about her legal relationship with McDougal, he was a notorious figure. He brought the Clintons into the Whitewater land deal, which raised the first questions about conflicts of interest and cozy relationships in Arkansas. His savings and loan had long since gone under, costing the government as much as $60 million, another symbol of the expensive savings and loan scandal that infuriated taxpayers across the nation. He had been indicted and acquitted for his various land deals, and would later be indicted again, and convicted. He had become an embarrassment to the first lady. According to her versions, her relationship with McDougal was indirect and almost incidental.
MAKING THE CALL
It is an undisputed fact that Hillary Clinton became the billing partner for Rose Law Firm in its representation of James McDougal and Madison Guaranty on April 23, 1985, the day she visited McDougal at his office and arranged for him to pay the firm the $2,000-a-month retainer. Rose billing records show she began charging hours to the account that day. But what did she do for Madison? Did she in any way take advantage of her position as a powerful lawyer and wife of the governor? That issue arises in questions about the first telephone call she made on behalf of McDougal to a state agency.
Since the question first received national attention when it was raised in a New York Times article in March 1992, Hillary Clinton has disputed any accusations that she might have taken advantage of her status as the governor's wife in her dealings with the Arkansas Securities Commission, the state agency that oversees savings and loans.
The Times article noted that the Clintons were partners with McDougal in a land deal and that Hillary Clinton represented him in some dealings before the state agency that was under her husband's patronage. Hillary Clinton responded that the work she did for Madison was "minimal," adding that her encounters with state regulators regarding the thrift's attempts to explore new ways of raising capital to stay afloat were utterly trivial. The record shows there was an exchange of routine letters between her law firm and the state agency and that she called state Securities Commissioner Beverly Bassett Schaffer (then known as Beverly Bassett) on April 29, 1985, six days after McDougal put the Rose firm on retainer.
In interviews before her billing records were made public in January 1996, the first lady could not remember anything that was said during the telephone call. Even after the billing records were released, she said she could not remember who she talked to at the securities commission. The purpose of the call was perfunctory, she told lawyers for the RTC: "I was seeking public information as to who in the securities department would handle savings and loan inquiries." She offered a somewhat more detailed version in a Jan. 13, 1996, interview with Scott Simon of National Public Radio:
"Well, my memory about that is that I called the office. I do not believe I ever talked with the commissioner. And the reason I called is that we didn't know namely, Mr. Massey and the law firm who in the securities office was to handle this kind of work, because it was something new for Arkansas. Other states had done it, and the idea was to find out whether it was legal under state law. And the securities commissioner under Arkansas law at that time had responsibility for supervising savings and loans. But I never knew who that person was, and so I called to find out."
Later in the interview, she added: ". . . perhaps in retrospect I would never have even picked up the phone to call and say, 'Gee, who handles S&L matters in the securities commission?' I didn't think that was anything that was inappropriate, and then to tell Mr. Massey who he should call and who he should deal with."
But in his testimony before the Senate Whitewater committee, Rose lawyer Richard Massey said that he already knew who to talk to in the state government. He said he knew it several days before Hillary Clinton made her call to Schaffer's office. Madison officials had briefed him already, he said, and given him a memo stating that he should deal with Charles Handley, the assistant to Schaffer in charge of such questions. The memo was based on discussions with associates at Madison Bank & Trust, the other McDougal-affiliated financial institution, which had been making a similar effort to move into new financial realms to build capital. Michael Chertoff, the committee's Republican counsel, questioned Massey further on the matter:
Chertoff: And you didn't need Mrs. Clinton to call up Beverly Bassett, the commissioner of Arkansas securities, in order to get an address or the name of a person because you had prior, the bank had a prior course of dealing with Mr. Handley, correct?While Hillary Clinton said she could not remember whether she talked to the Arkansas securities commissioner or someone else in that office, Schaffer recalled the telephone conversation in some detail when she testified later before the Whitewater committee. She said Hillary Clinton asked in passing whom the law firm should work with in the department. But the essence of the call, as Schaffer remembered it, was more substantive: Hillary Clinton told her "that they had a proposal and what it was about."
She added that the governor's wife's call had no influence on her eventual decision. Her assistant, Handley, wrote a memo detailing his opinion that the Madison proposal was too risky because of the thrift's precarious financial condition. Schaffer disagreed and overruled him, saying that federal officials were encouraging savings and loans to undertake plans like Madison's to improve their financial bases.
Why would Hillary Clinton remember asking who Madison should talk to, but not remember that she asked that question of Schaffer? And why would she forget what Schaffer testified was the major point of the call: a discussion of the substance of the Madison proposal? It could be that she was trying to avoid any appearance that she was misusing her position as the governor's wife. The subject of the call to Schaffer arose during the 1992 presidential campaign, when the press was raising questions about conflicts of interest involving the Clintons. The Clinton team was beset by questions about the candidate's sex life and draft history. Was Hillary Clinton trying to avoid opening up another set of damaging questions?
From the time of the original Whitewater stories in 1992 until her Rose Law Firm billing records were discovered in the White House residence last January, little was known about what legal work Hillary Clinton did for Madison Guaranty beyond the question involving preferred stock and the state securities commission. She characterized her representation overall as "very limited" and essentially supervisory. Associates or other attorneys, she said, attended to the details.
The billing records showed that she put in about 60 hours of work on the Madison account over a 15-month period. She billed Madison more than $6,000 at the firm's top rate of $120 an hour. The first lady and her lawyers calculated her time on Madison as averaging about an hour a week and said that proved her contention that it was minimal. On the other hand, an hour a week on a project might be minimal for a low-level associate, but not necessarily for a partner.
And most of her work came in a concentrated period of those 15 months. What may be most significant about the billing records in any case was not the amount of time Hillary Clinton put into her Madison representation, but the nature of the work itself and when it took place. What was she actually doing during most of the hours she billed to the Madison account?
According to the billing records, most of Hillary Clinton's hours on the Madison account involved not the securities issue but a development in the swampland south of Little Rock that James McDougal pursued during a period from the fall of 1985 to the summer of 1986. His associate in that effort was Seth Ward, a cantankerous, semiretired businessman, who worked as a consultant to McDougal and helped him purchase the property. Ward also was the father-in-law of Webster L. Hubbell, Hillary Clinton's partner and friend at the Rose Law Firm. The land enterprise was on a 1,050-acre tract where McDougal envisioned developing a microbrewery and a trailer park, among other things. It was commonly known as Castle Grande.
Before the billing records were discovered, the first lady, when questioned by two separate federal agencies, said she was not involved in anything called Castle Grande.
"I don't believe I knew anything about any of these real estate parcels and projects. . . . " she said in an RTC interrogatory in May 1995 when asked about several of McDougal's projects, including Castle Grande.
When the billing records revealed that she charged Madison for about 30 hours of time on work involving Ward and issues related to the development in a four-month period between late 1985 and early 1986, she and her lawyers attributed it to a semantic confusion. She knew the development as IDC, they said, because that is how it was referred to in internal Rose records and by other Rose lawyers.
IDC was the company that sold the property to Madison Financial, a development offshoot of Madison Guaranty. The only Castle Grande she knew was Castle Grande Estates, she said. Castle Grande Estates was one part of the larger proposed development, a trailer park, for which she did no work.
"Castle Grande was a trailer park on a piece of property that was about a thousand acres big. I never did work for Castle Grande," she told Barbara Walters on ABC in a Jan. 12, 1996, interview. "And so when I was asked about it last year [in the May 1995 RTC interrogatory], I didn't recognize it, I didn't remember it. The billing records show I did not do work for Castle Grande. I did work for something called IDC, which was not related to Castle Grande."
"Was that Seth Ward?" Walters asked.
Hillary Clinton: "And Seth Ward was involved in that on behalf . . . "
When RTC lawyers interviewed the first lady a month later in the White House, on Feb. 14, 1996, they asked her to explain her response to Walters:
Q: Can you explain to me what you mean by IDC and Castle Grande are, in your mind, a separate deal completely?
Yet there is evidence that the larger development was commonly referred to as Castle Grande. Minutes of a board meeting at which Madison officers discussed the purchase of the tract of land refer to it in its entirety as Castle Grande. H. Don Denton, a senior loan officer at Madison, said that within 30 days of the purchase, "it was known as Castle Grande by everyone that was involved in it."
Castle Grande was part of the Arkansas lexicon during that era. McDougal's first fraud trial was a news event in Little Rock in 1990. It drew the interest of Bill Clinton, who at one point conferred with McDougal's lawyer about it. It likely would have attracted some measure of interest from Hillary Clinton, his former lawyer and partner in the Whitewater land deal. Articles in the Arkansas newspapers about that trial consistently referred to the entire property as Castle Grande.
Government officials also called it Castle Grande. For example, a Federal Home Loan Bank Board document prepared in 1986 began its overview with this sentence: "The Castle Grande project involves approximately 1,100 acres of land located about ten miles south of Little Rock, Arkansas."
To support their argument that IDC and Castle Grande were separate entities, and that Hillary Clinton was not alone in knowing the property only as IDC, White House lawyers pointed to the testimony, among others, of Davis Fitzhugh, an official of Madison Guaranty.
Fitzhugh told the Senate committee that "to my mind, Castle Grande was a separate segment within the entire IDC purchase. . . . " When asked whether people at the savings and loan referred to the entire property as Castle Grande, he responded, "That, I don't know." The power of that testimony was diminished when Chertoff, the majority counsel, produced a check paid to Fitzhugh as his commission for a transaction on the property. On the check is the notation: "sale of building C, Castle Grande."
It is possible that Hillary Clinton called it IDC, vaguely knew that others called it Castle Grande, but chose in her legalistic responses to differentiate between the two. But what would be her motivation? Why not say she knew what Castle Grande was if she did know?
Castle Grande was a possible source of embarrassment for Hillary Clinton more serious than anything she did on the Madison securities issue, and perhaps more than anything else connected to the larger Whitewater affair. It has now been established that real fraud was committed here. Transactions related to Castle Grande were at the heart of McDougal's first trial in 1990, at which he was tried and acquitted on fraud charges.
What bank examiners call the "sham transactions" at Castle Grande intended to artificially boost the profits at McDougal's ailing thrift and allowing insiders to rake off huge commissions were a major part of the federal criminal case that led to last week's convictions on fraud charges of the McDougals and Arkansas Gov. Jim Guy Tucker.
In a sense, it was Castle Grande that is the connection between Hillary Clinton and the national savings and loan scandal that ultimately cost American taxpayers billions of dollars.
Hillary Clinton has not been accused of wrongdoing in connection with Castle Grande and was not implicated in the trial. Her name was barely mentioned, coming up only when McDougal was asked about how the Rose Law Firm was retained. Lawyers often work legitimately on the edge of transactions that later prove to be questionable. But for the first lady of Arkansas, who would become the first lady of the United States, the expectations were different.
She had been heralded as one of the top 100 lawyers in America by a legal magazine. She was known for her public interest work on behalf of children and education. For her to be associated in any way with a questionable real estate deal that contributed to the failure of an S&L would fly in the face of her public reputation.
BREWERS AND SEWERS
By whatever name, Castle Grande or IDC, what did Hillary Clinton actually do in the 30 hours of work the billing records show she did for Madison in connection with the property? Here, her answers have differed, becoming more or less precise depending on the venue.
Among the issues that Rose Law Firm lawyers dealt with concerning the property was whether Madison could sell water and sewer service to nearby properties and whether it could build a microbrewery there with a tasting room. One unresolved issue was whether the original township in which the land was situated was dry, making it illegal for alcoholic beverages to be sold there.
During an interview with the Federal Deposit Insurance Corp.'s inspector general's office at the White House on Nov. 10, 1994, the first lady, according to an official record of the interview, "was asked about the Castle Grande sewer project and indicated she was familiar with the name but had no other knowledge of the matter."
Also during that interview she was asked about a Jan. 23, 1986, memo to her from another Rose attorney, Rick Donovan, "re Madison Guaranty and IDC" and the microbrewery project. The inspector general's report noted: "She recalled the issue pertained to researching township and the topic of wet/dry licensing approval for alcohol consumption. She stated this matter was handled by Rick Donovan."
After the billing records came out in January, Hillary Clinton told RTC lawyers and others something that seemed to contradict her earlier statements. She said that most of the hours she charged to Madison during that 1985-86 period were in fact for work she did on the sewer project and the microbrewery. She explained her apparently conflicting statements about the sewer project by again citing semantic confusion. Her questioners at the FDIC had called it Castle Grande, a name with which she said she was unfamiliar.
But how could she explain her answer concerning the microbrewery? In that case, the questioners used the precise term with which she claimed to be familiar: IDC.
In characterizing her work for Madison as minimal, Hillary Clinton had often said that she did no "day-to-day" work in representing the thrift. Yet when RTC lawyers asked her why the billing records show she added 14.5 hours of billing time to the Madison account during a short period in January 1986, she said that it was because she did some detailed research on the microbrewery issue instead of delegating it to Donovan.
"Well, if you go back and look at the time records," she said, "I have an entry showing that I was the first one to search for a map, that I made a call to the Election Commission. . . . In the midst of this period, there's a handwritten memo where I had a meeting about the dissolved township theory that would have allowed the sale of beer on the property]." All of this, she said, showed that her representation during that period "entailed my involvement in a much more direct way."
Here Hillary Clinton seems to present two contradictions. She said, at first, that she did not know about the microbrewery and the sewers, then said she did. At first she said that she did not do day-to-day work for Madison, then later she said she was directly involved in mundane tasks like finding maps. The change in her version has not been explained. The 14.5 hours of work recorded in January 1986 were added to the billing records manually and, unlike the rest of her billings, came with no notation of what they were for.
The legality of some other transactions related to Castle Grande was later called into question by federal investigators. In its final report on the Rose Law Firm, the RTC said the 14.5 hours on Hillary Clinton's time sheet "must apparently remain somewhat of a mystery, but there is no persuasive reason not to credit Mrs. Clinton's explanation."
DEALING WITH SETH WARD
In the middle of the action at Castle Grande was Seth Ward, the Little Rock businessman and in-law of Webster Hubbell who had been retained by James McDougal for $25,000 a year plus commissions to assist with the enterprise. Ward, the government has said, was used by McDougal to buy or sell parcels of Castle Grande property at grossly inflated rates. The sales allowed Ward and others to collect hefty commissions that were later questioned by regulators. Federal investigators later characterized him as McDougal's "straw" man. He was also involved in pushing the microbrewery and water and sewer ideas. What was Hillary Clinton's relationship with Ward?
When the first lady was first asked to explain her relationship with Ward during her interview with the FDIC inspector general's office in November 1994, more than a year before the billing records were found, Hillary Clinton omitted saying in her answer that she had worked with him on IDC or Castle Grande. She knew Ward professionally: she had worked with him for years when he was on the Little Rock Airport Commission and she was the commission's attorney. But she did not say that.
"Regarding Webster Hubbell and the Ward family, Mrs. Clinton said she knew Seth Ward as Mrs. Susie Hubbell's father," the report of her FDIC interview stated. The report added that Hillary Clinton said she knew vaguely about some of Ward's business and legal relationships with her colleague Hubbell, but she did not mention her own legal relationship with him and specifically denied knowing anything about Castle Grande.
When the RTC issued its first report on its investigation of the Rose Law Firm on Dec. 28, 1995 just a week before the billing records were revealed at the White House it said that "little was known" about what the firm did for Madison after the IDC or Castle Grande property was purchased. After examining the billing records and interviewing Hillary Clinton again, the RTC said in a revised report: "The new evidence illuminates this period to a considerable extent, revealing that the firm in general and Mrs. Clinton in particular had far more contact with Ward than was previously known."
In fact, the billing records disclosed that among the 60 hours of work that Hillary Clinton billed Madison were 14 meetings or telephone conversations she had with Ward in late 1985 and early 1986 concerning the IDC or Castle Grande property. Far from her earlier glancing description of Ward as "Susie Hubbell's father," the first lady described him in the later interview in unforgettable terms.
She told the RTC investigators: "I would say he was a persistent, demanding client, someone who pushed very hard for lawyers to respond to him, to get his work done, and by this, I mean anything he was involved in, whether it was for Little Rock Airport or for Madison, someone who wasn't at all shy about showing up at your office unannounced and demanding that you give him the time he wanted right then, no matter what else you were involved in. So he was a client who really required attention whenever he showed up, and that was not infrequently."
The billing records, the first lady said in the RTC interview, "certainly . . . [showed] there was a period of time when I had . . . intense contact with Mr. Ward on some matters."
It was Ward, she now said, who was the person she dealt with in all of her IDC or Castle Grande activities. "He was the person I dealt with on the brewery issue. He was the person that we dealt with on the utility issue. He was Madison as far as I was concerned."
In all her dealings with Ward during that period, Hillary Clinton said, she did not know that McDougal might have been using him to circumvent the law. As federal bank examiners later described it, Ward was used as a "straw" buyer to hold property in his own name for Madison because the thrift, as a regulated institution, faced restrictions on the amount of property it could own directly. She was unaware of this, Hillary Clinton said, because her work dealt with the sewer and microbrewery questions. Through all the investigations of these transactions, Ward has never been charged with any wrongdoing.
The billing records showed her involvement extended beyond those issues. On May 1, 1986, she had a two-hour conference with Ward at which she drafted an option agreement for him to sell back to Madison a 22-acre parcel on the IDC or Castle Grande property. The option gave Ward the right to sell the land back to Madison for $400,000. The RTC later said the land was worth about one-eighth of that amount: $47,000. A Madison official later testified that the option, though never exercised, was designed so that Ward would receive a sales commission at a time the failing thrift was short of cash and could not pay him directly.
When asked by the RTC about the May 1 option, Hillary Clinton said she had "no recollection of doing this," but acknowledged that records indicated she did. The RTC concluded in its final report on Rose that "Mrs. Clinton prepared this option in two hours and probably without much discussion as to its purpose."
Looking at the Records
The billing records also showed that she spent nearly an hour with Ward on Feb. 28, 1986. It was on that day when one of the biggest and most legally problematic deals transpired involving Castle Grande. In a complicated maneuver that day, Jim Guy Tucker, the future governor who was then practicing law, bought the sewer system from Ward for $1.2 million, fully financed by a Madison loan and $150,000 from David Hale of Capital Management Services Inc. At the same time, Hale netted $500,000 from a Madison loan, which he used to leverage $1.5 million from the Small Business Administration. Of that, he then loaned $300,000 to Susan McDougal. Everyone involved benefited from these loan swaps.
That intricate transaction was an important part of the trial that ended last week in the convictions of Tucker and the McDougals. Hale testified that his loan to Susan McDougal came only after Bill Clinton asked him to make it during a meeting at McDougal's Castle Grande sales trailer. Clinton has denied the allegation, and repeated his denial under oath during videotaped testimony at the White House that was shown later at the trial.
There is one other tangential connection between that trial and the Clintons. Some of the money from the loan swaps $50,000 ended up in the Whitewater Development account jointly held by the Clintons and McDougals. Documents do not show Rose lawyers involved in any of the transactions. The RTC concluded that McDougal and his business pals put the deals together on their own and that there was no larger conspiracy involving the law firm.
When Hillary Clinton was asked what she was doing with Ward during their Feb. 28, 1986, meeting, she told RTC lawyers: "I do not recall what I did on that day." She said she did not know that the utility was sold that day. To the best of her recollection, she said, her discussion with Ward would have involved her research on the sewer issue. In its final report, the RTC said "there is no persuasive reason not to credit Mrs. Clinton's answer."
Why was Hillary Clinton not more forthcoming about her work with Ward from the beginning? Whatever the reason, Ward was her strongest connection to Castle Grande, the enterprise that had the most potential to embarrass her.
Fifteen months after Hillary Clinton paid her first visit to James McDougal to secure Madison Guaranty's business with the $2,000-a-month retainer, she wrote and had hand-delivered to McDougal a letter declaring that the Rose Law Firm was dropping him as a client as of July 14, 1986. Her explanation of how and why this happened was that it was simply a business decision.
The firm wanted to minimize its representation of banks and thrifts so that it could take on a new enterprise: representing the federal government in cases arising out of failed financial institutions.
RTC lawyers concluded that this explanation was reasonable. Yet the Whitewater records show a series of events leading up to that letter that suggest another possible reason for the decision.
Jim McDougal's savings and loan, Madison Guaranty, had been closely supervised by federal regulators since 1984, when it showed the first signs of failing. In March 1986, the Federal Home Loan Bank Board began an examination of Madison and its vast array of shaky investments, including the Castle Grande project. Three months later, on June 19, federal examiners wrote to Madison's board of directors notifying them that their thrift was violating its supervisory agreement by not complying with minimum net worth requirements; in other words, it was making deals without the financial resources to back them up.
The federal regulators ordered the thrift to take a series of actions, including stopping all direct investments. The directors were also summoned to Dallas for a meeting at the FHLBB regional office. A copy of the letter was sent to Beverly Bassett Schaffer, the state securities commissioner.
On July 2, she sent a copy of the federal letter to Sam Bratton, an aide to Gov. Clinton who oversaw regulatory issues. It read: "Sam Madison Guaranty is in pretty serious trouble. Because of Bill's relationship w/ McDougal, we probably ought to talk about it. The meeting referred to in the attached letter has been moved up to July 11, 1986, and the FHLBB has asked me to be at the meeting. Please note that while all of the FHLBB restrictions in the letter are serious, # 5 and 6 effectively put Madison out of business. Thank you for your support. BB."
Over at the Rose Law Firm eight days later, on July 10, Herb Rule, a partner, wrote a memo to all staff lawyers reporting that federal savings and loan regulators were about to require law firms that had been retained to recover losses from failing thrifts to stop representing any banks or savings and loans.
On July 14, in the governor's office at the state capitol, Betsey Wright, Clinton's chief of staff, who had been informed of the note that Schaffer sent to Bratton, dispatched a memo to Clinton. It said: "Whitewater stock, McDougal's company, do you still have? Pursuant to Jim's current problems, if so I'm worried about it."
Clinton sent the memo back to Wright with his handwritten response: "No, don't have any more. B." The reference was to the Whitewater partnership between the McDougals and the Clintons. Contrary to Clinton's answer, the Clintons were in fact still in the partnership.
That is the same day Hillary Clinton sent the hand-delivered letter over to McDougal severing Rose's relationship with him and returning an unearned retainer check for $4,622.53. Did her swift action have anything to do with the possible public embarrassment she and her husband might suffer because of their financial and legal connections to McDougal, who according to federal examiners was running his thrift like a private piggy bank?
Along with everything else, Clinton was in the middle of a nasty reelection campaign in which his primary opponent, former governor Orval Faubus, and his likely Republican opponent, Frank White (who had defeated him six years earlier), were both pounding him for possible conflicts of interest involving his wife's law firm's business with the state.
Hillary Clinton told the RTC lawyers that she knew nothing about the FHLBB meeting in Dallas with the board of directors. She said she knew nothing about the restrictions placed on Madison. She said her husband did not talk to her about the letter from Schaffer to Bratton or the note from Wright to him.
Q: As of July 14, 1986, had you learned from any source, including your husband, that the federal regulators were about to take action or contemplating action with respect to Madison Guaranty or McDougal?
It is possible that Hillary Clinton did not know about any of these connected events at the time. But given that she was her husband's closest political adviser, more astute financially than he was, more active in their Whitewater deal with McDougal, and one of Madison's lawyers, why would she not pick up on all the regulatory warnings sent to Clinton at the governor's office?
It is possible that Clinton did not tell her because he paid no attention to the Whitewater investment, truly thought they were no longer involved in it, and saw no reason to tell his wife. If, on the other hand, she was informed of what was going on, why would she not acknowledge the regulatory warnings years later? Embarrassment is one answer embarrassment for being associated with McDougal and for getting inside information through her connections with state officials, especially her husband.
An addendum to this part of the story: In July 1988, two years after cutting off her legal representation of McDougal, Seth Ward and Madison, Hillary Clinton received an internal Rose memo stating that the firm was undertaking a thorough housecleaning and getting rid of old files that took up needed storage space. In response, she authorized the destruction of some of her Madison files, including one concerning the "Ward Option" on the parcel at Castle Grande. She said later that the tossing of those Madison papers was a meaningless act, just routine housecleaning. The RTC study of the Rose Law Firm said there did not seem to be any more to it than that, adding: "The worst that might be said is that Mrs. Clinton should have checked with her client before discarding files that belonged to it."
Lawyers normally try to protect themselves by retaining records in disputed matters, especially matters involving potential litigation. If, as she has maintained, and as the RTC report concluded, her involvement in the May 1 option was minimal, then it is possible that she thought these files were harmless and unneeded.
There is another context to consider, however. The files were destroyed at a time when federal regulators were poring through Madison's financial history in the preliminary stages of an investigation that led to McDougal's indictment on fraud charges. It was also a time when Ward, after a falling out with Madison over the payment of commissions, was taking his dispute to court in a civil suit.
There was a chance that Hillary Clinton's work for Ward could have been revealed in that case. She said she did not know about the Ward lawsuit, which when it went to trial drew wide attention in Little Rock's legal community.
THE BILLING RECORDS
The first lady has said she never tried to hide her Rose Law Firm billing records and that they exonerated her once they were found after a mysterious two-year disappearance. Whitewater investigators in Congress and in the independent counsel's office regard the billing records differently. They have used them as a field map in exploring the ancient ground of Castle Grande. Did Hillary Clinton see the records back in 1992 when questions were first raised about her legal work? If she did, why did she not release them to the public then before they were missing or at least summarize them in discussions with the press? Has she truly been committed to full disclosure? What role did she play, if any, in their disappearance and rediscovery?
During a Jan. 15, 1996, interview on Diane Rehm's talk show on WAMU-FM radio in Washington, the first lady was asked a typical question about the extent to which she had fully disclosed all pertinent information on Whitewater. Her answer revealed an apparent contradiction in her overall handling of inquiries into her past conduct.
Rehm: In the last few days, it's been reported a number of times that early on in the administration, David Gergen, adviser to President Clinton, advised you both to go to The Washington Post, lay out all the documents and just put it all out on the table. Number one, did he advise you that? And number two, do you now think maybe that would have been a good idea?
The impression Hillary Clinton conveyed with that answer was that from the very beginning she was eager and willing to respond to questions and to provide every possibly relevant document to the press, but that she quickly came to realize it was an impossible task to satisfy her questioners, a frustration that she appears to have felt many outsiders, and even some close advisers such as Gergen, did not fully understand. That is why inside the White House she opposed Gergen's recommendation to put everything on the table for the press to examine.
But her answer to Rehm was inaccurate. The Clintons had not, as she had claimed, taken "every document" they had and "laid them all out" when questions first arose about Whitewater. Five days after the Rehm interview, the White House issued a clarification which said the first lady "mistakenly suggested that the New York Times was provided access to all of the Whitewater-related documents in the possession of the 1992 campaign." According to the statement, Hillary Clinton "believed that the campaign had turned over all the documents in its possession" but had since learned that some records were withheld.
Among the documents that could have been, but were not, made public in that initial 1992 press inquiry, or at least characterized, were the billing records detailing the amount of work Hillary Clinton had done for McDougal and Madison Guaranty. Those billing records were subpoenaed later by federal investigators and seemed to be missing until they happened to show up one day in 1995 in a reading room on the third floor of the White House residence. But they were not missing years earlier when the first questions about them were being asked.
On Feb. 12, 1992, at a time when Bill Clinton was in New Hampshire, struggling to save his nascent campaign for the Democratic presidential nomination, besieged by questions about his marital infidelity and avoidance of the draft, the billing records were printed out at the Rose Law Firm in Little Rock. Hillary Clinton's two closest associates at the firm, Webster Hubbell and Vincent Foster, were assigned to examine them to see what they revealed about her work.
In testimony later before the Senate Whitewater committee, Hubbell said: "I recall in 1992 that the issue regarding our representation of Madison, and specifically our work before the Arkansas Securities Department, was of interest to Mr. [Jeff] Gerth of the New York Times, and that our firm was being questioned by people within the campaign about her work in that regard. We did some work, and tried to organize and pull up the files, and in connection with that bills were pulled and reviewed by myself and Mr. Foster."
Among the markings on the billing records, Hubbell testified, was a red-pen notation made in Foster's handwriting that read "HRC this suggests first matter." HRC are Hillary Rodham Clinton's commonly used initials. The notation was on a page where the bills showed she first called the Arkansas Securities Commission. Asked whether Foster's notation was meant for someone else, Hubbell testified: "I really don't know. I mean, I would hate to guess. It looks like it's directed to Mrs. Clinton, but I do not know; probably somebody in the campaign."
Did Foster show Hillary Clinton the billing records during the 1992 campaign? David Kendall, the first lady's personal lawyer on Whitewater issues, said in January 1996: "She recalls discussing this legal work in the spring of 1992 with Mr. Foster and Mr. Hubbell as she sought accurately to answer press questions during the presidential campaign about the Madison Guaranty work. It is possible they showed her the billing records then, but she does not recall."
If Hillary Clinton knew about the billing records then, she chose not to release them or refer to them in her 1992 responses. The Washington Post was also making repeated requests to the campaign during that period for any documents showing the extent of her legal work for McDougal and Madison.
One year into the Clinton presidency, there was renewed interest in the billing records. This time it was from federal investigators. In December 1993, one month before the appointment of an independent counsel on Whitewater, Justice Department investigators sought the billing records. They were among the first documents subpoenaed in early 1994 by Robert B. Fiske Jr., the original special counsel.
The Rose Law Firm could not provide them, nor could the White House. Rose officials said they were missing. For two years, Fiske and then his replacement, Kenneth Starr, tried to get them, as did the RTC and the Senate Whitewater committee. Where were they? Who had them?
One day in late July or early August 1995, Carolyn Huber was in the reading room on the third floor of the White House residence, an area she often trolled for letters, newspapers and magazine clippings that needed to be filed. Huber was a longtime friend and trusted helper of the Clintons. She had been the office manager at the Rose Law Firm for 12 years. When the Clintons reached the White House, she came along to handle personal correspondence and other private matters for them.
On that summer day, she found a sheaf of records lying on a table in the middle of the book room 116 pages of records. She said later that these had the appearance of law firm records. But it did not connect that these might be the long-sought Rose billing records of Hillary Clinton. She has said that she put them in a box with some "knickknacks," took the box back to her office and stuck it under a table.
What were the billing records doing up in the book room that summer day, folded and resting on a table? Were they being studied by someone who put them down for a moment? That was the primary question Starr wanted to ask the first lady when she appeared before the Whitewater federal grand jury in Washington last January. Her response to Starr's inquiry is secret, but she has said many times in public that she did not know where the records were during the two years they were missing and had no idea how they got to the reading room. The context again raises questions.
During that first week of August last year, the RTC's inspector general issued a report revealing for the first time that Rose Law Firm did legal work for Madison on the Castle Grande enterprise and that Hillary Clinton apparently was one of 11 Rose lawyers who worked on the case. This report would likely have provoked curiosity among people involved in Rose and Castle Grande, including the first lady and Webster Hubbell.
What could satisfy that curiosity more than the billing records? Was it simply coincidence that they appeared in the reading room right then? Hubbell was still in Washington, but on his way out. He had been tried and convicted on fraud charges related to his practice of double billing Rose Law Firm clients. One week later he would be heading off to prison.
It was also during that period in early August, shortly after the RTC inspector general's report came out, that David Kendall, Hillary Clinton's lawyer, invited Little Rock lawyer Alston Jennings to visit her at the White House. Jennings was Seth Ward's lawyer, the one who represented him in his civil suit against Madison Guaranty after the falling out involving Castle Grande commissions.
What did Jennings, the first lady and her lawyer talk about? When reports of the meeting surfaced months later, Jennings said Ward's name never came up in his conversation with Hillary Clinton, and that they discussed what Jennings might say to writers who were doing stories about the first lady's legal skills when she practiced in Little Rock. Kendall, in the words of White House associate counsel Mark Fabiani, "has not provided an explanation for the meeting."
But the rediscovery of the billing records was not public knowledge that August. Huber packed them up and forgot about them, she said later, until Jan. 4, 1996, when she was moving things around in her East Wing office and came across the knickknack box and there they were. This time she realized their importance. She called her own attorney and Kendall, not Hillary Clinton. She was, according to Kendall and Jane Sherburne, a White House lawyer who was also present, shaken and distraught after finding the records.
"Mrs. Huber said to me that she was really upset and she didn't know if she had done the right thing" by turning the records over to the lawyers, Sherburne later testified. When Sherburne asked her what she meant, Huber replied: "I didn't know what to do when I found those today and maybe I should have just thrown them out." Sherburne assured her that she "did the right thing."
Kendall and Sherburne made copies of the billing records, announced to the press that they had been rediscovered, and turned them over to the independent counsel's office. Kendall said the question of how the records turned up in the White House book room was likely never to be answered. He called it "another of the meaningless mysteries of Whitewater."
And the first lady, who had chosen not to release or summarize the billing records back in 1992 when they were readily available, now reacted as though she wished they could have been made public from the start.
"I was delighted when these documents showed up. I want everybody to know everything because frankly there's a lot about this I don't remember. It happened 10, 11 years ago. I've done the best I can," she told Diane Rehm in the Jan. 15 interview.
"There would be no reason for anyone I know, including myself, not to have wanted them to come out years ago," she told interviewer Harry Smith on the CBS Morning News on Jan. 19, adding: "Why on earth would I not want them out? I would have published them in the paper if I'd known."
Why, if Hillary Clinton saw the records in 1992, as appears likely, would her position on their release change so clearly from then to this year? In 1992, publication of the records would have raised questions that might have sunk her husband's nascent presidential campaign. Some of his political advisers later acknowledged that a third area of controversy involving money, following earlier ones about sex and war would have proved fatal. It is the peculiar fate of the Clintons and Whitewater that the controversy has been around for two presidential election cycles. By 1996, the safer course for the White House became a posture of full disclosure.
How a public figure reacts to a controversy can be as important as what happened in the first place. Hillary Clinton certainly understands this truism of modern American politics. In her first job out of Yale Law School in 1974, she worked on Capitol Hill as a junior lawyer for the House Judiciary Committee's impeachment inquiry staff, where she examined the inner workings of the Nixon White House during the Watergate coverup.
From the beginning of the Whitewater controversy, Hillary Clinton has maintained a public posture seemingly at odds with her actions. She was reluctant to release records during the 1992 campaign. She fought David Gergen's recommendation to turn over all the records in 1993. She led White House opposition to the appointment of a special counsel in early 1994.
There appears to be a four-year pattern of Hillary Clinton avoiding full disclosure, occasionally forgetting places and events that might embarrass her, and revising her story as documents emerge and the knowledge of her questioners deepens. This article examined only one of several areas where her answers could be analyzed. Similar studies could be done in other areas, including the original Whitewater investment itself and the extent to which the Clintons were equal yet passive partners with the McDougals, as they have maintained. Another area that Whitewater investigators are probing concerns Hillary Clinton's role in the White House travel office controversy.
Does it add up to anything? Is it just a series of unfortunate coincidences that make things seem suspicious, a string of meaningless mysteries, as her lawyer said? Perhaps her favorite children's verse truly fits and a great big ugly man did come up and tie a horse to her. McDougal was the proverbial ugly man and the horse was everything she got involved in through her connection to him. What she did in Arkansas did not live up to her own ideal as an earnest Methodist doing "all the good you can, by all the means you can," nor did it match her public image as one of the nation's leading lawyers. In answering questions later about her Arkansas past, she was placed in the position of denying part of her essential self. Since her days at Yale Law School when her brain power and savvy carried her to the finals of the moot court contest, she had always had the edge of a Chicago lawyer: sharp, aware, keenly attentive to detail, on top of things. Now her answers made her seem detached if not forgetful.
Why? She was walking around tied to a horse, it seems, and did not want the world to see it.
White House Lawyers Take Exception to Points of Article
This report is based on an examination of statements Hillary Rodham Clinton has made on Whitewater-related events. Over the past four years, she has responded to a variety of questioners: the Resolution Trust Corp., the Federal Deposit Insurance Corp., the General Accounting Office, two independent counsels, a grand jury and the national press corps. Most of what she has said is public: There are thick transcripts recounting her interviews, depositions and interrogatories. The exceptions are her testimony to the Whitewater grand jury, which is secret, and her depositions taken at the White House by the independent counsel, only one small section of which was released.
Testimony from scores of witnesses who appeared before the Senate Whitewater committee or who were interviewed by the federal agencies investigating aspects of Whitewater was also examined for this article.
Two lawyers on the White House staff who have been assigned to handle Whitewater-related matters, Jane Sherburne, special counsel to the president, and Mark Fabiani, associate special counsel to the president, were informed about the scope of the article and asked to offer responses to each of its eight main sections. David Kendall, the Clintons' personal lawyer, was present for part of the meeting.
Fabiani and Sherburne dismissed the main points of the article as trivial and disputable and accused The Post of following a partisan Republican agenda. "Let's take everything the first lady said about 10-year-old events, and let's compare them and find discrepancies. That's the [Republican] game," Fabiani said. "This story is part of that game. Under each of these issues there is nothing wrong."