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Starr's Probe Nears Crucial Phase

By Susan Schmidt
Washington Post Staff Writer
Monday, January 5, 1998; Page A04

The four-year-long Whitewater investigation of the Clintons comes to a critical juncture over the next two months as three people considered potentially central witnesses face mounting pressure to cooperate with independent counsel Kenneth W. Starr or risk further criminal proceedings.

Webster L. Hubbell, Susan McDougal and Jim Guy Tucker – all already convicted of felonies growing out of the Whitewater investigation – could each be confronted with the prospect of prison time on new charges. Tucker and McDougal are slated for trials in February, and Starr's office has been presenting evidence for a new fraud indictment against Hubbell before grand juries in Little Rock and Washington.

Unless one of the three has incriminating information and is willing to share it with prosecutors, Starr's office appears unlikely to proceed with obstruction or perjury charges against President Clinton or Hillary Rodham Clinton, lawyers knowledgeable about the investigation said. Starr would still have to prepare a detailed report on his findings, a project that could take some time.

Prosecutors are trying to determine whether Clinton was truthful when he testified in the Tucker-McDougal trial that he was not involved in a fraudulent loan transaction – as McDougal's former husband, James B. McDougal, contends. They also want to question Hubbell, Tucker and Susan McDougal about Hillary Clinton's role as lawyer for the McDougals' savings and loan. And they want to know if there were efforts, during the 1992 campaign and after the Clintons arrived in Washington, to conceal work Hillary Clinton did for the S&L

To date, all three have resisted the prosecutors, though it has cost two of them time in prison. Susan McDougal has spent the past 15 months in jail on a contempt citation for refusing to answer questions about the Clintons before a grand jury. And prosecutors believe Hubbell withheld information from them after he pleaded guilty to defrauding his former law firm and clients. Starr's office declined to recommend a sentence reduction, and Hubbell served 18 months in prison and a halfway house. Hubbell and Susan McDougal have publicly said they know of no criminal wrongdoing by the Clintons.

Tucker was convicted of bank fraud in 1996 along with James and Susan McDougal. Tucker was forced to resign as governor of Arkansas but – unlike his co-defendants – avoided imprisonment because of a severe liver condition that required a transplant a year ago.

Starr's office has come in for much criticism from Clinton supporters for moving too slowly in concluding its wide-ranging investigation – which has included the White House travel office controversy and Vincent Foster's death, along with questions about the Clintons' financial dealings and whether there were illegal efforts to conceal information about those matters from investigators. Contributing to the delays are subpoena battles with witnesses, fights over issues of legal procedure, appeals, and an ever-changing cast of lawyers rotating through the office.

The key prosecutorial decisions – whether to allege criminal wrongdoing by either of the Clintons – have yet to be made, sources familiar with the office said. And those decisions rest at least in part on whether Hubbell, Tucker and Susan McDougal will provide evidence incriminating the Clintons.

About that, Starr may know something soon.

The 8th Circuit Court of Appeals could rule any day on Susan McDougal's appeal of her conviction. A victory there would liberate her from the two-year prison sentence she still faces for bank fraud. However, in an unrelated case, she is slated to go to trial in California in February on charges she embezzled more than $150,000 from orchestra conductor Zubin Mehta and his wife, Nancy, while working for them as a bookkeeper. Still ongoing is a related IRS investigation.

If McDougal loses her appeal, prosecutors hope she will assess the long prison term ahead and reconsider her refusal to testify before the Whitewater grand jury in Little Rock.

Her lawyer, Mark Geragos, said that is unlikely. "She's been offered the moon before and she's been resolute," he said.

McDougal has said in television interviews since her incarceration that she is furious with Starr and his lawyers and that she does not trust them. They simply want to get the Clintons, she contends, and will prosecute her for perjury if her grand jury testimony conflicts with her ex-husband's or others who implicate them. She has been in jail for contempt since September 1996 and can be held on that charge until March.

Geragos said she has refused an offer from California prosecutors to plead guilty in the Mehta case in exchange for time served on the contempt charge. "She's just reached a point where she's just not going to be pushed around," he said. Serving out the bank fraud sentence, he said, if it comes to that, won't shake her. "She can do this time standing on her head," he said.

Former senator David Pryor (D-Ark.), long close to the Clintons, recently took the unusual step of trying to meet with U.S. District Judge Susan Webber Wright in an effort to persuade her to free McDougal. Pryor refused to comment, but his son told the Arkansas Democrat-Gazette that his "humanitarian streak" moved him to act.

Wright told the paper: "There's not a thing that was said during that [meeting] that I'll consider in any way."

Tucker, too, faces a trial date in February. He and two partners in a cable television company are accused of creating a sham bankruptcy to avoid paying taxes on several million dollars in profit when they sold the company. One of his co-defendants has pleaded guilty and is cooperating with Starr's office.

Tucker's poor health was a factor in his avoiding a prison term for his conviction with the McDougals on bank fraud and conspiracy; he was sentenced instead to four years' probation and home detention for six months. He has won numerous delays in the upcoming case on health grounds as well, but the trial now appears set. If he is convicted, Tucker may once again argue he is too ill to be sent to prison; Starr's office has consulted Mickey Mantle's liver doctor to try to prove him wrong.

Tucker and Susan McDougal were convicted of fraud in connection with a real estate project financed by the savings and loan the McDougals operated. James McDougal, who is midway through a three-year prison sentence, has become a cooperating witness. He has told prosecutors that Bill Clinton knew about a fraudulent $300,000 loan – a matter Clinton has denied under oath – and that some of the loan proceeds went to the benefit of the Whitewater Development Corp. that he and his wife jointly owned with the Clintons. However, because he has changed his story over time, McDougal's testimony alone is considered insufficient to make a case.

Hubbell, too, had involvement with the real estate project at issue in the Tucker-McDougal case, a mixed-use development south of Little Rock known as Castle Grande. He and Hillary Clinton were partners at the Rose Law Firm, which did legal work for the S&L and on the Castle Grande deal.

Hubbell was forced to resign as associate attorney general four years ago when his former Rose partners charged he had defrauded the firm and his clients. He pleaded guilty to stealing $482,000, but prosecutors believed he did not fully cooperate with their investigation. After his release from federal custody a year ago, they learned he had received more than $500,000 from friends of the Clintons and big donors to the Democratic Party during the period.

Starr's lawyers have brought a parade of witnesses before grand juries here and in Little Rock in recent months, among them senior White House aides Erskine B. Bowles and Thomas F. "Mack" McLarty, and former commerce secretary Mickey Kantor. Starr is trying to learn whether the consulting fees paid to Hubbell were intended to buy his silence in the Whitewater investigation, an allegation both Hubbell and the president's aides have denied.

Starr has also questioned witnesses about whether Hubbell actually did the work he contracted to do. In particular, prosecutors have focused on nearly $25,000 in consulting fees he received from the Los Angeles Airport Commission. City controller Rick Tuttle has said he told the grand jury Hubbell defrauded the city, and that his office was urged to pay Hubbell anyway by a lawyer with close ties to Kantor.

Apart from Starr, Hubbell also faces tax problems. Arkansas officials went to court last week to collect more than $24,000 in back taxes that he acknowledges he owes from 1989 and 1992 but says he cannot pay.

Copyright 1998 The Washington Post Company

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