Clinton Releases Land Deal Files to Investigators

President Clinton on Thursday ordered his attorney to give federal investigators files on the First Family’s land deal with the owner of a failed Arkansas savings and loan company, amid deepening White House concern that the probe could set off a political thunderstorm.

Reversing ground from earlier this week, Clinton ordered “all documents” on the Clintons’ money-losing investment in Whitewater Development Corp. released to Justice Department investigators. The Clintons were 50-50 owners in the land company with James B. McDougal, who was founder of the failed Madison Guaranty Savings & Loan of Little Rock, Ark., and is now under investigation for possible misuse of the thrift’s deposits.

In a statement, the White House said release of the documents was voluntary, and for “whatever relevance they may have” to the inquiry. “There has never been any suggestion by any law enforcement officials of any impropriety regarding the Clinton investment.” the statement said.

One White House source said Clinton aides have increasingly come to the conclusion that the investigation would generate “messy and embarrassing” revelations and an outpouring of publicity on the shadowy and complex details of the failed thrift’s finances.

Although White House sources did not say so, the investigation could also cast McDougal in an unfavorable light, creating political problems for the Clintons because of their association with him.

Aides did not believe that the developments would demonstrate any malfeasance on the Clintons’ part, sources said.

Before the files were released, one White House source said: “We are bleeding on this thing. And we will keep bleeding until we do something to cut it off.”

Federal investigators have pushed this week for release of the Clinton family files, which have been held by personal attorneys since they were recovered from the White House office of former deputy counsel Vincent Foster on July 20.

Foster, who was handling the matter for the Clintons, committed suicide July 20 in a Virginia park.

But while saying they would cooperate with investigators, the President and aides until Thursday had stopped short of saying they would turn over the records of the First Family’s deal with McDougal.

The Clintons have asserted since the 1992 presidential campaign that all relevant details of the Ozark land investment have come to light. As recently as Tuesday, First Lady Hillary Rodham Clinton told a group of reporters that she was bewildered that “a losing investment . . . is still a topic of inquiry.”

In the Madison Guaranty probe, federal investigators are looking into an S&L; collapse that cost taxpayers $60 million. They also are said to be examining whether any thrift funds were illegally diverted to Whitewater Development Corp. and whether any money was used to help retire Clinton’s 1984 gubernatorial campaign debt.

The Clintons invested $68,000 in the Whitewater deal, and McDougal put up $92,000. Later, Foster handled the Clintons’ resale of the now-worthless Whitewater stock back to McDougal.

Several major newspapers have urged the White House to release the documents, and congressional Republicans, including Rep. Jim Leach (R-Iowa) and Senate Minority Leader Bob Dole (R-Kan.) have called for congressional hearings on the matter.

But in a letter released late Thursday, Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the Senate Banking Committee, said he would oppose hearings “in the midst of an active investigation” by the Justice Department.

However, there is precedent for holding the hearings during federal investigations. They were held on both the Watergate and Iran-Contra probes.

The President is described as highly uncomfortable with the course of the Whitewater investigation, but he has been largely unfamiliar with the details of the deal, White House sources said. Hillary Clinton, who served as McDougal’s lawyer in 1985, has been closer to the transaction, they said.

In contrast to their concerns about this investigation, White House aides say they believe that this week’s allegations by Arkansas state troopers about womanizing by Clinton and about possible misuse of official power were not likely to inflict lasting political damage.

Also on Thursday, Atty. Gen. Janet Reno rejected suggestions that she name an outside prosecutor in the Whitewater case, arguing that such a step would give the investigation more political taint than simply leaving the matter to career officials.

Critics, including some Republican members of Congress, have argued that Reno needed a special prosecutor to assure her distance from a probe that could embarrass the President.

But Reno asserted that the government no longer has a neutral mechanism for appointing a truly independent special prosecutor.

The law providing for special prosecutors was allowed to expire last year. It empowered a special three-judge panel to select independent counsels when needed and to outline their missions.

Now, “there is no mechanism for an independent person, such as a judge, appointing a special prosecutor,” Reno said. As a result, she said, such a selection “has almost more political implications than letting career prosecutors who have worked for several administrations and who have real experience in federal prosecution conduct it in the right way.”

The attorney general said she has had no contact with the White House about the Whitewater file. “That (investigation) is being conducted by career prosecutors, and I have emphasized that it should proceed in as appropriate a manner and as vigorous a manner as possible.”

Times Washington Bureau Chief Jack Nelson contributed to this story.