S&L; Tie to First Lady’s Law Firm Probed : Banking: FDIC asks if attorneys who represented U.S. in case against the thrift’s accountants misled regulators about possible conflict of interest.
Federal banking regulators have begun an investigation of the Rose Law Firm’s involvement with a failed savings and loan owned by a former business partner of President Clinton and First Lady Hillary Rodham Clinton, officials said Tuesday.
The Federal Deposit Insurance Corp. is trying to determine whether lawyers at Rose--the Little Rock, Ark., firm in which Mrs. Clinton was a partner--misled regulators about the potential for a conflict of interest when they represented the federal government in a case against the now-defunct Madison Guaranty Savings & Loan’s accountants, said David Barr, a spokesman for the agency.
Federal regulators hired the Rose firm in 1989 to sue the accountants, Frost & Co., for negligence in auditing the S&L;’s books. Ultimately, the law firm received $400,000 in legal fees from the FDIC and settled the case in 1991 for $1 million. The government had sought $6 million from Frost.
While Madison was still in business in 1985, Rose attorneys, including Mrs. Clinton, represented the thrift and its owner, James B. McDougal, when it sought state regulatory approval for a novel plan to sell stock and raise money to keep the S&L; afloat.
The plan to raise capital was approved by a state regulator appointed by then-Gov. Bill Clinton but was never acted on because of the thrift’s worsening financial condition.
The state regulatory approval for the stock plan has become a key issue in a federal criminal investigation of ties between McDougal and the Clintons. The issue has raised questions about Mrs. Clinton’s role in helping McDougal win the beneficial state ruling.
In their efforts to win state regulatory approval for Madison, the Rose attorneys relied on an audit report on the S&L; by Frost & Co. to make its case in favor of the stock plan. When the law firm represented the FDIC in 1989, it was hired to sue the Frost firm on behalf of the federal government.
FDIC officials said they do not have evidence that they were purposefully misled by the Rose firm but cannot find any documentation and do not recall ever being told by Rose lawyers that it had represented Madison four years earlier in the state case. The Rose firm has insisted that it told the agency about the earlier case.
Documents released by the FDIC show that in 1989, Rose senior partner Vincent Foster, who later became deputy White House counsel and who committed suicide in July, 1993, solicited the federal agency’s legal work on failed financial institutions in Arkansas. After the Rose firm won the right to handle legal work on Madison, much of the work was done by Webster Hubbell, now the No. 3 official at the U.S. Justice Department.
Hubbell, who handled the FDIC suit against Frost, insists that the federal regulators were told about the firm’s prior involvement in the case. “Mr. Hubbell has said that he disclosed all the information that was requested and won a substantial settlement in the case for the FDIC,” Justice Department spokesman Carl Stern said.
The FDIC said its inquiry is separate from an ongoing Justice Department criminal investigation of Madison and Whitewater Development Corp., the Arkansas real estate venture owned jointly by the Clintons and McDougal and his wife.
If the regulatory agency finds that it was misled by the Rose firm, it could move to bar the firm from receiving further work from either the FDIC or the Resolution Trust Corp., the federal agency charged with cleaning up and disposing of the assets of failed S&Ls.; And if the agency finds that any Rose attorneys made false statements to federal officials about their potential for a conflict of interest, the FDIC could seek to press criminal charges, Barr said.
The FDIC investigation, being supervised by Jack Smith, deputy general counsel, has found no indication that false statements were made, Barr said.
Meanwhile, in a direct challenge to one of the First Family’s chief contentions about the Whitewater real estate venture, Rep. Jim Leach (R-Iowa) said Tuesday that he does not see how the Clintons could have lost $68,900 on the investment, as they have maintained.
Rather, Leach said, his analysis of the records of the Clinton investment in the Ozark mountains property deal indicates that they may have broken even or lost at most $9,000. McDougal, who was 50-50 partners with the Clintons in the deal, said last weekend that he believed that the Clintons invested and lost about $9,000 in Whitewater.
The White House has cited the large reported loss in deflecting suggestions that the Clintons may have benefited from the failure of Madison, which ultimately cost taxpayers more than $47 million.
Leach, the senior Republican member of the House Banking, Finance and Urban Affairs Committee, noted that McDougal sank a much larger stake in the deal, yet granted the Clintons an equal share in the operation.
“That is an obvious gift,” Leach said in a session with reporters. “The question is, what was the quid pro quo?”
Senior White House aide Bruce Lindsey disputed Leach’s figures and vigorously denied the implication that Clinton had profited from his association with McDougal or used his office to benefit the Arkansas businessman.
“The Clintons submitted their records to an independent accounting firm who did a reconstruction and found that the Clintons invested almost $69,000 in this investment and that they lost the entire amount,” Lindsey said.
Congressional and Justice Department investigators are seeking to learn whether Clinton, as governor, granted McDougal and Madison Guaranty favorable regulatory treatment that kept the institution open for several years after it had become insolvent.
They also want to know whether funds were illegally diverted from Madison to Whitewater or to retire a $50,000 debt from Clinton’s 1984 campaign for governor.
Leach also accused the Clintons and their defenders of engaging in a “conspiracy of silence” about Foster’s role in Whitewater.
Leach said that Foster, who negotiated the Clintons’ sale of their share in Whitewater and who prepared the delinquent tax returns for the partnership, was intimately involved in the deal and suggested that it may have been a factor in his suicide. Foster shot himself in the head July 20 in an isolated federal park in Virginia.
“There is absolutely no basis whatsoever to speculate that Whitewater had anything to do with Vince’s death,” Lindsey said. “It’s ghoulish to try to connect the two without proof.”
