Whitewater and the White House
What began as a simple real estate venture for Bill and Hillary Clinton in the late 1970s has led to the announcement Wednesday that a special counsel will investigate the now-complex matter. How deeply were the Clintons involved and what did they gain? What follows is a history of what is known so far about the Whitewater affair.
1978-79
Bill Clinton and James B. McDougal, old friends who had worked for Sen. J. William Fulbright of Arkansas in the 1960s, become 50-50 partners (along with their wives) in Whitewater Development Corp., a real estate venture offering cabins and vacation homes along the scenic White River in the northern Arkansas Ozarks. The McDougals put up more than half of the money and manage the company.
Clinton, then state attorney general, is elected Arkansas governor. He names McDougal to his cabinet as director of economic development. The Clinton administration also leases one of McDougal’s buildings for a state office.
1980
McDougal, who by now has left state government, lends Hillary Clinton $30,000 to build a three-bedroom ranch-style unit at Whitewater. The next year she sells the model property for about $27,500. In 1988, after the buyer defaults on his payments and dies, she buys the property again for about $8,000 and resells it for about $23,000. After paying a $13,000 debt on the property, the Clintons report a $1,640 capital gain from the transaction.
1982
McDougal buys Madison Guaranty Savings & Loan, a small financial institution with assets of about $3 million. He begins raising its profile by lending money to important people in the state and becoming involved in large speculative ventures. He also continues to run the Whitewater real estate business, but buyers for the vacation property on the 200-acre site are becoming harder to find.
1984
Federal regulators begin to question banking practices at Madison after McDougal transfers five bad loans to Madison from a bank he also owns. In this same time period, Whitewater makes Clinton’s loan payments on a $20,000 note he had taken out on another Arkansas bank.
1985
In April, McDougal hosts a political fundraiser in the lobby of his S&L; to help retire Gov. Clinton’s 1984 campaign debt of $50,000. About $35,000 is raised during the party, with some of the proceeds in the form of cashier’s checks drawn on Madison. Investigators now suspect a total of about $12,000 may have come from overdrafts at the Madison institution.
Madison Guaranty’s assets have soared to $107 million. But loans to its own officers and directors have grown from $500,000 to $17 million. Large loans also are being extended to Fulbright and other state political figures. Jim Guy Tucker, who later will follow Clinton into the governor’s office, negotiates a 50% reduction in his debt of more than $1 million. Seth Ward, father-in-law to Webster L. Hubbell, then a law partner with Hillary Clinton at the Rose law firm and currently a Justice Department official, defaults on $587,793.
Madison Guaranty puts Hillary Clinton on a $2,000-a-month retainer to do legal work. McDougal, in an interview later, says he hired her because Bill Clinton told him the family needed the money. The White House denies Clinton solicited the job for his wife.
With regulators increasingly concerned about Madison’s stability, Mrs. Clinton, on behalf of the institution, seeks state approval to recapitalize the institution with a special stock sale. The request is supported by a financial report that indicates the institution is solvent.
Beverly Bassett Schaffer, the state securities commissioner appointed by Clinton, approves the sale. However, the plan is never put into effect because Madison’s financial condition becomes too dire.
1986-87
David Hale, a Little Rock judge appointed by Gov. Clinton and head of a small business investment company, lends $300,000 to a real estate firm owned by McDougal’s wife, Susan. He later claims the loan was solicited by Clinton and McDougal, who needed the money to clean up some bad loans at Madison. (They deny this.) About $110,000 winds up in Whitewater’s accounts. Hale will later be indicted on charges of defrauding the Small Business Administration, which backed the loans his investment company was supposed to be making to minority small businesses. Having resigned from the bench, he is scheduled to go to trial in March.
Federal regulators move in on Madison and oust McDougal as chairman.
1989
According to McDougal, all Whitewater records are sent at Hillary Clinton’s request to the governor’ mansion in Little Rock. The Clintons say they made no such request and did not receive them. Many records are believed missing.
Madison fails and is taken over by the Federal Deposit Insurance Corp. and Resolution Trust Corp. Vincent W. Foster Jr., a senior partner at the Rose law firm, solicits the FDIC to handle its legal work on failed financial institutions in Arkansas. The FDIC hires the firm to sue the Frost & Co. accounting firm for negligence in auditing Madison’s books. Much of the legal work is handled by Hubbell. The suit is later settled for $1 million, negotiated down from the government original demand for $6 million. The law firm receives $400,00 in legal fees from the FDIC.
McDougal is indicted on federal charges of bank fraud. He is acquitted the following year.
1992
With Clinton now running for President, new attention is drawn to Whitewater and the Clinton-McDougal association. The Clinton campaign hires James Lyons, a Denver attorney and Clinton confidant, to review the matter. He releases an accounting report, based on incomplete Whitewater records, that concludes the Clintons gained nothing from the investment. Rather, he says, they lost $68,900 investment. McDougal insists the Clintons could not have lost that much. The Clintons, represented by Foster, sell their interest in Whitewater to McDougal for the nominal amount of $1,000. In the fall, the Resolution Trust Corp. presents the U.S. Attorney’s office in Little Rock a detailed summary on their investigation of Madison. The 21-page report accuses McDougal and his now ex-wife Susan of criminal wrongdoing. It identifies the Clintons and Jim Guy Tucker, now the governor, as principals in “shell corporations” created by McDougal but says there is no hard evidence they were involved in improper activities related to the institution.
In October, federal prosecutors in Little Rock file a report to the Justice Department, indicating that further investigation of the matter is needed.
Clinton is elected President.
1993
Federal prosecutors in Washington decide against authorizing a formal criminal investigation in the Madison case. But they leave the final decision to the U.S. attorney in Little Rock.
On July 20, Foster, now White House counsel, shoots himself in an apparent suicide. As White House officials later acknowledge, the Clintons’ records on Whitewater are removed from Foster’s office before investigators probing his death have a chance to examine them. The files are sent to his personal lawyer, David Kendall.
In September, the RTC asks the Justice Department to open a criminal investigation into Madison’s collapse. This time, RTC investigators note that they have found evidence that depositors’ funds may have been improperly diverted to Clinton’s 1984 campaign and to Whitewater. The expanded request lists nine instances of possible criminal activity.
The report is sent to the new U.S. attorney in Little Rock, Paula Casey. A Clinton appointee and former campaign volunteer, she recuses herself from any role in the matter. A team of Justice Department attorneys goes to Little Rock to look into the case. At year’s end, with political pressure on Clinton mounting, the White House agrees to surrender the Clintons’ Whitewater records to the Justice Department. It does so under a subpoena that blocks their public disclosure.
1994
On Wednesday, Jan. 12 Clinton changes his posture and asks Atty. Gen. Janet Reno to name a special counsel to investigate the Whitewater matter. She begins considering candidates for that post.
THE KEY QUESTIONS
Among the questions that lie at the heart of determining the depth of President and Hillary Clinton’s involvement:
1) Were funds illegally diverted from the Madison Guaranty Savings & Loan to the Whitewater Development Corp., which was partly owned by the Clintons, or used to defray a $50,000 debt from Clinton’s 1984 campaign for governor of Arkansas?
2) Did the Clintons use political influence in any way to help keep the troubled Madison institution in business longer than it should have been, thereby increasing the cost to taxpayers when the thrift ultimately failed?
