GOP Attacks Handling of Whitewater : Congress: Senators pressure federal regulators to agree to review investigation of role played by Rose Law Firm, as well as First Lady.

Republican lawmakers mounted a furious attack on the Clinton Administration’s handling of the Whitewater controversy Thursday and succeeded in pressuring federal regulators into reviewing their investigation of the role that First Lady Hillary Rodham Clinton and her former law firm had played.

Andrew C. Hove Jr., acting chairman of the Federal Deposit Insurance Corp., agreed to call on the FDIC’s inspector general to review the agency’s investigation of the Rose Law Firm of Little Rock, where Mrs. Clinton was a partner. Last week, the FDIC cleared the firm of any conflict of interest in the tangled real estate venture. It was the first formal government report to be issued in the controversy over the Whitewater Development Corp.

Hove’s decision came in the midst of a Senate Banking, Housing and Urban Affairs Committee hearing marked by a bitter partisan split over Whitewater.

Besides seeking a renewed investigation by banking regulators, Republicans--led by Sen. Alfonse M. D’Amato of New York--also demanded that the White House and the regulators release all documents related to the affair. But the Administration refused, claiming that to do so would interfere with the ongoing investigation by Robert B. Fiske Jr., the special counsel appointed by Atty. Gen. Janet Reno.

Democrats on the committee, meanwhile, dismissed Republican demands for formal hearings on Whitewater, arguing that those, too, would interfere with Fiske’s work.

“I truly believe what we’re doing is piling on in a partisan fashion,” argued Sen. John Kerry (D-Mass.).

Thursday’s hearing had been called to review the status of the federal government’s bailout of the savings and loan industry. But Republicans used the occasion to grill Administration officials and the heads of the major banking regulatory agencies for the first time publicly about Whitewater.

Among the officials attending the hearing were Treasury Secretary Lloyd Bentsen and Federal Reserve Chairman Alan Greenspan.

“We have an obligation to get to the bottom of this sorry affair,” D’Amato said. “And we have reasonable concerns about the integrity of the investigation” by federal regulators, he added. “Something smells rotten in Little Rock.”

They charged that Clinton political appointees like Roger Altman, deputy Treasury secretary and acting head of the Resolution Trust Corp., were blocking public access to critical documents in the case, and complained that congressional Democrats were unwilling to undertake an investigation of Whitewater because of political allegiance to President Clinton.

“Trying to get information out of the White House about Whitewater is like trying to eat ice cream with knitting needles,” said Sen. Lauch Faircloth (R-N.C.).

The GOP senators pointedly referred to instances in the past in which Democrats had conducted congressional hearings while criminal investigations were under way--such as the inquiry into the role of Neil Bush, son of former President George Bush, in the failure in Colorado of Silverado Savings & Loan. Congress also took testimony on the Iran-Contra scandal at the same time that an independent counsel was investigating the Ronald Reagan Administration’s handling of the matter, the Republicans noted.

“If an aide to President Reagan had been found dead and another Reagan aide went through his papers, you can bet that the Democrats would be calling for a congressional investigation,” said Sen. Phil Gramm (R-Tex.), referring to the mystery surrounding the apparent suicide in July of then-Deputy White House Counsel Vincent Foster.

D’Amato charged that the FDIC’s eight-page report on its investigation into Whitewater was nothing more than an “inept whitewash of Whitewatergate.”

He also noted that a separate, newly released RTC report on the Rose firm’s involvement in the case showed that regulators had not contacted “former or current” attorneys at the firm who were knowledgeable about the issue.

In 1985, Mrs. Clinton, then a partner at the Rose firm, was hired by Madison Guaranty Savings & Loan to help the troubled thrift win approval from an Arkansas state regulator appointed by her husband, then the state’s governor, for a novel plan to sell preferred stock and set up a brokerage subsidiary. At the time, the Clintons were business partners with Madison’s owner, James B. McDougal, and his wife, Susan, in the Whitewater real estate development in the Ozarks.

Among the central questions now being investigated by special counsel Fiske is whether Madison’s funds were used to help pay off Clinton’s campaign bills. He will also try to determine whether Madison deposits were diverted to other corporations owned by McDougal, including Whitewater.

In 1989, after Madison had failed at an estimated cost to taxpayers of between $47 million and $60 million and had been taken over by federal regulators, the Rose firm represented the FDIC in a lawsuit against Madison’s former accounting firm, Frost & Co. The lawsuit accused Frost of negligence for failing to detect fraud at Madison. But in 1985, Mrs. Clinton and another Rose attorney relied on a Frost audit report on Madison when they sought state approval for Madison’s bid to sell stock.

Webster Hubbell, then a Rose partner and now associate attorney general, handled the Madison legal work for the FDIC in 1989, at a time when his father-in-law and his brother-in-law were suing Madison, and thus the FDIC, in separate cases.

The FDIC began its investigation of the Rose firm’s potential conflicts of interest last December. The agency’s report raised questions about whether Rose had disclosed to regulators the potential for conflicts.

The FDIC cleared the firm in part because the FDIC’s own conflict of interest regulations covering attorneys handling cleanup work were not in effect at the time that Rose won the contract for the legal business.

But Republicans charged that the FDIC report could not be trusted because the investigation was handled by the agency’s legal department, which had hired the Little Rock firm to do the legal work at Madison.

In another development at the hearing Thursday, Altman acknowledged that he had met privately with White House officials three weeks ago to brief them on an aspect of the RTC’s Whitewater investigation. He said the purpose of the meeting was to inform the White House about the RTC’s options in view of the impending expiration of statutes of limitation on civil lawsuits involving Whitewater- and Madison Guaranty-related issues.

Some Republicans raised the question of whether the meeting was improper, given his role as acting chairman of the RTC, which is supposed to be an independent regulatory agency.

“It was solely to be sure that (White House counsel Bernard Nussbaum) understood the legal and procedural framework,” Altman told the committee. He said he felt a briefing was justified because he had been giving such information to inquiring members of Congress.