Avoid Hearings, Whitewater Counsel Says : Ethics: Fiske urges Congress not to call witnesses because of the risk to his inquiry. The candidate list to replace Nussbaum narrows.

With pressure mounting for congressional hearings into the Whitewater controversy, special counsel Robert B. Fiske Jr. on Monday implored the legislative leadership to avoid such sessions because they would “pose a severe risk to the integrity” of his inquiry.

Fiske argued that Congress would want to interview the same witnesses, running the risk of “premature disclosures” and “tailored testimony.” He also said that congressional grants of immunity to witnesses would seriously undermine his efforts to conduct a full and impartial inquiry.

Democrats immediately cited the Fiske plea to ward off the rising tide of Republican calls for open-ended congressional hearings into the legal and financial dealings of President Clinton and First Lady Hillary Rodham Clinton when they lived in Arkansas and the behavior of the Administration during the current investigation.

As Congress sparred over the Whitewater investigation, officials at the White House narrowed their list of candidates for White House counsel, with Lloyd N. Cutler, former counsel to President Jimmy Carter, and Harry C. McPherson Jr., who served as counsel to President Lyndon B. Johnson, viewed as the leading contenders. A final decision is expected as early as today.

The appointee would replace Bernard Nussbaum, who submitted his resignation Saturday after a series of missteps on Whitewater and other matters.

Clinton acknowledged at a press conference Monday that he was told “sometime in October” that federal savings and loan regulators from the Resolution Trust Corp. were investigating the possibility that his 1984 Arkansas gubernatorial campaign had received illegal contributions from a Little Rock savings and loan owned by a business partner, James B. McDougal.

The RTC was investigating possible criminal conduct in the failure of McDougal’s Madison Guaranty Savings & Loan, which collapsed in 1989 at a cost to taxpayers of more than $47 million. The Clintons and McDougal were partners in the Whitewater Development Corp., an unsuccessful Arkansas real estate project.

At an East Room appearance with Georgian leader Eduard A. Shevardnadze that was dominated by questions about Whitewater, Clinton insisted that he and Mrs. Clinton had done no wrong and repeatedly stressed his intention to cooperate fully with the special counsel’s investigation. Clinton said that he could not remember who told him about the RTC inquiry or when he learned of it. Both memory lapses could be significant.

If he was informed that he was named in an RTC referral by an official of the Treasury Department, it could represent an improper tip-off from a federal regulator to the possible target of a criminal investigation.

The timing of the disclosure to Clinton raises another important question. The Madison Guaranty case was referred to the Justice Department for possible criminal prosecution in late October. If Clinton was informed before the referral date, he would have been granted highly unusual and favorable treatment not accorded ordinary citizens.

Clinton said that he took no action as a result of the information and could not be accused of any wrongdoing or breach of ethics.

“We are not covering up or anything; we are opening up. We are disclosing,” Clinton said. “No one has accused me of any abuse of authority in office. . . . There is no credible evidence and no credible charge that I violated any criminal or civil federal law.”

He said that comparisons to the Watergate scandal that drove Richard Nixon from office are “hysteria” promulgated by partisan Republicans. And he pleaded with reporters to reduce the intensity of coverage of the spreading scandal. “I am fully cooperating with the special counsel,” Clinton said. “They (Fiske’s investigators) will find the truth . . . . “

In another day of furious fallout from the spiraling Whitewater controversy, aides throughout the White House complex combed through overflowing trash receptacles and computer files in search of material that might be covered under subpoenas of the special counsel.

Late last week Fiske subpoenaed nine current and one former Administration official to produce testimony and records related to several meetings between White House and Treasury officials about Whitewater.

Monday, in a move that at least indirectly benefits the White House, Fiske expressed in a letter to congressional leaders his “strong concern” about the possibility of hearings on the Whitewater scandal.

On Capitol Hill, Democratic leaders used the Fiske letter to rebuff increasingly strident Republican calls for congressional hearings.

Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the Senate Banking, Housing and Urban Affairs Committee, quickly responded to Fiske’s letter, saying that his committee would “defer to your investigation” and hear no testimony on Whitewater while the controversy is under criminal investigation. House Banking, Finance and Urban Affairs Chairman Henry B. Gonzalez (D-Tex.) gave a similar response.

Republican lawmakers expressed outrage at what they called Democratic efforts to stonewall their attempts to conduct their own investigation.

Senate Minority Leader Bob Dole (R-Kan.) threatened that Republicans would hold up the confirmation of Ricki Tigert, Clinton’s nominee to head the Federal Deposit Insurance Commission, until Riegle’s committee agrees to hearings on Whitewater.

Rep. Jim Leach (R-Iowa), ranking minority member of the House Banking Committee, said in an interview that, while Fiske’s letter “looks thoroughly reasonable, its implications are chilling for the constitutionally mandated oversight responsibility of Congress and for free speech.”

Later, in a scathing speech on the House floor, Leach questioned Clinton’s ethical fitness. “Whitewater is about the arrogance of power, political conflicts of interest that are self-evidently unseemly,” Leach said.

Leach said that the subpoenas issued by Fiske last Friday showed that the focus of the investigation has shifted “from possible illegal acts committed by a President prior to taking office to possible illegal actions committed in office” and that “obstruction of justice is now clearly at issue.”

The White House search for a new counsel to replace Nussbaum included not only Cutler and McPherson but also former Watergate prosecutor Charles F.C. Ruff, and Charles B. Renfrew, a former federal district judge and deputy U.S. attorney general.

Cutler, 76, is known as a consummate Washington insider and a pillar of Democratic politics. He earned a reputation as a skilled White House counsel after he was summoned by Carter in 1979.

Cutler impressed White House officials with his energy last year when he led the forces championing the attorney general candidacy of Zoe Baird. Baird withdrew when it was disclosed that she had employed two illegal aliens as domestic help and had paid no Social Security taxes for them.

One Administration official said it would be “painfully ironic” if Cutler replaced Nussbaum in the White House counsel’s post, since Cutler was the chief force behind the Baird selection--though Nussbaum was often blamed for it.

Times staff writer Paul Richter in Washington contributed to this story.