Former Judge, Accused of Fraud, Tries to Implicate Clinton : Inquiry: He reportedly promises special counsel he will tell of President’s Whitewater role. White House discounts charges by David Hale.

David Hale seems like the last person who should be hurling unsubstantiated accusations of criminal wrongdoing at the President of the United States.

A former Municipal Court judge, Hale himself stands accused of conspiring to defraud the government of $900,000 through phony financial transactions.

“I haven’t been a saint,” he concedes.

Yet despite his own legal problems, Hale has been successful in getting people to listen to his allegations that President Clinton was a co-conspirator in some of his alleged financial misdeeds.

The White House has discounted Hale’s story as a complete fabrication. Betsey Wright, a top aide to Clinton when he was governor of Arkansas, says the tale is “filled with absolute lies.”

Nevertheless, legions of Democrats, Republicans and other interested observers are watching to see if Hale will back up any of what he has alleged with hard evidence.

Several sources reported Sunday night that Hale had reached a plea agreement with special counsel Robert B. Fiske Jr. under which he agreed to tell a federal grand jury what he knows about Clinton’s involvement in the Whitewater controversy.

Hale is expected to enter a plea Tuesday in federal court. A guilty plea would clear the way for him to begin testifying Tuesday before a federal grand jury.

His testimony could lead to embarrassing public disclosures for the Arkansas political Establishment, including the Clintons.

Fiske had identified Hale as a potential witness in his probe of whether Clinton improperly benefited from his investment in a Ozarks real estate development company when he was governor.

To date, Hale, who served as a municipal judge (appointed by then-Gov. Clinton) until he was indicted, has not had an opportunity to tell his story in detail to Fiske or any other authorities--only to members of the news media who have come to Little Rock to cover the Whitewater controversy.

Hale went public with his charges late last year after federal prosecutors refused his efforts to use the information to negotiate a plea bargain.

As Hale tells it, his financial and legal troubles stem directly from his allegiance to Clinton and his willingness to help what he describes as the President’s “political family” in Arkansas. It was out of loyalty to Clinton, he says, that he began making improper loans from his family’s investment company to friends and associates of the then-governor.

While also working as a judge, Hale ran Capital Management Services Inc., a firm subsidized by the Small Business Administration to loan long-term venture capital to minority and disadvantaged borrowers. Together with his wife and sister, he said, he invested about $500,000 in the firm, and the SBA had added $1.5 million to create the investment pool he managed.

Hale says he was approached for money in late 1985 by attorney Jim Guy Tucker, now the governor of Arkansas, and James B. McDougal, owner of Madison Guaranty Savings & Loan. McDougal and Tucker were partners in several business deals, just as McDougal and Clinton were joint investors in the real estate venture known as Whitewater Development Corp.

Hale says McDougal’s real estate deals had put Madison Guaranty on the brink of insolvency and he wanted loans from Hale to help save it. Eventually, Hale would lend a total of $700,000 to McDougal-related enterprises, none of which was ever repaid.

Clinton’s name was mentioned in connection with the initial loan request, according to Hale. When Hale ran into Clinton in the rotunda of the state Capitol a short time later, he said, the governor made it clear that he wanted the loans to be made “to help Jim (McDougal) and me out.”

Acting at McDougal’s direction, Hale said, he loaned $50,000 to a former Clinton aide and campaign adviser; $260,000 to a real estate development partnership including Tucker, and $100,000 to a McDougal real estate venture in Nova Scotia. Although the loans apparently breached SBA rules, Hale claims that it never occurred to him that he could refuse.

“No, I didn’t ask any questions,” he said. “That’s just how it’s done here.”

On an evening in February, 1986, Hale claims, he went to an office on the outskirts of Little Rock to meet with Clinton and McDougal, who wanted him to make another loan for $150,000. McDougal later upped the request to $300,000.

It was agreed at that meeting, Hale said, that the loan would be made to McDougal’s then-wife, Susan, to satisfy government regulations that SBA-backed loans be made to disadvantaged people. Her loan application suggested she had been denied loans from regular sources because she was from an impoverished background.

As collateral for the loan, according to Hale, Clinton offered to put up some raw land in the Ozarks. But Hale declined on grounds the government does not regard undeveloped land as reliable collateral. “At that time,” Hale said, “I’d never heard of Whitewater Development.”

Of the $300,000 Hale loaned to Susan McDougal’s Master Marketing firm, a subsidiary of Madison Guaranty, $110,000 was diverted into the Whitewater venture. It is not known where the rest of the money ended up.

Because Hale’s firm had no money left to lend at the time of the alleged Clinton request, he says he and McDougal cooked up a complex transaction designed to persuade SBA officials to provide additional funds for the deal.

It happened this way, according to Hale: McDougal arranged for Hale to sell a piece of property the judge owned at a grossly inflated price of $825,000. McDougal financed the sale with a loan from Madison Guaranty. In reality, the property was worth no more than $400,000, and Hale’s equity was only $100,000.

Hale said he then put the “profits” into his SBA-backed investment corporation and used that money to persuade the government to give him another $1 million. Typically, the SBA requires the owner of the investment corporation to raise a third of the money while the government supplies the rest.

Flush with new capital, Hale says he was then able to make the new loan to Susan McDougal’s firm.

Hale has never been charged with any crime in connection to the loans related to Madison Guaranty, which failed in 1989, but he is accused of defrauding the government using a similar scheme three years later.

In the later instance, he is accused of borrowing $800,000 from a Shreveport, La., man and passing it through his accounts to deceive the SBA into giving him another $900,000. As part of his defense to those charges, Hale claims that he became involved in the scheme in an effort to make up the money lost in the McDougal loans.

Both Clinton and McDougal deny that they attended the meeting at the center of Hale’s story. McDougal concedes that $110,000 of the loan money was diverted to Whitewater Development, but he insists that Clinton knew nothing about it and that he was managing the investment.

Fiske, a Republican appointed by Atty. Gen. Janet Reno to investigate the Whitewater case, has said that looking into Hale’s story will be a “fundamental part” of his investigation.

But Fiske had also said he is skeptical of Hale’s effort to use the story about Clinton as a defense against charges against him.

Hale admits that he is trying to trade his testimony against Clinton for leniency.

But it won’t be easy for Hale to establish his credibility. Evidence collected by Fiske includes a 1987 financial report that quotes Hale defending the soundness of a loan now known to be a phony transaction.

Randy Coleman, Hale’s Little Rock attorney, said his client is determined to testify about the role that Clinton and Tucker played in his downfall.

As he awaits his day in court, Hale portrays himself as a scapegoat who is being forced to take the blame for cooperating with some of Arkansas’ leading Democrats.

“I don’t think it’s right for me and my family to be left alone bearing the consequences of what was really Arkansas politics as usual,” he said. “I guess I thought when things got bad for me, the ‘political family’ would be there for me like I was there for them.”