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Ex-Judge Hale Pleads Guilty Over Arkansas Loan Fraud : Inquiry: Political insider agrees to cooperate with Whitewater special counsel. Fiske calls step ‘significant.’

TIMES STAFF WRITER

Former Municipal Judge David Hale, an Arkansas political insider who claims that then-Gov. Bill Clinton pressed him to make improper government-subsidized loans in the mid-1980s, pleaded guilty to federal fraud charges Tuesday and agreed to cooperate with Whitewater investigators.

Special counsel Robert B. Fiske Jr., who has called Hale’s allegations “fundamental” to his Whitewater inquiry, told U.S. District Judge Stephen M. Reasoner that Hale’s cooperation assured that the claims “will be pursued thoroughly and vigorously.”

The plea and cooperation agreement, which came the day before selection of a new grand jury panel, represents the first major development in Fiske’s young investigation.

In a brief statement outside the courtroom, Fiske said Hale’s cooperation “will be a significant contribution to our investigation.” Rusty Hardin, Fiske’s assistant, said that Hale, 56, had “extensive knowledge in the areas we are investigating.”

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The agreement, reached after more than two weeks of daily private meetings between Hale and prosecutors, also seemed to add a measure of credibility to Hale’s so-far uncorroborated story.

Hale’s accounts certainly represent the most serious allegations raised against the President. If proven, they could link Clinton to potentially criminal conduct--at worst, allegedly using his influence to get federal funds channeled improperly into loans or investments that benefited Clinton personally.

Clinton has repeatedly denied Hale’s charges and this week called them “a bunch of bull.”

Hale has told much of his story in lengthy interviews with The Times and other news organizations since his indictment in September. On Tuesday, however, his attorney said that Hale had already provided prosecutors with “a lot more detail” than he had revealed to the press.

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“There are additional transactions that have not come out involving some of the same people and others,” attorney Randy Coleman said. He declined to say whether any of those transactions involved Clinton or First Lady Hillary Rodham Clinton.

Central to Hale’s story, as publicly disclosed to date, is the allegation that in late 1985 and again around February, 1986, Clinton asked him to make loans to James B. McDougal, the Clintons’ partner in the Whitewater resort development in the Ozarks. According to Hale, Clinton asked him to “help Jim and me.”

Hale at the time operated a Small Business Administration-backed fund called Capital Management Services Inc. Its purpose was to make venture loans to socially and economically disadvantaged borrowers.

In response to Clinton’s request, Hale has said, he made a series of loans totaling $700,000 to members of the Arkansas “political family.” The loan applications, according to Hale, were prepared and referred to him by McDougal, then the owner of the failing Madison Guaranty Savings & Loan. None of the $700,000 was ever paid back.

The largest of the loans--$300,000--was made to McDougal’s then-wife, Susan, and records show that the check was cashed at Madison Guaranty. Hale concedes that the loan violated SBA rules.

Hale also says Clinton specifically objected to having his own name appear on any official documents, and so the loan was made in the name of Mrs. McDougal. According to the former judge, Clinton nonetheless offered to put up as collateral some raw land in the Ozarks, an offer that Hale declined.

McDougal denies that any such meeting or discussion ever took place. The White House has said that Clinton cannot recall asking Hale to make any loans.

McDougal does concede that $110,000 of the funds borrowed from Hale were transferred into the Whitewater account of the Clinton-McDougal partnership and used to purchase land for another land venture outside Little Rock.

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In a previous interview, McDougal said he made the investment without consulting the Clintons. He said his intention was to try to bail out Whitewater by starting a successful development elsewhere. However, the new development failed and the land was repossessed.

Fiske, who is trying to determine if funds from Madison Guaranty were illegally diverted to prominent Arkansans, including the Clintons, bluntly acknowledged Tuesday that “of course we’re interested” in the Susan McDougal loan and its aftermath.

In addition to Hale’s allegations, the special counsel is examining the dealings of the Whitewater Development Corp., its ties to Madison Guaranty, last July’s apparent suicide of Deputy White House Counsel Vincent Foster and a series of contacts between the White House and Treasury Department regarding the Madison inquiry.

Under terms of the plea agreement disclosed Tuesday, Hale still faces the possibility of up to 10 years in prison and fines exceeding $250,000.

Sentencing was delayed for at least four months to permit Fiske to complete the Hale-related portions of his investigation. At that time, government attorneys agreed, they will recommend judicial leniency if Hale’s cooperation merits it.

Defense attorney Coleman, who stood beside Hale as he entered his guilty pleas, said: “This is a painful and embarrassing day for David, as I think it is for the state of Arkansas.”

Coleman has said for weeks that Hale was practicing “business as usual” in Arkansas when, by his account, he provided funds to Arkansas’ political elite.

Since last fall Hale and Coleman have been calling for a special prosecutor because the local U.S. attorney was a longtime Clinton campaign supporter.

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Previous efforts to negotiate a plea agreement also had failed until the Fiske team moved into Little Rock earlier this year. Coleman said that Hale trusted Fiske and his team.

“David believes that they will fully investigate . . . " he said. “Otherwise, we would not have done this today.”

* WHITEWATER HEARINGS: House leaders agree to set timetable for hearings. A20


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