New Charges on Whitewater Told in House
Rep. Jim Leach of Iowa, President Clinton’s leading Republican critic in the Whitewater controversy, charged Thursday that the Arkansas real estate venture ultimately was used “to skim, directly or indirectly, federally insured deposits” from a Little Rock savings and loan.
Presenting what he called the findings of a months-long investigation by Republicans in Congress, Leach released more than 100 pages of documents that he said prove Clinton and his associates guilty of benefiting financially and politically from Whitewater, stonewalling on the subsequent investigations and interfering with federal regulators.
“Whitewater may have begun as a legitimate real estate venture,” Leach said on the House floor, but eventually “it came to be used to skim, directly or indirectly, federally insured deposits” from both Madison Guaranty Savings & Loan and Capital Management Services Inc., a Small Business Administration-backed fund that made government-subsidized loans to what were supposed to be economically disadvantaged borrowers.
The documents Leach released, many of them internal memoranda and notes written by federal regulators and investigators working for the Resolution Trust Corp., provided no evidence directly linking Clinton or his wife to that scheme or other apparent wrong-doing.
Included in the documents was a memorandum in which a senior federal investigator of the Whitewater controversy concluded that the real estate investment shared by Clinton, First Lady Hillary Rodham Clinton and two friends cost the federally insured Little Rock thrift more than $100,000. This is the first government estimate of the financial impact of Whitewater on Madison Guaranty, which eventually folded at a cost to taxpayers of more than $47 million.
The material Leach released provided new details about many aspects of the controversial case, including a conclusion by investigators that Clinton’s Whitewater partners had used Madison and its subsidiary in a giant check-kiting scheme.
This conclusion was contained in a memo written earlier this year by L. Jean Lewis, the senior criminal investigator in the Kansas City office of the RTC, who had been handling the RTC’s investigation of Madison Guaranty. Madison, which the RTC shut down in 1989, was owned and operated by James B. McDougal, the Clintons’ partner in Whitewater Development Corp.
Lewis said in the memo, which described a discussion she had with a senior attorney for the Federal Deposit Insurance Corp. last month, that she doubted any of McDougal’s business partners could have been unaware they were benefiting from McDougal’s use of Madison funds.
“If you know that your mortgages are being paid, but you aren’t putting money into the venture, and you also know the venture isn’t cash flowing, wouldn’t you question the source of the funds being used to benefit . . ?” Lewis asked. “Wouldn’t you wonder even more if you knew that your business partner’s main source of income, an S&L;, was in serious financial difficulty, which by 1985 was fairly common knowledge?”
The Clintons have said that they invested about $70,000 of borrowed money in Whitewater and received no return on their investment, except for some interest payments on loans that were covered by Whitewater and McDougal. But McDougal has said that they never invested more than about $13,000 in the deal.
Lewis said in her memo that the FDIC lawyer, April Breslaw, who had come to Kansas City to discuss Madison Guaranty, told her that “people at the top” of the government hoped the RTC would conclude that no money from the defunct savings and loan went into Whitewater Development.
To the contrary, Lewis’ notes said she told Breslaw, there was ample evidence that Whitewater received money from Madison as part of McDougal’s larger check-kiting scheme. In just one six-month period examined by the RTC, she said, investigators found that $70,000 had been shifted from Madison to Whitewater.
Judging from that evidence, she said, “it was my belief that the losses to Madison from the Whitewater account alone would easily exceed $100,000.”
Included in the $70,000 of thrift funds that went to Whitewater was a $30,000 check approved by the Madison board of directors as a bonus for McDougal. According to Lewis, the bonus money was immediately moved into the Whitewater account at a time when it was overdrawn by $28,000.
Lewis said there was no doubt in her mind that Whitewater was an integral part of McDougal’s complex financial scheme, and that Whitewater-related losses helped to bring the federally insured institution down.
“There is a clear-cut loss,” she wrote, recalling her conversation with Breslaw. “I also stated that any attempt to extract Whitewater as one entity from the rest of the McDougal-controlled entities involved in the alleged check kite will distort the entire picture. . . .
“I stated that if she wanted me to tell her, unequivocally, that Whitewater didn’t cause a loss, I could not do that.”
Lewis indicated that her judgments were at the heart of the so-called “criminal referral” that the RTC forwarded to the Justice Department last year, asking for a criminal investigation of Madison and the related real estate investment once partly owned by the President. The substance of that referral, which kindled the Whitewater controversy, had never previously been made public.
But neither Lewis’ memo on her conversation with Breslaw nor the other documents released by Leach showed direct involvement in Madison’s activities on the part of Clinton. The President has consistently maintained--and did so again in his press conference Thursday night--that he had no knowledge of McDougal’s Madison activities.
Led by Leach, the ranking minority member of the House Banking, Finance and Urban Affairs Committee, House Republicans have been investigating Whitewater and Madison with the hope of making their findings known at a committee hearing on the RTC. But committee Chairman Henry B. Gonzalez (D-Tex.) abruptly canceled that hearing, which had been scheduled for Thursday morning, after Leach served notice that he planned to call a number of Whitewater-related witnesses.
While Democratic leaders later agreed to negotiate with Republicans about the possibility of conducting Whitewater hearings, no dates were set--prompting a clearly disappointed Leach to go to the floor on the last day before Congress’ spring recess to outline what he said are the results of his months-long inquiry.
Among Leach’s key assertions:
* The Clintons, far from losing nearly $69,000 on their ill-starred investment as they have claimed, “received value from Whitewater in excess of the resources (they) invested.” He apparently was counting political and other benefits, as well as possible financial gain.
* Funds from Madison Guaranty may have been improperly used to help pay off a personal loan of $50,000 that Clinton took out to help finance his 1984 gubernatorial campaign.
* Federal regulators in Washington, hoping to stifle the political fallout, interfered with the Madison investigation being conducted by the Kansas City office of the RTC, the agency charged with overseeing clean-up of the nation’s multibillion-dollar S&L; failures.
He cited the meeting between Breslaw and Lewis as evidence of high-level pressure on the investigation, though Lewis’ notes said that Breslaw indicated her superiors in Washington were hoping for--but not insisting on--a finding that Whitewater did not benefit from Madison funds.
Leach himself acknowledged indirectly that his evidence does not directly tie Clinton to wrong-doing, saying that “on the landscape of political scandals” Whitewater may end up being only “a bump.”
But he also asserted that deception and greed inherent in Whitewater “speaks mountains about the Me-Generation ethics” of the 1980s and in some ways should be condemned more than the so-called Keating Five scandal, to which he said it bore disturbing similarities. Five senators were investigated by the Senate Ethics Committee for allegedly helping Charles H. Keating, owner of failed Lincoln Savings & Loan, in return for campaign contributions.
“In a nutshell,” Leach added, “Whitewater is about the arrogance of power.”
Leach said that one of the Kansas City investigators whom he did not identify by name--but who was understood from information provided by other sources to be Lewis--later was “removed from the case” for refusing to abide by the “gag order” imposed on her by her superiors in Washington.
She and several other investigators from the Kansas City office “courageously” resisted the attempts to deflect their Madison inquiry and “have sought whistle-blower protection rather than comply with the Washington . . . gag order,” Leach said.
On Leach’s charge that Lewis, the RTC lead investigator on Madison Guaranty, was removed from the case, his documents included an E-mail computer message last Nov. 10 from Lewis to four other FTC officials.
“Hey you!” the message opens. “Just a heads up to let you know that Mike Caron, Senior Criminal Investigator, is now the lead investigator on Madison . . . so any more faxes you send should come to Mike’s attention, and any further communications about Madison should go to him, too.
“The Powers That Be have decided that I’m better off out of the line of fire (and I ain’t arguing), but please let me assure you, that we are leaving you in very capable hands!”
Three days later, on Nov. 15, 1993, Lewis was still sufficiently involved in the case to send a computer message to Lee O. Ausen, another RTC investigations official, urging that she be allowed to attend an upcoming meeting with a Justice Department attorney appointed to head the investigation.
“(Justice Department lawyer Donald) McKay is not coming here to look at records,” she wrote. “Cut to the bottom line. He is coming here because he wants to be convinced that there either IS or IS NOT a very good case behind those referrals. . . . He’s coming here to evaluate us, our work, and to try and decide just how good this case is, and how he can best deal with a very sensitive political situation . . .
“If this meeting is going to turn into a turkey shoot, then you are going to need every loaded gun you’ve got to assist you in convincing this special prosecutor that the case is as good as it looks on the surface. And yes, we have strong documentation to support the allegations. But what’s beneath the surface, including where we looked and why, who’s tied to who, who’s in business with who, who got paid for what and where all the internal and external ties are, isn’t in writing. It’s in my head.”
Times staff writer Ronald J. Ostow contributed to this story.
