Clash of 2 Views Spawns Serious Whitewater Question : Inquiry: RTC civil servants and White House aides saw their actions surrounding the hiring of partisan lawyer Jay B. Stephens as normal.

At the time, career civil servants at the Resolution Trust Corp. wanted most to avoid being second-guessed in their probe of a failed Arkansas thrift with links to President Clinton and the Whitewater affair. So it seemed natural to hire a former federal prosecutor, a Republican, who would never be accused of taking a dive for the White House.

But what senior White House aides wanted most was to protect Clinton from more of what they considered unfair attacks by bloodthirsty Republicans and overzealous journalists. So it seemed natural to react with anger when they learned that the investigation would be headed by one of the most openly critical, partisan lawyers in the capital.

From the collision of those two viewpoints has come one of the potentially most serious elements in the tangle of questions and accusations surrounding Bill and Hillary Clinton’s Arkansas land deal.

The reaction of two senior White House aides to the appointment of former U.S. Atty. Jay B. Stephens to handle the RTC investigation of Madison Guaranty Savings & Loan is now part of special counsel Robert B. Fiske Jr.’s expanding probe into the Clintons’ real estate investment and related matters.

Fiske now is trying to determine whether Clinton adviser George Stephanopoulos improperly attempted to reverse Stephens’ hiring by pressuring Treasury Department officials, who were temporarily overseeing the RTC. In theory, that could amount to obstruction of a federal agency proceeding--a felony under federal law.

Whatever the legal outcome of this phase of Fiske’s investigation, Stephens’ appointment and the Administration’s reaction is a quintessential tale of the way politics and Washington’s career bureaucracy interact--a story of the defensive fears and anxieties that sometimes do more to drive events than aggressive plans or tactics.

RTC officials say they never anticipated that their decision to hire Stephens would horrify senior White House aides--and ultimately add another layer of intrigue and controversy to the Whitewater affair.

The regulatory agency will not acknowledge publicly that it has reopened its long-closed probe of Madison, the defunct savings and loan at the center of the Whitewater affair, or that Stephens has been retained to head the investigation. But the sequence of events that led to the hiring, and the reasoning on which it was based, were revealed in interviews with agency sources who spoke on condition of anonymity.

Under pressure from Congress to move quickly on the Whitewater-related investigation, the RTC’s legal services committee rapidly approved a contract hiring Stephens and his San Francisco-based law firm in early February. Certain that the probe would be scrutinized by Congress and the press, RTC officials were eager to hire a former prosecutor who could meet the “very rigorous standards required by this case,” one source close to the investigation said.

RTC officials saw in Stephens an experienced and zealous prosecutor with strong credentials in S&L; cases; he was already handling another case for the RTC involving a failed thrift in Virginia.

The White House, however, saw only a political enemy.

Although it may have been news to some RTC officials, the enmity between Stephens and the Clinton White House was hardly a well-kept secret. To political Washington, Stephanopoulos’ anger over Stephens’ hiring was understandable.

Stephens had been fired last year by Atty. Gen. Janet Reno--along with other Republican U.S. attorney holdovers from the George Bush Administration--just as he was trying to assemble a prosecution against House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), a close Clinton ally. Stephens then made an abortive run for the Republican nomination for the Senate in Virginia, and made surprisingly detailed comments about the continuing Rostenkowski probe.

Stephens suggested at the time that politics played a role in easing him out. He was only 30 days away, he said, from making “a critical decision with regard to the resolution” of the House post office investigation, the probe that involves Rostenkowski.

“The issue will be whether or not the ultimate decision in this case is somehow unnecessarily impacted by political considerations,” Stephens said.

Such comments had prompted the District of Columbia Bar Assn.’s board on professional responsibility to look into disciplining Stephens. One source familiar with the matter said the inquiry has since been closed. But a representative of the board declined to confirm or deny the action, saying all ethics matters are confidential unless they result in suspension or disbarment.

RTC officials insist that, although they hired Stephens and his law firm hurriedly, they followed proper procedures.

With the statute of limitations on the Madison case set to expire at the end of February--and with congressional interest in it growing--top RTC officials moved to reopen their civil investigation. The S&L; had been seized by regulators in 1989, at a cost to taxpayers of at least $47 million. RTC officials say they were satisfied with their original investigation of the firm for civil violations but were under pressure by Congress in the hothouse environment of the Whitewater affair to reopen the case at a time when Fiske was conducting his criminal inquiry.

Top RTC officials told staffers to rush the case through the system so they would be prepared to take legal action and to testify before Congress about the matter.

RTC attorneys gathered in the agency’s Kansas City office and scrambled to gather long-stored documents. Needing quick legal advice from an outside counsel already familiar with such investigations, the agency turned to Stephens.

Other attorneys at his firm--Pillsbury, Madison & Sutro--were already handling the RTC’s high-profile case against a failed S&L; in Arizona with links to Republican Gov. Fife Symington. Stephens, who was hired by the firm in January, began work on the Virginia thrift case for the RTC almost immediately. Pillsbury, an old-line San Francisco firm, was already doing about $2 million in annual billings with the RTC.

Before offering the contract to Pillsbury, RTC officials knew that Stephens would be the lead partner on the Madison case.

When news of Stephens’ hiring reached the White House, the reaction was fierce and immediate. “This was a wow, can you believe that!” one Administration official said. So on Feb. 25, sources say, Stephanopoulos and Deputy White House Chief of Staff Harold M. Ickes expressed their concerns in a telephone call to Deputy Treasury Secretary Roger Altman, then acting head of the RTC.

Stephanopoulos denies that he raised the issue with Altman but acknowledges that he called his close friend, Treasury Chief of Staff Joshua Steiner, later that day and asked whether Stephens’ hiring could be reversed. Altman and Steiner rebuffed Stephanopoulos, Treasury officials say.

A Treasury spokesman stressed that “neither Mr. Altman nor Mr. Steiner made any attempt to contact or influence the RTC” about Stephens’ hiring. On Thursday, Steiner testified in Washington before a grand jury hearing evidence in Fiske’s Whitewater investigation. One of a dozen Clinton Administration officials subpoenaed by Fiske, Steiner declined to comment to reporters as he entered the courthouse.

Steiner kept a diary that included notes about his phone conversation, and those notes have now been turned over to Fiske, sources say.