McDougal Sought Favor From Clinton : Whitewater: But President’s one-time investment partner was unsuccessful in his 1986 bid, report shows. Probers look for quid pro quo evidence.

In 1986, James B. McDougal, an investment partner and generous supporter of then-Arkansas Gov. Bill Clinton, tried without much success to use his political influence to win an exemption from state Health Department rules for one of his real estate developments, Whitewater investigators have learned.

Although Clinton did not agree to his friend’s request, evidence in the case suggests that the governor may have been inclined to do so before McDougal angered him by insulting state officials at a meeting on March 5, 1986. McDougal wanted to use septic tanks on hundreds of lots but only 20 lots had been approved for them.

Details of McDougal’s actions in 1986 came to light last week in a lengthy report prepared by the law firm of Pillsbury, Madison & Sutro for the Resolution Trust Corp., the federal agency investigating the collapse of Madison Guaranty Savings & Loan, which was owned by McDougal. Although the report has not been made public, some parts of it have been made available to reporters by sources who declined to be identified.

The 1986 incident has been investigated by FBI agents working for Whitewater independent counsel Kenneth W. Starr as well as independent investigators for the federal agency responsible for investigating the failure of Madison.

In addition, investigators for the House Banking and Financial Services Committee are known to be looking into the story of McDougal’s effort to influence state officials as they prepare for renewed congressional hearings into Whitewater, beginning Aug. 7.

For the last two years, these investigators have been searching political and government records in Arkansas for some proof that Clinton did favors for McDougal in exchange for the personal financial assistance that the governor received from the former S&L; owner.

Among other things, McDougal staged a fund-raiser for Clinton at the offices of his S&L; in the spring of 1985, raising $35,000 to help the governor pay off a campaign debt.

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In addition, while Clinton and McDougal were said to be equal partners in an Ozark real estate development known as Whitewater, McDougal contributed considerably more money to the project than the governor.

No conclusive evidence of a quid pro quo has ever publicly come to light, however, even though the story of McDougal’s attempt to influence state Health Department officials in 1986 suggests that the S&L; owner clearly expected a favor in exchange for his assistance to Clinton.

Unless investigators can find evidence of a quid pro quo in any dealings between McDougal and Clinton, the President is likely to be exonerated of any serious wrongdoing by the Whitewater investigation. White House officials said they believe Clinton will be cleared.

According to the report, McDougal contacted Clinton in March, 1986, to complain to the governor about a Health Department ruling requiring him to install a sewage system before building a planned housing development known as Maple Creek, south of Little Rock, Ark. McDougal wanted to provide the houses with cheaper septic tanks.

Using his political influence, McDougal succeeded in getting a face-to-face meeting on March 5 with Clinton, Health Department Director Ben Saltzman and Deputy Director Tom S. Butler to discuss the matter, the report said.

At the outset of the meeting, Clinton talked as if he wanted to grant McDougal’s wish. According to a memo written later by a member of his staff, Jay Choate, the governor introduced McDougal to state health officials as “a friend of 20 years who had never asked for a favor.”

But the governor stopped short of granting McDougal’s request, apparently because of an intemperate outburst by the S&L; chief during the meeting.

According to the memo, McDougal accused Health Department officials of “duplicity and trickery” and described one particular official as “not sane, not qualified, not stable and psychotic.”

Butler told The Times that McDougal’s abusive behavior caused Clinton to turn red in the face and explode in anger. After the meeting, according to Butler, the governor apologized to him and to Saltzman for the way his friend had talked to them.

McDougal is expected to be indicted soon for allegedly mishandling the finances of Madison and Whitewater.