FDIC’s Watchdog Criticizes Agency Lawyers, Rose Firm

The inspector general of the Federal Deposit Insurance Corp. concluded Monday that the agency ignored numerous conflicts of interest in hiring the Rose Law Firm of Little Rock, Ark., and glossed over its failings in a report intended to examine whether Rose had been improperly hired.

The report issued Monday took both Rose and FDIC lawyers to task. The inspector general’s investigation was prompted by Republican charges of a “whitewash” in the FDIC’s earlier inquiry into conflict of interest charges involving the Arkansas law firm, where First Lady Hillary Rodham Clinton is a former partner.

The inspector general’s office said it sent the report to the FDIC general counsel for possible legal sanctions against the Rose firm, including recovery of overbillings, and said it reported professional misconduct to authorities. The report came a week before the House Banking Committee is expected to examine Rose’s work for the government as part of overall hearings into the Whitewater real estate venture.

Former Rose partner Webster L. Hubbell came in for the harshest criticism for failing to disclose his own and his firm’s extensive ties to Madison Guaranty Savings & Loan when he agreed to sue the failed thrift’s accountants on behalf of taxpayers in 1989.

Hubbell, the former No. 3 official in the Clinton Justice Department, is scheduled to report to prison next week for defrauding the law firm and overbilling his clients, including the FDIC.

Among the conflicts the inspector general said Rose failed to disclose to the FDIC was the fact that the firm--in particular partner Hillary Clinton--had represented Madison before the Arkansas state securities department during the mid-1980s when the struggling S&L; was seeking approval for a recapitalization plan. As part of that effort, Rose presented statements prepared by the accounting firm of Frost & Co. showing that Madison was in good financial shape, though the thrift was actually close to insolvency.

Hillary Clinton was on a $2,000-a-month retainer at Madison during the mid-1980s. The inspector general’s report found no conflict of interest in her performance of a few hours of work in an S&L; case that involved Dan Lasater, a Little Rock bond dealer and Clinton supporter who went to prison for cocaine distribution.

Mrs. Clinton gave an affidavit to the FDIC inspector general, then submitted to an interview but was not placed under oath.