Records Raise Questions About First Lady’s Role


First Lady Hillary Rodham Clinton’s newly discovered legal billing records indicate she helped her Whitewater investment partner, James B. McDougal, complete what regulators say was a fictitious real estate deal in the mid-1980s that contributed to the $60-million collapse of his federally insured savings and loan.

The long-lost records, which were discovered at the White House and made public last week, provide no evidence that Mrs. Clinton knew of any illegality. But they do show that Mrs. Clinton met on at least 14 occasions between November 1985 and June 1986 with one of the central figures in the purchase by Madison Guaranty Savings & Loan of property south of Little Rock, Ark., known as Castle Grande. In addition, the records state that she drafted a document on May 1, 1986, related to the Castle Grande deal and billed Madison $280.

When the Resolution Trust Corp., or RTC, recently learned about Mrs. Clinton’s work on the May 1 document, knowledgeable sources say, the agency promptly drafted 43 written questions for the first lady to answer about her role in Castle Grande. Her answers are expected to be made public soon.


Mrs. Clinton’s lawyer, David E. Kendall, contends the billing records support her claim that she did minimal work for the savings and loan. He noted that there is no evidence in the records that she knew the illegal nature of the deal, nor do they show she worked on Castle Grande-related matters until after the initial purchase in late October or early November 1985.

But Republicans, led by House Banking Committee Chairman Jim Leach (R-Iowa), insist the records demonstrate that she was deeply involved in the day-to-day legal work that her law firm did for Madison and stood--as Leach’s spokesman put it--”at the center of a fraudulent deal.”

In any case, the first lady’s sudden production of the previously missing records has helped to feed Republican suspicions that she orchestrated a cover-up of her legal work for the thrift. Until now, she has failed to comply with repeated requests for the records from Whitewater independent counsel Kenneth W. Starr and two congressional committees.

Combined with the surprise discovery of another previously missing White House memo that implicates the first lady in the travel office scandal, last week’s developments have served to revive flagging congressional interest in the long-running Whitewater scandal.

Even though the Castle Grande deal is not directly related to the Clintons’ investment in Whitewater, it is a central focus of Starr’s investigation and also will be a key part of the case Starr presents in the upcoming trial of McDougal, his former wife, Susan, and Arkansas Gov. Jim Guy Tucker on Whitewater-related charges.

At the time that Mrs. Clinton’s law firm represented Madison in the mid-1980s on a $2,000 a month retainer, the Clintons were partners with the McDougals in the Ozarks land development known as Whitewater Development Corp. Investigators have found evidence that money from Madison was diverted improperly to the Whitewater project, although the continuing probe has not linked the Clintons to the diversion.



From the first time federal regulators began looking into the collapse of Madison, they were drawn to the financial machinations involved in the 1,100-acre real estate development known as Castle Grande. When the development went sour in the late 1980s, it cost the thrift $3.8 million, contributing to its ultimate collapse and federal bailout.

Castle Grande was publicly portrayed by McDougal as a low-cost residential and commercial development for families seeking to escape the city. But when investigators began exploring it, they reported finding a string of shell companies, straw buyers, phony transactions, inflated profit statements and questionable payments to insiders.

Purchase of the land was financed entirely by Madison. Investigators maintain that by recruiting sham partners in Castle Grande, McDougal succeeded in circumventing state regulations that prohibited a thrift from embarking on a real estate venture without other investors.

The records show that on at least 14 occasions between November 1985 and June 1986, Mrs. Clinton met with or spoke to Seth Ward, one of several prominent Arkansans who at that time were posing as fictitious investors in the Castle Grande purchase. Ward is also the father-in-law of former Associate Atty. Gen. Webster L. Hubbell, who at the time was one of Mrs. Clinton’s law partners.

Hubbell is now serving a jail sentence on an unrelated charge: defrauding the Rose Law Firm by falsely claiming about $400,000 in expense reimbursements.

Records show Mrs. Clinton billed Madison for drafting an option agreement between Ward and Madison on May 1, 1986, that investigators say was a belated part of the Castle Grande purchase transaction.


At McDougal’s request, Ward purchased the bulk of the $1.75-million property in his name with full financing from Madison, and the loan was secured by the land. For his effort, Ward was promised at least $300,000 by McDougal.

As Kendall noted, there is no record that Mrs. Clinton assisted in the initial purchase. In fact, investigators have never been able to establish the exact date of the transaction because those documents have never been found.

By early 1986, Madison did not have money to pay Ward the $300,000 that McDougal had promised. So McDougal offered to lend him $400,000, secured by 22 acres of overvalued Castle Grande land. The option agreement drafted by Mrs. Clinton provided that Madison could purchase the 22-acre parcel from Ward for $400,000.

The purpose of the option agreement has never been fully established by investigators, but Kendall noted that it was never exercised.

However, Ward received the money from Madison. He kept his $300,000 and later deeded the Castle Grande land to Madison. Not until he was sued by the RTC did he repay the money.

Recently, after the RTC learned about Mrs. Clinton’s role in drafting the option, the agency reversed an earlier decision to forgo all legal claims against the Rose Law Firm, where she had been a partner. The agency, which ceased operation on Dec. 31, then negotiated an agreement with the Rose firm that gives the government until the end of January to decide whether to sue.



According to sources, Mrs. Clinton has told the RTC she has no recollection of working on the option. But she does not deny that she later did some regulatory work for the development, which is also reflected in the billing records.

The billing records do not demonstrate that Mrs. Clinton was aware of the improper nature of the Castle Grande deal. But they do appear to contradict her previous statements that other lawyers in the firm carried out the day-to-day work for Madison while she served only as the so-called “billing partner” whose name appeared on the invoices.

This is not the first time Mrs. Clinton’s work for Madison has come under scrutiny. In fact, the copies of the billing records just found in the White House were made in February 1992, at a time when Clinton campaign officials were trying to answer questions from the media about her work for Madison.

Former White House Deputy Counsel Vincent Foster apparently made these copies of the billing records and used them to prepare a report for the 1992 Clinton campaign that summarized Mrs. Clinton’s work for Madison. Then a partner and confidant of Mrs. Clinton, Foster was promoted to White House assistant counsel in 1993 and committed suicide in July 1993.

It is not clear how the billing records, which contain handwritten notes in the margins by Foster, wound up in the files of Mrs. Clinton’s personal correspondence secretary, Carolyn Huber. Nor is it clear why Huber, the former Rose Law Firm office manager, did not find them until last week.

Republicans strongly suspect the billing records were among the items that Mrs. Clinton’s chief of staff, Margaret Williams, allegedly removed from Foster’s office on the night his body was found.


Williams denies removing any materials from Foster’s office that night. But her recollections of the events of that evening are so vague that Sen. Alfonse M. D’Amato (R-N.Y.), chairman of the Senate Whitewater investigating committee, is threatening to charge her with perjury.

D’Amato has said he believes the files were removed from the office as part of a cover-up designed to prevent law enforcement officials who investigated the Foster death from obtaining incriminating material about Mrs. Clinton. Williams’ vague recollections, as well as the unexplained disappearance of the billing records, are also seen by D’Amato and other Republicans as a part of the cover-up.

Not only did the Rose firm assist Madison in transactions that now appear faulty, but the firm also failed to disclose its role in this work when it volunteered several years later to help the RTC resolve Madison losses. In 1989, Rose won a $300,000 contract with RTC to represent the agency in this case.

In its role as attorney for RTC, Rose assisted in suing an accounting firm for failing to detect the illegality of the transactions in which the Little Rock law firm itself had played a part. Investigators say Rose overbilled the government by as much as $446,000 for the work. Some of these overcharges were a part of Starr’s case against Hubbell.

The billing records also demonstrate that Mrs. Clinton met with McDougal and other officers of the thrift on at least 16 occasions during 1985 and 1986 and sat in on at least 28 conferences or phone calls dealing with Madison.


In addition, the documents show Mrs. Clinton contacted state officials at least twice on behalf of Madison. In the past, she has indicated that she did not represent any clients in matters before state officials while her husband was governor of Arkansas.


Mrs. Clinton is about to embark on a high-profile tour to promote a book she has written about government policy toward children, and will almost certainly face intense media questioning about her legal and ethical controversies.

Such questions dominated a Clinton interview with Newsweek, which also published excerpts of her book on Sunday. Asked by the magazine about a memo released this week by former White House aide David Watkins--who said the first lady in 1993 had orchestrated the firing of the White House travel office and had served notice that there would be “hell to pay” unless her wishes were followed--she responded, “I just don’t have any memory of that.”