Advisors See Legal Woes for First Lady

In her current campaign to defend herself, First Lady Hillary Rodham Clinton frequently tells audiences that federal regulators have cleared her of any wrongdoing resulting from her work for a failed Arkansas savings and loan and her participation with its owner in the ill-fated Whitewater investment.

To drive home her point, she notes that a report made public by the Resolution Trust Corp. last month recommends against the government filing a civil suit in the case--a decision that Mrs. Clinton claims “exonerates” her.

Yet while the RTC report certainly contained good news for the beleaguered first lady, even her own advisors admit that Mrs. Clinton’s legal troubles are far from over.

Not only has she been called to testify later this week before a grand jury investigating possible criminal acts in connection with the Whitewater controversy but Mrs. Clinton’s lawyers acknowledge that she and her former law partners still could be sued by the government for allegedly contributing to the $60-million collapse of Madison Guaranty Savings & Loan.

In addition, a committee that reviews the ethical conduct of lawyers licensed to practice in Arkansas is looking into evidence uncovered by the RTC of possible undisclosed violations related to the representation of Madison Guaranty by Mrs. Clinton’s law firm.

Nor has the president himself received a complete reprieve from potential legal obligations arising from the ever-expanding investigation centered on the Clintons’ involvement during the 1970s in the Ozarks real estate development known as Whitewater.

Although much of the focus of the Whitewater investigation has shifted from the president to the first lady in recent months, lawyers for James B. McDougal, Madison Guaranty’s owner, and his former wife, Susan McDougal, are threatening to call him to testify on their behalf when they go on trial on fraud charges in Little Rock, Ark., beginning March 4.

From the time it was uncovered by reporters during Clinton’s presidential campaign in 1992, Whitewater--the catchall name for a variety of allegations related to the collapse of Madison Guaranty and the Whitewater land deal--has never lacked for attention by law enforcement authorities. Indeed, it has been the focus of investigations by independent counsel Kenneth W. Starr, several federal regulatory agencies and two congressional committees.

And even though the president and the first lady frequently have been embarrassed by disclosures stemming from the multiple Whitewater investigations, no civil or criminal charges have been filed.

Nor do the Clintons’ lawyers see the summons from Starr for the first lady to appear before a grand jury as an indication that he is moving to bring charges against her. Indeed, prosecutors rarely call people to testify before a grand jury if they are likely to be charged at a later date, because such testimony would violate their 5th Amendment right against self-incrimination.

White House officials noted that Mrs. Clinton has not received a letter from Starr telling her that she is a target of the investigation. Under Justice Department guidelines, Starr is obligated to send such a letter to Mrs. Clinton if he intends to file charges against her.

For that reason, lawyers familiar with the case agree with Greg S. Walden, a Republican attorney and author who has written about the Whitewater controversy, that the importance of her testimony before the grand jury is being “overblown” by her critics.

“Does it mean the net is closing in on her?” asked Walden. “I don’t think so.”

Walden said that he believes Starr summoned Mrs. Clinton to testify before the grand jury because she was offering to go before the Senate Whitewater investigating committee and he wanted to question her first.

In addition, White House attorneys, who declined to be identified, said they believe Starr’s summons of Mrs. Clinton is meant to demonstrate that he is displeased by her failure to provide all documents he requested from her in a timely manner.

Mrs. Clinton has been told by Starr that she will be questioned specifically about the recent discovery of her mid-1980s legal billing records, which were subpoenaed two years ago.

Mrs. Clinton, in defending herself, has focused on the results of a report completed last month by the San Francisco-based law firm of Pillsbury, Madison & Sutro and one of its partners, former U.S. Atty. Jay B. Stephens, a Republican. The firm was paid nearly $4 million by the RTC to investigate the failure of Madison Guaranty Savings & Loan.

The report said that the law firm found no legal basis upon which the RTC could file “cost-effective claims” against anyone who might have played a role in the demise of Madison Guaranty.

While Mrs. Clinton was justifiably pleased with the findings, Republicans, such as House Banking and Financial Services Committee Chairman Jim Leach (R-Iowa), were quick to note that it did not exonerate the first lady. As Leach noted, the report drew no conclusions as to her guilt or innocence.

Nor did the report prove to be the final word on the matter.

Shortly after receiving the report, sources said, the RTC discovered that Mrs. Clinton was the author of a document that played a small role in a sham real estate transaction that caused Madison Guaranty losses of nearly $4 million.

As a result, even though the RTC’s legal authority to investigate savings and loan failures expired on Dec. 31, 1995, its lawyers negotiated an agreement with Mrs. Clinton’s former partners at the Rose Law Firm in Little Rock that would allow it to bring charges against the partnership until Jan. 31.

No decision has been made on whether this new piece of evidence will cause the government to bring charges against the law firm, officials said.

David E. Kendall, Mrs. Clinton’s lawyer, noted that she--as a former partner of the firm--could be held liable for a portion of the damages assessed against the Rose Law Firm if the government brings a successful civil suit against the partnership.

Furthermore, the RTC forwarded evidence to the Committee on Professional Conduct of the Arkansas Supreme Court involving conflicts of interest by members of the Rose Law Firm partnership for actions related to Madison Guaranty--a client of the firm for which Mrs. Clinton was responsible.

In a letter dated Dec. 29, 1995, William C. Collishaw, RTC general counsel, informed the committee that the RTC’s findings included “sufficient indication of the existence of possible undisclosed conflicts of interest by the Rose Law Firm.” It apparently referred to the firm’s decision to represent the RTC in a matter involving Madison Guaranty after originally representing the savings and loan in a variety of legal matters.

Lawyers familiar with the case said that the state’s Committee on Professional Conduct is not expected to rule in the case until later this year. As a lawyer licensed to practice law in Arkansas, they said, Mrs. Clinton presumably would be subject to any penalty the panel eventually imposes.