S&L; Lawyer Said Likely to Know of Deal

A federal bank examiner suggested in congressional testimony Tuesday that First Lady Hillary Rodham Clinton ought to have known that a 1985 land deal arranged by an Arkansas savings and loan she represented was structured in a way that violated state law.

The examiner, James T. Clark, told the Senate Whitewater Committee that he found no evidence during his 1986 review of Madison Guaranty Savings & Loan that then-Arkansas Gov. Bill Clinton or his wife had been personally involved in a series of fraudulent transactions on a development called Castle Grande.

But when asked if counsel for the thrift would have known that the real estate deal had been arranged to evade state law, Clark replied: “I would expect outside counsel to be aware of this.”

Recently discovered billing records of the Rose Law Firm showed that Mrs. Clinton, then a senior partner at the Little Rock, Ark., firm, had worked on legal matters dealing with Castle Grande and had been the law firm’s principal billing partner on work related to Madison Guaranty.

The first lady has said that she recalls very little about the Castle Grande residential development project and denied knowing about any improprieties. She also said that she knew it not as Castle Grande but as IDC (Industrial Development Corp.), which is the name of the company that sold the 1,100-acre parcel to Madison Guaranty and businessman Seth Ward. The project was later referred to as Castle Grande.

Clark described Castle Grande as a series of land purchases by Ward and other Madison Guaranty “insiders,” all secretly financed by Madison Guaranty but structured to evade an Arkansas law that limited such purchases by an S&L; to 6% of its net worth. The real purpose of Castle Grande, he testified, was to enrich Madison Guaranty officers and consultants like Ward with commissions and hidden bonuses to which they were not legally entitled.

As a result of Castle Grande and other irregularities and bad loans, Madison Guaranty became insolvent--and cost U.S. taxpayers more than $60 million.

Sen. Frank H. Murkowski (R-Alaska), a committee member, noted that Ward was the father-in-law of Webster L. Hubbell, then a Rose senior partner along with Mrs. Clinton.

Referring to the law firm, Murkowski said: “You’d have to be blind not to know there was some sort of a scam going on. Let’s quit kidding ourselves. Lawyers in a small community like Little Rock talk to each other.” Little Rock’s population is about 176,000.

Hubbell, who became a high-ranking Justice Department official in the Clinton administration, pleaded guilty last year to overbilling clients and defrauding law partners and is in prison.

Clark testified that the land was purchased on behalf of Madison Guaranty by Ward and five other “straw” parties--including current Gov. Jim Guy Tucker, then a private attorney. The purchases were made with about $4 million in loans from Madison Guaranty that never were meant to be repaid.

Castle Grande was never developed, but the “insiders” involved in buying the land realized “substantial profits” of $1.8 million, he said.

Clark said that his six-month review at Madison Guaranty in 1986 revealed sloppy or missing financial records and elicited “vague responses” from Madison Guaranty executives, including owner James B. McDougal, the Clintons’ investment partner in the Whitewater land development.

“We found that the thrift was insolvent,” he reported, adding that McDougal subsequently was forced out at the institution.

Democratic committee members Paul S. Sarbanes of Maryland and Christopher J. Dodd of Connecticut complained that the panel was wasting time and money by hearing from witnesses like Clark, who had testified about Madison Guaranty before the House Banking and Financial Services Committee last year. But Chairman Alfonse M. D’Amato (R-N.Y.) said that Clark never had been questioned extensively before about Castle Grande.

Sarbanes and Dodd said that they would oppose a move by D’Amato to obtain $600,000 more to extend the committee’s investigation beyond its Feb. 29 cutoff date. They said that a special Senate committee that investigated the Iran-Contra scandal of the Ronald Reagan administration conducted 44 days of hearings, a figure that the Whitewater panel will surpass by the end of this week.

On the Senate floor, Minority Leader Tom Daschle (D-S.D.) again complained that D’Amato has a conflict of interest in running the committee while serving as Senate Majority Leader Bob Dole’s presidential campaign chairman in New York.

D’Amato said that he is conducting “fair and impartial” hearings that the White House has impeded by its tardy surrender of subpoenaed records, including Mrs. Clinton’s billing records from the Rose Law Firm.

Elsewhere in Washington, David E. Kendall, the Clintons’ private lawyer, and White House associate counsel Jane Sherburne went to the federal courthouse to give testimony about discovery of the billing records to the Whitewater grand jury. But they were dismissed when too few of the 23 grand jurors showed up.