Whitewater’s Star Witness to Resurface

After living in seclusion under government supervision for nearly two years, David Hale is on the verge of attaining the national forum he has been seeking ever since he stepped forward to accuse President Clinton of participating in a criminal conspiracy.

Hale, a former municipal judge whose whereabouts have been kept secret, will emerge to tell his story publicly for the first time when he testifies as the government’s star witness in a Whitewater-related trial beginning here on Monday.

The impact of his testimony will reach far beyond the wood-paneled walls of the federal courtroom in which the trial is to be held. How the public judges Hale’s credibility could help determine whether the Whitewater saga further damages the Clinton presidency.

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Even though the president was not charged in this case, his advisors believe that he has as much at stake as the three defendants: Arkansas Gov. Jim Guy Tucker and the president’s investment partners in the Whitewater land development, James B. McDougal and his ex-wife, Susan.

During the anticipated two-month trial, the nation--as well as the jurors--will get an opportunity to decide whether Hale or the president is telling the truth about the events in question. For that reason, the president’s reputation and political future could be riding on defense lawyers’ efforts to discredit Hale.

Hale, who managed an investment company, will tell the jurors that it was then-Gov. Clinton who persuaded him in the mid-1980s to make government-backed loans that were used improperly to bolster the president’s former investment in the Ozarks land deal known as Whitewater.

Tucker and the McDougals were among the major recipients of those loans. In a 48-page indictment issued in August, the three were charged with obtaining about $3 million in loans from Hale under false pretenses.

In response to Hale’s charges, the president, who has been called to testify as the star defense witness, will strongly deny that he played any role in obtaining the loans for the McDougals or Tucker. “A bunch of bull” is the phrase that Clinton has sometimes used to characterize Hale’s account.

Not since Hale made his allegations against Clinton in a series of interviews in 1993 has he been available to comment on the many developments that he unleashed with his story of small-town corruption. In fact, he has successfully resisted several requests to testify before the Senate Whitewater Committee.

Thus, even though Hale’s story has emerged as a central element of independent counsel Kenneth W. Starr’s investigation of the president’s home-state business activities, it has never been held up to scrutiny in a public judicial forum.

Starr, who has indicated that he plans to build his case around Hale’s testimony, is expected to produce new evidence supporting Hale’s story that Clinton asked him on two occasions to lend money to the McDougals.

In their own defense, Tucker and the McDougals will insist that while Hale may have defrauded the government by making imprudent loans with federally backed funds from his small-business investment corporation, they did nothing wrong by accepting the money.

Tucker will assert that he, as a Vietnam War veteran, was legitimately qualified to receive preferential, government-backed loans. And the McDougals, who have been declared indigent and provided with legal counsel, will assert that they intended to repay the loans in full and would have done so if their real estate empire and their savings and loan had not gone bankrupt.

In an effort to undermine Hale’s credibility, the defense also will portray the former judge as a habitual thief and liar.

“The key question will be whether David Hale or the president is more truthful,” said Chicago criminal attorney George B. Collins, who is representing Tucker. “The president has not led a life of crime; David Hale has lived a life of crime. The question is: Who do you believe?”

Among other things, defense lawyers will emphasize that Hale’s testimony is part of a plea bargain he struck with Starr in order to win leniency in his own fraud case. In doing so, they will try to create the impression that Hale concocted his story of political intrigue to save himself from years in jail.

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Hale does not dispute allegations that he defrauded the government by making improper loans from his company, Capital Management Services Inc.

When Capital Management failed in 1992, it had about $2 million in bad debts on its books. Those losses were absorbed by the federal Small Business Administration, which backs loans made by investment corporations such as Hale’s to small enterprises.

Defense attorneys not only will emphasize Hale’s criminal record but will also press the witness to acknowledge that he has received numerous legal and financial benefits from Starr since pleading guilty to reduced charges in March 1994.

“Mr. Hale has already gained very substantial advantage,” said Bobby McDaniel, attorney for Susan McDougal.

Among other things, the defendants’ lawyers note, Starr has assisted Hale financially, providing him with housing and security as well as at least $60,000 in cash payments. Hale is said to be holed up in a townhouse somewhere outside Arkansas.

Hale has not been seen in public since he was whisked away from the courthouse by FBI agents two years ago, after he entered a guilty plea in this case.

Hale’s disappearance angered lawyers for Tucker and the McDougals, who have been trying to track him down and interview him. Starr says he knows Hale’s whereabouts but refuses to tell.

In addition, defense lawyers will emphasize that Starr has delayed Hale’s sentencing in this case for two years in exchange for his cooperation.

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The defense will also contend that Starr has effectively prevented Hale from being charged by state authorities in an unrelated case. State prosecutors disclosed recently that they were acting at Starr’s request when they delayed charging Hale with stealing $150,000 from a burial insurance firm he also owned, National Savings Life Insurance Co.

As Hale tells it, Clinton approached him in late 1985 and again in early 1986 with requests to make loans to James McDougal. He has said then-Gov. Clinton told him the loans were necessary “to help Jim and me.”

At the time, the Clintons and the McDougals were partners in the Whitewater land venture, and James McDougal was running a savings and loan that federal regulators have characterized as corrupt.

Hale said he was told that James McDougal needed the money because his thrift, Madison Guaranty Savings & Loan, was on the verge of bankruptcy. The institution eventually collapsed from mismanagement, leaving the government with a $60-million loss.

In response to Clinton’s plea for help, according to Hale, he agreed to make loans totaling $700,000 to McDougal--as well as other loans to members of what he called the Arkansas “political family,” including Tucker. None of the money that went to McDougal was ever repaid, and at least $100,000 of it was used by McDougal to expand the Whitewater development.

Even though Hale outlined his account for reporters several years ago, his lawyer, Randy Coleman, has predicted that his testimony will contain many facts about the Whitewater case that have not yet come to light.

Clinton denies that he ever discussed any loans with Hale. Likewise, while James McDougal acknowledges that he put some of the borrowed money into the Whitewater venture, he insists he did it without Clinton’s knowledge.

Although the president willingly agreed to testify in the trial in response to defense requests, lawyers for Clinton and the defendants were unable to agree last week about exactly how it would be accomplished.

The defendants demanded that Clinton appear in person; the president offered to testify on videotape. U.S. District Judge George Howard Jr. will make the final decision if lawyers for the two sides fail to come to an agreement.