McDougal Denies Loan Fraud Charges

Whitewater defendant James B. McDougal, testifying in his conspiracy trial Tuesday, flatly denied the charges against him and insisted that his name was forged on critical prosecution documents.

“I am innocent on all counts brought by the special prosecutor,” declared McDougal, a feisty former savings and loan owner and onetime investment partner of President Clinton.

Despite serious health problems, McDougal, 55, demonstrated self-confidence and wry humor when he took the stand to answer charges brought by independent counsel Kenneth W. Starr. He is accused of conspiring in the mid-1980s to defraud two federally backed financial institutions.

Also on trial are McDougal’s former wife, Susan McDougal, and Arkansas Gov. Jim Guy Tucker. There has been no indication whether either will testify.

James McDougal’s testimony marked the beginning of the defense case in the Whitewater trial, which began nine weeks ago. His appearance will be followed this week by videotaped testimony from Clinton, who is expected to help the defense.

On Monday, an edited videotape of Clinton’s testimony was delivered to the court by the president’s personal lawyer, David E. Kendall. Under an agreement approved by U.S. District Judge George Howard Jr., sources said, the editing of the videotape was done by members of the White House staff.

McDougal’s testimony directly contradicted the account offered by David Hale, the government’s central witness. Hale said that he conspired with McDougal, Tucker, Clinton and others to defraud both Madison Guaranty Savings & Loan, which the McDougals owned, and a small business investment corporation owned by Hale, known as Capital Management Services Inc.

Specifically, McDougal denied attending any of the meetings in which Hale claimed that the conspiracy was hatched and carried out. In fact, McDougal said, he was out of town Thanksgiving eve, 1985, when one of the meetings allegedly took place.

McDougal also denied, and Clinton is expected to do so, that he attended a meeting with Hale at a land sales trailer south of Little Rock in early 1986. Hale alleges that, at that meeting, then-Gov. Clinton put pressure on him to make a loan of $300,000 from Capital Services to Susan McDougal.

When the Whitewater controversy first surfaced, there were allegations that some of the $300,000 loan went into the Whitewater land venture owned by the McDougals and the Clintons in the Ozarks. But there has been no evidence presented at this trial that the Clintons knew about such a loan or benefited from it in any way.

The loan is an important part of the Whitewater saga because Mrs. McDougal’s application for the money did not state accurately how she intended to spend the money. It is against the law to falsify an application for a loan from a government-backed small business investment firm.

McDougal insisted that his former wife did nothing illegal, but he said he would accept the blame for anything she might have done by mistake.

In addition, McDougal suggested that some documents involved in the alleged conspiracy that contain his signature were forgeries. He specifically singled out one document used in a $600,000 transaction.

McDougal also suggested that Republicans in Congress had fabricated documents in an effort to support their allegations of wrongdoing by the president in the Whitewater matter. Outside the courtroom, prosecutor Ray Jahn said: “I have no idea where he pulled that out of the air.”

McDougal, who has arteriosclerosis and experienced severe chest pains late last week, told reporters that he was testifying at his own insistence against the advice of his attorney and his doctor. He also is bipolar, also known as manic-depressive, and has a blocked carotid artery that deprives him of the normal flow of blood to the brain, which has affected his memory.

A letter to Judge Howard from McDougal’s doctor, Noland H. Hagood of Arkadelphia, Ark., said that the defendant is likely to suffer a heart attack and that his decision to testify was a “calculated risk.”

McDougal said he decided to testify because “I’m the last person in my clan named McDougal, and I’d rather not go to my grave in disgrace.”

In Washington, GOP investigators said at a hearing that they have narrowed to six the people who may have handled billing records of Hillary Rodham Clinton’s law firm found in the White House quarters last year.

The records detail work performed by Mrs. Clinton on behalf of Madison Guaranty. Besides Clinton and his wife, those listed are the president’s brother, Roger Clinton, and his wife, Molly; Susan Thomases, a confidante of the first lady, and White House aide Bruce Lindsay.

Sen. Christopher J. Dodd (D-Conn.) said after the hearing that it was so political it lacked even a “thin veneer of objectivity.”