McDougal’s Aid in Whitewater Probe Expected

In a turnabout that could affect the Whitewater investigation, President Clinton’s friend and investment partner James B. McDougal is cooperating with independent counsel Kenneth W. Starr, apparently seeking leniency in the sentencing for his conviction on fraud and conspiracy charges, sources close to the case said Wednesday.

McDougal’s decision to cooperate could be an important boost for Starr and a setback for Clinton, who has supported McDougal through the early stages of the independent counsel’s investigation into their joint investment in the Whitewater real estate development in the Ozarks.

It is not clear what new information, if any, McDougal can give Starr that might substantiate allegations of wrongdoing by the president. Although McDougal is the central figure in the case, lawyers familiar with the evidence noted that Starr already has mountains of eyewitness testimony and documentation of all the key transactions.

McDougal, who along with two co-defendants was convicted in May of participating in a $3-million conspiracy to defraud two federally backed financial institutions, began cooperating with Starr about three weeks ago, the sources said. He has offered to tell the Whitewater prosecutor everything he knows in exchange for a recommendation from Starr of a lenient sentence, they said.

In the past, McDougal, who faces a lengthy jail term, has vowed never to cooperate with what he claimed was a “politically motivated” investigation. But the eccentric former political aide, banker and real estate developer has a reputation for mercurial behavior.

McDougal invested money with the Clintons in the Whitewater land venture and paid Hillary Rodham Clinton a legal retainer of $2,000 a month in the mid-1980s to represent his Arkansas savings and loan on several matters, at least one of them involving illegal transactions. The central allegation in the Whitewater scandal, still unproven, is that McDougal provided financial benefits to then-Gov. Clinton in exchange for political favors.

At a minimum, sources said, McDougal could “fill in the cracks” of the Whitewater story for the prosecutor, helping Starr to write a more complete final report on the case. Yet Starr will certainly be skeptical of the information he gets from McDougal, who suffers from memory lapses and who has sometimes given differing accounts of Whitewater events.

McDougal, who lives on a disability pension in Arkadelphia, Ark., could not be reached for comment. Starr’s office, in keeping with its usual practice, declined to discuss the case. White House officials said they were unaware that McDougal had approached Starr.

Ann Lewis, deputy chairwoman of the Clinton-Gore campaign, told The Times that if McDougal is cooperating, Starr would be likely to get little reliable help.

“If the story he tells the special prosecutor is as consistent as it has been with others he’s cooperated with, I wish Ken Starr good luck,” Lewis said.

The president not only has expressed continuing support for McDougal, but he testified via videotape on McDougal’s behalf at the trial.

McDougal and one of his co-defendants, former Arkansas Gov. Jim Guy Tucker, are scheduled to be sentenced Monday by U.S. District Judge George Howard Jr. in Little Rock, Ark. McDougal’s ex-wife, Susan, is scheduled to be sentenced Tuesday.

Of the three defendants, James McDougal faces the stiffest possible penalty because he was convicted on all 19 counts brought against him. Susan McDougal was found guilty on all four counts against her, but Tucker was convicted on only two of seven counts.

The maximum penalties would be 84 years in prison and a fine of $4.5 million for James McDougal, a maximum sentence of 17 years and a $1-million fine for Susan McDougal and a 10-year sentence and a $500,000 fine for Tucker.

Sources said that Starr sought cooperation from Tucker and Susan McDougal after their convictions but neither came forward. Sam Huer, James McDougal’s attorney, disagreed with his client’s decision to cooperate and refused to accompany him when he went to Starr’s office, sources said.

In Washington on Wednesday, Clinton’s legal defense fund reported that contributions rose to $199,279 for the first half of 1996, nearly doubling from the $105,537 collected in the second half of 1995.

But that increase was not enough to keep up with the rising costs of Whitewater-related proceedings. Overall, Clinton’s situation “is worse,” said Michael H. Cardozo, executive director of the two-year-old fund.

The legal defense fund is not allowed to solicit donations, but the fund’s trustees report a surge each time its half-year results are reported. The fund also got a publicity windfall in January when Clinton acknowledged at a news conference that the bills might bankrupt him.

The trend in donations has not been encouraging for the Clintons. Donations have never matched the $608,090 collected in the first six months after the fund was created.

The fund’s latest report showed that the donations for the half year came from 1,249 contributors and averaged $171.

Times staff writer Paul Richter in Washington contributed to this story.