Whitewater Witness James McDougal Dies

James B. McDougal, one of the most colorful characters in the continuing Whitewater saga who initially defended but later turned against the Clintons, died Sunday while in federal custody in Texas. He had a long-term heart ailment.

McDougal’s death could deal a setback to independent counsel Kenneth W. Starr’s Whitewater investigation, particularly since McDougal had cut a deal to provide important corroborating evidence to the prosecutor in return for a lighter prison sentence.

Although McDougal, 57, was serving three years for fraud in connection with an ill-fated Arkansas investment scheme, the news of his death nevertheless prompted a note of sympathy from one of his oldest friends.

“I am saddened to learn about Jim McDougal’s death today,” President Clinton said in a statement issued from Camp David, Md. “I have good memories of the years we worked together in Arkansas, and I extend my condolences to his family.”

McDougal was an inmate at the U.S. Bureau of Prisons Federal Medical Center in Fort Worth, where he apparently suffered a heart attack Sunday morning. Authorities said he was rushed to John Peter Smith Hospital and was pronounced dead shortly after noon.

In April, McDougal was given a relatively light sentence of three years after being convicted in federal court in Little Rock on 18 counts of conspiracy and fraud for bilking the government out of millions of dollars in connection with Whitewater. McDougal was an original partner with the Clintons in the ill-fated real estate venture known as Whitewater that they had hoped would become an attractive vacation and retirement spot in the Ozark Mountains of Arkansas.

McDougal could have received as much as 84 years in prison. But U.S. District Judge George Howard agreed to the shorter term after receiving assurances from Starr that McDougal had come forward with “new and important information” about the case.

In the past, McDougal had denied any illegal involvement by the Clintons. Starr did not disclose the new evidence, but he told the judge that McDougal had led him to documents and witnesses that independently verified the revelations.

Sources close to the investigation have characterized the new information as an affirmation that Clinton lied under oath about attending a 1986 meeting with Whitewater conspirators.

It is unclear whether Starr has made any progress with the new information. But legal observers said that, considering McDougal’s frail health, a prudent prosecutor would have taken lengthy legal depositions and perhaps even videotaped testimony from McDougal to preserve his recollections.

After originally insisting that Clinton was not part of the Whitewater conspiracy, McDougal changed his story because, he told reporters, he was “sick and tired of lying for the fellow.”

In his revised account, McDougal said then-Arkansas Gov. Clinton had indeed attended the 1986 meeting. During the session, held in a land office south of Little Rock, another of Starr’s key witnesses, David Hale, agreed to make an improper $300,000 government-backed loan to McDougal’s then-wife, Susan. Some of the proceeds eventually landed in the Whitewater checking account.

McDougal, asked after his sentencing whether blame in the Whitewater scandal would ever be attached to president and Mrs. Clinton, said in typically grandiose fashion: “I wouldn’t go to the bank on that.”

On NBC’s “Dateline” television program, shortly before turning himself in, McDougal acknowledged that the public might have “every right to be suspicious” that he changed his story about Clinton to secure a lighter sentence.

But, McDougal added, his new account “is very well-documented.” Easily recognizable for his shaved head, flamboyant hats and brass-handled walking cane, McDougal seemed every bit the dandy. He reveled in playing the eccentric Southern gentleman.

In 1996, when McDougal was spotted under the television lights at an airport in Washington where he had come to sit in on Clinton’s videotaped testimony in Whitewater, a young woman cooed out loud: “You walk so cool.”

But when he stood before Howard to hear his sentence, he was markedly contrite.

“I take full and complete responsibility for my crimes and misdeeds,” he told the court. “I’ve embarrassed the people in my community. I don’t know how I can ever make amends to them for their goodness and their trust.

“All I have is to ask humbly for their mercy.”

Before he went to prison, he was broke and living in a rented trailer in Arkadelphia, Ark. His Little Rock lawyer, Sam Heuer, described McDougal as someone who had gone “from the very top to the very bottom.”

Once a kid working in his father’s variety store, McDougal flourished during the go-go years of the 1980s savings-and-loan boom. He acquired his own thrift, Madison Guaranty, and before long was driving a baby-blue Bentley and investing in ambitious real estate projects.

One such effort was his purchase of several thousand acres on Campobello Island, the summer spot off Maine that President Franklin D. Roosevelt frequented. McDougal, who met Clinton when both were political staffers for Arkansas Sen. J. William Fulbright, often referred to himself as a “New Deal Democrat.”

But Madison Guaranty and its aggressive business practices eventually attracted the scrutiny of federal and state S&L; regulators. More troubles followed. McDougal and his wife were later divorced and she was convicted with him in the Whitewater scandal.

Unlike her ex-husband, Susan McDougal would not cooperate with Starr. She was sent to prison for contempt of court for refusing to appear before the Whitewater grand jury to answer questions. She has claimed that Starr wants her to lie in order to frame Clinton in the Whitewater matter.

Meanwhile, debate continued to rage Sunday over Starr’s decision to expand his Whitewater investigation to include assertions that Clinton committed or suborned perjury in connection with his alleged sexual involvement with Monica S. Lewinsky, a former White House intern.

Supporters appeared on Sunday television news programs to say Starr should be allowed to methodically continue his investigation free of political partisanship. But the special prosecutor’s detractors demanded that he quickly wrap up his lengthy investigation.

William J. Bennett, a conservative who served in the Bush administration, defended the broadening of Starr’s Whitewater investigation to include the Clinton-Lewinsky relationship.

Bennett criticized those who believe Starr is ranging too far afield in his investigation.

“He should be independent of the White House smear,” Bennett said on NBC-TV’s “Meet the Press.” “He should go at the pace the evidence provides.”

But Lanny J. Davis, a former White House aide, said in an interview broadcast by CNN that Starr is improperly widening his investigation. “He’s going off into the sidebars,” Davis complained.