After much delay, a special prosecutor, Robert B. Fiske, Jr., has finally been appointed for “Whitewatergate.” This means that it will be a long time, possibly even years, before the results are in. Meanwhile, absent a clamor for congressional hearings, we are left to the forays of journalists. Unlike Congress, of course, journalists have no subpoena power and, in Whitewater, much rests in the documents. Thus far, press parries have mostly been deflected by evasive White House maneuvers, aided by sharp lawyering from the Clintons’ new counsel at Williams & Connolly, who has managed to get all the records—or what is left of them—put firmly under wraps.
Nevertheless, enough has already come out to reveal a great deal of possible wrongdoing for Fiske to investigate. Of course, no one knows all the facts yet, and only a court can judge their credibility. Based on what we have learned so far, however, Whitewatergate fits the classic pattern of corrupt, influence-peddling savings-and-loan associations now being prosecuted every day in America.
Whitewater Development Corporation was an Arkansas real-estate venture formed in 1979 by Bill and Hillary Clinton along with their friends James McDougal (the future owner of Madison Guaranty Savings & Loan Association) and his then-wife, Susan. At the time, Clinton was Attorney General of the state and on the brink of becoming Governor. Once in office, Clinton appointed McDougal as his liaison with the Economic Development, Commerce, and Highway and Transportation Departments.
Fast forward to 1984. McDougal says that the Governor, citing family money problems, urgently requested him to put Hillary Clinton, as a partner in the Rose law firm, on a $2,000-per-month retainer to represent Madison. (Though Mrs. Clinton got the job, the White House denies that this was how it happened.) Soon afterward, Clinton appointed Beverly Bassett Schaffer, formerly McDougal’s lawyer, to head the state agency in charge of overseeing S&L’s. According to McDougal, the appointment was made at his request. Then, in 1989, after what looks like soft treatment from Schaffer, Madison went belly-up, sticking American taxpayers with $50-$60 million in bad loans—many of them to politicians and other favorites of McDougal (including, as we shall see, several who were also close to Clinton).
Prior to the collapse of Madison, the Clintons might be seen to have used their political influence on behalf of the McDougals or Madison or Whitewater in the following ways that Fiske will surely want to examine:
- In 1984, the Arkansas Housing Development Agency rented space from Madison, paying it $202,460 over more than three years. Since this was done over the protests of agency officials, Fiske will want to ask whether Clinton as Governor improperly channeled state business to Madison and his partner McDougal.
- In 1985, Hillary Clinton, acting as Madison’s lawyer, asked Schaffer to permit Madison to issue preferred stock and form a brokerage subsidiary. Yet even though Madison was already in regulatory trouble both with state and federal authorities, Schaffer granted Mrs. Clinton’s request. Here Fiske will want to determine whether Mrs. Clinton exerted improper influence. Her representation of Madison, and Schaffer’s failure to recuse herself, may have violated ethics laws and bar rules.
- Arkansas municipal judge David Hale claims that in 1986, Governor Clinton pressured him into making an improper $300,000 loan—backed by the Small Business Administration (SBA) through an investment company owned by Hale—to Mrs. McDougal. This, Hale says, was to enable Jim McDougal to “straighten out the books” at Madison before the federal auditors got there. If Hale is telling the truth, Fiske will have to decide whether Clinton’s request might constitute criminal solicitation and extortion. (Hale is currently under indictment for an illegal $900,000 SBA-guaranteed loan to himself and two colleagues.)
- After the $300,000 loan was granted, Susan McDougal reportedly put $110,000 of it into Whitewater’s account, where it was used as a down payment on 810 Ozark acres Whitewater bought in October 1986 for $550,000 from International Paper. If this was a loan from Mrs. McDougal’s company to Whitewater, then the books and tax records of both entities should show it, along with repayment. If they do not, then tax laws may have been violated. Coincidentally, Clinton had, just the previous year, pushed through big tax concessions for International Paper so as to keep it from moving out of state. Fiske should investigate allegations that the opportunity was made available to, and the price of this property discounted for, Clinton. In any event, Whitewater soon defaulted on the purchase.
If the Clintons seem to have done favors for McDougal, he seems in turn to have done favors for them (in addition to putting Hillary on retainer):
• In 1979, according to McDougal, the Clintons were to pay $9,000 up front for their half of Whitewater. CNN has reported that even that tiny amount—apparently the Clintons’ portion of a down payment on the $203,000 Whitewater property—was paid by McDougal, via a personal loan to the Clintons from one of his banks which they seem never to have repaid. Other news reports contain suggestions from McDougal that he may have taken care of other expenses on the Clintons’ behalf. All this will have to be cleared up by Fiske.
• In December 1980, yet another bank then owned by McDougal, Kingston Bank & Trust, loaned Hillary Clinton $30,000. She used it to build a model house on a Whitewater lot. She then sold the house on the lot (which Whitewater had deeded to her for free), repurchased it in default, and finally resold both for a gain, not counting expenses, of $20,000 and a reported $1,640 net capital gain to her personally. Later, Susan P. Thomases, a lawyer for the Clintons, said Mrs. Clinton’s $30,000 mortgage was solely a Whitewater corporate debt. Vincent W. Foster, Jr. (Hillary’s former law partner, who died an apparent suicide while serving as Deputy White House Counsel) also amended the Clintons’ tax returns to shift interest payments on this same $30,000 loan to Whitewater.
What all this indicates is that Whitewater may have assumed Mrs. Clinton’s mortgage, as well as other loans from McDougal, covering the Clintons’ original investment, or other unpaid liabilities of theirs. Any of these actions might constitute releases of indebtedness by Whitewater. These should have been reported as such, with income consequences both to Whitewater and to Mrs. Clinton at the time of each forgiveness. They should also have been documented on Whitewater’s books as having been received (or as a receivable accruing proper interest) from the moment they were assumed.
The free deed of land to Mrs. Clinton also should have been reported on both the Clintons’ and on Whitewater’s tax returns. Its value (over cost) at the time deeded was both a corporate gain to Whitewater and a distribution to Mrs. Clinton, and taxable as such.
The IRS, treating the shifting of interest payments to Whitewater as an innocent mistake, seems to have waived penalties and interest on the Clintons, as well as for the amount of the underreporting. Nevertheless, if Whitewater was used systematically to hide personal income to the Clintons, tax fraud might have been committed. It is a possibility that will have to be explored by Fiske.
• Fiske may also want to see if an unsecured personal loan of $50,000 from Cherry Valley Bank to Clinton, at a time when he was in debt and had few assets, was properly made in accordance with bank rules. The loan was approved by the bank’s president, W. Maurice Smith, who had once been Clinton’s senior aide.
• More suspicious is the Clinton fund-raiser on April 4, 1985, when depositors’ names were evidently put without their consent on Madison cashiers’ checks, which were then contributed to the Clinton campaign. At least one of those depositors, Kenneth Peacock, a Republican, says he never made any such contribution to Clinton. Fiske will want to find out whether the Clintons or the Clinton campaign were aware of this, for if they were, they could be implicated in illegal acts.
• Madison also made a number of large loans to friends and supporters of Clinton in the 80’s. Many of these people have defaulted. Madison, in turn, has gone under to the tune of $50-$60 million. Thus American taxpayers are in effect paying off for people who may have been handed cozy loans because of their political connections.
For instance, the father-in-law of Webster Hub-bell, another of Mrs. Clinton’s ex-law partners and now Associate Attorney General at the Justice Department, got one of those Madison loans. He has defaulted on it to the tune of $587,793. Clinton’s successor as Governor, Jim Guy Tucker, has already gotten a release from the Resolution Trust Corporation (RTC), free and clear, of $500,000 of his defaulted $l-million Madison loan. Judge Hale, evidently not satisfied with the $900,000 he took out of the SBA program, also borrowed and defaulted on $672,000 from Madison. Fiske will want to review each of these loans, and any other such, to members of the Clinton circle.
What did the Clintons know and when did they know it? They cannot claim to have been entirely in the dark. McDougal had a long history of irresponsible lending and diversion of bank funds to himself, his friends, and his relations. Clinton’s own banking commissioner says he advised the Governor as early as 1983 that McDougal and Madison were indulging in questionable practices.
By 1984, surely, the Clintons should have known that Madison was in trouble not just with Arkansas but with the federal authorities, for inflating profits on its books when it was well-nigh insolvent. In that year, an audit by the Federal Home Loan Bank Board said Madison’s “viability” was in jeopardy. By 1986, a federal report concluded that Madison was likely insolvent, that its records were shoddy or missing, and that millions of dollars had been diverted improperly to McDougal, his friends, and his family. (Incidentally, McDougal’s ex-wife, Susan, has recently been picked up in California on charges of embezzling $200,000 from the conductor Zubin Mehta.)
Despite this, the Clintons’ active business relationship with McDougal continued, at least up to Mrs. Clinton’s final house-and-lot sale in 1988, and formally through the repurchase by McDougal of the Clintons’ Whitewater shares in December 1992.
The Clintons have said many things about Whitewater that have since proved dubious, self-contradictory, or false. To cite only one example, they have repeatedly claimed that they were merely “passive investors” in Whitewater who suffered $68,900 in losses. But Hillary’s $30,000 development project was hardly the act of a “passive investor.”
As for the supposed $68,900 in losses, the Clintons admit that these were never declared on their tax returns. Scrambling to cover for the President, Vice President Gore (slavishly echoed by Eleanor Clift, Newsweek‘s chief political reporter) protested on TV that the Clintons simply did not bother to report their losses because they had no gains that year to offset them. But as everyone knows, capital losses carry forward to offset any and all future capital gains, as well as up to $3,000 of straight income per year, for life. One would have to be crazy not to report a big loss that could be used to offset future gains as well as income. But it would make sense not to report a loss that one never really suffered because somebody (like McDougal) had made good on it off the books: another point for Fiske to examine.
Moreover, the so-called “Lyons Report”—issued in the 1992 campaign by an attorney, James Lyons, and an accountant, Leslie Patten, and repeatedly touted by the Clintons as constituting their clean bill of financial health—has now been called into question by Lyons himself. He recently admitted to the Wall Street Journal that he based his report on incomplete records (which means that the $68,900 figure could easily be a list of expenses with offsetting income omitted), and that he and Patten were not, as advertised, “independent.”
Beyond the “Lyons Report,” the White House’s behavior in the Whitewater inquiry raises a separate host of questions, involving a possible cover-up and obstruction of justice, that Fiske will also have to explore.
The Clintons denied ever getting Whitewater’s records, which Susan McDougal said she sent to the Governor’s mansion at Mrs. Clinton’s request. The Clintons seem to have them now, however. (On the other hand, records of McDougal’s Clinton campaign fund-raiser are missing from the County Clerk’s office in Little Rock.) There has been much delay in turning over Whitewater files to investigators, and the White House has repeatedly given odd excuses for this, such as a need to “catalogue” them. But surely the files could have been handed over after being photocopied and the copies then catalogued, if indeed that was necessary.
Fiske will want to know why the Clintons’ personal files were in Foster’s White House office in the first place: having their personal affairs handled by him there would seem to be an illegal misuse of federal employees. Fiske will also want to know why these files were removed (by the White House Counsel, Bernard Nussbaum, and others) and withheld from investigators in the wake of Foster’s death. Remarkably, Nussbaum claims that it would have been “unethical” for him to hand over the Clintons’ personal files. But it will be up to Fiske to determine whether in doing so he may have been obstructing an investigation into the highly suspicious death of a close associate of the President who was at the time engaged in unethical and possibly illegal activities in the White House.
Fiske will also have to inquire into complaints about Nussbaum’s efforts to have White House lawyers sit in on interviews of White House staffers conducted by Whitewater investigators from the Department of Justice (DOJ) following Foster’s death. Former Deputy Attorney General Philip Heymann found it necessary to “raise hell” with Nussbaum over this, and certainly it does give the appearance of trying to manipulate or chill the investigation.
Ordinarily, the White House hands over records on request from the DOJ without any service of a subpoena. But in this case the Clintons’ lawyer, David Kendall, requested a subpoena in order to keep the records secret, and also asked that they not be shared with the Office of Professional Responsibility, which investigates DOJ employees. Fiske will want to ask why. Was there an effort here to obstruct the inquiry into “Travel-gate” (which also revolved around Foster’s files), or to shield Webster Hubbell or Sheila Anthony, Foster’s sister-in-law, both of them current DOJ employees and old Clinton friends?
For weeks Attorney General Janet Reno stalled and delayed before appointing a special prosecutor immediately upon President Clinton’s request. (That Reno has been widely touted as “apolitical” and “independent” of the White House now seems positively Orwellian.) Meanwhile, the clock was ticking on the statute of limitations on Whitewater civil claims, which was due to run out in March.
It remains for Fiske to determine at what point the White House’s aggressive self-protection, strategic half-truths, semantic gamesmanship, stalling tactics, false statements, and denials turn from just politics into obstruction of justice.
Fiske’s task is complicated by the sheer scope of the Clinton scandals—some outside the bounds of his Whitewater jurisdiction. Take, to begin with, the shorting and selling of health-care stocks by the Clintons and their investment advisers. One of these stock sales appears to have been remarkably well timed—it took place on the very day before Mrs. Clinton’s speech furiously denouncing drug companies, which, predictably, sent health-sector stocks plummeting.
The Clintons never bothered to set up a blind trust for their investments until long after they assumed office, in July 1993. Reagan’s Attorney General Edwin Meese, it will be recalled, was run out of town on a rail to loud cries of “sleaze” because two small stock holdings had not been put into a blind trust before he took office. It simply cannot be, and never has been, seriously argued that this error of Meese’s dovetailed with any serious issue of public policy or was linked with a motive of gain on his part. The reverse seems likely with the Clintons’ health-care stocks.
The double standard exhibited here by the press on behalf of the Clintons has been breathtaking. As opposed to the job done on Meese, the Clintons’ short selling of health stocks has been treated as a mere harmless error which got rectified once their assets were put into trust. Under federal ethics law, however, putting holdings into a blind trust does not immunize one from liability even during the trust’s term—much less for what went on prior to it—unless the holdings were liquidated before the assets went into the trust. Evidently this was not done by the Clintons.
Even more incriminating is the “Troopergate” scandal. Apart from the lurid testimony concerning Clinton’s sexual antics when he was Governor of Arkansas, the legally interesting point here is that, as President, Clinton phoned Arkansas state trooper Danny Ferguson. Ferguson said it was to offer him a FEMA or U.S. Marshal’s job in exchange for informing the White House about the other troopers who had been telling tales on Clinton. If such an offer was made, it would violate a number of federal and state laws and would amount to bribery and abuse of office.
The White House, via Clinton’s former aide Betsey Wright, went to extraordinary lengths to imply that Ferguson recanted. But Wright’s claim was based on an affidavit signed by Ferguson’s lawyer (not by the trooper himself) asserting that Clinton had not offered him jobs in exchange “for silence.” This is a devious lawyerly distinction. The issue was not silence, it was information on Troopers Patterson and Perry.
Nor has the double standard been confined to the matter of stock holdings. The usual pattern in the Reagan-Bush years was for a columnist to charge that some idle contact with somebody who later got embroiled in a scandal meant that the official must have participated in the criminal’s crimes. No nexus of activities had to be shown for hysteria to reign in the press. President Bush’s son, Neil, for example, was on page one of the New York Times for ages because he happened to sit on the board of an S&L that later went belly-up. And in “Iraqgate,” a single phone call, which the Justice Department maintained was a routine inquiry to the prosecutor in Atlanta, generated innumerable stories speculating that Bush’s DOJ was trying to manipulate the BNL case and shut it down to hide some grim scandal.
By contrast, the article with the most damning substance yet to appear on Whitewater, by Jeff Gerth and Stephen Engelberg of the Times, was buried on page B8 in the Metro section, just behind a story about a homeless fellow in New York City who had finally gotten a job. Rumor has it that Times editors wanted to kill the article, but relented under pressure from the reporters. It was only when Troopergate sparked a media frenzy that the Times finally gave more backing to its own investigative journalists.
A lot of what passed for scandal in the Reagan-Bush years was really just umbrage at conservative policies. Things found to be morally outrageous by the dominant liberal ideology became muddled with allegations of criminality. Criminality became a metaphor for the politically incorrect. Irresponsible charges of “lies” and “cover-ups” were leveled at innocuous statements. Any statement that Lawrence Walsh, the independent counsel in the Iran-contra affair, might deem to fall short of the full confession of guilt he was searching for would be proclaimed “obstruction of justice.”
As we have seen, the possible civil and criminal implications for the Clintons and their circle are far more detailed and extensive. They include (but are not limited to) various state, federal, and governmental-agency ethics laws, several of criminal scope; bar ethics rules; bribery; corruption; abuse of office; solicitation; extortion; false statements; false books; failure to report taxes; tax fraud; violations of campaign-finance and public-official disclosure laws; bank fraud; diversion of bank funds; and embezzlement.
If this were a Republican administration, Congress would be launching dozens of competing hearings. Instead, we hear only gasps of horror from Democrats at the idea of even one. Be that as it may, Robert Fiske will have a lot of work to do when his investigation is finally under way.