The Special Committee's Whitewater Report

CONCLUSIONS OF THE SPECIAL COMMITTEE

"White Water stock
(McDougal's company)

Do you still have? (pursuant
to Jim's current problems

If so, I'm worried about
it."1

"No-Do not have any more---B."2

-- July 14, 1986 from Betsey Wright and Governor Clinton's response.

"Jim McDougal is my partner and I have to trust him . . . Back off, leave it alone"3

-- Governor Clinton to Gaines Norton, his personal accountant.

"His caution was 'summarily dismissed' by Clinton. . . he was to take care of savings & loan matters and she would take care of the legal matters."4

-- Don Denton, Chief Lending Officer at Madison on discussion with Mrs. Clinton about Castle Grande.

"Cut in Lasater for 15 percent"5

-- Charles Stout, Chairman of ADHA Board, describing a statement by Bob Nash, Governor Clinton's Chief Economic Advisor.

"Loan went to Clinton Campaign

Signed lease to state

Alot of people going to prison!!"6

-- Notes taken by attorney Lance Miller.

The Special Committee's Arkansas Phase focused on the core allegations of improprieties and criminal misconduct concerning the activities of Madison Guaranty Savings and Loan Association ("Madison Guaranty"), Whitewater Development Corporation ("Whitewater"), Capital Management Services, Inc. ("CMS") and Lasater & Co. The Arkansas Phase was the last phase of the Committee's inquiry, and, in deference to the Independent Counsel's ongoing investigation, the Committee did not investigate thoroughly certain matters specified in Resolution 120, particularly the lending activities of the Perry County Bank in connection with 1990 Arkansas gubernatorial election.

The convictions of three of the President and Mrs. Clinton's close Arkansas business and political associates in the recently concluded Tucker-McDougal trial in Little Rock marked a key turning point in the ongoing Whitewater affair. The jury's guilty findings against Governor Jim Guy Tucker and James and Susan McDougal, the Clintons' Whitewater business partners, demonstrate the seriousness of the matters under investigation in the Committee's Arkansas Phase. Simply put, Whitewater can longer be responsibly dismissed as "a cover-up without a crime."

The Arkansas jury unanimously concluded that James McDougal operated Madison Guaranty as, in effect, a criminal enterprise. The failure of Madison Guaranty cost American taxpayers more than $60 million. It is now clear that Madison and CMS, a small business investment company run by David Hale, were piggy banks for the Arkansas political elite.

Eight of the 24 counts of conviction relate directly to the Clintons' investment in Whitewater. The jury convicted on all of the counts concerning a loan from CMS to Susan McDougal's firm, Master Marketing. According to the testimony of an FBI agent at the Tucker-McDougal trial, approximately $50,000 of the loan was used to pay the expenses of Whitewater. Moreover, Mr. Hale testified at the trial that he discussed this fraudulent loan with then-Governor Clinton. Unfortunately, the Committee never heard the important testimony of Mr. Hale, who asserted his constitutional right not to testify. The Committee was unable to secure sufficient votes to grant Mr. Hale limited use immunity.

The recently-discovered Rose Law Firm billing records provide important new evidence relating to the Arkansas Phase. The records reveal Mrs. Clinton's previously undisclosed personal representation of Mr. McDougal's S&L before state regulators, seeking permission to raise additional money through the sale of stock. The records also show that Mrs. Clinton was repeatedly called on to do work related to the Madison land deal, known as Castle Grande, which federal S&L regulators found involved a series of fraudulent transactions. The Special Committee concludes that Mrs. Clinton's work on Castle Grande related to an effort to conceal the true nature of activities at Madison Guaranty.

The Special Committee also uncovered evidence that Mr. Clinton himself took an active role in obtaining one of the original Whitewater loans -- one apparently approved as a favor after the bank's political lobbyist intervened. And Mr. Clinton's accountant testified that when he raised objections to early parts of Mr. McDougal's Whitewater proposal, Mr. Clinton pulled him aside and told him to "back off."

During the 1980s, Mr. McDougal and his allies obtained favorable results from their dealings with the Arkansas state government under Governor Clinton. At a time when Mr. McDougal was carrying the Clintons on their Whitewater loans, Mr. McDougal had a say in the making of state appointments, enjoyed personal access to the Governor and won valuable state leases for Madison. The Special Committee concludes that Governor Clinton's official and personal dealings with Mr. McDougal raised an apparent, if not an actual, improper conflict of interest.

Finally, the Clinton were not "passive" investors in the Whitewater real estate venture, as they have claimed. Indeed, the Clintons participated in important meetings concerning the Whitewater investment. The Special Committee concludes that the Clintons took an active role in obtaining and extending Whitewater-related loans.

* * * 1.

Mrs. Clinton's legal work on Castle Grande related to an effort to conceal the true nature of the activities at Madison Guaranty.

The Castle Grande land development consisted of more than 1,000 acres of property near Little Rock purchased by Seth Ward, Webster Hubbell's father-in-law, and Madison Financial Corp. ("MFC") -- Madison Guaranty's wholly-owned subsidiary.7 The land was sold in a series of transactions that caused nearly $4 million in losses to Madison Guaranty -- losses ultimately borne by U.S. taxpayers.8

Federal regulators have determined that Seth Ward acted as a "straw" man in the fraudulent Castle Grande transaction who simply held property in his name until MFC could find a buyer.9 In this way, Madison Guaranty was able to circumvent an Arkansas regulation that limited investment in real estate by a savings and loan.10 For his part in this sham deal, Mr. Ward earned over $300,000 in commissions on the sale of property.11

Prior to the discovery of the Rose Law Firm billing records in the White House Residence, the nature and extent of Mrs. Clinton's work on Castle Grande was virtually unknown. The evidence obtained in the course of the Special Committee's investigation now establishes that Mrs. Clinton had direct and substantial involvement in Castle Grande.

The Rose billing records reflect that on April 7, 1986, Mrs. Clinton had a telephone conference with Madison Guaranty's chief loan officer, Don Denton.12 The records also reflect that on May 1, 1986, Mrs. Clinton prepared an option agreement under which MFC obtained the right to buy from Mr. Ward a small piece of property called Holman Acres for $400,000.13

The background to the questionable transaction is as follows. In spring 1986, Mr. Ward approached John Latham, the President of Madison Guaranty, about collecting his commissions from the sham sales of real estate at Castle Grande. At the time, however, Madison Guaranty had come under scrutiny from federal banking regulators, who were examining the thrift and would have questioned the payment of such commissions.14

Therefore, Seth Ward, Madison Guaranty, and Madison Financial executed a series of crossing loan transactions and promissory notes designed to pay Mr. Ward his commissions and fool the S&L's regulators. On March 31, 1986, Madison Guaranty loaned $400,000 to Mr. Ward.15 On April 7, 1986, MFC gave two promissory notes to Mr. Ward -- one for $300,000 and the other for $70,943.16 Thus, Mr. Ward received his commissions from the $400,000 loan from Madison Guaranty, and MFC's notes effectively canceled his obligation to repay the loan and was the means by which he was able to keep his commissions.

The chief federal S&L examiner, James Clark, discovered the March 31 loan and April 7 notes during a 1986 the examination and became concerned that there might be a connection between the crossing notes.17 Specifically, he suspected that the notes might represent a payment to Mr. Ward and thus a possibly improper investment by Madison Guaranty in MFC.18 Such investments by Madison Guaranty in its service corporation, MFC, were subject to a regulation limiting Madison's ability to invest in real estate.

When Mr. Clark inquired about the March 31 and April 7 notes, however, he was told that these notes were completely unrelated.19 He was told that the April 7 notes were related to MFC's plan to purchase Holman Acres from Mr. Ward. This transaction was to be accomplished through an as yet undrafted option agreement that would replace the notes, which existed simply to guarantee MFC's performance.20 In effect, the option agreement was a fictitious transaction designed to conceal the relationship between the March 31 loan and the April 7 notes.

According to Mr. Clark, the May 1, 1986 option prepared by Mrs. Clinton was used to disguise the fact that the crossing notes between Seth Ward, MFC, and Madison Guaranty were devised to pay commissions to Mr. Ward. In Mr. Clark's view, "the option was created 'in order to conceal the connection'" between the notes.21

On April 7, 1986, Don Denton received a message that Mrs. Clinton had called.22 He returned the call and they discussed about the notes between Mr. Ward, MFC, and Madison Guaranty.23 Mr. Denton believed that Mrs. Clinton was preparing a $400,000 note between MFC and Mr. Ward, and he told her that such a note had already been prepared and executed.24 Mrs. Clinton asked him to send her whatever notes the S&L had executed with Mr. Ward.25 Mr. Denton did so, sending copies to Mrs. Clinton of the notes by courier.26

Mr. Denton recalled that during this April 7 conversation he expressed concern to Mrs. Clinton with respect to the March 31 and April 1 notes because the note appeared to represent the payment by Madison Guaranty of an MFC obligation.27 Mrs. Clinton, however, "summarily dismissed" that Mr. Denton's concern in a manner that Mr. Denton took to mean that he ought to "take care of savings and loan matters, and she would take care of legal matters." 28

In sum, the Special Committee concludes that Mrs. Clinton's own work product -- the May 1 option -- was used to conceal the very transactions about which Mr. Denton expressed concern. This fact raises serious questions with respect to Mrs. Clinton's state of knowledge of the deceptive aspects of the transaction.

First, the billing records indicates that Mrs. Clinton was aware of the Arkansas regulation limiting the extent of Madison's investment in MFC. Indeed, the records reflect that on June 17, 1985, she reviewed a memorandum prepared by a Rose associate, Richard Massey, touching upon this regulation. More important, her conversation with Don Denton put her on notice -- prior to the drafting of the critical May 1 option -- that the notes exchanged by Mr. Ward, MFC, and Madison Guaranty were questionable. Thus, it appears that Mrs. Clinton was apprised of both the relevant law and facts that made the Castle Grande transaction irregular. Accordingly, an inference can be drawn that Mrs. Clinton might well have known that these documents were designed to conceal the true nature of the Madison-Ward transactions or that she consciously avoided the knowledge. At the very least, she was on notice to inquire further.

On June 13, 1996, the same day that the Special Committee received Mr. Denton's testimony, the Committee in a letter addressed to Mr. Kendall, Mrs. Clinton's counsel, requested that the First Lady attempt to refresh her recollection regarding the matters discussed by Mr. Denton and inform the Committee of what she recalls about them.29 The Special Committee's request was made in response to an earlier offer by Mrs. Clinton through a White House spokesman to answer in writing questions regarding the subject of the Special Committee's work.

On June 17, 1996 the Special Committee received an affidavit from Mrs. Clinton accompanied by a letter from Mr. Kendall. In the affidavit, Mrs. Clinton gave no indication as to her recollection regarding the subject matter of Mr. Denton's testimony. Instead, she simply requested that Special Committee refer to Mr. Kendall's letter "addressing certain allegations recently made by Mr. Don Denton."30 In his letter, Mr. Kendall maintained that Mr. Denton's recollection is "wholly unreliable" but gave no indication as to the recollection of the First Lady.31 In sum, the First Lady has neither confirmed nor denied Mr. Denton's testimony.

Examination of Mrs. Clinton's involvement in Castle Grande cannot be viewed in isolation. The Special Committee also takes into account Mrs. Clinton's apparent failure to be more forthcoming about her role in Mr. McDougal's Castle Grande deal. When asked in 1995 about her knowledge of Castle Grande and some other land deals, Mrs. Clinton swore, under oath, "I do not believe I knew anything about any of these real estate parcels and projects."32 In light of the billing records, that statement appears incorrect on its face.

The Rose billing records reflect that Mrs. Clinton billed almost 30 hours to Castle Grande matters during the course of her representation of Madison Guaranty -- more time than any other Rose attorney.33 And, in addition to the May 1 option and the phone call with Mr. Denton, Mrs. Clinton had 15 face-to-face or telephone conferences with Seth Ward, including one "regarding purchase from Brick Lile," the chairman of the company that sold the property to Mr. Ward and MFC.34

In a sworn statement in 1996, Mrs. Clinton sought to explain her prior categorical denial of knowledge about Castle Grande by saying that she knew of the 1,000+ acre tract as "IDC" -- the name of the company that sold the property and the matter to which she charged her billings. She further stated that she knew a small portion of the Castle Grande property, a trailer part, as Castle Grande Estates.35 The Committee finds it implausible that Mrs. Clinton would fail to recognize the name "Castle Grande" as the referring to the larger development, given the testimony of Madison Guaranty insiders and federal regulators that the entire development was commonly known as Castle Grande.36

The secreting of the Rose Law Firm billing records could have been motivated by a desire to conceal Mrs. Clinton's involvement in Castle Grande and, in particular, her involvement in work on the questionable April 7 notes and May 1 option, could have motivated the secreting of the Rose Law Firm billing records. The jury in the recently concluded Tucker-McDougal trial convicted the defendants for crimes relating to the Castle Grande project. Prior to the discovery of the Rose billing records, Mrs. Clinton's role in Castle Grande was unknown. The desire to keep her role secret might have been the cause of the long absence of the billing records. 2.

Webster Hubbell was significantly more involved in Castle Grande than he admitted in his Senate testimony.

Former Associate Attorney General and former Rose Law Firm partner Webster Hubbell has testified before the Special Committee and in other fora on several occasions. With respect to his testimony regarding his involvement in Castle Grande, Mr. Hubbell altered his story when he learned that Seth Ward was a nominee purchaser for MFC. In a December 1995 with the RTC, Mr. Hubbell stated that he understood as of September 1985, from Mr. Ward, that "Madison had limits on what it could own in its own name, and so Mr. Ward was going to own part of it until it could be sold."37

And, in an interview with the RTC Office of Inspector General, Mr. Hubbell "said that Ward told him that he was negotiating on behalf of Madison to buy the IDC property, which would then be split up between Madison and Ward."38 In testimony before the Special Committee, however, Mr. Hubbell repeatedly testified that he was not aware of the deal between Madison and Ward until after the closing in early October 1985.39

Mr. Hubbell was reluctant to answer questions regarding his own view of the legality of his father-in-law's role in the purchase of the IDC property. When asked if Mr. McDougal used Mr. Ward to evade a regulatory restriction, Mr. Hubbell answered, "I have never represented an S&L. I don't know whether it's illegal or not."40 When he was asked if he considered this transaction as a classic parking or warehousing transaction, Mr. Hubbell answered, "I think of parking and warehousing a little bit differently."41 When asked if he thought Mr. Ward could be considered a "straw man," Mr. Hubbell testified, "I didn't give it any consideration, you know. 'Straw man' means, to me, somebody who you clear title through."42

Mr. Hubbell has denied advising Mr. Ward on the Castle Grande transaction.43 Specifically, he denied preparing a backdated September 24, 1985 letter or advising Mr. Ward on its preparation.44 There is evidence, however, that Mr. Hubbell may have prepared the backdated September 24, 1985 letter, which was found in his files at the Rose Law Firm.45 Martha Patton, Mr. Hubbell's secretary at Rose, has stated that although she does not recall typing the letter she believes that she did because the type is similar to that of the IBM typewriter that she used then, and the second page of the document is formatted in the style she used while a Rose secretary.46 She added that the letter appears to be "her style of typing."47

There is also some indication that Mr. Hubbell was supposed to prepare the May 1, 1986 option agreement. Handwritten notes taken by James Clark, the chief FHLBB examiner during the 1986 examination of Madison Guaranty, reflect the following:

MFC Commitment to buy land at corner of Route 145 . . .

Option will be prepared, atty out of town (Hubbell)

to replace note.48 This note strongly suggests a previously unknown involvement in Castle Grande by Mr. Hubbell.

Former Madison chief loan officer Don Denton has indicated that Mr. Hubbell advised Mr. Ward on the Castle Grande matter.498 For example, Mr. Denton believed that the wording on the note, dated October 15, 1985, stating that Mr. Ward was not personally responsible for the note was prepared by Mr. Hubbell.50 Also, Mr. Denton believed that he had some conversations with Mr. Hubbell about the February 28, 1996 transaction.51

Furthermore, Mr. Denton indicated in a recent interview that Mr. Hubbell was involved in the March 31 and April 7, 1986 notes between Mr. Ward, Madison Guaranty, and Madison Financial. He stated that he was "reasonably confident" that when Mrs. Clinton called him regarding these notes she was acting on Mr. Hubbell's behalf.52 Mr. Denton refused to say whether he ever dealt with Mr. Hubbell on the matter of the notes.53 He also declined to answer whether he had visited Mr. Hubbell's office at Rose regarding Mr. Ward or Madison Guaranty.54

Mr. Hubbell may have provided inaccurate statements about his legal work on other occasions. In 1989 when the Rose Law Firm was retained to represent the FDIC in an action against Madison Guaranty's former accountants,55 Mr. Hubbell failed to disclose to regulators Rose's prior work for Madison. And in 1993 when he failed to disclose information he had learned the previous year from reading the Rose Law Firm billing records to FDIC investigators looking into the 1989 retention of Rose.56

The Special Committee questions Mr. Hubbell's implausible claim that he did not advise Mr. Ward with respect to Castle Grande. 3.

In 1985, Mr. McDougal retained Hillary Clinton to represent Madison Guaranty; the work was not brought in by a young associate.

The Special Committee concludes, based upon the substantial weight of the evidence, that Mr. McDougal hired Mrs. Clinton to represent Madison Guaranty Savings & Loan. Mrs. Clinton's statements that Richard Massey, then a young Rose Law Firm associate at the time, brought the client into the firm are not supported by the documentary or testimonial evidence received by the Committee.

Mr. McDougal made statements during the 1992 Clinton presidential campaign, as well as to the Los Angeles Times in 1993, that he put Mrs. Clinton on retainer as a favor to Bill Clinton. These McDougal statements are supported by others and by documentary evidence. Former Madison CEO John Latham confirmed that Mr. McDougal made the decision to retain the Rose Law Firm.57 Moreover, although President Clinton does not recall asking Mr. McDougal to place Mrs. Clinton on retainer,58 Mr. McDougal performed other favors for President Clinton when he was Governor by, among other things, substantial contributions, on behalf of the Clintons, on Whitewater loans.

Mrs. Clinton's markedly different account of how the business came to the Rose Law Firm, is not confirmed by any attorney at the Rose Law Firm, including Mr. Massey. For example, Mrs. Clinton, has repeatedly stated that Mr. Massey, then a first year associate at the Rose Law Firm, brought in Madison Guaranty as a client.59 She claims that Mr. Latham asked Mr. Massey whether he would be interested in representing Madison in connection with a proposed stock offering. Mrs. Clinton further explained that Mr. Massey was aware that she knew Mr. McDougal, so "he came to me and asked if I would talk with Jim to see whether or not Jim would let the lawyer and the officer go forward on this project. I did that, and I arranged that the firm would be paid $2,000 retainer."60

Both Mr. Massey and Mr. Latham contradict Mrs. Clinton's version of events. Moreover, David Knight61, a former partner of the Rose Law Firm, testified that he was involved in this meeting between Mr. Latham and Mr. Massey, and Mr. Latham did not hire Mr. Massey.62

In a statement to the FDIC OIG in November 1994, Mrs. Clinton similarly told investigators that "she recalled Massey came to her and asked her to be the billing attorney which was a normal practice when an associate was handling the matter. . . Mrs. Clinton recalled that a Madison official (individual unknown) approached Rick Massey regarding a preferred stock offering in an effort to raise capital."63 In a sworn response to an RTC interrogatory in May 1995, Mrs. Clinton elaborated on her story. Mrs. Clinton stated that Mr. Massey approached her because "certain lawyers" in the Rose Law Firm were "opposed" to representing Mr. McDougal until Mr. McDougal paid an outstanding bill, and he was aware that Mrs. Clinton knew Mr. McDougal.

Mr. Massey, however, directly contradicted Mrs. Clinton's account stating that he was not responsible for bringing in Madison as a client.64 Specifically, Mr. Massey testified that Mr. Latham never offered him Madison's business65 and that he did not recall approaching Mrs. Clinton with a proposal to represent Madison.66 Contrary to Mrs. Clinton's unsworn statement of November 1994 to the RTC, Mr. Massey also testified that he did not ask Mrs. Clinton to be the billing attorney.67 Mr. Knight agrees that Mr. Massey did not secure an offer of business, and he -- Mr. Knight -- further testified that he would have expected to know about such an offer if it had happened.

Mrs. Clinton claimed that she became involved in discussions about the Madison retainer because of an outstanding debt Mr. McDougal, through his Madison Bank & Trust, owed to the Rose Law Firm in 1985.

Documentary evidence and testimony provided to the Special Committee, however, indicated that the outstanding balance of Rose's bill to Madison Bank & Trust was paid in November 1984, months prior to Rose's retainer in April 1985. Furthermore, Gary Bunch, President of Madison Bank & Trust provided the Special Committee with documents showing that the legal fees owed to the Rose Law Firm were paid in late October 1984.68 Mr. Bunch further testified that Mr. McDougal directed him in October 1984 to pay the outstanding Rose Law Firm bill for the Madison Bank & Trust matter in full.69

Following the discovery of the Rose billing records and the testimony of Mr. Massey before the Special Committee, Mrs. Clinton's story changed in a February 1996 interview with RTC investigators. She claimed, for the first time, that the late Vincent Foster initially informed her that Mr. Massey wanted to do legal work for Madison.70

Mrs. Clinton's statements conflict internally and with the testimony of others involved in the events surrounding Rose's Madison retainer. Over the next several months, it was Mrs. Clinton -- not Mr. Massey -- that officials at Madison Guaranty, including Seth Ward and Jim McDougal, sought out for representation. Finally, Mr. Massey, Mr. Knight, Mr. Latham and Mr. Bunch, all unrelated and with no apparent reason to mislead the Special Committee, contradict Mrs. Clinton's assertion that she did not bring Madison Guaranty to the Rose Law Firm as a client. 4.

Mrs. Clinton had a substantive contact with Beverly Bassett Schaffer about Madison Guaranty's proposal to issue preferred stock.

The Rose billing records and Beverly Bassett Schaffer contradict Mrs. Clinton's statements that she did not speak directly to Beverly Bassett Schaffer, the Arkansas Securities Commissioner in charge of state regulation of Madison Guaranty, about Madison Guaranty's proposed preferred stock transaction.

Prior to the discovery of the billing records, Mrs. Clinton claimed in her sworn responses to RTC interrogatories in May 1995 that she called the Arkansas Securities Department to find out "to whom Mr. Massey should direct any inquiries" on the proposed stock deal, but she did not recall to whom she spoke.71

The Rose billing records reflect that Mrs. Clinton called Ms. Schaffer the day before the Rose Law Firm submitted Madison's proposal to do preferred stock offering to the Arkansas Securities Department.72 In testimony before the Special Committee, Ms. Schaffer directly contradicted Mrs. Clinton and stated that the substance of the proposal was discussed during the phone call, and that Ms. Schaffer told Mrs. Clinton that her agency would approve the proposal.73

Mr. Massey likewise contradicted Mrs. Clinton's account of this important telephone call. Mr. Massey testified that he drafted the proposal and knew exactly to whom the proposal should be sent.74 Mr. Massey also testified that Mrs. Clinton never gave any instructions to him about whom he should address the transmission letter.75

This conversation has at least the appearance of an attempt by the then-Governor's wife to lobby to influence the activities of state regulators on behalf of private clients. Thus, both Ms. Schaffer and Mrs. Clinton may have motive to hide this event from public scrutiny. The fact that Ms. Schaffer recalls that the phone call included a discussion of the substance of Madison Guaranty's stock proposal, which she approved two weeks later, supports the Special Committee's conclusion that a substantive call occurred. 5.

Governor Clinton's official and personal dealings with James McDougal raised an apparent, if not an actual, improper conflict of interest.

Governor Clinton's official and personal dealings with Jim McDougal, beyond appearances, raised an apparent, if not actual, conflict of interest. Although Mr. McDougal was carrying the Clintons on the Whitewater loans, then Governor Clinton -- using the power of his high political office -- consistently acted favorably on Mr. McDougal's other business ventures and accepted many of the recommendations Mr. McDougal made regarding proposed state action. These favors took the form of influence in appointments76, the awarding of lucrative state leases77, and beneficial decisions relating to state regulators.78 This favoritism was critical to Mr. McDougal, whose savings & loan was experiencing serious financial trouble.

Of course, from the standpoint of Governor Clinton, if Madison Guaranty failed or Mr. McDougal experienced financial troubles, the Clintons could be liable for the full Whitewater debt. Thus, Governor Clinton had reason to act in a way to ensure the viability of Mr. McDougal's savings & loan, even if such action was adverse to the interests of the state. For example, documents indicate that Governor Clinton played a role in the award of contracts for state leases to Madison.79

Perhaps the most blatant example of the problems created by this conflict of interest related to certain legislation. In 1987, Governor Clinton vetoed a water bill that favored a utility, Castle Sewer & Water, owned by R.D. Randolph and Jim Guy Tucker, two business associates of Mr. McDougal.80 Mr. Randolph and Mr. Tucker threatened Governor Clinton by reminding him of a questionable 1985 Madison fundraiser,81 and the possibility of litigation related to Rose's representation of Madison on the utility issue.82 Shortly thereafter, Governor Clinton called the legislature into a special session and the signed the bill, as Mr. McDougal's associates desired. 6.

The Clintons took an active role in obtaining and extending Whitewater-related loans; they were not "passive" investors in Whitewater.

The Clintons were not "passive investors" in the Whitewater real estate venture. Indeed, they actively sought and obtained Whitewater loans and extensions. Based largely on Mr. Clinton's official position, state bankers routinely gave the Clintons beneficial treatment on Whitewater-related loans, often disregarding banking regulations and sound lending practices.

Whitewater was a "no cash" deal. Mr. Clinton actively participated in obtaining the initial down payment loan the Whitewater investment. He enlisted bank lobbyist Paul Berry to grant him and James McDougal an unsecured loan for the down payment.83 This loan was just one of the Whitewater loans that would not have been made under what the lending officer characterized as "ordinary circumstances."84

Moreover, the Clintons actively participated in key meetings concerning the Whitewater real estate investment. At the outset of the investment, Mr. Clinton met with Mr. McDougal about the structure of the financing.85 When Mr. Clinton's personal accountant, Gaines Norton, raised serious questions about the lawfulness of Mr. McDougal's plans, Mr. Clinton told him to "back off."86 This indicates a conscious avoidance of learning the facts about the Whitewater transactions.

Also early in the investment, Mrs. Clinton had at least two meetings with bank officials to renew Whitewater loans.87 Although few payments of principal were being made, and the Clintons often refused to provide the required loan documents and financial statements, Mrs. Clinton's continued meetings and conversations with reluctant bank officials helped to secure the extension of Whitewater loans.88 Again and again, bankers looked the other way when the Clintons failed to make principal payments on the Whitewater loan or failed to submit the required financial statements, many times due to Governor Clinton's public office.89 Finally, after 1986, Mrs. Clinton essentially took control of the Whitewater investment.90 Mrs. Clinton sought power of attorney over the investment, paid back taxes and attempted to collect all the Whitewater documents.

In fact, it appears that in many instances where the Clintons got involved with the Whitewater loans, the banking regulations were either "bent" or broken. For example, federal and state regulators cited Mrs. Clinton's irregular out of territory and often past due loan in connection with Whitewater Lot 13 and prohibited the bank from renewing the loan.91 Governor Clinton's Bank Commissioner Marlin Jackson may have assisted the Clintons in obtaining a new loan at a bank he then regulated.92 Later, Mr. Jackson improperly used government stationary in connection with securing loan renewals for the Clintons.93 Mr. Jackson used his government position to act as a go-between for the Clintons in their dealings with a state-regulated bank was clearly inappropriate.94 This action raises serious questions of whether Mr. Jackson misused his official position to influence improperly bank action to benefit the wholly private interests of the Clintons.

7.

Governor Clinton's office steered state bond work to Dan Lasater.

The Special Committee was very concerned about Governor Clinton's troubling relationship with Arkansas businessman, Dan Lasater. In 1980, Mr. Lasater entered the securities business with the firm of Collins, Locke & Lasater. In January 1985, a Little Rock paper reported that a federal bankruptcy judge found, in open court, that Mr. Lasater lied under oath during the bankruptcy trial of his former business partner, George Locke, and also found that Mr. Lasater was involved in a conspiracy to defraud Mr. Locke's creditors. In February 1985, widely-reported accounts of sworn testimony of federal court put Governor Clinton on notice that Mr. Lasater was a cocaine user and the subject of a drug investigation. On October 23, 1986, Mr. Lasater was indicted on drug charges for possession and distribution of cocaine.

Mr. Lasater contributed substantial sums of money to Governor Clinton,95 "loaned" $8,000 to the Governor's brother, Roger, to pay a drug debt,96 and, at the Governor's request, gave Roger a job.97

The Special Committee identified three instances in which Governor Clinton or his aides inappropriately sought to take actions to intended to benefit Mr. Lasater. First, in February 1983, Senior Economic Adviser to the Governor, Bob Nash, while acting in his official capacity, improperly directed Charles Stout, the Chairman of the Arkansas Housing Development Board ("AHDA"), to grant lucrative state bond underwriting contracts to Mr. Lasater's firm, Collins, Locke & Lasater.98 Mr. Nash directed AHDA Chairman Stout to award 15% of AHDA's bond-business to Mr. Lasater's firm. This order represented an unprecedented interference by the Governor's office into the otherwise independent and competitive underwriting selection process of the agency99. Mr. Nash did not suggest that the AHDA should include other Arkansas firms. Rather, Mr. Nash's order specifically directed that Mr. Lasater's firm be included. Mr. Nash's directive had the weight and influence of the Governor's office behind it,100 and, as a result, the AHDA Board bowed to the Governor's order awarded a substantial amount of state bond business to Mr. Lasater's firm.101 Prior to Mr. Stout's order, Mr. Lasater's firm had not received AHDA bond business. In addition, the Stephens firm, the largest bond firm in Little Rock, questioned whether Mr. Lasater's firm was qualified to participate in these offerings.

Second, in late 1983, Governor Clinton sought to use the power of his office to benefit Mr. Lasater when the Governor personally called and asked Linda Garner, the State Insurance Commissioner, to include Collins, Locke and Lasater as a manager for the multi-billion dollar securities portfolio for which she was acting as receiver in connection with her responsibilities as Insurance Commissioner.102 Governor Clinton did not attempt to intervene on behalf of any other financial firms.103 The Committee has concluded that this contact represents another instance where Governor Clinton inappropriately tried to influence an appointed state official to direct business opportunities to Mr. Lasater.

Third, the Governor's office extended itself to monitor and to facilitate Mr. Lasater's company's efforts to secure the underwriting contract for a $29 million dollar bond financing for a police radio system in 1985.104

In each of these three instances, the Special Committee concludes that Mr. Lasater received inappropriate assistance from the Governor and his office. Given Mr. Lasater's past problems, it is far from clear why Mr. Lasater would be entitled to preferential treatment. 8.

The Clintons took a series of erroneous tax deductions related to Whitewater.

The Special Committee concludes that the Clintons took a series of erroneous Whitewater deductions, often in error, on their personal federal income tax returns. From 1978 to the early 1990s, the Clintons invested a total of $42,192 in Whitewater.105 During this same period, the Clintons deducted $42,656 of their Whitewater related expenses on their federal income tax returns -- almost $500 more than their total investment in the corporation. From 1992 to this date, the Clintons have admitted taking improper deductions of $7,928 and omitting income of $8,171 on their federal income tax returns during the period of their Whitewater investment. Based on its analysis of the available evidence, the Special Committee concludes that the Clintons could have understated their income on Whitewater-related items by as much as an additional $33,771, for a total increase in taxable income of $49,870.


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