The Special Committee's Whitewater Report

PART IV. DAVID HALE AND CAPITAL MANAGEMENT SERVICES, INC.

I. The Special Committee's Attempts To Obtain Hale Testimony

The Special Committee unsuccessfully sought to obtain the testimony of David Hale, former president of Capital Management Services, Inc., who was a critical witness in the recently concluded Tucker-McDougal trial.

In October and December 1995, the Committee was informed by the Office of the Independent Counsel that the OIC's "investigations and prosecutions would be seriously hindered or impeded if the Committee examined in any forum," David Hale,1028 and that hearings "prior to the trial of United States v. James B. McDougal, et al., regarding ....Capital Management Services" would hinder or impede their investigations and prosecutions.1029 As a result, the Special Committee postponed examination of Mr. Hale and hearings into Capital Management Services until after the Tucker-McDougal trial.

On May 17, 1996, after the conclusion of the trial, the Special Committee requested that Mr. Hale make himself available to provide deposition and hearing testimony.1030 Mr. Hale's attorney, Theodore B. Olson, responded that "based on the rights guaranteed to him [Mr. Hale] by the Fifth Amendment to the Constitution of the United States, Mr. Hale respectfully" declines to appear before the Special Committee.1031 Mr. Olson stated that "Mr. Hale has been explicitly threatened, in writing, with prosecution in Arkansas by Arkansas state authorities."1032 Mr. Olson further stated that Mr. Hale "has been advised that any testimony that he may give before the Special Committee may be used against him by Arkansas prosecutors in any such future proceeding in Arkansas."1033

On June 5, 1996, the Committee subpoenaed Mr. Hale to make himself available for deposition and public hearing. Mr. Hale again asserted his Fifth Amendment privilege.1034 John A. Mintz, an attorney for Mr. Hale, wrote: "In absence of a court order to testify and a grant of immunity as provided by Federal law," any testimony Mr. Hale may give before the Special Committee "may be used against" Mr. Hale.1035

On June 11, 1996, the Special Committee was not able to secure the 12 votes required to grant Mr. Hale limited use immunity for his testimony to the Special Committee. Therefore, the Committee will not have Mr. Hale's testimony to evaluate matters related to Capital Management Services as set forth in Senate Resolution 120. II. Mr. Hale's Testimony in the McDougal Trial: What was Governor Clinton's Role in the Making of the $300,000 Master Marketing Loan?

Mr. Hale testified as a prosecution witness for nine days at the Tucker-McDougal. Specifically, Mr. Hale testified that he has known James McDougal, Jim Guy Tucker, and President Clinton for over 20 years. He met Mr. McDougal in 1959, when he and Mr. McDougal were members of the same fraternity at University of Arkansas.1036 Mr. Hale met Jim Guy Tucker in the mid-1960s and hired Mr. Tucker as his lawyer in 1980.1037 Mr. Hale met President Clinton in the early 1970s.1038 Mr. Hale continued his relationship with these three men throughout the 1980s.

In 1979, Mr. Hale obtained a license for an Small Business Investment Corporation ("SBIC"), Capital Management Services, Inc.1039 This SBIC was required to loan money to those who were economically or socially disadvantaged.1040

Mr. Hale testified that in the fall 1985, Mr. Tucker asked him to attend a meeting with Mr. McDougal and Mr. Tucker.1041 The three drove to Mr. McDougal's newly purchased Castle Grande development to view the site.1042 Mr. McDougal said to Mr. Hale, "I'm going to need some funds, and we're going to have to clean up some members of the political family."1043 Mr. Hale testified that when Mr. McDougal said "political family," he understood that Mr. McDougal meant "Bill Clinton, and some of his aides, Jim Guy Tucker and some of McDougal's associates."1044

Mr. Hale testified that later that evening, he and Messrs. McDougal and Tucker went to Mr. Tucker's house and reached an agreement related to a scheme to defraud the Small Business Administration by fraudulently obtaining money from CMS.1045 The agreement consisted of a plan to have Mr. Tucker "get my purchase of the property completed as fast as possible."1046 After the sale, Mr. Hale would look for a buyer of the property, "someone we could put the property's name in."1047 Madison Guaranty would finance the purchase, and according to Mr. Hale, "Jim would see to it that Madison Guaranty would make the loan on the purchase enough so that we would have $500,000 put in the SBIC."1048 Mr. Hale explained, "[I]n order for Jim Guy and Jim and others to have the funds they needed, we had to take the money from Madison, put it into the SBIC, and then loan it back out."1049

Messrs. Tucker, McDougal and Hale decided on $500,000 to enable CMS to increase its SBIC loan limit from $150,000 to $300,000.1050 Mr. McDougal told Mr. Hale that the urgency of the loan stemmed from the fact that federal regulators were coming in to examine Madison Guaranty.1051

In either January or February 1986, Mr. McDougal asked Mr. Hale to meet with Mr. McDougal and then-Governor Clinton "to talk about getting the loan ready and consummated."1052 Mr. Hale went to Mr. McDougal's office at Castle Grande (where McDougal had moved when the examiners came into the S&L), and the three allegedly discussed the loan Mr. Hale was going to make.1053

Mr. McDougal proposed that the loan be made to Susan McDougal.1054 Governor Clinton allegedly offered to provide as security for the loan property in Marion County (where Whitewater is located).1055 Mr. McDougal also offered to put up as security his stock in Madison Guaranty.1056 Governor Clinton then allegedly told Mr. Hale "be sure -- my name cannot show up on this."1057

The transactions were consummated in February-April of 1986. On February 28, 1986, Madison Guaranty lent Dean Paul, Ltd. $1.2 million. According to the plan, Mr. Hale used $502,000 to put capital in CMS and applied for an additional $500,000 of matching funds from the SBA.1058 This capital infusion raised CMS's lending limit to $300,000.1059

On April 3, 1986, Mr. Hale, through CMS, made a $300,000 loan to Susan McDougal d/b/a Master Marketing.1060 Mrs. McDougal's application for the loan stated that Master Marketing was an advertising company.35 Mr. Hale knew that the statement was untruthful.1061

Mr. Hale testified that he looked to then-Governor Clinton and Mr. McDougal to repay the loan because he believed that they were receiving the proceeds.1062 In May 1986, Mr. McDougal contacted Mr. Hale in an attempt to alter the original loan documents because things were going bad at Madison.1063

In 1991, auditors questioned Mr. Hale about repayment of the loan.1064 Mr. Hale arranged with Mr. McDougal's attorney to obtain a judgement, which would satisfy the auditors.1065 Suit was filed, and Mrs. McDougal agreed to the judgement, although it was not collectable and only affected how much money Mr. Hale could have in CMS and how much money Mr. Hale could draw. 1066 Mr. Hale persuaded a friend to buy the loan and give CMS a note for it. The purpose of the note was to give the appearance to the auditors that the loan had been paid. Mr. Hale sent a letter to the SBA indicating that the Master Marketing loan had been paid in full, thereby hiding the loss.1067

The district court judge in the Tucker-McDougal trial refused to allow Mr. Hale to testify to the other two meetings that Mr. Hale has asserted he had with President Clinton. Mr. Hale has stated that shortly after the initial meeting with Mr. McDougal and Mr. Clinton, he ran into Mr. Clinton on the steps of the Arkansas Capitol. Governor Clinton allegedly approached Mr. Hale and said that Mr. McDougal would call Mr. Hale. Governor Clinton allegedly hoped that Mr. Hale would help Mr. McDougal.

Mr. Hale has further alleged that a third meeting took place at a Little Rock shopping mall. Governor Clinton, agitated, allegedly asked Mr. Hale: "Do you know what that ---- Susan did with the money?"1068

William Watt, Mr. Hale's business associate also recalled the involvement of Governor Clinton in the Dean Paul loan.1069 Mr. Watt recalled going to Mr. Hale's office, and Mr. Hale was anxious about getting the appraisals done quickly.1070 Mr. Hale told Mr. Watt: "I've got to have this done."1071 Mr. Hale said he had been "to a meeting out at the Capitol ....or the Governor's mansion."1072 Mr. Hale also said, "And Governor Clinton is interested. He wants me to try to get it to him to help his friends."1073 During a subsequent telephone conversation with Mr. Watt, Mr. Hale raised the Governor's name again.1074 According to Mr. Watt, Governor Clinton asked Mr. Hale, "Did you get my friends"--- "Did you get my deal done? Did you help my friends?"1075

Robert Palmer, a real estate appraiser who worked on the appraisal of the property, provided testimony at the Tucker-McDougal trial concerning the involvement of politicians. Mr. Palmer testified that Mr. Watt, called told Mr. Palmer that the appraisals of the property had to be increased.1076 Mr. Watt told Mr. Palmer that "they really needed a higher figure on the property" and that "David Hale was doing a favor for Jim McDougal."1077 Mr. Palmer testified that Mr. Watt instructed him to "do whatever [he has] to do" even if that meant they "use an inflated value."1078 Mr. Watt told Mr. Palmer not to "worry about any repercussions.1079 Everybody knows about the deal ....this goes all the way, you know, to the top."1080 Mr. Palmer asked if it was "McDougal" and Watt said "higher."1081 Mr. Palmer said "politically" and Watt said "yes."1082

Special Agent Michael Patkus of the FBI testified at the trial that of the $300,000 loan from CMS to Master Marketing, $111,500 went to Flowerwood Farms to be used for loan payments.1083 One of the checks drawn on the Flowerwood Farms account was written to Whitewater Development Corporation in the amount of $24,455.06.1084 The memo section of the check reflected that the funds were for a loan.1085 Agent Patkus testified that the funds were deposited in Whitewater's account at Madison Guaranty were used to cover a check, dated March 22, 1985.1086 According to Agent Patkus, this March 22 check was made payable to Ozark Realty for $25,000.1087

President Clinton admitted that he went to Mr. McDougal's office at Castle Grande one time, but denied that Mr. Hale was present during the meeting.1088 Mr. McDougal admitted, however, that he told an FBI agent on July 17, 1995, that Mr. Clinton had visited him at his Castle Grande offices on several occasions. The President claimed he was never present at any meeting between Mr. McDougal and Mr. Hale.1089 Moreover, he denied telling Mr. Hale that his name could not appear on any loan or financial documents or that Mr. Hale could use President Clinton's property in Marion County as security for a loan.1090 The President denied that he ever asked or pressured Mr. Hale to make a loan to him, Mr. McDougal, Mrs. McDougal or Mr. Tucker. The President alleged that Mr. Hale "has told two or three different stories" but they are "simply not true."1091 The President denied having knowledge of or receiving the proceeds from the $300,000 loan from Capital Management Services to Master Marketing.1092

The Independent Counsel presented other evidence corroborating Mr. Hale's testimony about the meetings with President Clinton. A message slip from President Clinton indicates that he wants to meet with McDougal on a Saturday in January. Mr. McDougal claimed he does not know if he told Hale about that meeting, but he believes he did not.1093 Another message slip indicates that Mr. McDougal called President Clinton on the Friday following the Saturday meeting. Mr. McDougal claimed that he does not know why he called the Governor on that day.1094 Mr. McDougal also did not recall why the Governor called him on February 3, 1986.1095


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