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Fallout From Collapse of S&L Shadows Clinton : Inquiry: Two targets of criminal probes charge that the then-governor had a role in the debacle. The White House strongly disputes the allegations.

November 07, 1993|WILLIAM C. REMPEL and DOUGLAS FRANTZ | TIMES STAFF WRITERS

LITTLE ROCK, Ark. — The 1989 failure of a small Arkansas savings and loan has triggered criminal probes targeting some of President Clinton's oldest friends and political allies, compelling the President repeatedly to deny allegations that he had a role in the debacle.

One of those longtime Clinton associates is James B. McDougal, former owner of the ill-fated Madison Guaranty Savings & Loan, who told The Times that he hired the then-governor's wife, attorney Hillary Rodham Clinton, in 1984 because Clinton said his family needed financial help.

David Hale, another longtime political supporter and former Clinton-appointed judge who is currently under federal indictment for loan fraud, said he made a $300,000 loan to McDougal's wife in 1986 after Clinton personally asked him to help.

That loan, backed by the Small Business Administration that subsidized Hale's investment company, was never repaid.

McDougal has acknowledged that $110,000 of that SBA-backed loan was invested in an Ozarks real estate venture in which the Clintons were half-owners.

Both claims--that the governor lobbied the ailing thrift to hire his wife and that he urged Hale to loan money that went into a Clinton-owned business--have been strongly disputed by the White House. Clinton told reporters last week that he and his wife had done nothing improper.

But such allegations, raising questions about possible conflicts of interest and abuse of office by the then-governor of Arkansas, continue to be nettlesome because they are coming not from Clinton's critics but from some of his oldest friends and supporters.

Take, for example, the story behind Hillary Clinton's legal retainer.

The matter first became an issue during last year's presidential campaign when it was disclosed that Hillary Clinton had represented the savings and loan in an appeal for favorable action by the state securities commissioner, an appointee of her husband, the governor.

What had not been previously reported was McDougal's explanation for hiring the governor's wife. He provided this account in a recent interview with The Times:

Early one morning about nine years ago, McDougal answered a knock at his office door from a winded and sweating Clinton, out on one of his morning jogs. Clinton was then struggling to retire campaign debts and to make ends meet on his $35,000-a-year salary. The governor expressed concern about his family's financial condition and told McDougal that "things were tight," requesting that the savings and loan send some business to Hillary Clinton through her law firm.

"I asked him how much he needed, and Clinton said 'about $2,000 a month' " McDougal said. Later that day, the Madison Guaranty owner said, he directed an S&L executive to immediately put Hillary Clinton's Rose Law Firm on retainer for that amount.

"I hired Hillary because Bill came in whimpering they needed help," McDougal told The Times. He said he had no specific legal work in mind when he hired Hillary Clinton.

McDougal said he recalled the event vividly because he was so uncomfortable in the meeting--not over the retainer issue, but because throughout that morning conference, Clinton sat sweating in McDougal's new leather desk chair, an expensive gift from his wife.

There is no dispute that Hillary Clinton subsequently went on retainer for Madison Guaranty at $2,000 a month. But White House Press Secretary Dee Dee Myers said Clinton never sought business for his wife.

"The President had nothing to do with it," Myers said. "He never solicited business for the Rose Law Firm or his wife. This never happened."

McDougal, who was acquitted in 1990 of loan fraud charges stemming from his S&L's collapse, acknowledged that he is the subject of a renewed criminal investigation into other aspects of the thrift's failure.

But White House efforts to discredit McDougal pose something of a dilemma since he was once a close friend and business partner of Clinton. It was their business arrangement that first brought Clinton some political embarrassment.

Early in the 1992 presidential campaign, the New York Times disclosed their partnership in a speculative land venture called Whitewater Development. The Clintons and McDougals shared 50-50 interest in the Ozarks project from 1978 until the very eve of the presidential inauguration.

The Clintons reportedly lost money in the deal. However, the press account questioned whether the governor should have been in any kind of business relationship with the owner of a state-regulated savings and loan.

Compounding concerns about such potential conflicts of interest was the disclosure that Hillary Clinton, while on retainer to Madison Guaranty, had represented the S&L in its appeal to the state securities commissioner.

Last week, the Washington Post reported that federal investigators are trying to determine whether McDougal may have improperly used Madison Guaranty funds to help Clinton retire his 1984 campaign debt.

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