Mar 13, 1994

Clinton’s foes may sense from him that they’re onto something big | by Jerry Meldon | Published in The Boston Globe Sunday Focus on March 13, 1994


A key question surrounds the “Whitewater affair,” named for the Whitewater Development Corp., the ill-fated real estate partnership formed in 1978 between Bill and Hillary Rodham Clinton and their Little Rock friends James and Susan McDougal: Are Sen. Bob Dole, Rep. Jim Leach and others merely dredging up a malodorous, yet innocuous, chapter from the distant past? Or are the Republicans—who under Nixon, Reagan and Bush wrote the book on the art of the coverup—onto something much bigger?

The Clintons’ disclaimers notwithstanding, their sensitivity to the issue suggests that there is more to Whitewater than meets the eye. What that may be is a matter for conjecture. There is certainly no shortage of possibilities. The administration’s clumsy handling of the apparent suicide in July of the deputy White House counsel Vincent W. Foster Jr. – Mrs. Clinton’s former law partner, and the Clintons’ personal lawyer – plus ill-advised meetings between the White House counsel and Treasury Department officials overseeing an investigation of the McDougal Clinton connection, suggest that a coverup is in fact under way.

But a coverup of what?

Hot in pursuit of an answer is Robert B. Fiske Jr., the special counsel the president grudgingly appointed in January to investigate Whitewater Development and its links to McDougal’s Madison Guaranty Savings and Loan, which like so many other S&Ls, went belly up at the close of the ‘80s.

The Madison/Whitewater affair was messy, though maybe not by Arkansas standards. In 1978, James McDougal invited the Clintons (Bill was state attorney general) to join him and his wife, Susan, in developing vacation homes in the Ozarks at the 230-acre Whitewater Estates. The Clintons assumed 50 percent ownership, apparently without putting up money.

Soon thereafter, Clinton was elected governor and appointed his partner McDougal as an adviser. Four years later, McDougal took over Madison Guaranty. In the interim, Clinton had been defeated, made a comeback, and was back in the governor’s office.

During his 1984 bid for reelection, Clinton borrowed $50,000 for his campaign. He won a third term, then asked McDougal for help in repaying the loan. McDougal organized a fund-raiser, and collected $35,000. The special counsel is investigating whether some of that money came directly from McDougal’s bank. Meanwhile, Madison itself was showing signs of going under, which were noted by the Federal Home Loan Board. The bank’s fate was in the hands of the Arkansas Securities Department.

Fortunately for McDougal, Clinton replaced the state’s securities commissioner with Beverly Bassett, who earlier had done legal work for Madison. McDougal proposed a rescue plan involving the sale of the stock. Representing McDougal before Bassett was his business partner and friend, Hillary Clinton. Bassett approved McDougal’s plan after reviewing a favorable audit. Only later would an investigation reveal that the auditor had owed money to Madison.

In 1989, Madison was seized by the Federal Deposit Insurance Corporation, which then sought a private lawyer to take charge of the settlement. Ignoring Mrs. Clinton’s and the governor’s close connection to McDougal, the FDIC assigned the task to Webster Hubbell, Mrs. Clinton’s partner at the prestigious Rose law firm in Little Rock. Hubbell now occupies the No. 3 post at the Justice Department, having been appointed by President Clinton.

The Clintons sold off their Whitewater investment after the presidential victory in 1992. They claim a $69,000 loss. However juicy the story may be, it illustrates little more than the way things are done in Arkansas, and predates the Clintons’ move into the White House. On the basis of it alone, one would conclude that the Republicans are making a mountain out of a molehill. Perhaps there is more to the Whitewater story. Ore are the Clintons afraid of opening the S&L Pandora’s box?

Consider the case of Thomas F. (Mack) McLarty 3d, Bill Clinton’s childhood friend from Hope, Ark., and now his chief of staff. As reported in The Nation magazine, in the seven years before his White House appointment, McLarty ran Arkla, a natural gas company. In 1987, Arkla bought out another gas company, Entex, which controlled University Federal Savings of Houston. In the golden decade of S&L deregulation, University’s assets had skyrocketed from $400 million to $4.5 billion.

According to a federal lawsuit filed by the Resolution Trust Corporation, which was created to clean up the S&L mess, University operated recklessly, making questionable loans to the tune of $300 million. The RTC sued Entex, University and Arkla to reclaim half a billion dollars to US taxpayers paid to cover University’s losses. The trial is set for this fall.

One University borrower was Lan Bentsen, son of Treasury Secretary Lloyd Bentsen. Lan used unsecured loans totaling more than $5.6 million to purchase an apartment complex. University renewed the loan nine times in three years, even though Bentsen was late in making payments. He eventually stopped paying at all.

This might explain why Bill Clinton did not make an issue of the S&L debacle during his presidential battle with George Bush.

Then again, was it not also strange that Clinton steered clear of that other Bush vulnerable point, Iran-Contra? A possible explanation for that, and additional cause for the Clintons to be leery of a reexamination of their lives, is offered in a new sure-to-be-controversial book published by Shapolsky Publishers, Inc.

“Compromised,” by Terry Reed, a former Air Force pilot, and John Cummings, a veteran investigative reporter, alleges that at the height of the Reagan-Bush administration’s illegal operations against Nicaragua, and with Gov. Bill Clinton’s authorization, Arkansas provided the CIA a secret training and supply base for the Contras.

Reed, who claims to have played a role in these operations, allegedly learned that the CIA channeled millions in payoffs to the governor’s administration by way of affluent supporters of Clinton, including Dan Lasater. During this same period in the mid-‘80s, banker/bondsman Lasater employed Roger Clinton as a chauffeur. It was an unfortunate connection: The president’s brother was arrested for cocaine trafficking, turned state’s informant and cooperated with Arkansas police in a drug sting operation that nabbed Lasater.

As to the CIA payoff money, according to “Compromised,” it wound up in the coffers of the Arkansas Development Finance Authority. The ADFA was Clinton’s vehicle for promoting the state’s industrial growth—which he proudly pointed to during his ascent to Washington. Among the beneficiaries of ADFA largesse, according to the book, was a parking meter manufacturing company owned by Seth Ward. This is intriguing because Ward is the father-in-law of Webster Hubbell. And Ward reportedly defaulted on loans totaling $577,000 from Madison Guaranty. According to Reed and Cummings, CIA payoff money also was airdropped in bales onto a ranch owned by Ward and occupied by another son-in-law Finis Shellnut. During the 1992 election campaign, when Bill Clinton was slammed with stories of rumored extramarital affairs, People magazine reported that Shellnut was the boyfriend of Clinton’s alleged paramour, Gennifer Flowers.

“Compromised” is likely to be greeted with skepticism, controversy and a slew of libel suits. It surely will be pointed out that the alleged source of much of Reed’s information, Barry Seal, an operative of both the Drug Enforcement Administration and the Central Intelligence Agency, was murdered in 1996. But its publication, and the special counsel’s ongoing Whitewater investigation, will put to the test Clinton’s remarkable ability to survive assaults on his character.