Whitewater

Whitewater is the name given to the scandal involving President BILL CLINTON, First Lady HILLARY RODHAM CLINTON, members of the Clinton administration, and private individuals and public officials in Arkansas. Though the alleged wrongdoing took place before Clinton was elected president in 1992, investigations by an INDEPENDENT COUNSEL continued into Clinton's second term of office. As with President RICHARD M. NIXON's WATERGATE scandal, the focus of the independent counsel's investigation shifted from the underlying event to the question of whether the president and members of his administration participated in a cover up. The role of Hillary Clinton in these events also became a target of investigators. As in Watergate, the Whitewater scandal quickly became politicized. Democrats accused Republicans in Congress as well as the Republican independent counsel of conducting a political witch hunt.

Whitewater is the name of a failed resort development on the White River in the Ozark Mountain region of Arkansas. In 1978 Bill Clinton, then Arkansas attorney general, and Hillary Clinton joined a partnership with James and Susan McDougal to form Whitewater Development Corporation, a real estate development firm that built vacation homes near the White River. When Clinton was elected governor that year, he appointed James McDougal his top aide.

In 1980 Clinton lost his re-election race. McDougal bought the Madison Bank and Trust in 1980 and in 1982 purchased a small savings and loan company and renamed it Madison Guaranty. In 1982 Clinton was again elected governor.

By 1984 Madison Guaranty Savings and Loan was in financial trouble, with federal regulators questioning its lending practices and its financial stability. Under Arkansas law, the state's SECURITIES commission could have closed Madison Guaranty. However, in January 1985, Clinton appointed Beverly B. Schaffer to head the commission. She approved two stock sale plans to raise money to keep Madison Guaranty solvent. Madison had retained the Rose Law Firm of Little Rock to help it secure approval of its stock sale applications. Hillary Clinton, the wife of the governor, worked as an attorney at Rose and was also a partner of McDougal in the Whitewater development. In addition, McDougal held a fund-raising event for governor Clinton in 1985 to help pay off a Clinton campaign debt. Investigators later determined some of the money was improperly withdrawn from depositor funds.

Despite the stock sales, the bank failed to raise enough capital, and by 1986, the Resolution Trust Corporation (RTC), the federal agency responsible for handling savings and loan failures, took over the bankrupt thrift. McDougal was charged with bank FRAUD. Four years later, McDougal was acquitted of the charge, based on an INSANITY DEFENSE. Meanwhile, the Whitewater development proved a financial disappointment, providing the Clintons with losses rather than profits. The Clintons sold their interest in the Whitewater corporation before Bill Clinton was sworn in as president in 1993.

The Whitewater scandal is grounded in these events of the 1970s and 1980s. It appeared that McDougal had been helped by his business partner Hillary Clinton, the wife of the governor. She had appointed the securities commissioner who allowed the failing thrift institution to stay open. By the time Bill Clinton was running for president in 1992, the national news media was investigating whether favors had been granted and conflicts of interest had been overlooked in apparent disregard for Arkansas state law.

The news media and members of Congress pursued Whitewater during the first months of Clinton's presidency. The July 1993 suicide of Deputy White House Counsel Vincent Foster heightened interest in Whitewater, as Foster had several links to it. Foster had worked at the Rose Law Firm with Hillary Clinton, had handled the sale of the Clintons' interest in Whitewater, and had talked to an attorney who had previously prepared a report for the Clintons on the investment just hours before his suicide. Finally, after Foster's death, White House staff removed Whitewater files from Foster's office. Critics suspected that the removal of files was part of a White House cover up, while others speculated that Foster had been murdered to prevent the disclosure of damaging information.

In October 1993, the RTC asked the JUSTICE DEPARTMENT to investigate whether Madison's funds had been illegally siphoned into the Whitewater corporation and whether Madison illegally gave money in 1985 to pay off Clinton's campaign debt. Though President Clinton steadfastly denied any wrongdoing by himself or the first lady, Attorney General JANET RENO came under intense pressure to appoint an independent counsel. She at first refused, noting that the independent counsel law had expired in 1992 (5 U.S.C.A. § 1211). Any counsel appointed by her would appear to be politically tainted.

Nevertheless, in January 1994, Reno appointed Robert B. Fiske Jr., a former U.S. attorney and Wall Street lawyer, special prosecutor to investigate the Clintons' involvement in Whitewater and any potential links between Foster's suicide and his intimate knowledge of the Whitewater scandal.

Fiske surprised the Clinton administration in March 1994 by serving subpoenas on White House and TREASURY DEPARTMENT officials. The investigation had shifted from one solely concerned with past deeds in Arkansas, to one that included current official behavior. Fiske discovered that senior Treasury Department officials, who oversee the work of the RTC, had discussed the Madison Guaranty probe with White House counsel Bernard Nussbaum and other aides. This appeared improper, as it is highly unusual for regulatory agencies to discuss their probes with the parties they are investigating. As a result, the Treasury Department officials resigned.

Despite this embarrassment, the Clinton administration was pleased with Fiske's first report, issued in June 1994. He concluded that Foster's suicide had nothing to do with Whitewater and that the Treasury Department and White House meetings were not illegal. Fiske's report recommended that no criminal charges be filed and generally supported the administration's position on Whitewater.

During the summer of 1995, Senate and House committees held hearings on Whitewater. The hearings were mostly concerned with the propriety of the Treasury-White House meetings. The committee reports that followed cleared administration officials of any wrongdoing.

The course of the special counsel's investigation changed dramatically in August 1994. In July Congress had enacted the Independent Counsel Act (28 U.S.C.A. §§ 591-599), which meant that a three-judge panel of the U.S. court of appeals had to appoint an independent counsel for Whitewater. Attorney General Reno sought to have Fiske appointed, but the three-judge panel refused, citing a possible conflict of interest because he had been appointed by Reno, a member of the Clinton administration. Instead, the panel appointed KENNETH W. STARR, a GEORGE H.W. BUSH administration solicitor general, a former federal appeals court judge, and a conservative Republican. Starr reopened all aspects of the investigation and reissued a subpoena for the Rose law firm billing records of Hillary Clinton. The first lady informed Starr that the records could not be located. In April 1995, Starr interviewed the Clintons privately.

In January 1996 Hillary Clinton's billing records were found on a table in the White House residence book room after two years of searching. An aide claimed she had found them in August 1995 but did not realize their significance until coming across them again. The discovery of the records was met with skepticism, with Starr subpoenaing Hillary Clinton in a criminal probe to determine if the records were intentionally withheld. The first lady testified before a GRAND JURY about the billing records.

Meanwhile, a Senate Special Whitewater Committee, chaired by New York Senator Alfonse D'Amato, conducted hearings in the last half of 1995, examining Whitewater and Foster's suicide, and the actions of White House staff. In June 1996, the committee divided along party lines in making its final report. Republican senators concluded that White House officials abused their power by trying to monitor and derail investigations of the Clintons and that Hillary Clinton may have obstructed justice by concealing the Rose law firm billing records. Democratic senators dissented, finding no evidence to support the Republican allegations.

In 1996 President Clinton testified on videotape in two Arkansas criminal trials brought by Starr's prosecution team that concerned bank fraud. In the first trial James and Susan McDougal and Arkansas governor Jim Guy Tucker were convicted of fraud and conspiracy in connection with questionable loans made through Madison Guaranty. In the second case bankers Herby Branscom Jr. and Robert Hill were acquitted of illegally using bank funds to reimburse themselves for political contributions, including contributions to Clinton's gubernatorial and presidential campaigns.

Starr continued to investigate Hillary Clinton's role in the Rose law firm's work for Madison Guaranty and the missing billing records. She had stated several times she had done little work on Madison, but at least one associate in the firm disputed her accounts. In 1997 Starr subpoenaed the notes of government attorneys who had met with the first lady prior to her grand jury testimony. The White House refused to comply with the subpoena, arguing that disclosure would violate the confidentiality of the attorney-client relationship. Starr took the matter to court and won court approval to enforce the subpoena from the Eighth Circuit Court of Appeals. In re Grand Jury Subpoenas Duces Tecum, 78 F.3d 1307 (1996). The appeals court agreed with Starr, ruling that the government attorneys were not the first lady's private counsel, but rather administration officials. Therefore, there was no attorney-client relationship and the notes were ordered surrendered. When the Supreme Court refused to hear an appeal from the Clinton Administration on this issue, the notes were given to Starr.

In 1997 Democrats and the Clinton administration escalated their criticisms of Starr and his investigation, arguing that Starr's conservative Republican affiliation had tainted the objectivity of the probe. Starr's credibility was hurt by his announcement in February 1997 that he would leave his position to become dean of the Pepperdine College law school and the head of a new public policy school. The new school was funded by a conservative Republican with ties to persons who had asserted a White House conspiracy concerning the death of Foster and subsequent events. Starr, who was criticized for leaving an unfinished investigation, reversed his decision, announcing he would not take the Pepperdine positions until the probe was concluded. Even Senator D'Amato was critical of this reversal, concluding that Starr's indecision about staying hurt his credibility. In June, news reports circulated claiming Starr's team had been questioning Arkansas state troopers about whether President Clinton had engaged in extramarital affairs while governor. Questions arose as to whether the original investigation had gotten too far off track. That same month, the GENERAL ACCOUNTING OFFICE reported that as of March 1997 Starr had spent more than $25 million on his investigations. The only major event in Whitewater for the rest of 1997 was a ruling from Starr's office in July that Vincent Foster's death was definitely a suicide. The Whitewater investigation continued, but with no new revelations public interest declined.

Public interest in scandal and the Clintons was revived in 1998, but not the way anyone had planned. Pentagon employee Linda Tripp approached Starr with allegations that President Clinton had had an affair with White House intern Monica Lewinsky. Tripp also alleged that Clinton had told Lewinsky to deny the affair if she was questioned by lawyers for Paula Jones as part of her pending lawsuit against Clinton. Tripp produced audiotapes of her secretly recorded conversations with Lewinsky, which corroborated her story.

Starr received permission to expand the scope of his investigation, to determine whether Clinton had in fact asked Lewinsky to lie under oath. The Lewinsky scandal made headlines for much of 1998, culminating with the president's IMPEACHMENT trial in the late fall.

Starr had not forgotten Whitewater, however. In February 1998, both James McDougal and former Arkansas governor Jim Guy Tucker agreed to cooperate with the Whitewater investigation. McDougal's cooperation was particularly welcome, but he died in March 1998.

On April 23, 1998, prosecutors called Susan McDougal before a grand jury. Two years earlier, in September 1996, after her conviction for fraud, she was granted IMMUNITY from additional charges in return for her testimony against President Clinton. She refused to cooperate, claiming that she did not trust Starr and his investigators. U.S. District Court Judge SUSAN WEBBER WRIGHT held McDougal in civil CONTEMPT and sentenced her to 18 months in prison. At her April 1998 appearance, she once again refused to answer questions. She said that she was convinced the Starr investigators were determined to convict President Clinton at any cost, and she added that she would only answer questions before the grand jury if Starr and his team resigned and were replaced with what she felt was truly independent counsel. On May 4, 1998, Starr indicted McDougal for criminal contempt and OBSTRUCTION OF JUSTICE. The case was tried in a U.S. District Court in Little Rock.

At trial, McDougal testified that Starr and his prosecutors had tried to pressure her into lying about having an affair with President Clinton. She claimed that she was threatened with an EMBEZZLEMENT charge and a possible INCOME TAX investigation unless she agreed to cooperate. After months of testimony, the federal grand jury acquitted McDougal on the contempt charge and deadlocked on two counts of obstruction of justice. The judge, George Howard Jr., declared a mistrial on the deadlocked charges. In May 1999, Starr said that he would not seek to retry McDougal on those charges.

In June 1999, Webster Hubbell, another Clinton friend and Whitewater partner, agreed to admit to one of 15 charges against him. In return, the other charges were dropped and he received PROBATION. Hubbell made a point of insisting that Hillary Clinton had committed no crime associated with her Whitewater dealings.

Meanwhile, Starr was going through his own legal difficulties. In February 1999, the White House had filed a criminal complaint against the Office of the Independent Counsel for leaking information to the news media. An article that appeared in the January 31, 1999, issue of The New York Times stated that Starr was considering whether to indict President Clinton for perjury and obstruction of justice. Moreover, Starr had decided that he had the authority to make the indictments. Starr's spokesman, attorney Charles Bakaly III, told the press, "We will not discuss the plans of this office or the plans of the grand jury in any way."

The White House charged that Bakaly had actually discussed so much that he was in violation of Federal Rule of Criminal Procedure 6(e). That rule limits the amount of information attorneys can divulge about grand jury cases.

Bakaly denied that Starr's office had provided any information to the Times. Starr, meanwhile, decided to conduct an internal investigation, assisted by the FEDERAL BUREAU OF INVESTIGATION. In March 1999, Starr forced Bakaly to resign, and the case was referred to the U.S. Justice Department for criminal investigation and possible prosecution.

The District Court issued a preliminary ruling in July that the newspaper article did appear to have information in it that violated Rule 6(e). The court ordered Bakaly and Starr's office to show why they should not be held in civil contempt. Starr's office countered on appeal that the district court had misinterpreted the rule. In September, a three-judge Appellate Court panel of the U.S. Court of Appeals agreed and overturned the lower court. In re Sealed Case No. 99-3091 (Office of Independent Counsel Contempt Proceeding).

As for Bakaly, who still faced his own contempt charges, his case was brought before the U.S. District Court in July 2000. Prosecutors argued that Bakaly had lied about the information he gave to the newspaper, but the defense argued that he had merely provided standard information that gave away no confidential information. The judge, Norma Holloway Johnson, agreed with the defense, and Bakaly was acquitted on all counts on October 6, 2000.