Living History (32 page)

presidential race, allegations surfaced in the press―and were quickly dismissed―that McDougal had received special favors from the state when Bill was Governor because of his business relationship with us. The story faded when Bill and I proved that we had lost money on the Whitewater investment and that, while he was Governor, the Arkansas Securities Department had actually urged the federal regulators to remove McDougal and shut down Madison Guaranty.

Now The Washington Post was reporting that RTC investigators were looking into allegations that McDougal had used his S&L to funnel money illegally to political campaigns in Arkansas, including Bill’s gubernatorial reelection campaign in 1986. I was confident nothing would come of it. Bill and I never deposited money in Madison Guaranty or borrowed from it. As to the campaign contributions, Bill had supported the law in Arkansas imposing a strict limit of $1,500 per contribution per election. McDougal had already been indicted, tried and acquitted by the federal government on charges arising from his operation of Madison Guaranty before Bill ran for President.

Bill and I failed to recognize the political significance of Whitewater’s sudden reappearance, which may have contributed to some public relations mistakes in how we handled the growing controversy. But I could never have predicted how far our adversaries would take it.

The name Whitewater came to represent a limitless investigation of our lives that cost the taxpayers over $70 million for the Independent Counsel investigation alone and never turned up any wrongdoing on our part. Bill and I voluntarily cooperated with investigators.

Every time they leaked or leveled a new charge, we bent over backwards to make sure we hadn’t missed or overlooked anything substantive. But as one allegation followed another, we realized we were chasing ghosts in a house of mirrors: we would run in one direction only to have the apparition pop up behind us. Whitewater never seemed real because it wasn’t.

The purpose of the investigations was to discredit the President and the Administration and slow down its momentum. It didn’t matter what the investigations were about; it only mattered that there were investigations. It didn’t matter that we had done nothing wrong; it only mattered that the public was given the impression that we had. It didn’t matter that the investigations cost taxpayers tens of millions of dollars; it only mattered that our lives and the work of the President were disrupted over and over again. Whitewater signaled a new tactic in political warfare: investigation as a weapon for political destruction.

“Whitewater” became a convenient catchall for any and all attacks that our political adversaries could design. Whitewater was a political war from the start, and it raged throughout Bill Clinton’s Presidency.

At the time, however, Whitewater seemed to me like a new twist on an old story with a familiar cast of characters―more of a nuisance than a threat.

However, in light of the Post’s Halloween article and a similar New York Times piece that soon followed, we thought we should take the precaution of hiring a private attorney.

Our personal lawyer, Bob Barnett, recused himself from Whitewater because his wife, Rita Braver, was a CBS correspondent assigned to cover the White House. Bob is a longtime Democrat, and the favorite debating partner of Democratic presidential and vice presidential nominees. In mock debates staged to prepare candidates for the rhetorical styles and political arguments of their opponents, he plays the perfect Republican foil―taking the part of Vice President and then President George Bush against Congresswoman Geraldine Ferraro in 1984, Governor Michael Dukakis in 1988 and Governor Bill Clinton in 1992; playing former Secretary of Defense Dick Cheney against Senator Joe Lieberman in the 2000 vice presidential debate; and even performing as Congressman Rick Lazio in preparation for my own debate during the 2000 Senate race. Bob became my counsel and adviser in 1992, and I could not have asked for a better friend in the years that followed.

Bob recommended David Kendall, his colleague at Williams and Connolly, to represent us in the Whitewater matter. We had known David for years. Although he was a few years older than Bill and me, we had overlapped at Yale Law School. Like Bill, David was a Rhodes Scholar. As a fellow Midwesterner―David was born and raised in rural Indiana on a farm―he and I had a natural rapport. Soon he became an anchor in our lives.

David was perfect for the job. He had clerked on the Supreme Court for Justice Byron White and had experience in corporate law and in cases involving the media. He had represented clients in several S&L investigations in the 1980s, so he was familiar with S&L

issues. At the same time, he had an unwavering social conscience. On his office wall hangs a copy of his arrest record in Mississippi, where he had been jailed briefly as a civil rights activist during the voting rights drive in Freedom Summer in 1964. In one of his first jobs as an attorney, he defended death penalty cases for the NAACP Legal Defense Fund.

Like all really good lawyers, David has the talent to transform seemingly random and disconnected facts into a persuasive narrative. But reconstructing the story of Whitewater would test his skills. First, David took over the files from Vince Foster’s office, which had been turned over to Bob Barnett after Vince’s death. Then he tracked down other documents from Washington to Flippin, Arkansas, near the Whitewater property.

David met with us in the White House every week or so for the next three months. As I listened with fascination, he filled us in on what he had learned while piecing together gaps in the Whitewater record and tracing Jim McDougal’s increasingly bizarre investments.

Trying to re-create McDougal’s paper trail, he said, was like shoveling smoke.

Neither Bill nor I had ever visited the Whitewater property; we had only seen photographs.

David decided that he needed to see the place “in three dimensions and in real time” in order to understand the case. He flew to southern Missouri (which was closer to the property than Little Rock) and rented a car. Hours after losing his way down back roads, he finally followed a rough track bulldozed through the woods that ended up at the benighted Whitewater development. There were “For Sale” signs here and there, but nobody home. Had he returned a few months later, after the media swarmed in looking to photograph and interview anyone connected to Whitewater, David would have seen a large sign posted on one of the few occupied dwellings on the site: “Go Home, Idiots.”

Eventually David traced the current ownership of certain Whitewater lots to a local Flippin realtor named Chris Wade. We had not known that back in May 1985, McDougal had sold the company’s remaining twentyfour lots to Wade. Despite the fact that we were still partners then, McDougal had not informed us, asked us to sign off on the deal or offered to split the $35,000 proceeds. We were also unaware that McDougal acquired in this transaction a small used Piper Seminole plane that became his “corporate aircraft.”

By the mid-1880s McDougal presided over a small corporate empire, at least on paper.

In 1982, he had bought a small thrift called Madison Guaranty and quickly opened the cash spigot. McDougal aspired to be a populist banker, and he had grandiose ideas.

From what David Kendall could deduce, many of McDougal’s deals were questionable.

In David’s understated terminology, McDougal made “overly optimistic investments.”

Unfortunately, when he couldn’t cover the payments, McDougal shifted money around, borrowing from Peter to pay Paul. Unbeknownst to us, once he even used the Whitewater Development Company to buy property near a trailer park south of Little Rock that he confidently named Castle Grande Estates. His web of business partners and failed schemes would take years to untangle.

Madison Guaranty started out like thousands of other S&Ls that made small home mortgage loans. Then, in 1987, the Reagan Administration deregulated the savings and loan industry. Suddenly owners like McDougal could make large, reckless loans outside of their traditional businesses, and they eventually drove the whole industry, including Madison Guaranty, into serious financial trouble. One of the ways S&L executives and their lawyers attempted to salvage their failing businesses was by raising capital through preferred stock offerings, which they were permitted to do under federal law, if they had state regulatory approval.

In 1985, Rick Massey, a young lawyer at the Rose Law Firm, along with a friend of his who worked for McDougal, proposed just such a remedy for Madison Guaranty. Because McDougal had been negligent in paying a previous bill from Rose for legal services, the firm insisted that he pay a $2,000 monthly retainer before Massey undertook the work. My partners asked me to request the retainer from McDougal and to become the “billing partner” for Massey because, as a junior associate, he couldn’t bill a client himself. After I arranged the retainer, my own involvement in the account was minimal.

The stock offering was never approved by Arkansas regulators, and the federal S&L

regulators took over Madison Guaranty, removed McDougal as president and initiated an examination of the S&L’s transactions because of allegations that McDougal had engaged in a pattern of self-dealing.

The federal investigation and the criminal prosecution it later spawned against McDougal consumed him for years. In 1986 he approached us and asked if we would sign over our 50 percent share in the Whitewater Development Company. I thought it was a great idea. We had made our investment eight years earlier, and it had only cost us money. But before we signed over our stock, I asked McDougal to take our names off the mortgage, and in return for obtaining too percent of the remaining equity of the company, assume the remaining debt and release us from any remaining and future liabilities. When he balked at that, alarms started going off in my head. For the first time since we became partners in 1978, I demanded to see the books. I’ve been asked why I had never done that before and how I could have been so ignorant of McDougal’s actions. I’ve asked myself that too. I just thought we had made a bad investment and had to pay the price for buying real estate for second homes just as interest rates skyrocketed. We were stuck with a loser and had to wait for the market to turn around or until we could sell it. I had no reason to question McDougal, whose investment track record had been impressive in the 1970s and who, I figured, couldn’t be expected to make a silk purse out of every sow’s ear. I kept paying whatever McDougal said we owed and tended to the more imminent demands in my life, including having a baby, participating in my husband’s elections every two years and trying to practice law. Once my accountant analyzed the Whitewater documents I had rounded up with Susan McDougal’s help over many months, I realized that the records were in disarray and that Whitewater was a fiasco. I decided that Bill and I had to get everything in order, then extract ourselves from McDougal’s mess. Given McDougal’s problems, that took years.

First, I wanted to take care of any conceivable obligation the corporation had to the IRS, to the Arkansas Department of Revenue and for local property taxes. Whitewater had never made money, but it was still obligated to submit corporate tax returns, which, I learned in 1989, McDougal had not done in recent years. He had failed to pay property taxes, despite assurances to us to the contrary. To file tax returns now, I needed the signature of an officer of the Whitewater Development Company, Inc., and only the McDougals held titles. I tried for a year to get power of attorney from McDougal so I could file the returns, pay the taxes and sell the property to cover the debt.

Meanwhile, McDougal’s life was falling apart. His wife, Susan, had left him in 1985

and later moved to California. The following year he suffered a debilitating stroke, which heightened the manic depression he’d apparently been fighting for some time. I was not eager to contact McDougal, so in 1990 I called Susan in California, explained what I wanted to do, and asked her if she, as corporate secretary, would sign. She agreed, and I overnighted her the forms, which she signed and returned to me. When McDougal found out, he screamed at Susan over the phone and called my office to threaten me. I had turned him into an enemy.

McDougal grew even more embittered after he was indicted and tried for eight federal felony counts for conspiracy, fraud, false statements and fiscal misdealing. He checked himself into a psychiatric hospital before his trial in 1990. He also asked Bill to be a character witness for him, but I talked Bill out of doing it. Bill is always willing to give anyone, especially old friends, the benefit of the doubt, but I just didn’t feel he could vouch for McDougal. Both of us realized we had no idea who he really was or what he’d been up to all these years. After the jury acquitted him, McDougal threatened me again, this time implying that he would pay me back for filing the Whitewater tax returns.

And so he did, with considerable help from Bill’s political adversaries. Sheffield Nelson, a self-made former CEO of the Arkansas Louisiana Gas Company (Arkla) had switched to the Republican Party to run against Bill for Governor in 1990. Used to getting what he wanted, Nelson became deeply vengeful and antagonistic over his defeat. As soon as Bill announced his run for the Presidency in 1991, Nelson let the Bush White House know he would be willing to offer whatever help he could to defeat Bill. To that end, he persuaded McDougal to voice any complaints he could about Bill and me, no matter how outlandish.

The result was the first “Whitewater” story, an article that appeared on the front page of the Sunday New York Times in March 1992, in the middle of the Democratic primaries.

Jim McDougal was quoted throughout the piece, liberally planting false information about our partnership. The writer made much of our “complicated relationship” with McDougal and erroneously implied that he had made us money in the Whitewater deal and received favors in return. While the article’s headline trumpeted that “Clintons Joined S&L Operator in Ozark Real Estate Venture,” we had made our investment with the McDougals four years before Jim bought the S&L. The Clinton campaign immediately hired Jim Lyons, a respected corporate attorney from Denver, who, in turn, retained a firm of forensic accountants to assemble and explain the records of the Whitewater investment.