In 1978 while Arkansas attorney general, Clinton and his wife Hillary joined
with their friends James and Susan McDougal to borrow $203,000 to buy 220 acres
of land in Arkansas's Ozark Mountains. Under the name Whitewater Development
Corporation, they hoped to develop the property for vacation homes. Instead,
the deal went sour as real estate values plummeted.
Clinton is alleged to be caught up in another McDougal land deal -
Castle Grande affair which has already put three Arkansas
friends in prison (Jim and Susan McDougal, and
Judge David Hale, and convicted
another (Jim Guy Tucker). Judge Hale has testified that Clinton pressured
him to make a fraudulent $300,000 Small Business Administration loan to Jim
McDougal's wife, Susan. In the McDougal trial the President, under oath,
denied the allegation.
Mrs. Clinton took a much closer interest in Whitewater Development
Corporation than her husband. Additionally, as a lawyer with Little Rock's
Rose Law Firm, Hillary Clinton did legal work for Madison Guaranty, the savings
and loan James McDougal bought in 1982. One matter she worked on for Madison
was McDougal's Castle Grande real estate development,
a deal federal bank
examiners later called a "sham."
Mrs. Clinton's work on Castle Grande is itemized in the
Rose billing records
which were taken from the firm in 1992, were sought unsuccessfully by
Whitewater investigators, and then mysteriously reappeared in the White House
in 1996. The recovery of those records led to Independent Counsel Kenneth
Starr calling Mrs. Clinton to testify before a grand jury, the first time a
First Lady has been required to do so.
Like Vince Foster, Webb Hubbell was a friend and colleague of Hillary Clinton's
from the Rose Law Firm. He, too, came to Washington after Clinton's 1992
election, serving as deputy attorney general at the Justice Department.
In 1986, Mrs. Clinton prepared a contract in connection with Jim McDougal's
Castle Grande development for Seth Ward, a Little Rock businessman and
associate of McDougal's. Ward is also Webb Hubbell's father-in-law. In 1992,
it was Hubbell who ordered a computer printout of Mrs. Clinton's billing
records related to the deal.
In 1994 Hubbell met with disgrace unrelated to Whitewater, pleading guilty to
fraud and income tax evasion for having defrauded the Rose firm and its clients
of $390,000. He served almost 17 months in prison. In April 1998,
Whitewater independent counsel Kenneth Starr indicted Hubbell on charges of tax evasion
including failure to pay over $850,000 in taxes and penalties. A Federal
judge dismissed the tax evasion charges, however, saying Starr had exceeded his authority
under the independent counsel statute.
In November 1998, Kenneth Starr indicted Hubbell
on charges that he allegedly "schemed to falsify, conceal and cover up the true nature"
of the role he and Mrs. Clinton played in the
Castle Grande deal. Two federal agencies concluded that Castle Grande
involved "insider dealing, fictitious sales and land flips." The deal ended up
costing taxpayers an estimated four
A longtime Arkansas Democratic Party insider, Jim McDougal had been friendly
with Bill Clinton since they had worked as aides for U.S. Senator J. William
Fullbright in the late 1960s. While Clinton pursued a successful political
career, McDougal eventually became more interested in real estate and business
deals, often involving his political friends. In 1978 McDougal, his then-wife
Susan and the Clintons went in together on the real estate investment that
launched Whitewater Development Corp.
In 1982, McDougal bought an Arkansas savings and loan and renamed it Madison
Guaranty. Madison, hobbled by McDougal's freewheeling managment style and a
raft of bad loans, was closed down by federal regulators in 1989 at a cost to
taxpayers of more than $60 million. The same year McDougal was indicted but
later acquitted on fraud charges related to his management of a Madison real
In 1996, however, Jim and Susan McDougal (by now divorced) were convicted on
federal charges stemming from their involvement in obtaining a fraudulent
$300,000 Small Business Administration loan. This loan was partly connected to
the whole Castle Grande affair. McDougal went to prison and cooperated with Independent
Counsel Kenneth Starr's investigation. He alleged that President Clinton had some involvement in the
loan. At McDougal's trial, however, the President swore under oath that he did
not. On March 8, 1998, McDougal died of a heart attack in a federal prison.
See the FRONTLINE interview with Jim McDougal
Susan McDougal was Jim McDougal's wife and business confidante during the
financial ups and down of both Madison Guaranty and Whitewater Development
Corp. The couple separated in 1986 at about the same time federal bank
regulators were ousting Jim McDougal from the management of the S&L.
McDougal suffered a stroke and was diagnosed as suffering from manic
In 1996, along with her ex-husband, Susan McDougal was convicted of fraud
charges stemming from a fraudulent 1986 Small Business Administration loan - a
loan partly connected to the Castle Grande tangle of deals. (Former Arkansas
governor Jim Guy Tucker was also convicted at the same trial.) Unlike Jim
McDougal, Susan refused to cooperate with the Independent Counsel and spent
21 months in prison in Los Angeles on contempt of court charges for refusing to
answer questions before the Whitewater grand jury. In June 1998, a Federal judge in
Arkansas freed her for medical reasons. However, she still is awaiting trial
on separate charges that she embezzled funds from conductor Zubin Mehta and his
wife. And,in May 1998, the Federal Whitewater grand jury in Arkansas indicted Susan
McDougal on charges of criminal contempt and obstruction of justice after
repeatedly refusing to answer questions about the Clintons.
See the FRONTLINE interview with Susan McDougal.
David Hale is a former Arkansas municipal judge with a checkered past. During
the 1980s Hale ran a business that helped secure federal Small Business
Administration loans intended for companies run by women, veterans, and members
of minority groups. In 1986 Hale arranged a $300,000 loan to Susan McDougal,
ostensibly to open an advertising agency. Instead, the money went into the
McDougal's personal accounts.
At the McDougals' trial last year, Hale, now cooperating with Independent
Counsel Kenneth Starr,
testified that President Clinton, then governor of
Arkansas, had met with Hale and Jim McDougal to discuss the loan and that
Clinton had urged Hale to make sure it was made. Under oath, the President
denied both allegations.
Like President Clinton, Vincent Foster was born in Hope, Arkansas, and the two
men had known each other since they were children.
Foster went on to bcome a lawyer and a leading partner at the prestigious Rose
Law Firm, where he also became a close personal and professional friend of
When Clinton was elected President in 1992, Foster was one of the many
Arkansans who came to work in the White House. Foster was named deputy counsel
to the President, the first subordinate of White House counsel Bernard
Nussbaum. Foster's duties included looking after the First Lady's legal
affairs, including sorting out matters related to Whitewater.
In July 1993, following several politically disastrous months for the new
Clinton administration, a despondent Foster shot himself to death in Fort Marcy
Park in Washington, D.C. Following Foster's suicide, his White House office
was sealed to police and other investigators probing his death, leading to
continuing speculation that documents related to Whitewater matters may have
been improperly removed.
See excerpts from Vince Foster's journal.
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