once upon a time in arkansas
interview: donald denton

Q: Castle Grande, of course, came to be a very interesting component in the Jim McDougal story. Who presented that piece of property to him? How did you all come to find that particular piece of property?

A: The direct contact, it's my understanding Seth Ward, who was doing consulting and advisory work for Madison and for Jim McDougal actually brought that project to McDougal.

Q: Seth Ward, Webb Hubbell's father-in-law?

A: That's correct.

Q: What was Seth Ward's involvement with Madison and McDougal?

A: Seth had been a very successful industrialist, had made a lot of money developing an industry that catered to the mobile home industry.

Q: Had you ever met him?

A: Yes, I'd known Seth Ward for a number of years. I had provided financing, had met Ward originally while I was at Union National Bank, and had financed a number of his projects for him, very successfully.

Q: Did you bring him into McDougal's sphere?

A: I introduced Seth Ward to Jim McDougal and they subsequently worked out their deal where Seth joined Madison Financial.

Q: You've described that when you got to Madison Guaranty you were shocked to see the way it operated, buddy loans and a little bit no holds barred, kind of a wildcatting experience altogether. Did you see there any of what you had seen in the banking world, which is those loans to politicians. If you came to the institution with a politician in tow you might be able to secure an accommodation loan?

A: Of course Jim McDougal was a political animal so his business associates and business friends were political friends also. It was hard to separate them. Were many loans granted by Madison because of Jim's friendship? Jim was big on doing that, I don't remember any arm's length political transactions, that I'm not sure that you could separate them because of his involvement in politics.

Q: So a McDougal buddy loan may well involve a politician because his buddies were pols?

A: That's correct, yeah.

Q: To Castle Grande. Seth Ward, Jim McDougal come together in this deal involving a piece of property, 1050 acres, the total cost of which is going to $1,750,000. Because of regulatory limitations McDougal and his Madison Guaranty are limited in how much they can invest. Seth Ward, Webb Hubbell's father in law, invests $1.15 million. Where does he get the money?

A: Madison Guaranty Savings and Loan loans him the money.

Q: What were the terms? What was the nature of the loan?

A: I believe it was a six month note, perhaps could have been a one year note. But a significant item in it, the loan transaction, it was a non-recourse note. Seth had no obligation to repay the loan beyond his delivering the collateral which secured it.

Q: Non-recourse, no obligation?

A: No personal obligation to repay the loan.

Q: Isn't that just another way of Madison acquiring the property that regulations prohibits acquiring in the first place?

A: It's closer to that, yes...

THERE WAS A LOAN TO JIM GUY TUCKER...

Q: In here somewhere, Don, was another loan, $250,000 to Jim Guy Tucker for that shopping center.

A: $260,000.

Q: $260,000 for that shopping center.

A: I remember that acreage, the land that was at the southwest quadrant of the intersection at 145th Street, was sold to Tucker for $120,000 and then an additional $130,000 loan was made against that for a total of $260,000. I don't remember the terms of repayment on that.

Q: So the value of the property securing the loan was $120,000?

A: The sale price was $120,000.

Q: The sale price was $120,000. The loan is for double that. That doesn't strike you being an appropriate transaction?

A: Yes, that's unusual.

Q: Did you take note of its unusual nature at the time?

A: Yes.

Q: Say anything to anybody?

A: I questioned what the balance of the funds were-- The purpose for the balance of the funds.

Q: Which presumably is part of your role as a bank officer there. What was the response?

A: I was told that the funds were to be used to develop a shopping center.

Q: The extra funds, the excessive funds?

A: The excess funds, the $130,000 extra money was to be used to develop a shopping center.

Q: Who told you this?

A: My information came from John Latham, the president of the S&L.

Q: And did that satisfy your interest in the matter?

A: I accepted it. It was obvious that the loan was made to Tucker and it was an arrangement between Tucker and McDougal. From my questioning, both initially and subsequently, I was understood that that was an arrangement that my input or evaluation was neither needed nor appreciated.

Q: So this was another buddy deal and there was nothing you could do to stop it?

A: Yeah, that's correct...

AND THEN THERE WAS THE DEAN PAUL LOAN...

Tell me about the Dean Paul loan.

A: That loan was structured initially at $1 million. I voiced some objections in a loan committee meeting. It subsequently was reduced to $825,000. That loan was to be secured by three parcels of property owned by David Hale and being sold to Dean Paul. The borrowing entity was a partnership, a limited partnership, I believe of his referred to as Dean Paul Limited.

Q: Who is David Hale?

A: David Hale was a municipal judge at the time and the owner and operator of a small investment company by the name of Capital Management Services.

Q: So, David Hale was another of this population of wired, connected political guys. Friends of the group.

A: Yes.

Q: Continue.

A: Hale was selling these parcels of land and Dean Paul was the borrower. It was fairly obvious that Paul was accommodating David Hale because in my visiting with Dean Paul it appeared that Dean Paul really wasn't fully aware of what he was doing. He knew he was borrowing 800 plus thousand dollars and he was buying some land but I'm not sure it was his idea. As a matter of fact, I'm rather convinced that it wasn't his idea. But he was cooperative and agreeing to sign the note and borrow the money.

The funds were being generated by David Hale. Three hundred of the monies were used to repay existing debts on that property and the balance of $500,000 was to be used to recapitalize his SBIC, which would entitle him to additional matching monies from the Small Business Administration under an existing program, the SBIC program.

Q: Let me stop you here. To what degree was this Dean Paul loan conceived as a solution to the Madison/Castle Grande potential difficulties?

A: In part of their endeavor to get the non-recourse in the Castle Grande investment down, it involved making other loans. And the loan transaction was structured to Castle Sewer and Water, the corporation formed by Jim Guy Tucker and others. And David Hale was to make initially a $300,000 loan as front end money, so the Madison would be making a 100% loan. Madison was to loan part of the loan proceeds-- The subsequent loans that were put together for $1,050,000 and David Hale's company supplied a $150,000 loan out of a $300,000 proposed transaction.

So Madison had to loan money to Hale, to raise money to recapitalize this SBIC, so we could make other loans to related parties.

Q: Including a loan to Susan McDougal.

A: That's correct.

Q: Part of which was used to pay down obligations of Whitewater?

A: I'm not fully aware of the use of those proceeds. I do know that part of the proceeds, the $300,000 loan, were used to repay a loan that I have reason to believe was at least partially connected to Whitewater development. That loan was at another financial institution and I, of course, didn't make it.

.... Several weeks prior to February 28th, Madison officials received word that an examination would commence as of February 28th. So, there was a lot of scurrying around getting ready for that examination. We did some work on files-- getting files up-to-date. It was a pretty aggressive attempt to bring all of these other transactions together to repay Seth Ward's loan prior to the beginning of the examination.

And those transactions involved the $700,000 loan, the Fulbright, the structuring of the Dean Paul transaction to get a number of other loans funded, all of which had to come together prior to February 28th. As a practical matter, they all did come together, at least all that I was aware of, and certain loans were booked and certain payments were received as of February 28th.

What you've got to do is clear off a lot of these outstanding transactions, some of which are dubious, and some of which-- not all of which would have borne scrutiny. The solution is to do what? The proposed solution is to do what in anticipation of this big day with the examiners coming down?

Q: What was it that bothered you about the loan?

A: Initial item was that the borrower didn't understand what he was doing. The second one he was obviously paying way too much for the property. He was paying much more than any of those properties conceivably were worth. And thirdly, he didn't have any idea what he was going to do with them after he bought them. It had all the inherent credit risk.

RETURNING TO THE JIM GUY TUCKER LOAN...

....early in my tenure at Madison, Tucker was borrowing money very liberally. He got a lot of unsecured credit to finance his cable company. It was called, I believe, County Cable, at the time. And Tucker had made a hundred or two hundred and he'd think we had to get the work from McDougal's office, that Tucker's going to come in to sign a new note for $100,000.

This was very early-- maybe April or May of 1985, and at that point in my opinion Tucker owed Madison much more than he was entitled to, and the occurrence was when I was supposed to make Jim another loan-- Jim Guy Tucker, another loan. And I went to McDougal and explained that I thought our credit to Tucker was way too far at that time, that we shouldn't be loaning him that much money.

And McDougal explained-- his response was pretty emotional. He explained that Jim Guy Tucker had been an old friend of his-- back-- Jim was at that particular time when I was talking with him, Jim was a recovering alcoholic, and Jim explained that back years earlier when he was heavy into the bottle, that one particular Christmas that Jim Guy Tucker and his wife had Jim McDougal over to their home to spend Christmas with him. Jim said, "I was so undesirable that no one else, including my own family, would have anything to do with me."

And after his doing that, Jim Guy Tucker will get access to anything he wants. "I don't want to discuss it any more."

Q: So he saw it as an extension or as an expression of friendship?

A: Yes. And many of Jim McDougal's loan transactions really were gestures of friendship. Jim liked to be a big man. He liked to help his friends. In many cases he wasn't helping them, he was only getting them in deeper by giving such liberal extensions of credit. But he perceived it as helping his friends.

Q: That's what I wanted to ask you about also Mr. Denton, was how Jim McDougal saw himself in this universe? How did he-- what did he see his place being among these politicians and business men and so on?

A: Jim saw himself as a facilitator. Jim, I think, got bored with politics from the aspect of being one full-time. I think Jim saw that maybe he could make some money in the financing business and the development of land and related S & L. And I think he migrated that way to make some money.

Even though he didn't particularly want it for himself, I think just being a big man was probably the motivation more than accumulating funds, because I don't think Jim ever really saved any money. What Susan didn't spend I think he wasted, but he liked to be able to accommodate friends and be a big man and be influential and he loved to be able to say yes when somebody needed some help financially.

Q: Was he seen that way by his peers? Did this group see him as a big man?

A: Yes. Yes.

Q: So he was a success?

A: He probably-- in retrospect, he probably was a success to the wrong crowd. (Laughter)

Q: That's nicely put.

A: A number of his associates took advantage of him, and obviously when Jim got down and in trouble, they disappeared.

Q: Yes. In one case, famously so. You mentioned Susan. She was his wife and also business partner and star of a couple of his commercials, as well. What is your impression of the degree of her familiarity with his transactions-- his business dealings?

A: I think Susan was right in the middle of it. I think she was the motivating factor in a number of Jim's endeavors. Jim seemed to be constantly trying to impress Susan, and I think that went a long with his impressing his friends. I think Jim liked having a good looking, sparkling, younger wife. Susan fit that bill. Susan was very active, and particularly in advertising and advertising the projects Jim was developing. She was involved in renovating buildings. As a matter of fact, I think she did the interior decorating on the renovation of what later became the Savings & Loan office-- the Madison Guaranty Savings & Loan Building.

Q: So, she had a hand in running-- I mean, she had a role in the business?

A: Oh, yes. She was active and in my opinion was well informed in Jim's business activities.

Q: And did her subsequent--

A: She negotiated and delivered a number-- I remember Union Bank-- she-- after Jim would make the initial sales pitch on a loan transaction, and then on on renewal and interest payment times and the handling of transactions, Susan would handle those.

Q: So, if you were to hear Susan McDougal subsequently describe her role in all of this as just being the innocent and ignorant wife who signed whatever her mentor husband put in front of her, you would say-- ?

A: That's a distortion, it's inaccurate.

RETURNING TO SETH WARD...

Q: part of the Seth Ward's deal with McDougal was that he, Ward, would receive a commission for sales of the Castle Grande properties. 10% was it?

A: Yes.

Q: 10%. So a series of transactions is concocted by which Seth Ward's non-recourse obligation is satisfied. And Seth Ward's off the books in the big transaction. He comes back to McDougal and wants satisfaction on his commission agreement. We wants $300,000. Does he get it?

A: Yes.

Q: How does he get it?

A: Madison loans Seth $400,000.

Q: Who did the legal work on that?

A: Hillary Clinton.

Q: And isn't that a transaction that has the net effect of paying Seth Ward a $300,000 commission that he was owed by Madison as part of this deal that we now know is a sham deal?

A: It's certainly connected to the sham deal. It was the commissions at the tail end of that transaction and was a divergent from the standard form of writing a check to pay commissions.

Q: Why didn't Madison just write a check for $300,000?

A: Madison was then heavily in the examination. The problems and the resulting action to be taken by the Federal Home Loan Bank was fairly obvious to everyone at that point. Madison first didn't have the money. Secondly, couldn't generate the money without causing additional red flags.

Q: So Madison couldn't have just written him a check for $300,000.

A: That's the bottom line.

Q: So what it did was construct this alternative-- what it did was construct this other way of effectively paying him the $300,000 which it couldn't do in a straight forward manner. And the architect of that construct was Hillary Clinton.

A: I could not personally say that the architect was Hillary Clinton. I rather suspect that she might not have been the architect. Certainly the documentation was generated by Hillary Clinton.

Q: That's what I mean to say. She drew up the papers, correct?

A: She acted as legal counsel in generating those documents.

Q: She generated documents whose purpose was to pay Seth Ward commission on a series of transactions which have been described by federal regulators as a sham deal.

A: That's correct.

Q: You were-- you are a friend of Seth Ward's.

A: Yes.

Q: Describe him for me. Is he a--

A: Very generous, warm, active, persistent, aggressive, loving-- He's a contradiction within himself.

Seth, prior to that, was a large man, very loud, a bully type. He was a retired colonel in the Marine Corp who flew Corsair airplanes off of aircraft carriers. The blood and guts type.

Q: Any sense of his view of his place in his family? His daughter, for example, Susie?

A: Oh, Seth ran the family with an iron hand. I really, of all the family members, I probably knew Susie less than the other family members. I was around her less because she was married and gone before the others were.

Q: In your mind's eye, could he be an intimidating father-in-law?

A: Oh, unquestionably so. He was an intimidating friend.

Q: Even to a big old guy like Webb Hubbell, do you think?

A: Webb was a very meek, mild mannered person even though he was a large fellow by frame. I would suspect that Seth was intimidating. Maybe not because of the physical aspects, but because he was his father-in-law and Webb would have been respectful of that relationship. And Seth would have taken full advantage of it.

Q: Did they do business together? Webb and Seth?

A: Well, Seth used to give him a lot of money. That doesn't say-- (Laughs)

Q: Would Seth have naturally relied on a son-in-law for-- I mean, could he have gone to Rose? Was Rose Law Firm his law firm or was it a particular specific special case that Rose Kendry doing work on Casa Grande?

A: Well, Webb was Seth's attorney. And whether that was funnelled and billed through the firm or not, I don't really personally know. Everything that Seth did that he could refer to or through the firm, he did so because of Webb.

Q: Any idea why it would been Hillary Clinton rather than Webb drawing up that option instrument?

A: There's a good chance that Webb was out of town. I have seen some documents that indicate that perhaps Webb was not available at that particular time. It sounds familiar, but I don't specifically recall whether Webb was available or not.

Q: Did you ever have any dealings with Hillary Clinton in this regard?

A: That was my first dealings with Hillary Clinton.

Q: How did that happen? What happened?

A: She called me on the telephone.

Q: Said?

A: Began to discuss the transaction of the money that Madison had already loaned to Seth. As I recall, her understanding of the transaction was to set up a situation where Seth would be assured of money to repay that loan to Madison Guarantee Savings and Loan. In our conversation,

Q: But in your conversation with her that you can remember about Castle Grande, do you recollect having urged caution to Hillary Clinton?

A: Well, on that April 7th conversation, we were discussing the offsetting notes. The objective was fairly obvious and I believe discussed. A set off environment was the objective. So Seth would be assured or have the right to not pay back Madison. And I raised a question, cautioned her about the ... (inaudible) as being different. The ... (inaudible) one being Madison Financial was obligated to Seth, but a separate corporation, Madison Guarantee Savings and Loan, had its claim against Seth Ward. So a traditional set off might add some complications because they were being two entities. And she pretty well didn't-- As I recall, her reaction was that I perhaps was inaccurate in my evaluation of that problem.

Q: How did she convey that impression to you?

A: As I recall, she left me with the impression that I was to take care of the S&L and she'd take care of the legal aspects of that transaction...

THE CONVERSATION TURNS TO THE BANK EXAMINATION...

A: It became obvious after about thirty days that there were going to be severe consequences of the examination. Because most S & L in the country was broke at the time, being broke didn't necessarily mean an S & L was going to be closed. As a matter of fact, the broker it was, usually the longer it would stay in existence.

Again, the examination began March 1st, and by April 1st it was fairly obvious to me and probably to the rest of the senior staff that troubled times were ahead. The meeting with the Federal Home Loan Bank that was conducted with the directors of Madison was in early July. I received a call from David Latham when he returned that day, and as I recall it was on a Friday. He informed me that things had been severe, that Jim had been removed from participation,

WHEN DON DENTON FIRST MET SUSAN MCDOUGAL...

When I first met Susan at Union Bank they were the lovey little couple, and frankly I was enamored with Susan. She was extremely attractive, dressed very provocatively, and was most attractive and attracted a lot of attention. Every time she'd-- she'd usually get her renewals when she came to negotiate them with me, but that person or that persona that I saw at Union was entirely different once I got to Madison. It was just-- she was too flagrant with it. She was not the same person that I had perceived Susan McDougal to be.

After a few months I-- a few of her deals, I pretty well set the tone that she didn't bring deals to me because I usually wouldn't do them, so they'd have to either come through Latham or McDougal, so if they would generally go-- I really kind of distanced myself from Susan and was reasonably successful at it.

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