Peter Boyer: Madison Guaranty Savings & Loan Association. Help me to
understand its essential nature. What was the character of Madison?
Viet Dinh: Well, we've had testimony on the record and in public of
folks in Arkansas describing it as "Jim McDougal's piggy bank," and he operated
it as such, as his own personal piggy bank. That is, I think, an apt
characterization as to the relationships that, with Madison Guaranty and its
subsidiaries, and how James and Susan McDougal used it and saw the
Formally, it is not, obviously, designed to be any one person's piggy bank.
It is a federal and state regulated financial institution with very strong
regulatory frameworks governing how it does business. Among those frameworks
are prohibitions on direct investments in subsidiaries, certain limitations on
investment in real estate--all designed in order to assure the public, who put
the money into this bank, that its money will be wisely invested and safely
looked after, rather than being a personal piggy bank of any one operator.
Peter Boyer: And did you discern, in your investigations, a pattern of
resistance to, or an effort to get around, those limitations, those
Viet Dinh: There certainly was a number of questionable transactions.
And the FDIC and Resolution Trust Company investigators at the time, when they
made the decision to put the bank into receivership, highlighted a pattern of
this evasion and actually specifically highlighted three questionable
transactions that they pinpointed as indicative of an overall pattern that led
to the ultimate demise of the institution, and the requirement that federal
regulators bail out the Madison Guaranty Savings and Loan Association, so that
the depositors would get their money back.
Peter Boyer: And was this a pattern, was this an institutional behavior,
if you will, that was so widespread in the state of Arkansas that it wouldn't
have been noticed, or noticeable, at the time? Or was it something rather more
particular to this savings and loan?
Viet Dinh: Well, you know, the entire savings and loan crisis was nationwide,
and this was just one particular savings and loan among many that failed
nationwide. But we do know that, at various points, FDIC investigators had
warned Madison that they are skirting near the line here, and had made reports
that questioned the soundness of the lending practices and the regulatory
compliance of the thrift.
And in that sense, they had specific notice with respect to the precarious
nature of the operation. These continuing evaluations by the federal
regulators, in the end, each year was, they found the thrift still to be sound
enough to be kept open, but, ultimately, in 1989, I believe, was when they said
that this thrift is technically insolvent, and requiring a taxpayer bail-out,
Peter Boyer: So, if you were more than just casually familiar with the
operation, with its lending practices, with its investment practices, through
its subsidiary, with its real estate associations. If you were, for example,
doing some legal work, you would be at least vaguely aware of the fact that
there were some potential embarrassments and potential legal difficulties,
Viet Dinh: I would certainly say that, especially at the point in times when
federal regulators were asking very specific questions. And we know that in
1984, federal regulators had issued warnings to Madison Guaranty, and as early
as 1984, and certainly, in 1986, federal regulators were asking very specific
questions about specific transactions that the thrift and its subsidiaries had
And so, I think that a reasonable professional who is intimately aware of the
financial transactions that, as he or she would be, or should have been,
because if the institution was her client, I think should have been on notice,
if not by the general pattern of lending practices or unsound regulatory
compliance, then at least when federal regulators started asking very specific
questions regarding the soundness of the institution, and also regarding the
propriety of certain specific transactions.
Peter Boyer: And what might such an alert person have done properly, as a
Viet Dinh: I think that one of the primary roles of an attorney, and
certainly we try to teach it here to our students, is that you counsel
compliance with the law. The lawyer, more than simply being a mouthpiece for
the client and advocating at whatever cost the client's interest, is also an
officer of the court in questions that appear before the court. But also, in
general, you're a client's conduit to the law, and you not only counsel your
client as to what the law says, but also advise a client as to how best to
comply with the law, and chart a course of conduct that would hopefully restore
the financial institution to health. But, barring that, lawyers are not
businessmen after all, at least prevent the institution from committing
outright illegalities or helping the institution to infringe or violate
applicable federal and state regulations.
Peter Boyer: And there is scant evidence that in fact was done by
lawyers, including Hillary Clinton, representing Madison Guaranty and the
Viet Dinh: Certainly, with one particular transaction, known various as "IDC"
or "Castle Grande", states that the transaction that happened in late 1985 and
throughout 1986, the federal regulators at the FDIC and at the RTC concluded
that among the documents that were drafted by lawyers at the Rose Law Firm,
ostensibly by Mrs. Clinton, was used to conceal the true nature, that is, the
fraudulent nature, of the transaction--a transaction, I may add, that
ultimately cost the taxpayers $4 million to bail out. That transaction alone,
not the general failure of the Madison Guaranty, but that transaction alone,
cost taxpayers $4 million when it eventually was discovered to be fraudulent.
Peter Boyer: And let me make sure I have this straight. This was related
to a transaction that these very investigators have termed, and some continue
to term, a "sham deal", a deal in which Jim McDougal wanted to acquire some
property but was--through his bank, essentially, through his Madison
operations--was unable to because of regulations, needed a straw man, reached
out to Seth Ward to be that straw man, in exchange, basically, for some
remuneration later, in the form of commissions, however they termed it. And
when the time came to repay Seth Ward, to give him his pay-off, basically, for
effectively acting as the straw man, this agreement was drawn up, this
so-called option agreement. What was that exactly?
Viet Dinh: Well, it actually was a little bit more complicated than that.
Sham deals did not happen without certain complications. You are right that it
was a sham deal, and Seth Ward was the straw man, the straw buyer, as it were.
These were facts that were found by the inspector generals of both the FDIC and
the RTC, what, in effect, was that Seth Ward presented himself to the ...
(inaudible) at large, and to federal regulators, as the actual owner of the
land, but, in effect, Madison was the beneficial owner of the land in question,
precisely for the reason you mentioned, to evade federal and state regulations
prohibiting such investments.
Now, he was owed , as part of the original agreement between Madison, or James
McDougal, and Ward, straw buyer, a certain amount of commissions, in the amount
of $300,000. The question then becomes, how do you go about paying this
commission to Seth Ward without the knowledge of federal regulators, because,
you recall, in 1986, was when federal regulators were actually at Madison,
asking questions regarding this transaction, because it looked like an
opportunity for a deal to be structured exactly as a sham deal.
And so, what happened was that the parent corporation, Madison Guaranty and
Trust, executed a loan note for $400,000, basically loaned Seth Ward $400,000,
and then--that was on March 31st, 1986--a week later, on April 7th, Seth Ward
executed notes to Madison Financial, a subsidiary of Madison Guaranty, actually
Madison Financial executed promissory notes to Seth Ward, evidencing a loan
from Seth Ward to Madison Financial. So, in effect, the two sets of notes
crossed each other and offset the balance that Seth Ward owed.
Now, that is what, in effect, happened. The problem is that if the two notes
offset each other, that would have violated state regulations. And so, when
the federal regulators came in and looked at this, federal inspectors came in
and looked, Madison said that, "No, the two absolutely have no relation to each
other. The only thing that they have in common is that Seth Ward is the
signatory to both." Actually, the April 7th, 1986, notes, according to the
statement given to regulators at that time, evidenced an option agreement
between Seth Ward and Madison Financial.
And, at that time, of course, the federal regulators asked, "Well, where is
the option?" And so, there has to be some evidence of this option that was,
that is to be shown to federal regulators as justification for the subsequently
April 7th notes that were issued to Seth Ward. And so, that option itself was
drawn up on May 1st, 1986, and shown to federal regulators. The option itself,
the federal regulators have concluded, in a subsequent investigation, to be,
to-- Its purpose was to conceal the true fraudulent nature of this sham deal,
precisely because it presented evidence of an option, that is, a justification
for the notes that really was not the real intent behind the parties. The real
intent of the parties was for the notes to cancel each other out, and thereby
letting Seth Ward keep the original loan from Madison as his commission.
Peter Boyer: Well, I see. Thank you for that. I actually almost
understand it now. But, confronted with that circumstance, and presented with
the possibility of having been asked to draw up such an option agreement for
that purpose, to conceal the true nature of this transaction, what would an
ethical lawyer do?
Viet Dinh: I think an ethical lawyer would absolutely refuse, if he or
she had knowledge that this is the purpose for which her work would be used,
that is, to conceal a fraudulent scheme from federal regulators. I think that
not only our ethical duties, applicable, but also legal duties, require him or
her not to perform that task, and have the client use her, basically, as a
means in order to deceive federal regulators. I think that the question is
very clear-cut, not only as a matter of ethics, but also as a matter of law,
that a lawyer should not be aiding and abetting in a fraudulent scheme, and
part of that aiding and abetting would be to draw up subsequent documents in
order to conceal the true nature of the scheme from federal investigators.
Peter Boyer: And what I'd like to ask you now is, Hillary Clinton
apparently did draw up that option agreement, or at least was credited, if you
want to use that term, with having done so. How could she not have known its
purpose, if, in fact, that agreement was drawn subsequent to the time in which
it was supposed to have been in effect?
Viet Dinh: Well, the representation to the regulators was that this
option was, is agreed in principle, and the option agreement itself would be
drawn up at a future date. So, the May 1st, 1986, option, on its face itself,
was not a backdated document or anything like that. But the mere creation of
it, obviously, was not fraudulent. The fraudulent nature of the document, or
at least the questionable nature of the document, is its use in concealing the
true fraudulent nature of the transaction. That is that the April 7th notes
were meant to cross, to cancel out, the March 31st note from Madison.
We absolutely know, that--at least we don't have any evidence contradicting
the fact that Hillary Clinton herself drafted up the May 1st option. The May
1st option contains a word processing notation at the bottom, which the Rose
Law Firm has represented as a notation to indicate that the option was prepared
by, or for, Hillary Clinton, by her secretary. And we know from the discovery
of the Rose Law Firm billing records that she actually billed time to Madison
Guaranty for the preparation of the option. So, you're right, that she was
certainly credited both on paper and also in remuneration with the drafting of
Peter Boyer: And if, given what we now know, and what the parties to that
deal knew at the time about the nature of that transaction, would it have
required, an extraordinary level of discernment on Hillary Clinton's part to
have recognized its purpose, this instrument?
Viet Dinh: Well, I don't even know that it requires very much
discernment to recognize this, because we now know, from the testimony of Don
Denton, who was then Madison Guaranty's loan officer, one of the executives at
Madison, one of Jim McDougal's officers, that on April 7th he and Hillary
Clinton had a conversation. April 7th, of course, is the day that the second
set of notes were issued, evidencing, purportedly evidencing a loan by Ward to
And, at that time, according to Mr. Denton's testimony to federal
investigators, under a requirement of truthfulness, that he told Hillary, he
said that, "Well, gee, you know, if these notes are intended to cross the
Madison note that was granted on March 31st, they violate federal and state
regulations," at which time, according to Mr. Denton, Hillary summarily
dismissed his concern and says, "You take care of the S&L matters, I'll
take care of the legal matters."
So, with respect to the testimony that now we have on the record, at least
Hillary Clinton, according to the testimony of one officer intimately involved
at the time, was put on specific notice that not only was this, was this
questionable, it violated specific federal and state regulations.
Peter Boyer: So, briefly put, Hillary Clinton either knew or should have
known that instrument was of at least a suspicious nature?
Viet Dinh: Yes. And certainly should have known the likely use it was
going to put to by Jim McDougal and other officials at Madison, that is, to
present to federal regulators as a means to conceal the fraudulent nature of
the underlying transaction.
Peter Boyer: So, we now take that reality and apply it to a political
context. Her husband, the governor of Arkansas, is going to run for president.
And one of his and her former business partners, this very same Jim McDougal,
is a potential liability, their association with him. And there is this sticky
matter of her representation of Jim McDougal in a variety of venues, but
particularly this Castle Grande business.
There is, is there not, a clear record in a law firm of who does what work
on what projects, for whom?
Viet Dinh: In most law firms, certainly in a law firm of a national
reputation, as the Rose Law Firm, had, that would be expected to be the case,
that client files will be retained, especially while the matter was still open,
and even long after the matter was closed, because you still have collateral
litigation that may arise. You may have clients challenging the bill of the
lawyers, and the records are the only way that the lawyers can defend
themselves, to say, "Really, this is the work that I actually did. I didn't
bill you for work I did not do." Or whether the firm's conduct subsequently
becomes part of an investigation, to whether for malpractice or other types of
investigations. Certainly the client files and the work files of the attorneys
are the best evidence that a law firm would have.
And so, most law firms would have very clear record retention policies in
order to retain these types of records. The records, with respect to Castle
Grande, and most of the work that Mrs. Clinton did for Madison Guaranty,
however, are not in existence. The reason for that was that, in 1988, two
years after this questionable transaction, Mrs. Clinton ordered the destruction
of Madison-related files within the Rose Law Firm.
Now, that may, on one view, it may be considered a quote, unquote, "routine"
record destruction. Law firms have to have record management policies, so that
they don't keep papers going back hundreds of years, because law firms actually
do exist for hundreds of years, but this was not, under any circumstances, a
routine record destruction, because, one, there was a federal investigation
under way into the practices of Madison Guaranty Savings and Loan Association,
and, subsequently, an investigation that led to the seizure and take-over of
the thrift by federal regulators.
And, second, there was a pending civil suit between Seth Ward and Madison, the
two parties--one of the two parties whom Mrs. Clinton had represented--and one
of the key issues, in fact, the primary issue in this civil suit, was the
option agreement on May 1st, 1986. Seth Ward was himself suing on the option,
and the promissory notes, of April 7th, 1986. And so, the records as to how
these documents were created and what were the intent of the parties at the
time they were created, certainly becomes very relevant to that civil suit.
And while all this was pending was when Mrs. Clinton sent around a memo
ordering the records to be destroyed.
Peter Boyer: So, in the ordinary course of what you would expect in a law
firm, those records should still exist, and certainly should have still existed
at a time when Madison had some active cases?
Viet Dinh: I think that's a correct characterization, yes.
Peter Boyer: What should we think about the fact that they don't
Viet Dinh: Well, you know, I'm not here to make conclusions, but it
certainly does, to an average person--you don't need to be a lawyer to know
this. I think that records for pending cases, lawyers' records, are very
important. And that importance would suggest great hesitance before they are
destroyed. And that hesitance was absent. As a matter of fact, there's active
ordering for records to be destroyed.
I'm not going to make any conclusions, but I will say that if the Rose Law
Firm had properly represented a client, or any law firm had properly
represented a client, any lawyer who had properly represented a client, his or
her work files are the best evidence in defense to a charge that she or he had
improperly represented that client. And destruction of those files would
deprive the law firm and the lawyer of the best evidence as a defense if the
lawyer and the law firm had acted properly in representing the client.
Peter Boyer: The subsequent disappearance of the billing records, I'm
going to ask you a couple of things about that. The billing records are
obviously the first aspect of the practical management of a law firm. I mean,
lawyers get paid, clients get charged, you need to know what lawyer was doing
what work for which client, and how long, and fees are determined. The record
of Hillary Clinton's representation of the Madison Guaranty and Jim McDougal
should have existed in the Rose Law Firm's billing records. Is that
Viet Dinh: Right. Certainly, in 1988, we saw the destruction of the
underlying client files, the work files-- you know, the actual papers, notes
and draft memoranda and work product of the lawyers, the actual documents that
are contained in what we think of as files. Those were ordered to be
destroyed. There came a time in 1992 when questions were raised
regarding Mrs. Clinton's representation of Madison. And, at that time, a set
of records, a different set of records, as you refer to them, billing records,
were revived from the Rose Law Firm computer files.
Now, what these are, are computerized entries of time sheets. A lawyer would
fill out a time sheet and then a clerk would type them into the computer, and
that is the computerized billing mechanism through which clients are billed.
Of course, the time sheets, presumably the hard copies of the time sheets, had
been destroyed in 1988. And so, the only place that contains information
reflecting the actual work of the lawyers is in this computerized record that,
of the law firm--the billing records, as it were, the records of billings,
Peter Boyer: So, in other words, Hillary Clinton's record of the work
that she did for Madison Guaranty, for example, in the area of Castle Grande,
can be found right now on the hard disk of the computers of the Rose Law
Viet Dinh: One would think so. But no.
That record no longer exists in Rose Law Firm's computers. The reason being
was that sometime, and the best estimation we have, according to the Rose Law
Firm itself, was that sometime in 1992, a set was printed out from this
computerized version, from the firm's computers, a hard copy was
actually printed out on paper, and the underlying magnetized, magnetic record
in the firm's hard disk was deleted. And so, somebody had erased the last
remaining, as it were, one of the last remaining complete record as to what
work the Rose Law Firm performed for Madison, and also what lawyer performed
what work for Madison.
Peter Boyer: Erased? Does that mean irretrievably gone?
Viet Dinh: I believe so, because, certainly, the Rose Law Firm has
been served with subpoenas by various federal agencies over the last several
years, and they have been unable to retrieve those files. Now, there are ways
to retrieve things from hard drives that has been deleted, but my understanding
is that it is not able to-- The Rose Law Firm is not able to do so.
Peter Boyer: So, the situation is this: You have the record of Hillary
Clinton's work for Madison, including this transaction, Castle Grande, the
option agreement and so on. The bulk of the records are destroyed in 1988, but
you still have the computerized record of Hillary's, that would give you some
indication of Hillary's work for Madison--how much time and so on. That is
removed from the computer, leaving no trace of any indication, no record
whatsoever, except the printed-out hard copy.
Viet Dinh: Right. That's why the printed-out hard copy has become so
critical to the investigators' progress, because they are really the last
remaining piece of evidence that relates to what kind of work the Rose Law
Firm, and whom within the Rose Law Firm performed that work for Madison. Now,
there are some other files within the Rose Law Firm, apart from this
computerized record and apart from the files that were destroyed, that related,
generally, to Madison and/or to Whitewater Development Corporation, and things
like that--things having to do with James McDougal.
Those files, the remaining ones that had not been destroyed in 1988, were all
collected in 1992, during the presidential campaign. They were collected by,
among other people, Webster Hubbell, who was, at the time, a partner at the
Rose Law Firm, for the purpose, as he testified, in order to answer press
inquiries in the 1992 campaign, relating to Governor Clinton and Mrs. Clinton's
relationship with James McDougal and Madison Guaranty.
Now, those records, likewise, are no longer at the Rose Law Firm. The reason
being was that when Webster Hubbell left the Rose Law Firm to come to
Washington, he took these files with him. Now, there is no question that those
are Rose Law Firm files, and the Rose Law Firm management testified to the
special committee when we were investigating this, that they considered those
files to be their files, because it is the firm's work product, and it does not
belong to any single lawyer, because the firm was the one representing the
And absent permission from both the client, who was then defunct, but then now
taken over by the Resolution Trust Corporation, now the client, and the Rose
Law Firm itself, the files cannot be removed.
Peter Boyer: So, coming in without authorization and stealing away with
these files without permission is not, would you say, orthodox procedure?
Viet Dinh: It is certainly not standard practice amongst lawyers. I
don't know whether I would call it stealing, because Mr. Hubbell may think that
he was, he had legitimate title and was entitled to these files, but we know at
least that the Rose Law Firm considers them to be their files. And, certainly,
they are files relating to the client, ultimately, they are the client's files,
and no permission was obtained or requested from either Rose Law Firm or the
client, prior to the removal of these files.
Peter Boyer: And in that context, what do we know about the creation of
these billing records, as I'll call them, the hard copy of the billing records?
Was it in that same context, was it in that '92 election time period when the
hard disk was erased and the hard copy, the paper copy, was created?
Viet Dinh: I believe so. The only testimony we have with respect to how
these files were created, the actual hard copy were (sic) created, comes from
Webster Hubbell. The special committee sent questions to Mrs. Clinton, asking
her knowledge about these, about these matters, but she did not answer that
question directly. So, the only evidence we have with respect to how these
records were created comes from Webster Hubbell, then, at the time, organizing
the Rose Law Firm's files in anticipation and in response to press inquiries.
He testified that they were printed out at some time in 1992, although he had
no knowledge, I believe, of any deletion of the underlying computer files. But
they were printed out some time in 1992, and he and Vince Foster, then also a
Rose Law Firm partner, looked over these records as part of their fact-finding
process, in order to respond to press inquiries relating to Mrs. Clinton and
the Rose Law Firm's work for Madison Guaranty.
Peter Boyer: So, those records, along with these other Rose Law Firm
records, are removed from the law firm in a manner that I would like to ask you
about. We have heard that, the story that Webster Hubbell pulls up to the law
firm with his station wagon, the family wagon, and that he and his son load
boxes of these records into the family car, and drive away. Is that what
Viet Dinh: I don't know what actually happened. We certainly have
testimony to that effect, and, as I recall, the testimony is somewhat
conflicting as to the time of day, the manner it was removed. But what is
uncontroverted is that Webster Hubbell actually did remove the records without
permission from the Rose Law Firm, and transported them to Washington, DC.
Peter Boyer: Did he, by the way, ever take ownership of their creation and
the destruction of the hard disk? He did not claim to know anything about the
erasing of the information on the hard disk, But, did he own up to having
created the hard copy?
Viet Dinh: I believe he testified that it was Vince Foster who showed them
the billing records in the first instance. And he and Vince Foster had looked
at the billing records at the time, in, during the 1992 campaign. And we know
that, we know that for a fact, actually, because part of the evidence that was
uncovered by the Senate committee was notes of a telephone conversation that
Webster Hubbell had with Susan Thomases, in which they were talking about Mrs.
Clinton's representation of Madison Guaranty, and Mrs. Thomases made a
notation, which she identified as according to time records.
Although Mrs. Thomases did not, at any time, see the records or handle them,
handle the record, as she testified. She did have a conversation during
which--a telephone conversation--during which Webster Hubbell refers
specifically to the time records. So, he definitely used the phone, the
billing records, in 1992, and he has admitted that he has used them.
What is also intriguing about Mr. Hubbell's testimony was that the last time
he saw the billing records was in 1992, and they were in the possession of
Vince Foster. He had given the billing records back to Vince Foster, and that
was the last time he saw them, in 1992 and up to the time when we had the ...
(inaudible) in 1996.
Peter Boyer: And is that the last time that anybody has recollected having
seen the billing records, before the rediscovery?
Viet Dinh: I believe so. I believe that is the only specific recollection of
anybody having seen the billing records, really, at any time prior to their
rediscovery in 1996.
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