Contempt Read online

  Clinton and Tucker often turned to McDougal for advice about fund-raising. He had plenty of experience in delivering “get out the vote” money—strategic payments to community leaders such as pastors who could be counted on to get their people to the polls.

  As Hickman’s Waffle House diagram showed, these three ambitious men—McDougal, Tucker, and Clinton—had become enmeshed in alleged wrongdoing that would send one to prison, destroy another’s political fortunes, and severely damage the other’s reputation. Fiske had not been exaggerating when he briefed me on that fateful first day.

  As I would learn over the next few months from Hickman and our FBI agents, McDougal was a recovering alcoholic and a complicated, conflicted man. An early marriage failed and he fell into what he called a “dark period.” He couldn’t get out of his recliner, didn’t talk to anyone, just sat and brooded. Years later, he would be diagnosed as manic-depressive.

  At one point in the ’70s, things got so bad for McDougal that an old friend, former Arkansas Lieutenant Governor Bob Riley, let him live in a trailer on his property and got him a job teaching political science at Ouachita Baptist University (OBU) in Arkadelphia.

  One afternoon while in his OBU office, McDougal met Susan Henley, a vibrant and attractive student from a large family, whose ambition was to meet and marry a preacher. After knocking on his door, Susan explained that she had inadvertently locked a teacher’s keys in the office next door. Could McDougal help? After trying several keys, McDougal simply kicked down the door.

  That was one way to get an attractive young woman’s attention.

  Jim and Susan got married on May 23, 1976, just after she graduated from OBU. McDougal left the teaching job, and returned to making real estate deals.

  His pal Bill Clinton, now married to Hillary, made a successful run for state Attorney General that same year. The two couples sometimes socialized together. The men got along great, but Susan and Hillary never became close. Susan had little in common with the hard-charging Yale Law grad who seemed out of her element in Little Rock.

  It was clear that Bill Clinton was going places, but it was hard to keep up with Arkansas’s political movers and shakers. According to Jim McDougal, Bill cared little about money, but Hillary had lofty financial aspirations. After Bill became Attorney General, he was making a paltry state salary of twenty-five thousand dollars a year. Presumably hoping to augment that small salary, Hillary joined the Rose Law Firm at about the same time.

  One day in 1978, after Bill’s first election as governor, the two couples met for lunch. McDougal had joined his administration, but was still pursuing real estate deals.

  Jim and Susan raved about a piece of beautiful undeveloped property they had just visited on the White River in north-central Arkansas. They asked the Clintons if they’d like to invest. They’d buy the land, about 230 acres, put in some roads and other infrastructure, then subdivide the property and sell lots to retirees looking for a quiet place in the country.

  The Clintons were enthusiastic. Bill had made money on one of Jim’s previous deals. By the time lunch ended, they had agreed to buy the land together and split the profits fifty-fifty. In 1978, the couples borrowed $203,000 in a complex, multibank transaction.

  History can thank Susan, who came up with the name for the project: Whitewater.

  The next year, after Bill was sworn in as governor, Hillary vaulted to partner at the Rose Law Firm. He was now making $33,500 a year, still not much, but the Clintons could move into the Governor’s Mansion.

  In 1980, Bill lost his reelection bid. That also put McDougal out of work again. He returned to real estate with a vengeance. To fund his projects, he bought a troubled bank, renamed it Madison Bank & Trust, and brought it back to life. He did the same for a failing thrift, calling it Madison Guaranty Savings & Loan. It had $3 million in assets when he bought it; within a year, the S&L had $100 million in assets and $103 million in debts.

  Jim saw himself as a deal maker, an empire builder. He began buying properties and flipping them, using his ready access to capital to close deals quickly, build some amenities, then sell them off.

  With Bill out of office, Hillary worked hard to support their family, which now included baby Chelsea. She called McDougal, asking for money from what she presumed was the thriving Whitewater project. Jim explained that the project was so remote, lots weren’t selling. They needed a model house for prospective buyers to visit, one that might prompt them to picture themselves living there.

  The McDougals had been floating the Whitewater loan. Hillary agreed to borrow thirty thousand dollars from Madison Bank & Trust to put a mobile home on one of the lots.

  After Clinton returned to the Governor’s Mansion in 1982—besting Jim Guy Tucker in the Democratic primary—he borrowed twenty thousand dollars from another bank to reduce what Hillary owed Madison. The Whitewater project, once so promising, had stalled as high interest rates choked off sales of vacation property.

  Despite his recapture of the governorship and Hillary’s high-status job, the Clintons’ finances were floundering. Per McDougal’s later account, early on a hot August morning in 1984, Clinton just happened to jog from the Governor’s Mansion to McDougal’s office at Madison Guaranty. The governor plopped his sweaty body onto a new leather orthopedic chair. McDougal was irritated but listened as his friend, who had a “hangdog expression,” asked him to help Hillary out. She had been advised that she wasn’t generating enough business and felt under pressure to recruit more clients for the Rose Law Firm. Clinton hinted that it would be desirable for McDougal to move Madison’s legal work to Hillary.

  Since Tucker’s law firm had been doing McDougal’s legal business, that meant McDougal would have to alienate Clinton’s friend, fast becoming a political rival, but he agreed.

  Within two hours, according to McDougal’s account, Hillary visited his office and they discussed the arrangement. McDougal began sending Hillary a monthly retainer fee of two thousand dollars. She began handling various matters for Madison Guaranty and other McDougal real estate ventures.

  Meanwhile, the Whitewater project was all but dead, killed off by those high interest rates and its remote location. McDougal exchanged unsold lots with another developer for an airplane and the assumption of thirty-five thousand dollars in bank debt.

  Though the Clintons had put little money into the project, Hillary refused to sign over their remaining interest in the property, telling Susan, “McDougal promised that Whitewater was going to pay for Chelsea’s education.” McDougal insisted he had told her no such thing.

  Hillary also, by McDougal’s account, improperly took tax deductions for losses the Clintons, as “passive investors,” did not actually incur.

  Little was going well for Jim McDougal now. He and Susan separated, though they remained in business together. His real estate house of cards—built by juggling loans among various institutions—was collapsing. In 1986, he was forced to resign from Madison Guaranty. Hillary ended her retainer agreement with McDougal, but refused to transfer the Clintons’ remaining interest in Whitewater over to the McDougals. Instead she assumed control of the Whitewater investment, perhaps thinking there was still value there.

  The McDougals were removed as officers of Madison Guaranty in 1986. A victim of overleverage, bad loans, and outright fraud, the S&L failed in March 1989, at a cost to taxpayers of at least $60 million. Jim McDougal was indicted on charges related to the Castle Grande real estate deal. After a jury trial in 1990, McDougal was acquitted.

  When Bill Clinton decided to run for president, he realized they needed to be shed of the taint of Whitewater and any association with Jim McDougal. But Hillary continued to refuse to relinquish their interest. It wasn’t until after the presidential election, as Bill Clinton was transitioning to the nation’s capital, that Vince Foster, representing the Clintons, signed papers selling the couple’s stake in the project to
McDougal for a thousand dollars.

  During the 1992 presidential campaign, McDougal felt shunted aside, left behind to rot with his failing real estate deals. He was angry at both Clintons, and at Tucker, now lieutenant governor, for their perceived disloyalty. And maybe angry at himself. Even though he’d been acquitted of bank fraud, his legal troubles weren’t over. The RTC was probing into Madison Guaranty. Other matters were sure to come out. He’d held a fund-raising event at the thrift to pay off the debt of one of Clinton’s earlier campaigns, skirting campaign finance laws by giving Madison Guaranty’s employees money to drop in campaign coffers.

  He decided to lash out. As I would later learn, it was at this point in early 1992 that McDougal picked up the phone and called well-known reporter Jeff Gerth of the New York Times. He had a story, McDougal said, about a presidential candidate, his wife, and a beautiful place in Arkansas called Whitewater.

  CHAPTER SEVEN

  Webb

  When I took over Fiske’s investigation, long after Gerth had broken the Whitewater story at McDougal’s tip, agents had for months been interviewing everyone connected to the 825 loan, which had been designed to keep the Whitewater deal and other McDougal projects alive.

  Organizing such a labyrinthine investigation was not easy, but we did what was necessary to sort out the tangle. Each team of OIC lawyers and federal agents was assigned a major segment of the investigation, which they would stay with until it went to court. As Hickman’s Waffle House diagram made clear, many but not all of these investigations led back to Bill and Hillary Clinton, either as potential witnesses or as subjects. The president and the First Lady would have to be deposed.

  Questioning the most powerful people in America under oath was daunting business.

  The earlier DOJ and Fiske investigations had struggled to get documents from the White House. The DOJ issued a subpoena to the Clintons on December 23, 1993, on behalf of the Little Rock federal grand jury, asking for all documents in the Clintons’ or their lawyers’ possession related to Whitewater Development, Madison Guaranty, David Hale, and his company, Capital Management Services.

  Engaging with the White House was like walking in molasses. David Kendall, Bill’s personal counsel, was a formidable opponent. Raised in a Quaker household, he had an air of formality about him. He was articulate and prodigiously hardworking, famously dedicated to his clients. Time and again, I would see up close and personal this zealous advocacy.

  From the firm of Williams & Connolly, known for its scorched-earth strategy, Kendall delayed, denied, and dragged out responses to requests from the DOJ, Fiske, and from our office. The Clintons claimed to have virtually no documents.

  This was frustrating for the Little Rock grand jury, composed of twenty-three citizens drawn from the pool of registered voters. They meet for a term of eighteen months. If necessary, a judge can give them a six-month extension, but then their term expires for good.

  Our grand jurors were patient and paid close attention to the testimony. The old canard is that any prosecutor worth his or her salt can get a grand jury to indict a ham sandwich. In my experience, that is a misunderstanding of how the grand jury system works.

  But since grand juries meet at most only one or two days a week, the process can drag out, especially with witnesses who delay or refuse to produce documents. It can be maddening. That was the Clintons’ strategy.

  Fortunately, even if the Clintons did their best to slow down our process, we had other sources of information. For one thing, we had Hale’s testimony. For another, we hoped to get the potentially significant testimony of disgraced Rose Law Firm partner Webster Hubbell, who pleaded guilty to income tax evasion and mail fraud in December 1994.

  At six foot five and 310 pounds, Webb Hubbell was a giant of a man with a fun-loving personality. During his days at the University of Arkansas in Fayetteville, he had been a solid student and star football player, destined for fame on the gridiron.

  But after his NFL football career was cut short by injury, Webb returned to Fayetteville for law school. He landed a plum perch at the Rose Law Firm and married Suzy Ward; her father was Seth Ward, a wealthy serial entrepreneur who had later gotten involved in several of the McDougals’ land deals.

  Webb was regarded as an able lawyer, but he soon fell into a deadly financial spiral of living far beyond his means. By 1992, as we later learned, he had stolen hundreds of thousands of dollars from his partners and fraudulently billed several unsuspecting clients, including the federal government. Yet despite his crimes, he somehow passed muster in an FBI background check and joined the Clinton administration as White House liaison to the DOJ in January 1993.

  The FBI may have missed Webb’s malfeasance, but Fiske and the Rose Law Firm eventually caught on. Lawyers at the Rose Law Firm threatened to bring litigation against their former partner for embezzlement and billing fraud. By the time I came on board, Bob Fiske’s investigation of him was virtually complete. Though Hillary reportedly urged him to remain and fight the charges, Hubbell, under mounting pressure, resigned from the DOJ on March 14, 1994. He hoped to reach a civil solution with his firm, but the magnitude of his theft—finally tallied at $482,000—made criminal charges unavoidable.

  By December 1994, we negotiated a deal with Webb’s lawyer, John Nields. Webb would plead guilty to two felonies, mail fraud and felony federal tax evasion, and begin cooperating with the OIC. I made it clear that we wanted the facts, wherever they led.

  Hickman and others spent considerable time debriefing Hubbell to find out what else he knew about the work the Rose Law Firm had done for Madison Guaranty and the fraudulent Madison Guaranty loans. He was facing stiff time in prison if we didn’t recommend “downward departure” from the federal sentencing guidelines, given for full and substantial assistance. We put off his sentencing to see if he would truly cooperate.

  The rule of thumb in prosecutors’ offices is that even cooperative witnesses, eager to earn a reduced sentence, will give up only 80 percent of what they really know. “Their first instinct is to tell you what they think you already know, and nothing more,” one career prosecutor told me.

  Webb had an idiosyncratic habit that signaled to our prosecutors and FBI agents when he was not honest with us. Whenever a potentially sensitive question was posed, especially touching on the Clintons, Webb began nervously fidgeting with his wedding band.

  Given Webb’s physique, his two large hands could not go unnoticed by anyone sitting around the conference room table. When sensitivity levels were manageably low, his hands rested comfortably on the table with occasional insignificant gestures. But when a potentially hot topic was introduced, the wedding band immediately found its way into the fingers of Webb’s formidable right hand. Back and forth, up and down, his left-hand finger the ring would move. When the tension returned to normal, the wedding band was once again at rest.

  We could only surmise what his attorney grasped about the full state of Webb’s knowledge. I felt we were close to a breakthrough. Maybe now we could find the information we needed to corroborate Hale’s testimony, information that had been held back by the Clintons. But it was not to be. Between his friend Hillary, his colleagues at Rose, his wife, and his father-in-law, Hubbell had numerous reasons to keep mum, and yet another Clinton witness delayed our proceedings.

  As the months-long debriefing process wound to a frustrating conclusion, I informed Nields that we were disappointed in the level of his client’s cooperation, and that we would not be asking the sentencing judge for a reduction of Hubbell’s sentence.

  The resourceful Nields mustered up an impressive array of supportive letters from the Little Rock community and urged the judge to reduce the sentence based upon Webb’s “extraordinary” record of public and community service over the course of many years.

  I was impressed with Nields’s ingenuity and Webb’s admirable community service. Nields asked me if we woul
d oppose or support downward departure.

  “John, we’ll stand neutral,” I said. The judge was impressed with the letters, but seemed disinclined to be lenient. “To whom much is given, much is required,” the judge said. Sentenced to twenty-one months, Hubbell reported to a minimum-security prison camp on August 7, 1995.

  I wasn’t surprised by the outpouring of support for Webb. In my mind, Webb was at heart a decent person. Ironically, Webb’s good-heartedness had stifled his income-generating power. The bane of lawyers’ professional lives is the billable hour. A huge swath of Hubbell’s income-producing hours had been donated to his community, and it didn’t seem that the Rose Law Firm had rewarded him for his community and public service. Now, to his own detriment, Webb was remaining fiercely loyal to his friends the Clintons.

  We didn’t realize it at the time, but Webb was playing it smart. It seemed to us that friendship had trumped basic self-interest, but we later learned that rainmaking efforts had gotten under way in high places. On March 13, 1994, the day before Hubbell said he would resign, White House Chief of Staff Thomas “Mack” McLarty assured Hillary, “We’re going to try to be supportive of Webb.”

  McLarty asked Clinton supporters like Washington lawyer Vernon Jordan to help Hubbell find clients. Jordan, in turn, snagged Revlon as a major account at $25,000 per quarter. The stated purpose of the engagement: “public relations.”

  The Clinton fund-raising network went into overdrive. Soon, an entirely new set of clients retained Hubbell. California’s Eli Broad and Texas’s Bernard Rapoport, large-money donors to Democratic party efforts, rallied to Hubbell’s cause. In 1994, he earned $450,010. In 1995, after he went to prison, he earned $84,750.