Searching for the Missing Pieces

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DID STATE REGULATORS GO EASY ON MADISON GUARANTY IN RETURN FOR FAVORS TO THE CLINTONS? This is another charge leveled by Leach, who cannot conveniently be accused of blind partisanship. He is, in fact, perhaps the least partisan Republican in the House. One reason for the contention: at the start of 1985, Clinton appointed Beverly Bassett Schaffer as head of the state department that regulates S&Ls. Later, Schaffer approved a proposal for an unusual stock sale to shore up McDougal's already troubled S&L. The proposal was presented by none other than Hillary Clinton, acting as attorney for Madison Guaranty. The stock sale, however, never went into effect, and records in the Arkansas state security division show that Schaffer was quite tough on Madison. In the middle of 1986, state and federal regulators joined in removing McDougal as its chief.

WERE THE EVENTUAL INVESTIGATIONS LESS VIGOROUS THAN THEY SHOULD HAVE BEEN? In 1992, when Whitewater's name was starting to crop up in stories about Bill Clinton's campaign, Denver lawyer James Lyons did an audit, at Clinton's request, that to critics seemed highly inadequate. The RTC's referral of the case to Justice landed in Washington in the fall of 1992 -- just as Clinton was forging decisively ahead of George Bush in the presidential race. Justice officials were afraid they would be accused of a partisan effort to smear Clinton if they had Washington take over the investigation, so they left it with the U.S. Attorney in Little Rock. At the time that was Republican Charles Banks, but after Clinton's victory he was replaced by Democrat Paula Casey.

Enter David Hale, an Arkansas judge and head of a lending company that was backed by federal money. Hale claims that in 1986, Clinton, who had appointed him to the bench, and McDougal pressured him to arrange a $300,000 loan to clean up some dubious Madison Guaranty loans. Hale did approve a loan of that amount to McDougal's wife, but $110,000 went into Whitewater. Clinton denied exerting any pressure and said he had been unaware of such money winding up in Whitewater. Hale proposed to Casey that he have himself wired up to record incriminating conversations, perhaps with Clinton and aides.

Casey refused, suspecting the offer was not serious. Hale, who had been indicted for fraud in a separate case, wanted Casey to give him a plea bargain; Casey offered instead a reduction in sentence if he pleaded guilty and cooperated with the government on other matters. But Hale refused the deal and will stand trial next month. Casey eventually recused herself from both the Hale and Madison cases, but most belatedly, last November. She would have trouble claiming impartiality; she had been a law student of Bill Clinton's and a volunteer in all his campaigns. Her husband works for Arkansas Governor Tucker, who had many dealings with McDougal. After Casey's recusal, the Justice Department in Washington took over the investigation; pending possible appointment of a special counsel, it is being run by Donald Mackay, a senior trial attorney -- and a Republican.