Whitewater: Years of Legal Trouble

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February 24, 2008

By Pete Yost
Associated Press Writer

WASHINGTON (AP) -- Whitewater. The word symbolizes years of legal troubles for Hillary Rodham Clinton during her husband's presidency. The scandal stoked a $52 million criminal investigation and offered moments of extraordinary spectacle, including the unprecedented grand jury appearance by a first lady.

"It's not a first that I'm particularly pleased about," she acknowledged at the time.

Today, Clinton factors the lessons of Whitewater into her campaign for the Democratic presidential nomination. "For 15 years, I have been the object of the Republican attack machine," she says. "And I'm still here."

What became the Whitewater saga grew out of a long-ago Arkansas land deal in which the Clintons said they lost money.

Rising political stars often find themselves standing at the intersection of business opportunities and friendship. Bill and Hillary Clinton were no exceptions.

When Bill Clinton was running for Arkansas governor in the late 1970s, they became partners with businessman Jim McDougal and his wife, Susan, in a planned vacation home development on the White River in the Ozarks.

The Clintons' Whitewater investment never would have created a stir if not for reports of fraud at the McDougals' savings and loan and a New York Times article about the Clintons and the McDougals during the 1992 presidential campaign.

That and the legal work Hillary Clinton did for the McDougals' financial institution were enough to send federal regulators scurrying to Little Rock, Ark.

Investigators began taking another look at the warehoused records of the McDougals' old S&L. Questions lingered:

-Had the McDougals taken money from their savings and loan to pay down the bank loans on Whitewater?

-In doing so, had they lightened the financial load on their partners, the Clintons?

A Hollywood producer would be hard-pressed to find a more colorful cast of characters than those mixing it up with the Clintons in the Whitewater deal.

Jim McDougal, in failing health and living in a trailer after regulators took away his S&L, remained the bombastic personality he had been in the days when he had money to burn. All he needed was an audience.

There always was one - the press, prosecutors, political pundits - during Whitewater. Not to mention Republicans feasting on the Clintons' legal problems.

Whitewater investigators are "going to hang" the Clintons, McDougal proclaimed from prison in 1997.

Prosecutors never nailed the Clintons, but they tried, from late 1993 to 2000. First the Justice Department. Then a specially appointed outside prosecutor. Then court-appointed Independent Counsel Ken Starr.

An assortment of controversies were tacked on, one by one, to the initial probe by Starr, a prominent Washington lawyer and a conservative. His conservative credentials were seized on by Clinton loyalists who decried Starr's inquiry as politically motivated.

Hillary Clinton's role in firing employees in the White House travel office also came under scrutiny. So did the gathering by some low-level White House aides of FBI background files on prominent Republicans.

Bill Clinton's alleged perjury and obstruction regarding his relationship with former White House intern Monica Lewinsky was added to the list. The Clinton-Lewinsky sex scandal captured the nation's attention for a year and led to his impeachment. The Senate acquitted him.

In the end, Jim McDougal died in prison. His ex-wife, imprisoned after refusing to testify against the Clintons, was pardoned by President Clinton on his last day in office in 2001.

The years of investigations left the Clintons with legal bills running into the millions.

Two years before the Lewinksy affair, prosecutors and a Republican-controlled Congress focused on the suicide of deputy White House counsel Vince Foster, a longtime law firm partner of Hillary Clinton.

Documents pertaining to Whitewater had been moved out of Foster's office by White House aides after his death. Were the records of Hillary Clinton's work for the McDougals' failing savings and loan among them? And where were the records now?

Her legal work for the S&L seemed minimal. But prosecutors could not be sure because they never could seem to find her time sheets documenting what services she had provided to McDougal.

The missing billing records became the Rosetta Stone of Whitewater. Congress wanted them, as did Starr's office.

Then one day in early January 1996, out popped the records from the White House family residence. The pile of computer printouts detailed her work for the McDougals' failing S&L in the mid-1980s. A Clinton staffer said she had found the printouts stashed in a box in a storage room.

Prosecutors were furious. They had issued a subpoena for the billing records 18 months earlier. The prosecutors summoned Hillary Clinton, making her the only first lady to appear before a federal grand jury.

The billing records did not present a pretty picture regarding Hillary Clinton. They showed that she drafted a real estate document regulators later said had misled bank examiners. Prosecutors concluded that McDougal and others had used her legal work to conceal unlawful activity.

Had she obstructed the investigation by hiding the billing records? Had the records been removed from Foster's office after his suicide? Neither prosecutors nor Congress were able to answer the questions.

She said she did not know where the billing records had been and that she could not recall the work she had done for the S&L 10 years earlier.

Prosecutors concluded they did not have enough to prove that she was a knowing participant in the criminal conduct by McDougal or others.

Starr's probe left a legacy of anger among congressional Democrats who saw Whitewater as an example of an out-of-control criminal investigation. Republicans, too, had endured a prolonged independent counsel investigation - Lawrence Walsh's probe into the Iran-Contra scandal. Congress put its foot down, declaring there would be no more independent counsels. So lawmakers allowed the law that authorized court-appointed prosecutors to lapse.

By the end of 2006, their legal bills paid off, the former president and his presidency-seeking wife had assets of at least $10 million and possibly as much as $50 million with no liabilities.