How a botched land deal boomeranged on the Clintons
by Stephen J. Hedges, Kenneth T. Walsh, Susan Headden
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It may left to a Little Rock grand jury to decide whether Bill and Hillary Rodham Clinton broke any laws in their failed attempt to sell off a wooded bend of northern Arkansas's winding White River. But political veterans inside and outside the White House say the Clintons are guilty on all counts of breaking the two crucial laws on damage control: Offer quick and clear explanations, and, by all means, avoid any appearance of a coverup.
The breach is intentional. The Clintons have told aides that they resent continuing "intrusions" and have resisted a release of documents relating to their Whitewater Development investment. But the result is what might have been expected: lots of damage, very little control. Only last week, the White House announced that two weeks earlier a Little Rock grand jury had subpoenaed the Whitewater files. The fact that the Clintons simultaneously requested a subpoena -- guaranteeing that the records would remain secret -- also raised suspicions. Meanwhile, aides to Attorney General Janet Reno suggested that she may assign the inquiry to a special prosecutor if Congress reinstates the independent counsel law.
Follow the money. Under these roiled waters rest the still unanswered questions of Whitewater's books and the Clintons' refusal to disclose details of their investment. The facts are not simple. In 1978, the Clintons purchased waterfront real estate in northern Arkansas with James and Susan McDougal. The couples took on a $183,000 mortgage and a $20,000 bank loan for the down payment. They then formed Whitewater Development Corp., divided up the 230 acres and put the lots up for sale.
In 1979, Clinton became governor and named McDougal an aide. The next year, McDougal quit to join a group buying the Bank of Kingston in northern Arkansas. In 1982, he bought Madison Guaranty Savings & Loan Association near Little Rock. Trouble followed. By 1983, federal regulators were examining Kingston Bank. The Clintons continued their dealings with McDougal, and regulators moved into Madison. One event in particular has since captured law enforcement interest: a 1985 fund-raiser McDougal held to help Clinton pay off a $50,000 campaign debt. The event raised $30,000 -- but some of that money may have come directly from Madison. If so, that could be a violation of federal law.
The Clintons say they eventually invested -- and lost -- $68,900, though the loss was never claimed on tax returns. Instead, says White House counselor Bruce Lindsey, the Clintons claimed most of it as interest tax deductions on the Whitewater mortgage payments. Between 1979 and 1990, those deductions amounted to more than $40,000, a substantial tax savings. The remaining Whitewater loss, Lindsey says, went for business expenses. Tax experts say that claiming an interest deduction isn't the same as declaring a loss. "You can only have a loss when something goes bad, a loan or a stock, and there's a capital loss," says one tax lawyer. "But neither of these things is reflected on the Clintons' tax return." Whitewater collapsed under the weight of the McDougals' Madison troubles -- he was ousted in 1987 and later tried and acquitted of fraud charges. The Clintons sold him their share in 1992 for $1,000, but they never declared a tax loss on their investment.
The investigation today centers on the flow of funds at Madison and its subsidiaries. White House Chief of Staff Mack McLarty has asked his new deputy, Harold Ickes, to direct a "counteroffensive" against the Clintons' critics. But senior officials say they still have only spotty knowledge of what went on.
Indeed, within the administration, Hillary Clinton is considered the only person who really knows all the facts, especially after the suicide last July of Vincent Foster, the deputy White House legal counsel who had handled the case internally. Now, few dare ask Mrs. Clinton questions about it.
