If the names Madison Guaranty and Whitewater Development, after weeks of hearing them drummed incessantly through newscasts, still seem only vaguely familiar, this story is for you.
The story, going back a decade, involves possible big trouble in 1994 for Bill and Hillary Rodham Clinton. The plot line so far:
James and Susan McDougal were big buddies of the Clintons in 1978 when Bill Clinton was Arkansas attorney general and running for governor. The two men had been close since the 1960s, when they were aides to Arkansas Sen. J. William Fulbright.
McDougal got the Clintons in for a 50% share on a sure thing: land development in the Ozarks. Their investment vehicle, Whitewater Development Corp., paid $ 203,000 for a 230-acre parcel on the scenic White River, dividing it into 44 home sites.
Clinton gave McDougal an administration job, but McDougal hankered for bigger things. He bought an S&L in Augusta, and by 1982 was devoting full time to it.
In the 1980s newly deregulated savings and loans were wild with growth. McDougal drove a Bentley. His wife advertised on TV, in hot pants on a horse. Within three years, McDougal multiplied Madison's initial $ 3 million in assets 40 times.
That furious expansion attracted federal regulators, who noted in 1984 Madison was in "jeopardy" from "unsafe and unsound lending practices." Those practices included huge loans - $ 17 million - to Madison's officers and directors, their relatives and friends, and other bank insiders.
One was Seth Ward, father-in-law of Webb Hubbell, a Clinton confidant and now associate attorney general. Ward, a Madison director, borrowed more than $ 600,000 and defaulted on $ 587,793 of it.
Another was current governor Jim Guy Tucker. He owed Madison about $ 1 million, but negotiated that down by 50%.
By spring 1985, Madison Guaranty was in deep fiscal trouble. That didn't stop McDougal from holding a fund-raiser for Clinton in the thrift's Little Rock office.
The bash helped retire a $ 50,000 personal loan the governor had taken with another institution to help finance his 1984 re-election. McDougal says Clinton asked for the help.
The party raised about $ 35,000, but most of the records have disappeared. What few documents remain have convinced federal investigators that at least some of the money may have been diverted from Madison.
Officials are suspicious because many "donations" were in the form of Madison cashier's checks - usually written in the name of an individual on his account. At least one of those individuals has told federal investigators he never wrote such a check.
If true - that the bank gave money in the name of a depositor without that person's knowledge - that would be improper diversion of depositor funds, a felony.
The new state securities regulator, Beverly Bassett (now Beverly Schaffer), appointed by Clinton, had represented Madison Guaranty as a private attorney. In that role, federal regulators now say, she knew how badly Madison violated regulations.
McDougal planned to raise new money by the sale of preferred stock, something new for an Arkansas savings and loan. Federal regulators thought it wouldn't work. It was Bassett's decision.
Madison was represented in part before Bassett by Little Rock lawyer Hillary Clinton, on retainer by McDougal at $ 2,000 a month. McDougal says he hired Hillary because Bill Clinton begged him to. The White House denies that.
Bassett, in a "Dear Hillary" letter, approved the stock sale. But it never came off.
Federal banking examiners, in 1986, found Madison Guaranty nearing insolvency. Millions of dollars, they reported, had been diverted by McDougal to family and friends. Missing records made it hard to tell tell how much, or to whom, funds were given.
In Little Rock, Bassett imposed no special sanctions or regulations on Madison.
Madison's end
But federal officials shut down Madison in 1989, removing McDougal, at a cost to taxpayers of at least $ 47 million and perhaps $ 60 million. Records are still incomplete.
McDougal, acquitted of bank fraud, is bankrupt and divorced. He claims Madison failed because of overzealous regulators.
In his 1992 campaign, Clinton faced a recounting of the Whitewater mess by The New York Times. Campaign strategists called in Denver lawyer James Lyons, an old Clinton buddy, now used as an "expert" on savings and loan ethics in federal trials.
Lyons stressed two things - the Clintons lost $ 69,000 in Whitewater and were only "passive" investors, making no decisions in the venture. That was widely accepted.
But Whitewater's books were a mess, its tax returns late, its corporate bank account - at Madison - replete with overdrawn and intermingled funds, and its records of lot sales incomplete and contradictory.
Whitewater's principal records disappeared. McDougal said Hillary Clinton asked that they be sent to the governor's mansion. The White House says they can't be found.
The Whitewater ghost
But Whitewater got back into the news:
First, the federal Resolution Trust Corp., saddled with peddling off assets of failed thrifts, came across the Whitewater mess in trying to clean Madison's books.
The RTC sent the Justice Department a "criminal referral," meaning staff thought crimes may have been committed. The Clintons were among those listed as "possible beneficiaries" of McDougal's largesse.
Second, deputy White House counsel Vincent Foster died in an apparent suicide in July. One of his assignments: clear up Clinton tax matters regarding Whitewater.
He refiled tax forms after it was shown the partnership failed to file corporate returns for three years when the Clintons were half-owners. He also handled the sale of their piece of Whitewater to McDougal.
Third, David Hale, a supporter appointed by Clinton as a state municipal claims judge, was indicted on charges of defrauding the Small Business Administration.
Hale had an investment company that made SBA loans to the "socially or economically disadvantaged." One loan was a $ 300,000 advance to Whitewater partner Susan McDougal. Hale, seeking a plea bargain, claimed Bill Clinton had urged the loan. The White House says Clinton does not remember the conversation.
Another matter of federal interest is the paying of more than $ 400,000 to Hillary Clinton's law firm from Federal Deposit Insurance Corp. coffers so the firm could sue Madison's accountants on behalf of taxpayers. In seeking the business, the firm submitted a letter saying it didn't represent S&Ls.
The FDIC sued for $ 60 million. In negotiating a deal for taxpayers, Webb Hubbell - with a father-in-law owing almost $ 600,000 - let the accountants settle for $ 1 million. Hubbell says he has recused himself from the Justice Department's continuing probe.
The figures surrounding all these transactions have spurred intense interest. In the 1980s, Hillary Clinton borrowed $ 30,000 to build a model home on a Whitewater lot. Because it was built for the partnership, the corporation paid off the loan.
But the Clintons - in 1984 and 1985 - deducted more than $ 5,000 on their income taxes for the interest paid on the loan, even though they weren't paying it off. The Clintons admitted the mistake. Foster submitted new tax returns; the Clintons paid no penalty.
Lyons reported Whitewater, by mid-1991, had sold all its land, but lost $ 118,000 overall as a corporate venture.
Revised tax returns Foster supervised contradict that. They show the Clintons never claimed losses on Whitewater. Indeed, the Clintons reported a $ 1,000 capital gain in 1992 on selling their Whitewater share.
The Foster-supervised returns show Whitewater had $ 69,000 either in deferred profits or land left to sell. Lyons said lot owners still owe Whitewater about $ 56,000 in installment payments. The Foster-prepared tax returns say that figure is close
