July 15, 1999
Hillarys Presumption of Guilt
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This pattern of never apologizing for innuendo that is never proven has been one consistency throughout the Whitewater affair. The dark clouds of guilt never lift. One ominous rumble of suspicions follows the next, with no one noticing that the expected storm never breaks.
The Whitewater storm clouds looked especially threatening during the 1996 presidential race. Then, the press anticipated the unprecedented moment when the first lady would be indicted, possibly for obstruction of justice. Many of these stories appeared to be leaks from Starr's office. But no indictment of Mrs. Clinton followed.
The reason was simple: the case against Hillary Clinton never held water.
Item One -- often cited against the first lady -- is the mystery of the Rose billing records whose discovery touched off the speculation about her impending indictment.
The billing records were discovered in the White House living quarters in January 1996, two years after they were among documents that had been subpoenaed. With great fanfare, Starr hauled Mrs. Clinton before the federal grand jury in Washington.
Most famously, New York Times columnist William Safire seized on the occasion to denounce Mrs. Clinton as a "congenital liar." Safire asserted that the records show Hillary Clinton was lying when she denied actively representing a criminal enterprise known as the Madison S&L. [NYT, Jan. 9, 1996]
Largely ignored by the media, however, was the fact that the billing records substantiated Mrs. Clinton's public and sworn statements about her limited work on the Madison Guaranty account. The records showed that Mrs. Clinton billed Madison Guaranty for 60 hours of work over a 15-month period.
There wasn't much to the mystery of the reappearing records either. After their discovery, White House special counsel Jane Sherburne interviewed Carolyn Huber, the White House secretary who discovered them, and pieced together the likely story.
The records were removed from the Rose files in March 1992 to answer questions from New York Times reporter Jeff Gerth. After the election, Huber, a former Rose Law Firm secretary, apparently "packed them up in the governor's mansion in Little Rock before the Clintons moved to Washington," Sherburne said.
All the Clintons' boxes were stored elsewhere, said Sherburne, and then brought, a few at a time, to the "book room" in the East Wing of the White House. There, Huber unpacked them and determined what should be done with the contents.
"But in the rush to clear out the book room in 1995 to make office space for the people who were going to help Mrs. Clinton write her book [It Takes a Village], Carolyn probably threw the billing records she had unpacked into a box along with the old shoes and empty hangers that were also in the box, and moved it to her office to deal with later," Sherburne explained.
Starr has developed no known evidence to contradict this innocent explanation.
Item Two in the case against the first lady is her representation of McDougal's Madison Guaranty in the mid-1980s when McDougal was seeking both to improve his S&L's capital position and to invest further in the booming commercial real estate market.
To raise money, McDougal wanted to sell $600,000 in uninsured preferred stock. The legal question that McDougal hired the Rose Law Firm to determine was a simple one: Did Arkansas state law allow a state-chartered S&L to sell preferred stock?
Federal law permitted it and Reagan-era regulators were urging it on S&Ls nationwide, hoping they could "grow" out of the troubles caused by high interest rates. But McDougal wanted assurance that such an offering would be legal under state law and he hired the Rose firm.
A young associate, Rick Massey, did most of the work, but Mrs. Clinton was made the billing partner on the account. The Rose firm asked her to exact a $2,000 monthly retainer from McDougal, because in a previous representation he had failed to pay part of his bill.
After Massey researched the preferred stock question, a letter arguing that it was legal and appropriate for Madison to sell such stock was mailed, under Hillary Clinton's signature, to Arkansas bank regulator Beverly Bassett Schaffer. Mrs. Clinton also phoned Schaffer to say the letter with the law firm's view was on its way.
Schaffer agreed that Arkansas law, as well as federal law, permitted the sale of preferred stock in state-chartered thrifts. But Schaffer did not approve the stock issue. Madison would have to meet stringent net worth requirements before that could occur.
Since Madison fell short of those standards, McDougal never filed a formal application. Mrs. Clinton's actions appeared to be entirely aboveboard.
Item Three is the suspicion surrounding Castle Grande that traces back to late 1985 and early 1986.
In those days before Madison fell afoul of federal regulators, the Rose firm performed some additional work for McDougal, with Hillary Clinton again acting as the Rose firm's billing partner and another young associate, Richard Donovan, taking the lead.
Donovan researched whether McDougal could build a brewery on the 1,050-acre International Development Corporation property that he and entrepreneur Seth Ward -- Hubbell's father-in-law -- had bought and divided between them in October 1985. It turned out that he could not.
Donovan also researched whether the IDC property's water and sewer system could sell water to another real estate development outside its property lines. That, it turned out, was legally permissible.
But Starr focused on another IDC-related issue: a $1,000 option agreement that Hillary Clinton worked on for two hours in May 1986. Under the agreement, McDougal paid $1,000 for an option on a 22.5-acre parcel of Seth Ward's 650-acre share of the IDC property.
McDougal believed that the land, known as "Holman Acres," would ultimately be very valuable because on-and-off ramps were slated to be built on the property as part of a proposed "ring road" around Little Rock. The option pegged the price at $400,000.
But Senate Whitewater Committee testimony showed that the option agreement was never exercised. The planned development also did not materialize and the land did not skyrocket in price. After the government seized control of Madison Guaranty, federal authorities onloaded the 22.5-acre slice for only $38,000, considered by some a fire sale price.
Though option agreements are not unusual, this one excited interest from investigators who suspected that Ward was acting as a "straw buyer" for McDougal. The FDIC inspector general concluded that McDougal's S&L had used the option to deceive federal bank examiners about the payment of lucrative real-estate commissions to Ward.
McDougal's financial shenanigans aside, however, investigators could not demonstrate that Mrs. Clinton had done any more than execute a routine form. Pillsbury Madison & Sutro found no evidence that Mrs. Clinton had any knowledge of alleged wrongdoing by McDougal or Ward in the transaction.
"The theories that tie this option to wrongdoing ... are strained at best," stated the 1995 Pillsbury report. "There is no evidence that the Rose Law Firm had anything to do with these [suspect] sales" of the IDC or Castle Grande property. There also have been no indictments stemming from the Castle Grande case.
Item Four is the suspicion that Mrs. Clinton lied when she denied doing work for McDougal's Castle Grande development. But this supposed perjury seemed to rest on a misunderstanding of terminology.
McDougal used the name Castle Grand Estates for a section of the IDC property set aside for residential development and "Castle Grande" became shorthand that some federal regulators applied to the entire transaction.
When the billing records were discovered in 1996, they buttressed Mrs. Clinton's testimony that she worked on the commercial part of the IDC property, not the residential section.
Still, the Castle Grande question apparently rested at the center of a draft indictment prepared by one of Starrs deputies, W. Hickman Ewing. During Susan McDougals contempt trial earlier this year, Ewing testified that he drew up a draft indictment in September 1996 because of his misgivings about Mrs. Clinton's honesty.
But the Starr team lacked any concrete evidence of a crime and Ewings draft indictment never was presented to a grand jury.
By 1998, a more skeptical press might have begun to ask tough questions about what Starr was up to and whether he was operating more as a political hatchet man than an independent prosecutor.
But instead Starr remained a respected member of the Washington Establishment known for his judicious temperament though chided for having a "tin ear" for public relations.
Barely noticing that the original Whitewater storm clouds were dissipating, the press corps soon was following Starr after the Monica Lewinsky case.
Only after Starr's advocacy of President Clinton's impeachment and the surprising Republican setback in the November elections did the press hesitate. Still, the criticism focused on Starr's misjudgment in making a prurient impeachment referral, not on the flimsiness of his criminal allegations.
On June 30, the air finally went out of the seven-year-old Whitewater balloon. In announcing the conclusion of the Whitewater phase of his investigation, Starr acknowledged that he had no prosecutable case against Mrs. Clinton.
Despite the stunning development, no major media outlet offered a self-critical assessment of the breathless -- and often mindless -- handling of the story. The major news outlets, often led by The New York Times and The Washington Post, had dug themselves so deeply into trying to prove the Whitewater case that they saw no way out.
Instead, the newspapers and networks quickly moved on. What commentary there was focused on the nation's "scandal fatigue" and Starr's political clumsiness. Somehow, those clever Clintons -- like a political Bonnie-and-Clyde team -- had slipped away from the authorities one more time.
Attention turned, too, to Starrs expected scathing final report, its likely effect on the New York Senate race and what it finally would show about Hillary Clinton's presumption of guilt.
Mollie Dickenson is a specialist on the savings-and-loan scandal.