frontline: once upon a time in arkansas: Friends & Relationships

In 1978 while Arkansas attorney general, Clinton and his wife Hillary joined with their friends James and Susan McDougal to borrow $203,000 to buy 220 acres of land in Arkansas's Ozark Mountains. Under the name Whitewater Development Corporation, they hoped to develop the property for vacation homes. Instead, the deal went sour as real estate values plummeted.

Clinton is alleged to be caught up in another McDougal land deal - the fraudulent Castle Grande affair which has already put three Arkansas friends in prison (Jim and Susan McDougal, and Judge David Hale, and convicted another (Jim Guy Tucker). Judge Hale has testified that Clinton pressured him to make a fraudulent $300,000 Small Business Administration loan to Jim McDougal's wife, Susan. In the McDougal trial the President, under oath, denied the allegation.

Mrs. Clinton took a much closer interest in Whitewater Development Corporation than her husband. Additionally, as a lawyer with Little Rock's Rose Law Firm, Hillary Clinton did legal work for Madison Guaranty, the savings and loan James McDougal bought in 1982. One matter she worked on for Madison was McDougal's Castle Grande real estate development, a deal federal bank examiners later called a "sham."

Mrs. Clinton's work on Castle Grande is itemized in the Rose billing records which were taken from the firm in 1992, were sought unsuccessfully by Whitewater investigators, and then mysteriously reappeared in the White House in 1996. The recovery of those records led to Independent Counsel Kenneth Starr calling Mrs. Clinton to testify before a grand jury, the first time a First Lady has been required to do so.

Like Vince Foster, Webb Hubbell was a friend and colleague of Hillary Clinton's from the Rose Law Firm. He, too, came to Washington after Clinton's 1992 election, serving as deputy attorney general at the Justice Department.

In 1986, Mrs. Clinton prepared a contract in connection with Jim McDougal's Castle Grande development for Seth Ward, a Little Rock businessman and associate of McDougal's. Ward is also Webb Hubbell's father-in-law. In 1992, it was Hubbell who ordered a computer printout of Mrs. Clinton's billing records related to the deal.

In 1994 Hubbell met with disgrace unrelated to Whitewater, pleading guilty to fraud and income tax evasion for having defrauded the Rose firm and its clients of $390,000. He served almost 17 months in prison. In April 1998, Whitewater independent counsel Kenneth Starr indicted Hubbell on charges of tax evasion including failure to pay over $850,000 in taxes and penalties. A Federal judge dismissed the tax evasion charges, however, saying Starr had exceeded his authority under the independent counsel statute.

In November 1998, Kenneth Starr indicted Hubbell on charges that he allegedly "schemed to falsify, conceal and cover up the true nature" of the role he and Mrs. Clinton played in the Castle Grande deal. Two federal agencies concluded that Castle Grande involved "insider dealing, fictitious sales and land flips." The deal ended up costing taxpayers an estimated four million dollars.

A longtime Arkansas Democratic Party insider, Jim McDougal had been friendly with Bill Clinton since they had worked as aides for U.S. Senator J. William Fullbright in the late 1960s. While Clinton pursued a successful political career, McDougal eventually became more interested in real estate and business deals, often involving his political friends. In 1978 McDougal, his then-wife Susan and the Clintons went in together on the real estate investment that launched Whitewater Development Corp.

In 1982, McDougal bought an Arkansas savings and loan and renamed it Madison Guaranty. Madison, hobbled by McDougal's freewheeling managment style and a raft of bad loans, was closed down by federal regulators in 1989 at a cost to taxpayers of more than $60 million. The same year McDougal was indicted but later acquitted on fraud charges related to his management of a Madison real estate subsidiary.

In 1996, however, Jim and Susan McDougal (by now divorced) were convicted on federal charges stemming from their involvement in obtaining a fraudulent $300,000 Small Business Administration loan. This loan was partly connected to the whole Castle Grande affair. McDougal went to prison and cooperated with Independent Counsel Kenneth Starr's investigation. He alleged that President Clinton had some involvement in the loan. At McDougal's trial, however, the President swore under oath that he did not. On March 8, 1998, McDougal died of a heart attack in a federal prison.

See the FRONTLINE interview with Jim McDougal

Susan McDougal was Jim McDougal's wife and business confidante during the financial ups and down of both Madison Guaranty and Whitewater Development Corp. The couple separated in 1986 at about the same time federal bank regulators were ousting Jim McDougal from the management of the S&L. (Shortly beforehand, McDougal suffered a stroke and was diagnosed as suffering from manic depression.)

In 1996, along with her ex-husband, Susan McDougal was convicted of fraud charges stemming from a fraudulent 1986 Small Business Administration loan - a loan partly connected to the Castle Grande tangle of deals. (Former Arkansas governor Jim Guy Tucker was also convicted at the same trial.) Unlike Jim McDougal, Susan refused to cooperate with the Independent Counsel and spent 21 months in prison in Los Angeles on contempt of court charges for refusing to answer questions before the Whitewater grand jury. In June 1998, a Federal judge in Arkansas freed her for medical reasons. However, she still is awaiting trial on separate charges that she embezzled funds from conductor Zubin Mehta and his wife. And,in May 1998, the Federal Whitewater grand jury in Arkansas indicted Susan McDougal on charges of criminal contempt and obstruction of justice after repeatedly refusing to answer questions about the Clintons.

See the FRONTLINE interview with Susan McDougal.

David Hale is a former Arkansas municipal judge with a checkered past. During the 1980s Hale ran a business that helped secure federal Small Business Administration loans intended for companies run by women, veterans, and members of minority groups. In 1986 Hale arranged a $300,000 loan to Susan McDougal, ostensibly to open an advertising agency. Instead, the money went into the McDougal's personal accounts.

At the McDougals' trial last year, Hale, now cooperating with Independent Counsel Kenneth Starr, testified that President Clinton, then governor of Arkansas, had met with Hale and Jim McDougal to discuss the loan and that Clinton had urged Hale to make sure it was made. Under oath, the President denied both allegations.

Like President Clinton, Vincent Foster was born in Hope, Arkansas, and the two men had known each other since they were children. Foster went on to bcome a lawyer and a leading partner at the prestigious Rose Law Firm, where he also became a close personal and professional friend of Hillary Clinton's.

When Clinton was elected President in 1992, Foster was one of the many Arkansans who came to work in the White House. Foster was named deputy counsel to the President, the first subordinate of White House counsel Bernard Nussbaum. Foster's duties included looking after the First Lady's legal affairs, including sorting out matters related to Whitewater.

In July 1993, following several politically disastrous months for the new Clinton administration, a despondent Foster shot himself to death in Fort Marcy Park in Washington, D.C. Following Foster's suicide, his White House office was sealed to police and other investigators probing his death, leading to continuing speculation that documents related to Whitewater matters may have been improperly removed.

See excerpts from Vince Foster's journal.

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