Peter Boyer: Madison Guaranty Savings & Loan Association. Help me to understand its essential nature. What was the character of Madison?

Viet Dinh: Well, we've had testimony on the record and in public of folks in Arkansas describing it as "Jim McDougal's piggy bank," and he operated it as such, as his own personal piggy bank. That is, I think, an apt characterization as to the relationships that, with Madison Guaranty and its subsidiaries, and how James and Susan McDougal used it and saw the institution.

Formally, it is not, obviously, designed to be any one person's piggy bank. It is a federal and state regulated financial institution with very strong regulatory frameworks governing how it does business. Among those frameworks are prohibitions on direct investments in subsidiaries, certain limitations on investment in real estate--all designed in order to assure the public, who put the money into this bank, that its money will be wisely invested and safely looked after, rather than being a personal piggy bank of any one operator.

Peter Boyer: And did you discern, in your investigations, a pattern of resistance to, or an effort to get around, those limitations, those regulations?

Viet Dinh: There certainly was a number of questionable transactions. And the FDIC and Resolution Trust Company investigators at the time, when they made the decision to put the bank into receivership, highlighted a pattern of this evasion and actually specifically highlighted three questionable transactions that they pinpointed as indicative of an overall pattern that led to the ultimate demise of the institution, and the requirement that federal regulators bail out the Madison Guaranty Savings and Loan Association, so that the depositors would get their money back.

Peter Boyer: And was this a pattern, was this an institutional behavior, if you will, that was so widespread in the state of Arkansas that it wouldn't have been noticed, or noticeable, at the time? Or was it something rather more particular to this savings and loan?

Viet Dinh: Well, you know, the entire savings and loan crisis was nationwide, and this was just one particular savings and loan among many that failed nationwide. But we do know that, at various points, FDIC investigators had warned Madison that they are skirting near the line here, and had made reports that questioned the soundness of the lending practices and the regulatory compliance of the thrift.

And in that sense, they had specific notice with respect to the precarious nature of the operation. These continuing evaluations by the federal regulators, in the end, each year was, they found the thrift still to be sound enough to be kept open, but, ultimately, in 1989, I believe, was when they said that this thrift is technically insolvent, and requiring a taxpayer bail-out, in effect.

Peter Boyer: So, if you were more than just casually familiar with the operation, with its lending practices, with its investment practices, through its subsidiary, with its real estate associations. If you were, for example, doing some legal work, you would be at least vaguely aware of the fact that there were some potential embarrassments and potential legal difficulties, even.

Viet Dinh: I would certainly say that, especially at the point in times when federal regulators were asking very specific questions. And we know that in 1984, federal regulators had issued warnings to Madison Guaranty, and as early as 1984, and certainly, in 1986, federal regulators were asking very specific questions about specific transactions that the thrift and its subsidiaries had entered into.

And so, I think that a reasonable professional who is intimately aware of the financial transactions that, as he or she would be, or should have been, because if the institution was her client, I think should have been on notice, if not by the general pattern of lending practices or unsound regulatory compliance, then at least when federal regulators started asking very specific questions regarding the soundness of the institution, and also regarding the propriety of certain specific transactions.

Peter Boyer: And what might such an alert person have done properly, as a lawyer?

Viet Dinh: I think that one of the primary roles of an attorney, and certainly we try to teach it here to our students, is that you counsel compliance with the law. The lawyer, more than simply being a mouthpiece for the client and advocating at whatever cost the client's interest, is also an officer of the court in questions that appear before the court. But also, in general, you're a client's conduit to the law, and you not only counsel your client as to what the law says, but also advise a client as to how best to comply with the law, and chart a course of conduct that would hopefully restore the financial institution to health. But, barring that, lawyers are not businessmen after all, at least prevent the institution from committing outright illegalities or helping the institution to infringe or violate applicable federal and state regulations.

Peter Boyer: And there is scant evidence that in fact was done by lawyers, including Hillary Clinton, representing Madison Guaranty and the McDougal's?

Viet Dinh: Certainly, with one particular transaction, known various as "IDC" or "Castle Grande", states that the transaction that happened in late 1985 and throughout 1986, the federal regulators at the FDIC and at the RTC concluded that among the documents that were drafted by lawyers at the Rose Law Firm, ostensibly by Mrs. Clinton, was used to conceal the true nature, that is, the fraudulent nature, of the transaction--a transaction, I may add, that ultimately cost the taxpayers $4 million to bail out. That transaction alone, not the general failure of the Madison Guaranty, but that transaction alone, cost taxpayers $4 million when it eventually was discovered to be fraudulent.

Peter Boyer: And let me make sure I have this straight. This was related to a transaction that these very investigators have termed, and some continue to term, a "sham deal", a deal in which Jim McDougal wanted to acquire some property but was--through his bank, essentially, through his Madison operations--was unable to because of regulations, needed a straw man, reached out to Seth Ward to be that straw man, in exchange, basically, for some remuneration later, in the form of commissions, however they termed it. And when the time came to repay Seth Ward, to give him his pay-off, basically, for effectively acting as the straw man, this agreement was drawn up, this so-called option agreement. What was that exactly?

Viet Dinh: Well, it actually was a little bit more complicated than that. Sham deals did not happen without certain complications. You are right that it was a sham deal, and Seth Ward was the straw man, the straw buyer, as it were. These were facts that were found by the inspector generals of both the FDIC and the RTC, what, in effect, was that Seth Ward presented himself to the ... (inaudible) at large, and to federal regulators, as the actual owner of the land, but, in effect, Madison was the beneficial owner of the land in question, precisely for the reason you mentioned, to evade federal and state regulations prohibiting such investments.

Now, he was owed , as part of the original agreement between Madison, or James McDougal, and Ward, straw buyer, a certain amount of commissions, in the amount of $300,000. The question then becomes, how do you go about paying this commission to Seth Ward without the knowledge of federal regulators, because, you recall, in 1986, was when federal regulators were actually at Madison, asking questions regarding this transaction, because it looked like an opportunity for a deal to be structured exactly as a sham deal.

And so, what happened was that the parent corporation, Madison Guaranty and Trust, executed a loan note for $400,000, basically loaned Seth Ward $400,000, and then--that was on March 31st, 1986--a week later, on April 7th, Seth Ward executed notes to Madison Financial, a subsidiary of Madison Guaranty, actually Madison Financial executed promissory notes to Seth Ward, evidencing a loan from Seth Ward to Madison Financial. So, in effect, the two sets of notes crossed each other and offset the balance that Seth Ward owed.

Now, that is what, in effect, happened. The problem is that if the two notes offset each other, that would have violated state regulations. And so, when the federal regulators came in and looked at this, federal inspectors came in and looked, Madison said that, "No, the two absolutely have no relation to each other. The only thing that they have in common is that Seth Ward is the signatory to both." Actually, the April 7th, 1986, notes, according to the statement given to regulators at that time, evidenced an option agreement between Seth Ward and Madison Financial.

And, at that time, of course, the federal regulators asked, "Well, where is the option?" And so, there has to be some evidence of this option that was, that is to be shown to federal regulators as justification for the subsequently April 7th notes that were issued to Seth Ward. And so, that option itself was drawn up on May 1st, 1986, and shown to federal regulators. The option itself, the federal regulators have concluded, in a subsequent investigation, to be, to-- Its purpose was to conceal the true fraudulent nature of this sham deal, precisely because it presented evidence of an option, that is, a justification for the notes that really was not the real intent behind the parties. The real intent of the parties was for the notes to cancel each other out, and thereby letting Seth Ward keep the original loan from Madison as his commission.

Peter Boyer: Well, I see. Thank you for that. I actually almost understand it now. But, confronted with that circumstance, and presented with the possibility of having been asked to draw up such an option agreement for that purpose, to conceal the true nature of this transaction, what would an ethical lawyer do?

Viet Dinh: I think an ethical lawyer would absolutely refuse, if he or she had knowledge that this is the purpose for which her work would be used, that is, to conceal a fraudulent scheme from federal regulators. I think that not only our ethical duties, applicable, but also legal duties, require him or her not to perform that task, and have the client use her, basically, as a means in order to deceive federal regulators. I think that the question is very clear-cut, not only as a matter of ethics, but also as a matter of law, that a lawyer should not be aiding and abetting in a fraudulent scheme, and part of that aiding and abetting would be to draw up subsequent documents in order to conceal the true nature of the scheme from federal investigators.

Peter Boyer: And what I'd like to ask you now is, Hillary Clinton apparently did draw up that option agreement, or at least was credited, if you want to use that term, with having done so. How could she not have known its purpose, if, in fact, that agreement was drawn subsequent to the time in which it was supposed to have been in effect?

Viet Dinh: Well, the representation to the regulators was that this option was, is agreed in principle, and the option agreement itself would be drawn up at a future date. So, the May 1st, 1986, option, on its face itself, was not a backdated document or anything like that. But the mere creation of it, obviously, was not fraudulent. The fraudulent nature of the document, or at least the questionable nature of the document, is its use in concealing the true fraudulent nature of the transaction. That is that the April 7th notes were meant to cross, to cancel out, the March 31st note from Madison.

We absolutely know, that--at least we don't have any evidence contradicting the fact that Hillary Clinton herself drafted up the May 1st option. The May 1st option contains a word processing notation at the bottom, which the Rose Law Firm has represented as a notation to indicate that the option was prepared by, or for, Hillary Clinton, by her secretary. And we know from the discovery of the Rose Law Firm billing records that she actually billed time to Madison Guaranty for the preparation of the option. So, you're right, that she was certainly credited both on paper and also in remuneration with the drafting of the option.

Peter Boyer: And if, given what we now know, and what the parties to that deal knew at the time about the nature of that transaction, would it have required, an extraordinary level of discernment on Hillary Clinton's part to have recognized its purpose, this instrument?

Viet Dinh: Well, I don't even know that it requires very much discernment to recognize this, because we now know, from the testimony of Don Denton, who was then Madison Guaranty's loan officer, one of the executives at Madison, one of Jim McDougal's officers, that on April 7th he and Hillary Clinton had a conversation. April 7th, of course, is the day that the second set of notes were issued, evidencing, purportedly evidencing a loan by Ward to Madison Financial.

And, at that time, according to Mr. Denton's testimony to federal investigators, under a requirement of truthfulness, that he told Hillary, he said that, "Well, gee, you know, if these notes are intended to cross the Madison note that was granted on March 31st, they violate federal and state regulations," at which time, according to Mr. Denton, Hillary summarily dismissed his concern and says, "You take care of the S&L matters, I'll take care of the legal matters."

So, with respect to the testimony that now we have on the record, at least Hillary Clinton, according to the testimony of one officer intimately involved at the time, was put on specific notice that not only was this, was this questionable, it violated specific federal and state regulations.

Peter Boyer: So, briefly put, Hillary Clinton either knew or should have known that instrument was of at least a suspicious nature?

Viet Dinh: Yes. And certainly should have known the likely use it was going to put to by Jim McDougal and other officials at Madison, that is, to present to federal regulators as a means to conceal the fraudulent nature of the underlying transaction.

Peter Boyer: So, we now take that reality and apply it to a political context. Her husband, the governor of Arkansas, is going to run for president. And one of his and her former business partners, this very same Jim McDougal, is a potential liability, their association with him. And there is this sticky matter of her representation of Jim McDougal in a variety of venues, but particularly this Castle Grande business.

There is, is there not, a clear record in a law firm of who does what work on what projects, for whom?

Viet Dinh: In most law firms, certainly in a law firm of a national reputation, as the Rose Law Firm, had, that would be expected to be the case, that client files will be retained, especially while the matter was still open, and even long after the matter was closed, because you still have collateral litigation that may arise. You may have clients challenging the bill of the lawyers, and the records are the only way that the lawyers can defend themselves, to say, "Really, this is the work that I actually did. I didn't bill you for work I did not do." Or whether the firm's conduct subsequently becomes part of an investigation, to whether for malpractice or other types of investigations. Certainly the client files and the work files of the attorneys are the best evidence that a law firm would have.

And so, most law firms would have very clear record retention policies in order to retain these types of records. The records, with respect to Castle Grande, and most of the work that Mrs. Clinton did for Madison Guaranty, however, are not in existence. The reason for that was that, in 1988, two years after this questionable transaction, Mrs. Clinton ordered the destruction of Madison-related files within the Rose Law Firm.

Now, that may, on one view, it may be considered a quote, unquote, "routine" record destruction. Law firms have to have record management policies, so that they don't keep papers going back hundreds of years, because law firms actually do exist for hundreds of years, but this was not, under any circumstances, a routine record destruction, because, one, there was a federal investigation under way into the practices of Madison Guaranty Savings and Loan Association, and, subsequently, an investigation that led to the seizure and take-over of the thrift by federal regulators.

And, second, there was a pending civil suit between Seth Ward and Madison, the two parties--one of the two parties whom Mrs. Clinton had represented--and one of the key issues, in fact, the primary issue in this civil suit, was the option agreement on May 1st, 1986. Seth Ward was himself suing on the option, and the promissory notes, of April 7th, 1986. And so, the records as to how these documents were created and what were the intent of the parties at the time they were created, certainly becomes very relevant to that civil suit. And while all this was pending was when Mrs. Clinton sent around a memo ordering the records to be destroyed.

Peter Boyer: So, in the ordinary course of what you would expect in a law firm, those records should still exist, and certainly should have still existed at a time when Madison had some active cases?

Viet Dinh: I think that's a correct characterization, yes.

Peter Boyer: What should we think about the fact that they don't exist?

Viet Dinh: Well, you know, I'm not here to make conclusions, but it certainly does, to an average person--you don't need to be a lawyer to know this. I think that records for pending cases, lawyers' records, are very important. And that importance would suggest great hesitance before they are destroyed. And that hesitance was absent. As a matter of fact, there's active ordering for records to be destroyed.

I'm not going to make any conclusions, but I will say that if the Rose Law Firm had properly represented a client, or any law firm had properly represented a client, any lawyer who had properly represented a client, his or her work files are the best evidence in defense to a charge that she or he had improperly represented that client. And destruction of those files would deprive the law firm and the lawyer of the best evidence as a defense if the lawyer and the law firm had acted properly in representing the client.

Peter Boyer: The subsequent disappearance of the billing records, I'm going to ask you a couple of things about that. The billing records are obviously the first aspect of the practical management of a law firm. I mean, lawyers get paid, clients get charged, you need to know what lawyer was doing what work for which client, and how long, and fees are determined. The record of Hillary Clinton's representation of the Madison Guaranty and Jim McDougal should have existed in the Rose Law Firm's billing records. Is that right?

Viet Dinh: Right. Certainly, in 1988, we saw the destruction of the underlying client files, the work files-- you know, the actual papers, notes and draft memoranda and work product of the lawyers, the actual documents that are contained in what we think of as files. Those were ordered to be destroyed. There came a time in 1992 when questions were raised regarding Mrs. Clinton's representation of Madison. And, at that time, a set of records, a different set of records, as you refer to them, billing records, were revived from the Rose Law Firm computer files.

Now, what these are, are computerized entries of time sheets. A lawyer would fill out a time sheet and then a clerk would type them into the computer, and that is the computerized billing mechanism through which clients are billed. Of course, the time sheets, presumably the hard copies of the time sheets, had been destroyed in 1988. And so, the only place that contains information reflecting the actual work of the lawyers is in this computerized record that, of the law firm--the billing records, as it were, the records of billings, yes.

Peter Boyer: So, in other words, Hillary Clinton's record of the work that she did for Madison Guaranty, for example, in the area of Castle Grande, can be found right now on the hard disk of the computers of the Rose Law Firm.

Viet Dinh: One would think so. But no.

That record no longer exists in Rose Law Firm's computers. The reason being was that sometime, and the best estimation we have, according to the Rose Law Firm itself, was that sometime in 1992, a set was printed out from this computerized version, from the firm's computers, a hard copy was actually printed out on paper, and the underlying magnetized, magnetic record in the firm's hard disk was deleted. And so, somebody had erased the last remaining, as it were, one of the last remaining complete record as to what work the Rose Law Firm performed for Madison, and also what lawyer performed what work for Madison.

Peter Boyer: Erased? Does that mean irretrievably gone?

Viet Dinh: I believe so, because, certainly, the Rose Law Firm has been served with subpoenas by various federal agencies over the last several years, and they have been unable to retrieve those files. Now, there are ways to retrieve things from hard drives that has been deleted, but my understanding is that it is not able to-- The Rose Law Firm is not able to do so.

Peter Boyer: So, the situation is this: You have the record of Hillary Clinton's work for Madison, including this transaction, Castle Grande, the option agreement and so on. The bulk of the records are destroyed in 1988, but you still have the computerized record of Hillary's, that would give you some indication of Hillary's work for Madison--how much time and so on. That is removed from the computer, leaving no trace of any indication, no record whatsoever, except the printed-out hard copy.

Viet Dinh: Right. That's why the printed-out hard copy has become so critical to the investigators' progress, because they are really the last remaining piece of evidence that relates to what kind of work the Rose Law Firm, and whom within the Rose Law Firm performed that work for Madison. Now, there are some other files within the Rose Law Firm, apart from this computerized record and apart from the files that were destroyed, that related, generally, to Madison and/or to Whitewater Development Corporation, and things like that--things having to do with James McDougal.

Those files, the remaining ones that had not been destroyed in 1988, were all collected in 1992, during the presidential campaign. They were collected by, among other people, Webster Hubbell, who was, at the time, a partner at the Rose Law Firm, for the purpose, as he testified, in order to answer press inquiries in the 1992 campaign, relating to Governor Clinton and Mrs. Clinton's relationship with James McDougal and Madison Guaranty.

Now, those records, likewise, are no longer at the Rose Law Firm. The reason being was that when Webster Hubbell left the Rose Law Firm to come to Washington, he took these files with him. Now, there is no question that those are Rose Law Firm files, and the Rose Law Firm management testified to the special committee when we were investigating this, that they considered those files to be their files, because it is the firm's work product, and it does not belong to any single lawyer, because the firm was the one representing the client.

And absent permission from both the client, who was then defunct, but then now taken over by the Resolution Trust Corporation, now the client, and the Rose Law Firm itself, the files cannot be removed.

Peter Boyer: So, coming in without authorization and stealing away with these files without permission is not, would you say, orthodox procedure?

Viet Dinh: It is certainly not standard practice amongst lawyers. I don't know whether I would call it stealing, because Mr. Hubbell may think that he was, he had legitimate title and was entitled to these files, but we know at least that the Rose Law Firm considers them to be their files. And, certainly, they are files relating to the client, ultimately, they are the client's files, and no permission was obtained or requested from either Rose Law Firm or the client, prior to the removal of these files.

Peter Boyer: And in that context, what do we know about the creation of these billing records, as I'll call them, the hard copy of the billing records? Was it in that same context, was it in that '92 election time period when the hard disk was erased and the hard copy, the paper copy, was created?

Viet Dinh: I believe so. The only testimony we have with respect to how these files were created, the actual hard copy were (sic) created, comes from Webster Hubbell. The special committee sent questions to Mrs. Clinton, asking her knowledge about these, about these matters, but she did not answer that question directly. So, the only evidence we have with respect to how these records were created comes from Webster Hubbell, then, at the time, organizing the Rose Law Firm's files in anticipation and in response to press inquiries.

He testified that they were printed out at some time in 1992, although he had no knowledge, I believe, of any deletion of the underlying computer files. But they were printed out some time in 1992, and he and Vince Foster, then also a Rose Law Firm partner, looked over these records as part of their fact-finding process, in order to respond to press inquiries relating to Mrs. Clinton and the Rose Law Firm's work for Madison Guaranty.

Peter Boyer: So, those records, along with these other Rose Law Firm records, are removed from the law firm in a manner that I would like to ask you about. We have heard that, the story that Webster Hubbell pulls up to the law firm with his station wagon, the family wagon, and that he and his son load boxes of these records into the family car, and drive away. Is that what happened?

Viet Dinh: I don't know what actually happened. We certainly have testimony to that effect, and, as I recall, the testimony is somewhat conflicting as to the time of day, the manner it was removed. But what is uncontroverted is that Webster Hubbell actually did remove the records without permission from the Rose Law Firm, and transported them to Washington, DC.

Peter Boyer: Did he, by the way, ever take ownership of their creation and the destruction of the hard disk? He did not claim to know anything about the erasing of the information on the hard disk, But, did he own up to having created the hard copy?

Viet Dinh: I believe he testified that it was Vince Foster who showed them the billing records in the first instance. And he and Vince Foster had looked at the billing records at the time, in, during the 1992 campaign. And we know that, we know that for a fact, actually, because part of the evidence that was uncovered by the Senate committee was notes of a telephone conversation that Webster Hubbell had with Susan Thomases, in which they were talking about Mrs. Clinton's representation of Madison Guaranty, and Mrs. Thomases made a notation, which she identified as according to time records.

Although Mrs. Thomases did not, at any time, see the records or handle them, handle the record, as she testified. She did have a conversation during which--a telephone conversation--during which Webster Hubbell refers specifically to the time records. So, he definitely used the phone, the billing records, in 1992, and he has admitted that he has used them.

What is also intriguing about Mr. Hubbell's testimony was that the last time he saw the billing records was in 1992, and they were in the possession of Vince Foster. He had given the billing records back to Vince Foster, and that was the last time he saw them, in 1992 and up to the time when we had the ... (inaudible) in 1996.

Peter Boyer: And is that the last time that anybody has recollected having seen the billing records, before the rediscovery?

Viet Dinh: I believe so. I believe that is the only specific recollection of anybody having seen the billing records, really, at any time prior to their rediscovery in 1996.