F I N A L R E P O R T - United States Congress...relationship with the McDougals ..... 100 3. Senior...

SENATE" !104TH CONGRESS

2d SessionREPORT104–280

INVESTIGATION OF WHITEWATERDEVELOPMENT CORPORATION

AND RELATED MATTERS

F I N A L R E P O R T

OF THE

SPECIAL COMMITTEE TO INVESTIGATEWHITEWATER DEVELOPMENT CORPORATION

AND RELATED MATTERS

TOGETHER WITH

ADDITIONAL AND MINORITY VIEWS

JUNE 17, 1996.—Ordered to be printed

Filed under authority of the order of the Senate of June 13, 1996

INVESTIGATION OF WHITEW

ATER DEVELOPMENT CORPORATION AND RELATED

MATTERS—

FINAL REPORT

U.S. GOVERNMENT PRINTING OFFICEWASHINGTON :

1

25–225

SENATE" !104TH CONGRESS

2d SessionREPORT

1996

104–280

INVESTIGATION OF WHITEWATERDEVELOPMENT CORPORATION

AND RELATED MATTERS


OF THE

SPECIAL COMMITTEE TO INVESTIGATEWHITEWATER DEVELOPMENT CORPORATION

AND RELATED MATTERS

TOGETHER WITH




(II)

SPECIAL COMMITTEE TO INVESTIGATE WHITEWATER DEVELOPMENTCORPORATION AND RELATED MATTERS

ALFONSE M. D’AMATO, New York, ChairmanRICHARD C. SHELBY, AlabamaCHRISTOPHER S. BOND, MissouriCONNIE MACK, FloridaLAUCH FAIRCLOTH, North CarolinaROBERT F. BENNETT, UtahROD GRAMS, MinnesotaPETE V. DOMENICI,* New MexicoORRIN G. HATCH, UtahFRANK H. MURKOWSKI, Alaska

PAUL S. SARBANES, MarylandCHRISTOPHER J. DODD, ConnecticutJOHN F. KERRY, MassachusettsRICHARD H. BRYAN, NevadaBARBARA BOXER, CaliforniaCAROL MOSELEY-BRAUN, IllinoisPATTY MURRAY, WashingtonPAUL SIMON, Illinois

HOWARD A. MENELL, Staff DirectorROBERT J. GIUFFRA, Jr., Chief Counsel

PHILIP E. BECHTEL, Deputy Staff DirectorSTEVEN B. HARRIS, Democratic Staff Director and Chief Counsel

MICHAEL CHERTOFF, Special CounselRICHARD BEN-VENISTE, Democratic Special Counsel

ALICE S. FISHER, Deputy Special CounselLOUIS J. GICALE, Deputy Special Counsel

EVERETT C. JOHNSON, Jr., Deputy Special CounselJAMES B. COMEY, Deputy Special Counsel

NEAL E. KRAVITZ, Democratic Principal Deputy Special CounselLANCE COLE, Democratic Deputy Special Counsel

STEVEN BANKLER, Investigative AccountantH. CHRISTOPHER BARTOLOMUCCI, Associate Special Counsel

GABRIEL BERG, Democratic Legal InternJULIUS J. BONAVOLANTA, Special InvestigatorMARK J. BRENNER, Assistant Special Counsel

ROBERT H. BUCHANAN, Staff InternDAVID CARLE, Democratic Press SecretaryWILLIAM S. CASTLE, Senior Investigator

LORI A. CONLON, Administrative AssistantVINCENZO A. DELEO, Special InvestigatorVIET D. DINH, Associate Special Counsel

DOUGLAS A. EPSTEIN, Democratic CounselCHRISTOPHER FARRO, Staff Intern

STEVEN H. FROMEWICK, Democratic Assistant Special CounselSOPHIA HARDY, Democratic Intern

NGUYEN-HONG HOANG, Democratic Legal InternDAVID KAUFMAN, Staff Intern

DAVID M. LUNA, Democratic Law ClerkJOSEPH MITCHELL, Staff Intern

TIMOTHY P. MITCHELL, Democratic Professional Staff MemberMICHAEL P. O’CALLAGHAN, Associate Special Counsel

RICHARD J. O’CONNELL, Special InvestigatorJAMES S. PORTNOY, Democratic Associate Special Counsel

JAMES F. REDFERN, Special InvestigatorANDREW M. SCHAUER, Democratic Assistant Special Counsel

JENNIFER M. SWARTZ, Senior InvestigatorMEGAN H. TINKER, Senior Investigator

AMY R. WENDT, Democratic Staff AssistantJEFFREY H. WINTER, Democratic Special Assistant

STEPHANIE H. WOMACK, Democratic Special Assistant

* Appointed to replace Senator Bill Frist pursuant to S. Res. 184 (October 12, 1995).

PageIII

PETER C. BARRETT, Staff AssistantYAEL BELKIND, Democratic Staff Assistant

SLOAN DEERIN, Staff AssistantMITCHELL FEUER, Democratic Counsel

EMILY L. FRYDRYCH, Assistant to the Democratic Staff DirectorMARTIN J. GRUENBERG, Democratic Senior Counsel

MARK D. HOFFMAN, Executive Assistant to the Staff DirectorGLENN IVEY, Democratic CounselJOSEPH A. JIAMPIETRO, Counsel

JOSEPH R. KOLINSKI, Chief Clerk/Computer Systems AdministratorANDREW LOWENTHAL, Democratic Professional Staff Member

DORIS R. MAHONEY, Executive AssistantCHARLES MARR, Democratic Professional Staff Member

E. RICHARD MILLS, Press SecretaryJOSEPH N. MONDELLO, Jr., Counsel

PATRICK A. MULLOY, Democratic Chief International CounselDOUGLAS R. NAPPI, Counsel

LENDEL PORTERFIELD, Financial Institutions Subcommittee Staff DirectorAMY C. RANDEL, Democratic Staff AssistantSARAH BLOOM RASKIN, Democratic Counsel

MADELYN SIMMONS, Professional Staff MemberPAUL WEECH, Professional Staff Member

EDWARD M. MALAN, EditorGEORGE E. WHITTLE, Editor

IRENE C. WHISTON, GPO Editorial AssistantDONNA LEE KRAUSE, GPO Editorial Assistant

(V)

C O N T E N T S

PagePreface ...................................................................................................................... 1Phase ———The Foster Phase ............................................................................... 6

Conclusions of the Special Committee ............................................................ 81. By the time of Vincent Foster’s death in July 1993, the Clinton’s

had established a pattern of concealing their involvement withWhitewater and the McDougals’ Madison Guaranty S&L ............. 10

2. The Clintons and their associates were aware, at the time ofMr. Foster’s death, that the Clintons’ involvement withWhitewater and the Madison Guaranty S&L might subject themto liability ............................................................................................ 12

3. At the time of his death, Mr. Foster’s office contained damagingevidence about the Whitewater and Travelgate affairs .................. 13

4. White House officials engaged in highly improper conduct in han-dling documents in Vincent Foster’s office following his death ..... 14

5. Mrs. Clinton was closely involved in the handling of documentsin Mr. Foster’s office following his death and directed that inves-tigators be denied ‘‘unfettered access’’ to Mr. Foster’s office .......... 17

6. Senior White House officials and other Clinton associates providedincomplete and inaccurate testimony to the Special Committee ... 20

7. The Office of the White House Counsel was misused to impedeongoing investigations and to serve the purely personal legalinterests of the President, Mrs. Clinton and their associates ........ 21

Background ....................................................................................................... 22I. Mr. Foster’s Involvement in the Clintons’ Personal Matters ........... 23II. The Traditional Independence of the White House Counsel’s

Office ................................................................................................... 33Summary of the Evidence ................................................................................ 36

I. The Contents of Vincent Foster’s Office at the Time of his Death ... 36II. July 20, 1993 ........................................................................................ 42

A. The Discovery of Mr. Foster’s Body ............................................ 42B. The Park Police Notify the White House and the Foster Fam-

ily .................................................................................................. 44C. The White House Ignores Repeated Park Police Requests to

Seal Mr. Foster’s Office .............................................................. 44D. Mrs. Clinton Learns of Mr. Foster’s Death and Begins to

Contact Close Associates ............................................................ 46E. Mrs. Clinton Calls the White House on an Unlisted Trunk

Line .............................................................................................. 47F. Helen Dickey’s Telephone Call to the Arkansas Governor’s

Mansion ....................................................................................... 48G. The Handling of Trash and Burn Bags in Mr. Foster’s Office . 50H. Senior White House Officials Conduct a Late-Night Search

of Mr. Foster’s Office .................................................................. 51I. Secret Service Officer Henry O’Neill Observes Margaret Wil-

liams Remove Documents from Mr. Foster’s Office ................. 53III. July 21, 1993 ...................................................................................... 55

A. Mr. Foster’s Office is Finally Sealed ........................................... 55B. The White House Impedes Initial Park Police Efforts to

Search Mr. Foster’s Office .......................................................... 57C. The White House Counsel and Deputy Attorney General

agree on a Search Protocol for the Documents in Mr. Foster’soffice ............................................................................................. 58

D. The White House Finalizes the Agreement on the SearchProtocol ........................................................................................ 60

IV. July 22, 1993 ...................................................................................... 63A. The White House Counsel’s Office Interferes with Park Police

Interviews of White House Staff ................................................ 63

PageVI

Phase ———The Foster Phase—ContinuedSummary of the Evidence—Continued

IV. July 22, 1993—ContinuedB. The First Lady, Margaret Williams, Susan Thomases and

Bernard Nussbaum Conduct a Series of Early Morning Tele-phone Calls .................................................................................. 64

C. The White House Breaks its Agreement with the Justice De-partment: ‘‘A Terrible Mistake’’ ................................................. 67

D. The Window Dressing Review of the Documents in Mr. Fos-ter’s Office .................................................................................... 70

E. Mr. Nussbaum’s Failure to Search Properly Mr. Foster’sBriefcase ...................................................................................... 74

F. The Foster Family Lawyer Overhears Discussion of theScraps of Paper in Mr. Foster’s Briefcase ................................. 77

G. The Secretive, Real Review of the Contents of Mr. Foster’sOffice ............................................................................................ 78

H. The Transfer of Clinton Personal Files to the First Family’sResidence ..................................................................................... 79

I. The Reaction of Law Enforcement Officials to Mr. Nussbaum’sSearch .......................................................................................... 82

V. July 26, 1995 ........................................................................................ 83A. The Existence of the Torn-Up Note is Finally Revealed to

Law Enforcement ........................................................................ 83B. The White House’s Decision Not to Disclose the Note Imme-

diately to Law Enforcement ....................................................... 87C. Mrs. Clinton and Susan Thomases Are Told of the Discovery

of the Note ................................................................................... 88VI. July 27, 1993 ...................................................................................... 90

A. The Review and Transfer of the Clinton Personal Files Fromthe White House Residence to Williams & Connolly ............... 90

B. White House Deliberations About the Handling of the Note .... 93C. The President is Told of the Note ............................................... 95D. The White House Finally Turns the Note Over to Law En-

forcement ..................................................................................... 95Findings of the Special Committee ................................................................. 98

1. At the time of his death, Vincent Foster was intimately involvedin two brewing scandals—Travelgate and Whitewater—touchingon President and Mrs. Clinton .......................................................... 99

2. Senior White House officials were aware that the President andMrs. Clinton faced potential liability over Whitewater and theirrelationship with the McDougals ...................................................... 100

3. Senior White House officials ignored repeated requests by lawenforcement officials to seal Mr. Foster’s office on the night ofhis death ............................................................................................. 101

4. White House officials conducted an improper search of Mr. Fos-ter’s office on the night of his death ................................................. 102

5. Margaret Williams may have removed files from the WhiteHouse Counsel suite on the night of his death ................................ 103

6. Bernard Nussbaum agreed with the Justice Department officialson July 21, 1993, to allow law enforcement officials to reviewdocuments in Mr. Foster’s office ....................................................... 104

7. Margaret Williams and Susan Thomases, in consultation withMrs. Clinton, took part in formulating the procedure for review-ing documents in Mr. Foster’s office on July 22, 1993 .................... 105

8. Bernard Nussbaum failed to conduct a meaningful review ofMr. Foster’s office and did not describe to law enforcement offi-cials sensitive files pertaining to the Clintons and the Adminis-tration ................................................................................................. 107

9. An index of documents in Mr. Foster’s office is missing andother indices were revised following his death to conceal possiblereferences to Whitewater ................................................................... 108

10. Bernard Nussbaum knew about yellow scraps of paper in Mr.Foster’s briefcase prior to Stephen Neuwirth’s apparent discoveryon July 26, 1993 ................................................................................. 109

11. Margaret Williams, in consultation with Mrs. Clinton, removedfiles from Mr. Foster’s office to the White House residence tobe reviewed by the Clintons .............................................................. 110

PageVII

Phase ———The Foster Phase—ContinuedFindings of the Special Committee—Continued

12. Senior White House officials did not provide complete and accu-rate information to the Park Police and FBI with respect tothe handling of Mr. Foster’s note ..................................................... 111

13. Mr. Hubbell probably knew about the discovery of Mr. Foster’snote on July 27, 1993 ......................................................................... 112

14. Margaret Williams provided inaccurate and incomplete testimonyto the Special Committee in order to conceal Mrs. Clinton’s rolein the handling of documents in Mr. Foster’s office followinghis death ............................................................................................. 113

15. Susan Thomases provided inaccurate and incomplete testimonyto the Special Committee in order to conceal Mrs. Clinton’s rolein the handling of documents in Mr. Foster’s office followinghis death ............................................................................................. 115

16. Bernard Nussbaum provided inaccurate and incomplete testi-mony to the Special Committee concerning the handling of docu-ments in Mr. Foster’s office following his death .............................. 117

Phase 2.—The Washington Phase .......................................................................... 135Conclusions of the Special Committee ............................................................ 137

1. By mid-1993, the Clintons and their associates had already takensteps to minimize their potential liability from investigationsof Whitewater and Madison Guaranty. ............................................ 139

2. The White House concealed damaging evidence about Whitewaterand Travelgate from career law enforcement officials investigat-ing Vincent Foster’s death. ................................................................ 140

3. Senior White House officials improperly gathered confidentialinformation about investigations involving Whitewater andMadison Guaranty. ............................................................................ 140

4. A pivotal event: Senior White House officials and private counselfor the Clintons participate in an improper Whitewater defensemeeting. .............................................................................................. 142

5. Senior White House officials did not pass the torch to the Clin-tons’ new private counsel, but continued to take highly impropersteps to advance the Clintons’ private interests. ............................. 143

6. Senior White House officials held formal ‘‘Whitewater ResponseTeam’’ meetings to protect the Clintons’ private interests in ongo-ing federal investigations. ................................................................. 143

7. In early 1994, senior White House officials sought to manipulatethe RTC investigation of Madison Guaranty and the Rose LawFirm. .................................................................................................... 145

8. Jay Stephens was removed from the investigation of possiblecivil claims against parties associated with Madison Guaranty,including the Clintons. ...................................................................... 146

9. Senior RTC officials sought to impede the criminal investigationof Madison. ......................................................................................... 147

10. U.S. Attorney Paula Casey mishandled the RTC criminal referralreferencing the President and Mrs. Clinton. ................................... 148

11. Senior Administration officials improperly sought to manipulatethe investigation of the RTC and Treasury Inspectors Generalinto the propriety of White House-Treasury contacts. .................... 149

12. The White House delayed in producing documents to the SpecialCommittee. .......................................................................................... 150

13. Senior Administration officials provided inaccurate and incom-plete testimony to the Senate. .......................................................... 152

14. The Office of the White House Counsel was frequently and im-properly put in the service of the personal legal interests ofthe President and Mrs. Clinton. ....................................................... 153

Conclusions of the Special Committee on the Discovery of the Rose LawFirm Billing Records ..................................................................................... 155

1. The Rose billing records provide the best evidence of the legalservices performed by Mrs. Clinton for Madison Guaranty. .......... 155

2. The disappearance and mysterious reappearance of the Rose LawFirm billing records was part of a larger patten of removal,concealment and, at times, destruction of records concerningMrs. Clinton’s representation of Madison. ....................................... 158

3. Vincent Foster is the last person known to have the billing recordsin his possession. ................................................................................ 159

PageVIII

Phase 2.—The Washington Phase—ContinuedConclusions of the Special Committee on the Discovery of the Rose Law

Firm Billing Records—Continued4. The billing records mysteriously reappear in the Book Room of

the White House Residence in August 1995. ................................... 1595. Only a limited number of people had access to the Book Room

of the White House Residence. .......................................................... 1606. Very few people had motive to be handling or reading the Rose

billing records in August 1995. ......................................................... 1607. Only a limited number of people were definitely within the chain

of custody of the billing records. ....................................................... 1608. Mrs. Clinton is more likely than any other known individual to

have placed the billing records in the Book Room in August1995. .................................................................................................... 161

Background ....................................................................................................... 161I. Whitewater Development Corporation and Madison Guaranty

S&L ..................................................................................................... 161II. Capital Management Services and David Hale ................................ 163

Summary of the Evidence ................................................................................ 164Part I: The Handling of Federal Investigations ............................................. 164

I. Mrs. Clinton Learns of the RTC Criminal Referral on Madison ...... 164A. The RTC begins its criminal investigation of Madison. ............ 165B. The first RTC criminal referral: C0004. ..................................... 166C. Betsey Wright informs Mrs. Clinton of the RTC criminal re-

ferral ............................................................................................ 167II. Criminal Referral C0004 Languishes at the Justice Department ... 168

A. The U.S. Attorney sends Criminal Referral C0004 to the mainJustice Department. ................................................................... 168

B. Criminal Referral C0004 gets lost at the Justice Department. . 170III. Interference with the RTC’s Ongoing Investigation of Madison .... 172IV. Paula Casey Delays her Recusal from Madison, Handles the

Hale Pleas Negotiations, and Declines to Prosecute Criminal Re-ferral C0004 ........................................................................................ 181A. Investigations of Capital Management and David Hale ........... 181B. Plea Negotiations with David Hale. ............................................ 183C. Ms. Casey’s declination of Criminal Referral C0004. ................ 189

Part II: White House Intervention in Federal Investigations ...................... 192I. White House Contacts Relating to Investigations of Madison and

David Hale. ......................................................................................... 192A. The White House receives information on the ongoing SBA

investigation of Mr. Hale. ........................................................... 192B. Mr. Hale’s lawyers contact the White House about Mr. Hale’s

‘‘mutual interest’’ with President Clinton ................................. 195C. The White House obtains more information about the Hale

investigation. ............................................................................... 199II. After Treasury and RTC Officials improperly advised the White

House about RTC Referrals mentioning President Clinton andGovernor Tucker, President Clinton meets with Governor Tuckerat the White House. ........................................................................... 201

III. A Pivotal Event: The November 5, 1993 Meeting Between WhiteHouse Officials and the Clintons’ Private Lawyers. ........................ 204

IV. The White House Obtains Confidential SBA Documents Relatingto Mr. Hale and Capital Management ............................................. 208

V. The White House Begins to Hold Whitewater Defense Meetings ... 212A. Senior White House officials debated the appointment of a

Special Counsel ........................................................................... 213B. White House contacts with former Arkansas Securities Com-

missioner Beverly Bassett Schaffer ........................................... 216C. The Whitewater Response Team assigns defense tasks to

White House officials .................................................................. 220VI. The Retention and Investigation of Pillsbury Madison & Sutro .... 220

A. The White House expresses concern over the retention ofJay Stephens ............................................................................... 221

B. Mr. Stephens is removed from the RTC investigation .............. 221C. The White House makes inaccurate claims about the Pills-

bury report ................................................................................... 222Part III. White House Interference with Congressional Inquiries ............... 224

I. Mr. Ickes Provided Incomplete and Inaccurate Testimony to theSenate Banking Committee ............................................................... 224

PageIX

Phase 2.—The Washington Phase—ContinuedPart III. White House Interference with Congressional Inquiries—Contin-

uedII. The White House Interfered with Treasury IG and RTC IG Inves-

tigations into White House-Treasury Contacts. .............................. 227A. Independence of IG investigation is compromised ..................... 227B. Confidential information is provided to the White House ........ 231

III. The White House Interfered with the Special Committee’s 1995–96 Investigation .................................................................................. 236A. The refusal of William Kennedy to comply with the Special

Committee’s subpoena for his notes of the pivotal November5, 1993 White House defense meeting. ..................................... 237

B. White House delays in producing highly relevant documentsto the Special Committee ........................................................... 238

Part IV. The Rose Law Firm Billing Records ................................................ 239I. The Destruction and Mishandling of Rose Law Firm Files. ............. 240II. The ‘‘Disappearance’’ and ‘‘Discovery’’ of the Rose Law Firm Bill-

ing Records ......................................................................................... 240III. Mrs. Clinton’s Statements in Light of the Rose Law Firm Billing

Records ................................................................................................ 245A. Madison’s retention of the Rose Law Firm ................................ 245B. Mrs. Clinton’s contacts with regulator Beverly Bassett Schaf-

fer ................................................................................................. 248C. Mrs. Clinton’s role in Madison’s proposed preferred stock

deal ............................................................................................... 249D. Mrs. Clinton’s role in the Castle Grande transaction ............... 250

IV. The Federal Investigations into the Rose Law Firm’s Representa-tion of Madison ................................................................................... 253

V. The Special Committee’s Investigation into the CircumstancesSurrounding the Discovery of the Rose Law Firm BillingRecords ................................................................................................ 258

Phase 3—The Arkansas Phase ............................................................................... 286Conclusions of the Special Committee ............................................................ 287

1. Mrs. Clinton’s legal work on Castle Grande related to an effortto conceal the true nature of the activities at Madison Guaranty . 289

2. Webster Hubbell was significantly more involved in Castle Grandethan he admitted in his Senate testimony ....................................... 292

3. In 1985, Mr. McDougal retained Hillary Clinton to representMadison Guaranty; the work was not brought in by a youngassociate .............................................................................................. 293

4. Mrs. Clinton had a substantive contact with Beverly BassettSchaffer about Madison Guaranty’s proposal to issue preferredstock .................................................................................................... 295

5. Governor Clinton’s official and personal dealings with JamesMcDougal raised an apparent, if not an actual, improper conflictof interest ............................................................................................ 296

6. The Clintons took an active role in obtaining and extendingWhitewater-related loans; they were not ‘‘passive’’ investors inWhitewater ......................................................................................... 296

7. Governor Clinton’s office steered state bond work to Dan Lasater .. 2978. The Clintons took a series of erroneous tax deductions related

to Whitewater ..................................................................................... 299Summary of the Evidence ................................................................................ 299Part I: Whitewater Development Corporation ............................................... 299

I. Whitewater: The Early Years .............................................................. 301A. The Clintons’ Previously Undisclosed Land Deal with James

McDougal ..................................................................................... 301B. Whitewater: A ‘‘No Cash’’ Deal ................................................... 302C. Lot 13: Irregularities in Madison Bank’s loan to Mrs. Clinton 304

II. The Clintons’ Continued Involvement in Whitewater: 1987—1992 306A. The Clintons’ Active Involvement in the Management of

Whitewater After 1986 ............................................................... 306B. Governor Clinton’s Approval of Special Legislation Benefit-

ting his Whitewater Banker ....................................................... 307III. The Clintons’ Handling of Whitewater During the 1992 Presi-

dential Campaign ............................................................................... 312A. The Focus on Whitewater During the 1992 Campaign ............. 312B. The Lyons Report ......................................................................... 314

PageX

Phase 3—The Arkansas Phase—ContinuedPart I—Continued

III. The Clintons’ Handling of Whitewater During the 1992 Presi-dential Campaign—Continued

C. The Clintons Finally Get Out of Whitewater ............................. 317IV. The Clintons’ Questionable Tax Treatment of Whitewater: A His-

tory of Unreportable Income and Improper Deductions ................. 319A. 1978: The Clintons’ Unreported Income of $5,405 from 15-

Acre Installment Sale ................................................................. 320B. 1979: The Clintons’ Improper Interest Deduction of $2,400 ..... 321C. 1980: The Clintons’ Improper Interest Deduction of $9,000 ..... 322D. 1980: The Clintons’ Unreported Income of $10,000 from

Whitewater payment of the $20,000 Union Bank Note ........... 323E. 1982: The Clintons’ Unreported Income of $5,691 for

Whitewater Payment of Citizens Bank of Jonesboro Note ...... 325F. 1984: The Clintons’ Improper Deduction of $144 for Real Es-

tate Taxes .................................................................................... 326G. 1984 and 1985: The Clintons’ Improper Interest Deductions

of $2,811 and $2,322 ................................................................... 326H. 1987: The Clintons’ Improper Interest Deduction of $2,561 ..... 326I. 1988: The Clintons’ Improper Deduction of $1,275 for Real

Estate Taxes ................................................................................ 327J. 1988: The Clintons’ Unreported Income of $1,673 from the

Sale of Lot 13 .............................................................................. 327Part II: Governor Clinton’s Questionable Relationship With James

McDougal ....................................................................................................... 328I. James McDougal’s Madison Guaranty: A Corrupt Savings & Loan . 328

A. Madison’s Fraudulent Land Deals .............................................. 329B. Madison’s Phony Books and Records .......................................... 330C. Federal Regulators Oust Mr. McDougal from Madison ............ 330

II. Governor Clinton Provides Benefits to James McDougal andMadison S&L ...................................................................................... 332A. Governor Clinton Steers Valuable State Leases to Madison .... 332B. McDougal Holds a Questionable 1985 Fundraiser for Clinton . 333C. Governor Clinton Vetoes Legislation For McDougal Business

Partners ....................................................................................... 337D. Clinton’s Promises to McDougal on Brewery Legislation ......... 340E. McDougal Asks Governor Clinton to Fire Tough State Regu-

lators ............................................................................................ 341F. McDougal Helps Select S&L Regulators ..................................... 343G. McDougal Hires Mrs. Clinton and Her Law Firm ..................... 344

1. The Questionable Retention of the Rose Law Firm ............ 3442. Mrs. Clinton Asks the Arkansas S&L Regulator to Ap-

prove a Novel Stock Issue ................................................... 346III. The Castle Grande Land Deal: A Series of Fraudulent Loans ...... 348

A. Structuring of the Acquisition of the Castle Grande Propertyto Evade State Regulations ........................................................ 349

B. The Fraudulent Nature of the Castle Grande Purchase ........... 350C. The September 24, 1985 Letters ................................................. 353D. The May 1 Option Disguises the Questionable Payments to

Seth Ward .................................................................................... 354E. Mrs. Clinton’s Previously Unknown Legal Work for Question-

able Castle Grande Transactions ............................................... 356F. Webster Hubbell’s Mysterious Role in Structuring Question-

able Castle Grande Transactions ............................................... 359Part III: Governor Clinton’s Questionable Relationship with Dan

Lasater ........................................................................................................... 361I. Governor Clinton’s Close Personal Relationship With Dan Lasater 361II. Governor Clinton Provides Favors to Dan Lasater .......................... 363

A. Dan Lasater’s Special Access to Governor Clinton .................... 363B. The Governor’s Office Steers Valuable State Bond Business

to Dan Lasater ............................................................................ 364Part IV: David Hale and Capital Management Services, Inc. ..................... 371

I. The Special Committee’s Attempts To Obtain Hale Testimony ........ 371II. Mr. Hale’s Testimony in the McDougal Trial: What was Governor

Clinton’s Role in the Making of the $300,000 Master MarketingLoan? ................................................................................................... 372

Part V: The Lending Activities of Perry County Bank in the 1990 ClintonGubernatorial Campaign .............................................................................. 375

PageXI

Additional views of Senator Faircloth .................................................................... 392Minority Views of Senators Sarbanes, Dodd, Kerry, Bryan, Boxer, Mosely-

Braun, Murray and Simon .................................................................................. 395Summary of Conclusions ......................................................................................... 395

I. Preface ............................................................................................................... 395II. Washington Phase ............................................................................................ 419

A. Jean Lewis’s 1992 Referrals ............................................................... 4191. Introduction ................................................................................. 4192. RTC Criminal Investigator L. Jean Lewis Set Aside Higher

Priority Investigations to Focus on Madison Guaranty Fol-lowing the Publication of Jeff Gerth’s March 8, 1992 Articlein The New York Times .............................................................. 420

3. Lewis Rushed to Complete a Criminal Referral Prior to aSelf-Imposed Pre-Election Deadline .......................................... 421

4. Lewis’ 1992 Referral Failed to Allege Evidence of a FederalCrime and Gratuitously Named the Clintons as Witnesses .... 422

5. Lewis Pressured the United States Attorneys Office and theFBI to Open a Formal Investigation Before the PresidentialElection ........................................................................................ 423

6. United States Attorney Charles Banks Resisted Lewis’ Pres-sure and Declined to Commence a Grand Jury InvestigationBefore the 1992 Presidential Election ....................................... 425

7. The Bush White House and Justice Department Showed anInterest in Lewis’ Referral Before the 1992 Presidential Elec-tion ............................................................................................... 427a. The White House ................................................................... 427b. The Department of Justice ................................................... 427c. The Passport Controversy ..................................................... 428

8. The Clinton Justice Department Properly Handled Lewis’1992 Referral ............................................................................... 429

9. Webster Hubbell Had No Involvement in the Handling ofLewis’ 1992 Referral ................................................................... 429

10. Other Failed S&Ls in Arkansas Went Uninvestigated Dueto Lewis’ Focus on Madison Guaranty ...................................... 430

B. The Investigations of David Hale ....................................................... 4301. The SBA uncovers Hale’s Fraudulent Activity ........................... 4302. The White House does not Interfere with the Investigation ..... 4323. The SBA provides the White House with copies of documents

already sent to Congress ............................................................ 432C. The RTC’s Handling of the 1993 Referrals ........................................ 434

1. The legal review was consistent with RTC policy ...................... 4342. The poor quality of previous referrals made legal review es-

sential .......................................................................................... 4353. The legal review was not an attempt to impede the Madison

investigation ................................................................................ 4364. Lewis was not a credible witness and her allegations are

therefore suspect ......................................................................... 437D. The Justice Department’s Handling of the 1993 Referrals .............. 439

1. The U.S. Attorney’s Office handled the 1993 referrals prop-erly ............................................................................................... 439

2. Plea negotiations with Hale were handled appropriately .......... 4413. Casey’s recusal was handled properly ......................................... 4424. The White House did not influence the investigation ................ 443

E. The Clinton Administration’s Contacts with Beverly BassettSchaffer in 1993 and 1994 Were Proper and Appropriate .............. 4431. Background .................................................................................... 4442. There were no improper contacts between the Clinton Admin-

istration and Beverly Bassett Schaffer ..................................... 4463. Conclusion ...................................................................................... 447

F. The OGE Report and the Transmission of Investigative Materialsto the White House and Secretary Bentsen ..................................... 4471. OGE’S Investigation Was Thorough and Complete, and Re-

ceived the Full Cooperation of the Administration .................. 447a. The Inspectors General’s investigation was thorough and

complete ................................................................................ 448b. The IGs had sufficient time to conduct the investigation .. 448c. The Administration cooperated fully with the investiga-

tion ........................................................................................ 449

PageXII

Summary of Conclusions—ContinuedF. The OGE Report and the Transmission of Investigative Materials

to the White House and Secretary Bentsen—Continued1. OGE’S Investigation Was Thorough and Complete, and Re-

ceived the Full Cooperation of the Administration—Continuedd. No one in the Administration tried to influence the IG’s

investigation or OGE’s conclusions in any way ................. 450e. Conclusion ............................................................................... 450

2. It was Entirely Proper for the White House Counsel’s Officeto Receive Transcripts of the Depositions Taken by the In-spectors General .......................................................................... 451a. The White House had a legitimate and pressing need

for the Deposition transcripts ............................................. 451b. There is no evidence that OGE’s investigation was af-

fected by the release of the deposition transcripts tothe White House .................................................................. 453

c. There is no evidence that the White House Counsel’s Of-fice used the deposition transcripts or the informationcontained in the transcripts to influence the congres-sional testimony of White House officials .......................... 453

d. The deposition transcripts did not contain material, con-fidential RTC information ................................................... 455

e. Conclusion ............................................................................... 4563. There Is No Evidence that the Treasury Department Exerted

Undue Influence On OGE’s Investigation ................................. 457a. It was entirely proper for Secretary Bentsen and his rep-

resentatives to receive a draft version of the IG’s reportand the deposition transcripts ............................................ 457

b. No harm resulted from the release of the deposition tran-scripts and draft report to the Treasury Department ...... 458

c. Francine Kerner’s participation in the investigation wasproper and appropriate ....................................................... 458

4. Roger Altman Did Not Receive a Transcript of Harold Ickes’Deposition Prior to his Senate Banking Committee Testi-mony on August 2, 1994 ............................................................. 459

III. The Arkansas Phase ......................................................................................... 466A. The Initial Whitewater Loans ............................................................ 466

1. Background .................................................................................... 4662. The Citizens Bank Loan ............................................................... 4663. The Union National Bank Loan ................................................... 4684. The Clintons were passive Investors ........................................... 470

B. The 1987 and 1988 Whitewater Extensions ...................................... 4711. The Whitewater Loan ................................................................... 4712. Branch Banking Legislation ......................................................... 478

C. Subsequent events related to the Whitewater property ................... 4801. The Lot 13 Loan ............................................................................ 4802. The Clintons Sell their interest in WWDC ................................. 481

D. Whitewater Tax Issues ........................................................................ 4811. Background .................................................................................... 4822. The Clintons Properly Claimed Interest Deductions on their

personal tax returns for interest payments they made onthe Whitewater Loans with personal funds .............................. 482

3. The Clintons have corrected past errors in their personal taxreturns that resulted from inadequate information about theWhitewater investment .............................................................. 484

4. The Clintons had no reason to report any personal incomefrom the Whitewater investment ............................................... 486

5. The Clintons have sought to take advantage of Whitewaterlosses that they have claimed on their personal tax returns .. 488

E. Madison Guaranty Savings and Loan Association ........................... 4891. Reports on Madison Guaranty & Savings and Loan Associa-

tion make no finding of improper or illegal activity by Presi-dent or Mrs. Clinton ................................................................... 489

2. Madison Guaranty in the context of the nationwide S&L cri-sis ................................................................................................. 492

F. The Treatment of the McDougals’s and their business enterprisesby Arkansas State agencies ............................................................... 4941. Whitewater Investment ................................................................ 494

PageXIII

Summary of Conclusions—ContinuedF. The Treatment of the McDougals’s and their business enterprises

by Arkansas State agencies—Continued2. The Arkansas State Agency Leases of Offices from Madison

Guaranty were proper, appropriate and in the normal courseof business ................................................................................... 494a. State leases involving Madison Guaranty ........................... 495b. The April 5, 1985 Madison Fundraiser ................................ 505c. Conclusion ............................................................................... 511

3. There is no evidence that McDougal received special treat-ment from the Alcoholic Beverage Commission ....................... 511a. McDougal did not receive special treatment in connection

with his efforts to develop a brewery on the IDC prop-erty ........................................................................................ 512

b. Governor Clinton had no involvement in the ABC’s ap-proval of a regulation permitting breweries to operatetasting rooms ........................................................................ 513

4. The Sewer Legislation .................................................................. 514a. The Impact on Small Utilities .............................................. 515b. Potential Litigation Involving the Rose Law Firm ............. 517

5. McDougal’s Maple Creek Farms Development and the Reas-signment of the Arkansas Health Department Sanitarians ... 518a. Background ............................................................................. 518b. McDougal’s worsening relations with the health depart-

ment ...................................................................................... 520c. McDougal Requests a meeting with Governor Clinton ....... 521d. McDougal meets with Governor Clinton and Health De-

partment Officials ................................................................ 523e. The Reassignment of the Sanitarians .................................. 524f. Conclusions .............................................................................. 526

6. There was no impropriety in connection with William Lyonsappointment to the Banking Board or his subsequent res-ignation ........................................................................................ 526a. Background ............................................................................. 527b. Lyon’s testimony conflicts with the evidence ....................... 527c. There is no evidence that Governor Clinton had knowl-

edge of Lyon’s conversation with McDougal or did any-thing improper ..................................................................... 528

7. Regulation of Madison Bank and Trust by the Arkansas StateBanking Department .................................................................. 529

G. Dan Lasater and Bond Underwriting contracts involving Lasater& Company ......................................................................................... 5301. Background .................................................................................... 531

a. Dan Lasater ............................................................................ 531b. Lasater & Company ............................................................... 531c. The Arkansas Housing Development Agency and the Ar-

kansas Development Finance Authority ............................ 531d. The Arkansas State Police Commission ............................... 532

2. Under Clinton Administration Policy, Arkansas firms wereencouraged to participate in state bond underwriting ............. 532

3. Lasater & Company received no special treatment in connec-tion with AHDA/ADFA bond underwriting contracts .............. 534

4. Neither Governor Clinton nor his staff pressured AHDA/ADFA to include Lasater’s firm in bond underwritings .......... 536

5. Lasater had no influence over AHDA/ADFA appointments ...... 5396. The Raney/Hutton/Lasater Team was awarded the state police

commission bond underwriting contract on the merits ........... 540a. Background ............................................................................. 540b. The formation of the Raney/Hutton/Lasater group ............. 540c. The awarding of the underwriting contract ......................... 542d. Legislative review of the underwriting contract ................. 544e. The Clinton Administration properly investigated rumors

that Lasater was under investigation for drug use andwas advised that no investigation was underway ............. 544

7. Neither Governor Clinton nor his staff pressured the Arkan-sas State Police to award bond underwriting contracts withLasater’s firm .............................................................................. 545

8. Dan Lasater’s relationship with Bill Clinton and RogerClinton ......................................................................................... 547

PageXIV

Summary of Conclusions—ContinuedH. The Rose Law Firm’s representation of Madison Guaranty ............ 548

1. Retention of the Rose Law Firm by Madison Guaranty Sav-ings & Loan ................................................................................. 549a. Madison Guaranty’s proposal to issue preferred stock ....... 549b. Mrs. Clinton’s role in the retention of the Rose Law Firm

by Madison Guaranty .......................................................... 551c. Conclusion ............................................................................... 555

2. The Arkansas Securities Department’s regulation of MadisonGuaranty Savings & Loan .......................................................... 555a. The proposal to issue preferred stock ................................... 555b. The proposal to operate a broker-dealer subsidiary ............ 557c. Beverly Bassett Schaffer’s efforts to close Madison Guar-

anty ....................................................................................... 560d. Conclusions ............................................................................. 563

3. The IDC real estate transactions ................................................. 564a. The Rose Law Firm and Mrs. Clinton played no role

in the alleged ‘‘Straw Buyer’’ arrangement between SethWard and James McDougal ................................................ 565

b. The Rose Law Firm and Mrs. Clinton played no rolein the resales of IDC parcels that federal regulatorshave called ‘‘Sham Transactions’’ ....................................... 574

4. The Rose Law Firm’s work for Madison Guaranty on IDCmatters was legitimate, well-documented, and appropriatelybilled ............................................................................................ 576a. Introduction ............................................................................ 576b. The liquor license issue ......................................................... 577c. The utility service issue ......................................................... 580d. Conclusions ............................................................................. 581

I. David Hale’s false allegation against Governor Clinton .................... 5831. Introduction ................................................................................. 5832. Hale’s personal circumstances changed dramatically in 1993

when he learned that law enforcement officials had detectedhis criminal conduct and were about to indict him on numer-ous felonies .................................................................................. 584

3. Hale tried to extract an offer of blanket immunity fromfederal prosecutors by offering to provide undefined informa-tion about high ranking Arkansas politicians .......................... 586

4. Hale eventually reached a plea bargain with the Independ-ent Counsel that required him to plead guilty to two felonies 588

5. Hale’s history of fraud and duplicity ......................................... 5906. Hale’s unsubstantiated assertion about Governor Clinton ...... 5937. Hale’s allegation that Governor Clinton showed interest in

the Master Marketing Loan is riddled with internal incon-sistencies ...................................................................................... 593

8. Hale cannot keep his story straight .......................................... 5949. President Clinton testified that he never spoke with Hale

about a loan for Susan McDougal .............................................. 59510. The jurors in the Tucker/McDougal trial believed President

Clinton’s testimony and concluded that Hale committed per-jury ............................................................................................... 596

11. Hale’s technique of embellishment ............................................ 59712. Hale’s refusal to testify before the Special Committee with-

out a grant of blanket use immunity ........................................ 598J. The Pillsbury Madison & Sutro investigation ................................... 604

1. Introduction ................................................................................... 6042. The PM&S investigation was conducted by a capable, experi-

enced lawyers who were not subject to any outside influence 6043. PM&S’s investigation and findings on the Whitewater

investment ................................................................................... 6064. PM&S findings on the Rose Law Firm’s legal work for Madi-

son Guaranty ............................................................................... 6065. PM&S key findings on conspiracy theories involving the Rose

Law Firm ..................................................................................... 6086. The Role of Jay Stephens ............................................................. 6097. Questions concerning the thoroughness of PM&S’s investiga-

tion and the validity of the conclusions in the PM&S reports 611IV. Foster Phase ..................................................................................................... 624

PageXV

Summary of Conclusions—ContinuedA. Introduction .......................................................................................... 624

1. Events at Foster’s Office the Night of His Death ....................... 625a. David Watkins Asked Patsy Thomasson to Look in Fos-

ter’s Office for a Suicide Note ............................................. 625b. Patsy Thomasson Briefly looked in Foster’s Office for a

Suicide Note ......................................................................... 627c. Bernard Nussbaum Also Entered Foster’s Office to Look

for a Suicide Note ................................................................ 628d. Margaret Williams Went to Foster’s Office out of a Sense

of Grief .................................................................................. 628e. Officer O’Neill’s Testimony .................................................... 630f. Contradictions in Officer O’Neill’s testimony ....................... 631g. White House Officials Told Law Enforcement About the

Search for the Suicide Note ................................................ 6332. White House Officials Did Not Receive a Request from the

Park Police to Seal Foster’s Office ............................................. 6343. Park Police Had No Authority to Review All Documents in

Foster’s Office .............................................................................. 635a. Park Police Were Interested Only In Documents Relevant

to Foster’s State of Mind ..................................................... 6364. Recollections Differ as to Whether Bernard Nussbaum Agreed

that Department of Justice Attorneys Would Review Foster’sDocuments ................................................................................... 637

5. The Difference of Opinion Between Senior Justice DepartmentOfficials and White House Counsel Reflected Differing Judg-ments about Appearances Rather than about Legal Rights ... 642

6. Park Police Expressed No Interest in Retrieving Foster’s Sub-stantive Files ............................................................................... 644a. No Instructions Were Conveyed to Bernard Nussbaum

Regarding Documents in Foster’s Office ............................ 6467. Park Police Investigation Was Not Hindered by Nussbaum’s

Review of Foster Documents ...................................................... 6498. The Torn Note is Found in Foster’s Briefcase ............................ 651

a. Nussbaum Overlooked the Note in Foster’s Briefcase onJuly 22 .................................................................................. 651

b. The Note Was Given to the Department of Justice afterit was Found ......................................................................... 653

9. Removing the Clintons’ Personal Files from the White HouseCounsel’s Office Was Appropriate ............................................. 655a. Documents Were Transferred to Williams & Connolly on

July 27 .................................................................................. 658B. Introduction to Rose Law Firm Billing Records ................................ 659

1. Billing Records Were Produced by the White House ................. 659a. Billing Records Do Not Contradict Mrs. Clinton’s State-

ments Regarding Representation of Madison Guaranty .. 661b. Chain of Custody of Billing Records Before Discovery in

January 1996 ....................................................................... 664

104TH CONGRESS REPORT" !SENATE2d Session 104–280

INVESTIGATION OF WHITEWATER DEVELOPMENTCORPORATION AND RELATED MATTERS



Mr. D’AMATO, from the Special Committee to InvestigateWhitewater Development Corporation and Related Matters,submitted the following


together with


PREFACE

On May 17, 1995, the United States Senate, by a vote of 96–3,adopted Senate Resolution 120, which established the Special Com-mittee to Investigate Whitewater Development Corporation and Re-lated Matters (hereinafter the ‘‘Special Committee’’), to be adminis-tered by the Committee on Banking, Housing, and Urban Affairs(the ‘‘Banking Committee’’). Resolution 120 charged the SpecialCommittee with the responsibility to conduct an extensive inves-tigation into and to hold public hearings on specified matters relat-ing to the President’s and Mrs. Clinton’s investment in WhitewaterDevelopment Corporation (‘‘Whitewater’’) along with James andSusan McDougal, Madison Guaranty Savings and Loan Association(‘‘Madison Guaranty’’), and related matters.

In discharging its responsibilities under Resolution 120, the Spe-cial Committee deposed 274 witnesses and held 60 days of publichearings, during which 136 witnesses testified. The Committee alsoreviewed approximately 1 million pages of documents produced bythe President and Mrs. Clinton, the White House, various federalagencies, and a number of individual witnesses.

Resolution 120 authorized the Committee to investigate and tohold public hearings into three general subject areas. Section1(b)(1) authorized investigation into whether White House officials

2

engaged in improper conduct in handling papers in Deputy WhiteHouse Counsel Vincent Foster’s office following his death on July20, 1993—the so-called Foster Phase of the Special Committee’s in-quiry.

With respect to the Washington Phase of the inquiry, Section1(b)(2) authorized investigation into whether the White House im-properly interfered with any investigations or prosecutions by var-ious federal agencies relating to, among other things, Whitewater,Madison Guaranty related entities, and Capital Management Serv-ices, Inc. (‘‘CMS’’).

Finally, in the Arkansas Phase, §1(b)(3) of Resolution 120 au-thorized the Special Committee to investigate, among other things,the activities of Whitewater, Madison Guaranty, CMS, Lasater &Co., and the work and billing practices of the Rose Law Firm relat-ing to Madison Guaranty.

1. THE FOSTER PHASE

During the 103d Congress, the Banking Committee, pursuant toSenate Resolution 229, conducted an inquiry into the cause of Mr.Foster’s death and the conduct of the subsequent investigation ofhis death by the United States Park Police. On July 15, 1994, Spe-cial Counsel Robert B. Fiske, Jr. advised the Banking Committeethat ‘‘public hearings on the subject of the handling of documentsin Mr. Foster’s office while this investigation is continuing couldprejudice our investigation.’’ 1 Accordingly, the Banking Commit-tee’s public hearings on July 29, 1994 into the cause of Mr. Foster’sdeath excluded inquiry into the handling of documents in Mr. Fos-ter’s office.

At the conclusion of the Banking Committee’s hearings in thesummer of 1994, the following matters, among others, were identi-fied for future inquiry relating to Mr. Foster’s death:

the White House interference into the Park Police search ofMr. Foster’s office;the presence of White House counsel staff during standard

Park Police investigatory interviews;the White House insistence that the Park Police investigation

proceed with Department of Justice involvement to the extentthat DOJ was ‘‘calling the shots’’ and ‘‘setting up protocol’’ andthe Park Police were ‘‘stand[ing] and waiting for permission todo our job’’; andthe late delivery of the note in Mr. Foster’s office to Park Po-

lice, discovered by White House counsel. 2On April 22, 1995, Independent Counsel Kenneth W. Starr ad-

vised the Chairman and Ranking Member of the Banking Commit-tee that his investigation would not be hindered or impeded by aSenate inquiry into the way in which White House officials handleddocuments in Mr. Foster’s office following his death.

Accordingly, the Special Committee commenced its investigationand public hearings into whether White House officials engaged inimproper conduct in handling documents in Mr. Foster’s office atthe time of his death. The Special Committee recognizes that Mr.Foster’s death remains a source of much grief to his family andfriends. In conducting its inquiry under section 1(b)(1) of Resolu-tion 120, the Committee sought to balance carefully the need to

3

protect the privacy of the Foster family and its duty to carry outfully the mandate of the Senate.

2. THE WASHINGTON PHASE

Resolution 120 directed the Special Committee to review thehandling of several federal investigations relating to theWhitewater real estate venture; Madison Guaranty McDougal’sS&L, the failure of which cost American taxpayers more than $60million; and CMS, a small business investment company owned byDavid Hale, who made illegal loans to James and Susan McDougalin part to finance the Whitewater investment. Specifically, section1(b)(2) of the Resolution authorized the Special Committee to con-duct an investigation and public hearings into the following mat-ters:

(A) whether any person has improperly handled confidentialResolution Trust Corporation (‘‘RTC’’) information relating toMadison Guaranty or Whitewater, including whether any per-son has improperly communicated such information to individ-uals referenced therein;

(B) whether the White House has engaged in improper con-tacts with any other agency or department in the Governmentwith regard to confidential RTC information relating to Madi-son Guaranty or Whitewater;

(C) whether the Department of Justice has improperly han-dled RTC criminal referrals relating to Madison Guaranty orWhitewater;

(D) whether RTC employees have been improperly impor-tuned, prevented, restrained, or deterred in conducting inves-tigations or making enforcement recommendations relating toMadison Guaranty or Whitewater; and

(E) whether the report issued by the Office of GovernmentEthics on July 31, 1994, or related transcripts of depositiontestimony—

(i) were improperly released to White House officials orothers prior to their testimony before the Committee onBanking, Housing, and Urban Affairs pursuant to SenateResolution 229 (103d Congress); or

(ii) were used to communicate to White House officialsor to others confidential RTC information relating to Madi-son Guaranty or Whitewater.3

In conducting the inquiry mandated during this so-called ‘‘Wash-ington Phase’’ of the investigation, the Special Committee exam-ined whether the President and Mrs. Clinton—or their agents—misused the power of the presidency in responding to a series ofinvestigations of the Whitewater matter. As in the past, the Senatesought to serve as the public’s watchdog, to expose abuses of thepublic trust.

Of necessity, the Special Committee inquired into the investiga-tive and prosecutorial processes of Executive Branch agencies todetermine whether the laws were properly and faithfully executed.Congress has a duty to investigate allegations that the normal in-vestigative and prosecutorial processes of the Executive Branchhave been compromised.4 More important, Congress has the con-

4

stitutional obligation to ensure that the President’s private inter-ests have not been elevated above the public good.

3. THE ARKANSAS PHASE

This is the beginning of the Whitewater matter. In this phase ofits inquiry, the Senate charged the Special Committee with inves-tigating the complex web of intermingled funds, fraudulent trans-actions, political favors, and conflicted relationships which com-prise the ‘‘20 years of public life in Arkansas’’ that Mrs. Clinton didnot want an independent counsel, among others, to look into.5

Specifically, Section 1(b)(3) of Resolution 120 authorized an in-vestigation and public hearings into the following matters:

(A) the operations, solvency, and regulation of MadisonGuaranty Savings & Loan Association, and any subsidiary, af-filiate, or other entity owned or controlled by Madison Guar-anty Savings and Loan Association;

(B) the activities, investments, and tax liability ofWhitewater Development Corporation and, as related toWhitewater Development Corporation, of its officers, directors,and shareholders;

(C) the policies and practices of the RTC and the Federalbanking agencies (as that term is defined in section 3 of theFederal Deposit Insurance Act) regarding the legal representa-tion of such agencies with respect to Madison Guaranty Sav-ings and Loan Association;

(D) the handling by the RTC, the Office of Thrift Super-vision, the Federal Deposit Insurance Corporation, and theFederal Savings and Loan Insurance Corporation of civil or ad-ministrative actions against parties regarding Madison Guar-anty Savings & Loan Association.

(E) the sources of funding and the lending practices of Cap-ital Management Services, Inc., and its supervision and regula-tion by the Small Business Administration, including any al-leged diversion of funds to Whitewater Development Corpora-tion;

(F) the bond underwriting contracts between Arkansas De-velopment Finance Authority and Lasater & Company; and

(G) the lending activities of Perry County Bank, Perryville,Arkansas, in connection with the 1990 Arkansas gubernatorialelection.

These various subjects, seemingly disparate, are neverthelesswoven together by common and recurring themes of abuse ofpower, fraud on federal institutions and theft of public funds, andfrequent neglect, if not deliberate disregard, of professional, ethical,and, at times, legal standards.

The Special Committee completed its task under Resolution 120in a bipartisan manner. With few notable exceptions, the SpecialCommittee conducted its investigation and public hearings by mu-tual consent between the Chairman and Ranking Member, thus ob-viating the need for votes by the Special Committee.

Because the testimony of witnesses before the Special Committeewas often contradictory, incomplete, or inaccurate as to importantevents and actions, the Committee placed particular emphasis onavailable documentary evidence. Unfortunately, throughout its in-

5

quiry, the Committee was hindered by parties unduly delaying theproduction of, or withholding outright, documents critical to its in-vestigation. Although the White House was most often and mostnotably engaged in this course of action, the pattern of noncoopera-tion extended to other parties, as this Report lays out more fullyin the Washington Phase of the Special Committee’s inquiry.

This Report of the Special Committee is divided into three sepa-rate but interrelated parts. Part 1 focuses on the Foster Phase ofthe inquiry, into whether White House officials engaged in im-proper conduct in the handling of documents in Mr. Foster’s officeat the time of his death. Part 2 summarizes the Special Commit-tee’s investigation into the Washington Phase and discusses thehandling of federal investigations into Whitewater and related mat-ters, the Administration’s attempts to interfere with these inves-tigations, and the White House’s attempts to interfere with Con-gressional inquiries into the Administration’s alleged improprieties.Part 3 centers on the Arkansas Phase and details the transactionsand activities that comprise Governor Clinton’s web of political,personal, and business relationships—a web that includes, amongothers, Whitewater, Madison, CMS, James McDougal, David Hale,and Danny Ray Lasater. Each Part begins with a separate, detailedoutline and concludes with respective endnotes.

These three parts are interrelated because the entire story ofWhitewater is not simply the sum of its parts. Rather, seepingthrough the pages that follow are clearly identifiable patterns ofmotivation, conduct, and, at times, concealment. Beyond discretejudgments of impropriety in particular instances, therefore, theSpecial Committee has examined the evidence and reached conclu-sions that transcend any individual persons, actions, or events butrather illuminate patterns of conduct behind the Whitewater affair.

The Conclusions of the Special Committee are summarized at thebeginning of each Part. They do not answer all questions and alle-gations that have surfaced, but, taken together, they provide acomprehensive survey of the facts uncovered by the Special Com-mittee in its 13 months of investigation. And they offer a full, fair,and often troubling picture of the inner workings of governmentthat the Senate, by an overwhelming mandate, charged the SpecialCommittee to present to the American people.

(6)

PART I—THE FOSTER PHASE

CONTENTS

PageConclusions of the Special Committee ................................................................... 8

1. By the time of Vincent Foster’s death in July 1993, the Clinton’shad established a pattern of concealing their involvement withWhitewater and the McDougals’ Madison Guaranty S&L ............. 10

2. The Clintons and their associates were aware, at the time ofMr. Foster’s death, that the Clintons’ involvement withWhitewater and the Madison Guaranty S&L might subject themto liability ............................................................................................ 12

3. At the time of his death, Mr. Foster’s office contained damagingevidence about the Whitewater and Travelgate affairs .................. 13

4. White House officials engaged in highly improper conduct in han-dling documents in Vincent Foster’s office following his death ..... 14

5. Mrs. Clinton was closely involved in the handling of documentsin Mr. Foster’s office following his death and directed that inves-tigators be denied ‘‘unfettered access’’ to Mr. Foster’s office .......... 17

6. Senior White House officials and other Clinton associates providedincomplete and inaccurate testimony to the Special Committee ... 20

7. The Office of the White House Counsel was misused to impedeongoing investigations and to serve the purely personal legalinterests of the President, Mrs. Clinton and their associates ........ 21

Background .............................................................................................................. 22I. Mr. Foster’s Involvement in the Clintons’ Personal Matters ........................ 23

II. The Traditional Independence of the White House Counsel’s Office ........... 33Summary of the Evidence ....................................................................................... 36

I. The Contents of Vincent Foster’s Office at the Time of his Death ............... 36II. July 20, 1993 ..................................................................................................... 42

A. The Discovery of Mr. Foster’s Body .................................................... 42B. The Park Police Notify the White House and the Foster Family .... 44C. The White House Ignores Repeated Park Police Requests to Seal

Mr. Foster’s Office .............................................................................. 44D. Mrs. Clinton Learns of Mr. Foster’s Death and Begins to Contact

Close Associates ................................................................................. 46E. Mrs. Clinton Calls the White House on an Unlisted Trunk Line .... 47F. Helen Dickey’s Telephone Call to the Arkansas Governor’s Man-

sion ...................................................................................................... 48G. The Handling of Trash and Burn Bags in Mr. Foster’s Office ........ 50H. Senior White House Officials Conduct a Late-Night Search of

Mr. Foster’s Office .............................................................................. 51I. Secret Service Officer Henry O’Neill Observes Margaret Williams

Remove Documents from Mr. Foster’s Office ................................... 53III. July 21, 1993 ..................................................................................................... 55

A. Mr. Foster’s Office is Finally Sealed .................................................. 55B. The White House Impedes Initial Park Police Efforts to Search

Mr. Foster’s Office .............................................................................. 57C. The White House Counsel and Deputy Attorney General Agree

on a Search Protocol for the Documents in Mr. Foster’s office ...... 58D. The White House Finalizes the Agreement on the Search Proto-

col ........................................................................................................ 60IV. July 22, 1993 ..................................................................................................... 63

A. The White House Counsel’s Office Interferes with Park PoliceInterviews of White House Staff ....................................................... 63

B. The First Lady, Margaret Williams, Susan Thomases and Ber-nard Nussbaum Conduct a Series of Early Morning TelephoneCalls .................................................................................................... 64

7

C. The White House Breaks its Agreement with the Justice Depart-ment: ‘‘A Terrible Mistake’’ ............................................................... 67

D. The Window Dressing Review of the Documents in Mr. Foster’sOffice ................................................................................................... 70

E. Mr. Nussbaum’s Failure to Search Properly Mr. Foster’sBriefcase .............................................................................................. 74

F. The Foster Family Lawyer Overhears Discussion of the Scrapsof Paper in Mr. Foster’s Briefcase .................................................... 77

G. The Secretive, Real Review of the Contents of Mr. Foster’s Office . 78H. The Transfer of Clinton Personal Files to the First Family’s Resi-

dence ................................................................................................... 79I. The Reaction of Law Enforcement Officials to Mr. Nussbaum’s

Search ................................................................................................. 82V. July 26, 1995 ..................................................................................................... 83

A. The Existence of the Torn-Up Note is Finally Revealed to LawEnforcement ........................................................................................ 83

B. The White House’s Decision Not to Disclose the Note Immediatelyto Law Enforcement ........................................................................... 87

C. Mrs. Clinton and Susan Thomases Are Told of the Discoveryof the Note .......................................................................................... 88

VI. July 27, 1993 ..................................................................................................... 90A. The Review and Transfer of the Clinton Personal Files From

the White House Residence to Williams & Connolly ...................... 90B. White House Deliberations About the Handling of the Note ........... 93C. The President is Told of the Note ...................................................... 95D. The White House Finally Turns the Note Over to Law

Enforcement ........................................................................................ 95Findings of the Special Committee ........................................................................ 98

1. At the time of his death, Vincent Foster was intimately involvedin two brewing scandals—Travelgate and Whitewater—touchingon President and Mrs. Clinton .......................................................... 99

2. Senior White House officials were aware that the President andMrs. Clinton faced potential liability over Whitewater and theirrelationship with the McDougals ...................................................... 100

3. Senior White House officials ignored repeated requests by lawenforcement officials to seal Mr. Foster’s office on the night ofhis death ............................................................................................. 101

4. White House officials conducted an improper search of Mr. Fos-ter’s office on the night of his death ................................................. 102

5. Margaret Williams may have removed files from the WhiteHouse Counsel suite on the night of his death ................................ 103

6. Bernard Nussbaum agreed with the Justice Department officialson July 21, 1993, to allow law enforcement officials to reviewdocuments in Mr. Foster’s office ....................................................... 104

7. Margaret Williams and Susan Thomases, in consultation withMrs. Clinton, took part in formulating the procedure for review-ing documents in Mr. Foster’s office on July 22, 1993 .................... 105

8. Bernard Nussbaum failed to conduct a meaningful review ofMr. Foster’s office and did not describe to law enforcement offi-cials sensitive files pertaining to the Clintons and the Adminis-tration ................................................................................................. 107

9. An index of documents in Mr. Foster’s office is missing andother indices were revised following his death to conceal possiblereferences to Whitewater ................................................................... 108

10. Bernard Nussbaum knew about yellow scraps of paper in Mr.Foster’s briefcase prior to Stephen Neuwirth’s apparent discoveryon July 26, 1993 ................................................................................. 109

11. Margaret Williams, in consultation with Mrs. Clinton, removedfiles from Mr. Foster’s office to the White House residence tobe reviewed by the Clintons .............................................................. 110

12. Senior White House officials did not provide complete and accu-rate information to the Park Police and FBI with respect tothe handling of Mr. Foster’s note ..................................................... 111

13. Mr. Hubbell probably knew about the discovery of Mr. Foster’snote on July 27, 1993 ......................................................................... 112

8

14. Margaret Williams provided inaccurate and incomplete testimonyto the Special Committee in order to conceal Mrs. Clinton’s rolein the handling of documents in Mr. Foster’s office followinghis death ............................................................................................. 113

15. Susan Thomases provided inaccurate and incomplete testimonyto the Special Committee in order to conceal Mrs. Clinton’s rolein the handling of documents in Mr. Foster’s office followinghis death ............................................................................................. 115

16. Bernard Nussbaum provided inaccurate and incomplete testi-mony to the Special Committee concerning the handling of docu-ments in Mr. Foster’s office following his death .............................. 117

CONCLUSIONS OF THE SPECIAL COMMITTEE

‘‘Bernie, are you hiding something?’’—Philip Heymann, formerDeputy Attorney General.6

Whitewater is a ‘‘can of worms you shouldn’t open.’’—VincentFoster’s handwritten notes.7

‘‘HRC ‘doesn’t want [an independent counsel] poking into 20years of public life in Arkansas.’ ’’—Diary of Roger Altman, formerDeputy Secretary of Treasury, quoting Margaret Williams, Chief ofStaff to the First Lady.8

‘‘Ms. Thomases and the First Lady may have been concernedabout anyone having unfettered access to Mr. Foster’s office.’’—As-sociate White House Counsel Stephen Neuwirth.9

The death of White House Deputy Counsel Vincent W. Foster, Jr.on July 20, 1993 marked the first time since the death of Secretaryof Defense James Forrestal in 1949 that a high-ranking U.S. offi-cial took his own life.10 Now, almost three years later, the cir-cumstances surrounding Mr. Foster’s tragic death remain the sub-ject of much speculation and even suspicion. Against the backdropof the death of a high-ranking U.S. official, this controversy hasbeen fueled by a series of misguided actions taken by senior WhiteHouse officials to shield the documents in Mr. Foster’s office fromindependent career law enforcement investigators and to spirit thedocuments to the White House Residence.

As Deputy Counsel to the President, Mr. Foster was the numbertwo lawyer in the White House. He worked on the most importantpublic issues faced by the new Clinton Administration. At the timeof his death, Mr. Foster also was one of the Clintons’ key advisorson Whitewater and Travelgate. These matters are now the subjectof criminal investigations by Independent Counsel Kenneth Starr.In fact, by July 20, 1993, federal investigators already were exam-ining Madison Guaranty Savings and Loan Association, the S&L atthe center of the Whitewater affair, as well as the controversial fir-ing in May 1993 of seven career White House Travel Office employ-ees. Mr. Foster’s office contained important evidence of actions thatthe Clintons and senior White House officials took with respect toWhitewater and Travelgate.

The Special Committee’s investigation into the handling of Mr.Foster’s documents was among the most important matters of in-quiry under Resolution 120. It raised the question, once again inour nation’s history, whether the power of the White House wasmisused to serve the purely private ends of the President and hisassociates: specifically, whether senior officials took improper steps,in their handling of Mr. Foster’s documents, to cover up embarrass-

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ing revelations or even crimes relating to Whitewater andTravelgate.

Often, the successful prosecution of financial crimes and publiccorruption depends on the documentary trail left by the perpetra-tors of such wrongdoing. For example, Independent Counsel Starrrecently obtained the convictions of Arkansas Governor Jim GuyTucker and James and Susan McDougal, the owners of MadisonGuaranty and the Clintons’ partners in the Whitewater real estatedevelopment, in part on the basis of more than 600 documents in-troduced into evidence. By the same token, the concealment or re-moval of documents can seriously delay or derail investigation offinancial malfeasance.

The White House undeniably mishandled the review of docu-ments in Mr. Foster’s office following his death. Department of Jus-tice and Park Police investigators told the Special Committee thattheir investigations were hindered and impeded by the refusal ofsenior White House officials to allow them to review Mr. Foster’sdocuments. The

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