Building Case on Whitewater Land

The name Whitewater, given in 1979 to what would become an unsuccessful real-estate development project in the heart of the Arkansas Ozarks, has long outlasted the land deal.

It has been spun off to identify criminal investigations, fraud trials, some Arkansas business and government leaders and a series of events that are far removed from Arkansas and the banks of the White River.

In the minds of many Americans, who have been hearing of Whitewater for nearly six years, it is a buzzword for scandal, cronyism, and a tightly knit world of power and politics in which a small group benefit from cozy business, bank and legal dealings.

The saga of Whitewater began when two couples - Bill and Hillary Rodham Clinton and James and Susan McDougal - invested in 203 acres of undeveloped land on the White River in Arkansas. Financed with a $203,000 loan in the middle of a real-estate boom, the project was to become a development of vacation homes whose sale would net huge profits for the young investors.

But the development never really got off the ground. The Arkansas land market turned sour and the investors were busy with other projects - a successful gubernatorial campaign for the Clintons and a banking business for McDougal, who took control of Madison Guaranty Savings & Loan in 1982.

Half of the lots were later swapped for a twin-engine Piper plane that was in turn sold for $30,000 to Seth Ward, who financed the purchase with a loan from McDougal's bank.

In an effort to salvage the land deal and keep his drowning S&L afloat, McDougal devised two more development schemes, Castle Grande and Lorance Heights, and hired Mrs. Clinton to do legal work for his bank.

Neither project was able to shore up the ailing bank and in 1989, McDougal's S&L failed at a cost to taxpayers of up to $65 million.

Little was known outside Arkansas about Whitewater and the failed Madison Guaranty until 1992, when Mr. Clinton ran for president and newspaper reports began linking him with McDougal and some questionable business deals that bank regulators had uncovered.

After he won the election, President and Mrs. Clinton sold their shares in Whitewater back to the McDougals, but not before federal investigators began looking into the Madison Guaranty and the McDougals' business dealings.

New suspicions arose in 1993 when Vincent Foster, deputy White House counsel and a former law partner of Mrs. Clinton in Little Rock's Rose Law Firm, committed suicide in Washington's Fort Marcy Park.

Foster had been fielding Whitewater questions for the First Family. Reports surfaced claiming that some Whitewater files had been removed from his office while authorities still were investigating the circumstances of Foster's death.

Athough Mrs. Clinton claimed to have done only small amounts of legal work for McDougal's development projects, billling records that would have substantiated her claim were missing from te Rose Law Firm. Copies of these records mysteriously surfaced in 1995 on a table in the White House living quarters.

In early 1994, Attorney General Janet Reno acceeded to repeated calls for an investigation and appointed Manhattan lawyer Robert Fiske as independent prosecutor. Eight months later, a change in the special prosecutor law put responsibility for independent prosecutors in the hands of a three-judge panel. The panel replaced Fiske with former Solicitor General Kenneth Starr.

The first of the Whitewater convictions came in early 1994, when banker and former municipal judge David Hale pleaded guilty to conspiracy and mail fraud and agreed to cooperate with the government in the McDougal case.

The most successful of the many facets of the Whitewater investigation was the conviction in May 1996 of the McDougals and Arkansas Governor Jim Guy Tucker, who was forced to resign from office.

Tucker and McDougal agreed to cooperate with prosecutors investigating the Clintons. Susan McDougal refused to cooperate and was sentenced to 18 months in jail on civil contempt of court charges.

James McDougal died March 8 when he suffered a heart attack in his jail cell.

In the years since the investigation began, other issues, including Foster's death, have been probed by Whitewater prosecutors. These include:

• Travelgate. In May 1993, seven members of the White House travel office were fired for mishandling funds and were replaced by Arkansas associates with long ties to the Clintons. Starr has been asked to investigate whether any crimes were committed in the debacle.
• Filegate. 700 FBI files on a number of former officials from the Reagan and Bush administrations turned up n the White House in 1993 and 1994. Some have accused Mrs. Clinton of asking for them. Others claim the files were requested by Craig Livingstone, who then headed the Office of White House Personnel Security. They may have been used to determine who would have access to the White House. Starr was asked to find out how they got to the White House.
• The Lewinsky Affair. Starr's investigation was expanded to look into allegations that President Clinton conducted an affair with and lied about it under oath. He also is accused of urging Lewinsky to cover it up.

By MARY JAYNE McKAY