Text Of Starr Statement (4)

Madison Guaranty: President Clinton and Susan McDougal

The center of all of this the core of our Arkansas-based investigation was Madison Guaranty Savings and Loan. Madison was a federally insured savings and loan in Little Rock, Ark., run by Jim and Susan McDougal. Like many savings and loans in the 1980s, Madison was fraudulently operated. Mrs. Clinton and other lawyers at the Rose Law Firm in Little Rock performed legal work for Madison in the 1980s.

Madison first received national attention in March 1992 when a New York Times report raised several issues about the relationship between the Clintons and the McDougals in connection with Madison. Federal bank regulators examined Madison in 1992 and 1993. The regulators sent criminal referrals to the Justice Department, and the Justice Department launched a criminal investigation of Madison in November 1993. In part because of the relationship of the Clintons to the McDougals, Attorney General Reno appointed Bob Fiske in January 1994. I was appointed independent counsel in August 1994 to continue the investigation.

Madison exemplified the troubled practices of savings and loans in the 1980s. The failure of the institution ultimately cost federal taxpayers approximately $65 million. Congresswoman Waters put it this way in a 1995 hearing: "By any standard, Madison Guaranty was a disaster. ... It gambled with investments, cooked the books and ultimately bilked the taxpayers of the United States. Madison is a metaphor for the S&L crisis."

The McDougals' operation of Madison raised serious questions whether bank funds had been used illegally to assist business and political figures in Arkansas such as Jim Guy Tucker and then Governor Clinton. As to the Clintons, the question arose primarily because they were partners with the McDougals in the Whitewater Development Company. The Whitewater corporation initially controlled and developed approximately 230 acres of property on the White River in Northern Arkansas. Given Jim McDougal's role at the center of both institutions and given Whitewater's constant financial difficulties, there were two important questions: Were Madison funds diverted to benefit Whitewater? If so, were the Clintons either involved in or knowledgeable of that diversion of funds?

These questions were not idle speculation. In early 1994, a Little Rock judge and businessman David Hale pled guilty to certain unrelated federal crimes. As part of his plea, David Hale told Mr. Fiske's team that he had received money as a result of a loan from Madison in 1986 and that his company loaned it to others as part of a scheme to help some members of the Arkansas political establishment.

One loan of $300,000 went to Susan McDougal's make-believe company, Master Marketing. Based on our investigation, we now know that some $50,000 of the proceeds of that loan went to benefit the Whitewater corporation. David Hale stated that he had discussed te Susan McDougal loan with Governor Clinton, including at a meeting in 1986 with Jim McDougal and the governor.

In August 1994, when I first arrived in Little Rock, we devised a plan. First, based on the testimony of David Hale and others, as well as documentary evidence, we would take steps, if appropriate, to seek an indictment of Jim and Susan McDougal and others involved in what clearly appeared to be criminal transactions. If a Little Rock jury convicted the McDougals or others, we would then obtain their testimony and determine whether they had other relevant information including, of course, whether the McDougals possessed information that would either exonerate or incriminate the Clintons as to Madison and Whitewater matters.

This approach was the time-honored and professional way to conduct the investigation. We garnered a number of guilty pleas in my first year, including from Webster Hubbell, who had worked at the Rose Law Firm and was knowledgeable about its work with Madison, including that of Mrs. Clinton. In addition, Robert Palmer, a real estate appraiser, pled guilty to fraudulently doctoring Madison documents to deceive federal bank examiners. Three other associates of McDougal pled guilty and agreed to cooperate.

In August 1995, a year after I was appointed, a federal grand jury in Little Rock indicted Jim and Susan McDougal and the then-sitting Governor of Arkansas Jim Guy Tucker. The case went to trial in March 1996 amid charges by all three defendants and their allies that the case was a political witch hunt. Some predicted that an Arkansas jury would never convict the sitting governor. Those expectations were heightened when President Clinton was subpoenaed as a defense witness. The president testified for the defense from the Map Room of the White House. During his sworn testimony, the president testified that did not know about the Susan McDougal loan nor had he ever been in a meeting with Hale and McDougal about the loan. He also testified that he had never received a loan from Madison. This was important testimony. Its truth or falsity went to the core issue of our investigation

On May 28, 1996, all three defendants were convicted Jim McDougal of 18 felonies, Susan McDougal of four felonies, and Governor Tucker of two felonies. Governor Tucker announced his resignation that day.

After his conviction, Jim McDougal began cooperating with our investigation. We spent many hours with him gaining additional insights and facts. He informed our career investigators and prosecutors that David Hale was accurate. According to Jim McDougal, President Clinton had testified falsely at the McDougal-Tucker trial. Jim McDougal testified he had been at a meeting with David Hale and Governor Clinton about the Master Marketing loan. And Jim McDougal testified that Governor Clinton had received a loan from Madison. Jim McDougal said on one of his first sessions with our office that the president's tial testimony was, in his words, "at variance with the truth."

In late 1997, we considered whether this evidence justified a referral to Congress. We drafted a report. But we concluded that it would be inconsistent with the statutory standard because of the difficulty of establishing the truth with a sufficient degree of confidence. We also weighed a prudential factor in reaching that conclusion. There were still two outstanding witnesses who might later corroborate or contradict the McDougal and Hale accounts: Jim Guy Tucker and Susan McDougal.

In 1998, we were finally able to obtain information from Governor Tucker. It had taken four long years to hear from the governor. He pled guilty in a tax conspiracy case. When Governor Tucker ultimately testified before the Little Rock grand jury in March and April of this year, he had little knowledge of the loan to Susan McDougal's fictitious company and the president's possible involvement in it. He did shed light on the overall transactions involving Castle Grande and Madison. Importantly, as to one subject, Governor Tucker exonerated the president regarding long-standing questions whether the president and Governor Tucker had a conversation about the Madison referrals in the White House in October 1993.

The remaining witness who perhaps could shed light on the issue was Susan McDougal. And therein lies a story that has caused literally years of delay and added expense to the investigation.

Because the proceeds from the fraudulent loan Susan McDougal received had benefited the Clintons the proceeds were used to pay obligations of the Whitewater Development Company for which the Clintons were potentially personally liable Susan McDougal was subpoenaed to testify before the grand jury in August 1996 and asked several questions at the heart of the investigation, including:

"Did you ever discuss your loan from David Hale with William Jefferson Clinton?"

"To your knowledge, did William Jefferson Clinton testify truthfully during the course of your trial?"

Susan McDougal refused to answer any of the questions. District Judge Susan Webber Wright then held her in civil contempt, a decision later upheld by the United States Court of Appeals.

The month of September 1996 thus was a crucial time for our office in its attempt to obtain Susan McDougal's truthful testimony. On Sept. 23, 1996, just two weeks after Ms. McDougal had been found in contempt by Judge Wright, President Clinton was interviewed on PBS. The president said, "There's a lot of evidence to support" various charges that Susan McDougal had made against this office. But the president cited no evidence.

The president's comments can reasonably be described as supportive of Ms. McDougal's decision to disobey the court order. So far as we are aware, no sitting president has ever publicly indicated his agreement with a convicted felon's stated reason for refusing o obey a federal court order to testify. Essentially, the president of the United States, the chief executive, sided with a convicted felon against the United States, as represented by United States District Judge Susan Webber Wright, the United States Court of Appeals for the Eighth Circuit, and the Office of Independent Counsel.

The president was also asked in this interview whether he would consider pardoning Ms. McDougal. The president refused to rule out a pardon.

The president's answers to these questions were roundly criticized. A New York Times editorial captured the point well, stating that the president's remarks "undercut a legal process that is going forward in an orderly way."

C. Madison Guaranty: Mrs. Clinton and Webster Hubbell

A separate area of our original investigation concerned the Rose Law Firm's work in 1985 and 1986 for Madison. It appeared that Rose may have assisted Madison in performing legal work concerning a piece of property (IDC/Castle Grande), which involved McDougal, Madison, and fraudulent transactions. The complicated real estate deal known as Castle Grande was structured to avoid state banking regulatory requirements and involved violations of federal criminal law.

Grand jury subpoenas were issued in 1994 and 1995 to the Rose Law Firm and to the president and Mrs. Clinton seeking all documents relating to Madison and Castle Grande. We ultimately learned that Mrs. Clinton had performed some work related to Madison's IDC/Castle Grande transactions, but the whole issue remained partially enshrouded in mystery as our office and the Senate Whitewater Committee investigated the issue in 1995.

The problem was that some of the best evidence regarding Mrs. Clinton's work her Rose Law Firm billing records and her time sheets for 1985 and 1986 could not be found. The missing records raised suspicions by late 1995 and became a public issue. Webster Hubbell and Vincent Foster had been responsible during the 1992 campaign for gathering information about Mrs. Clinton's work for Madison. Yet the billing records could not be found. The Rose firm's work for Madison could not be fully pieced together. The Rose firm no longer had the records.

On Jan. 5, 1996, the records of Mrs. Clinton's activities at Madison were finally produced under unusual circumstances. The records detailed Mrs. Clinton's work on a variety of Madison issues, including the preparation of an option agreement that Madison used to deceive federal bank examiners as part of the Castle Grande deal. After a thorough investigation, we have found no explanation how the billing records got where they were or why they were not discovered and produced earlier. It remains a mystery to this day. Then, in the summer of 1997, a second set of these billing records was found in the attic of the late Vincent Foster's house in Little Rock. The time sheets for Rose's 1985-86 Madison work have never been found.

We should note that Webster Hubbell may have additional information pertaining to Castle Grande whether exculpatory or inculpatory that we have been unable to obtain. Mr. Hubbell was at the Rose law firm at the relevant time in 1985 and 1986, he gathered information about the Madison issue in the 1992 campaign, and his father-in-law Seth Ward was involved in the Castle Grande deal.