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Wrongful Use Of Loan Admitted Ex-Clinton Aide Testifies Against Whitewater Partners

Tue., April 16, 1996

A former top gubernatorial aide to Bill Clinton Monday admitted he misapplied a federally guaranteed $65,000 loan to pay for part of a land deal with some of Clinton’s close associates.

Stephen A. Smith, now a University of Arkansas communications professor, also testified that he got the money from a small business investment company run by David Hale, one of Clinton’s chief accusers in the Whitewater scandal, and that Hale knew the loan was being obtained under false pretenses.

Smith testified as a government witness Monday in the federal conspiracy and fraud trial of his former business partners. Gov. Jim Guy Tucker (D) and James B. McDougal are being tried on a 21-count indictment charging they engaged in a scheme to get $3 million in illegal loans. McDougal’s former wife, Susan, is included in the indictment. The $65,000 loan was included in the charges against the three. Smith pleaded guilty last June to a misdemeanor count of misapplying funds of a small business investment company. He has not yet been sentenced.

With McDougal’s help, Smith said, he obtained the money in January 1986 to pay off a bank note for land he owned with Tucker, James McDougal and his father, Austin Smith, in the name of the Kings River Land Company. Smith said Hale asked him to apply for the loan in the name of his political consulting firm, the Communication Co. His application said he needed the money to hire employees and to meet operating expenses, but Hale knew he planned to pay off the land note, Smith said.

“I never knew Hale’s company was related to the Small Business Administration in any way,” Smith said. Hale’s federally financed Capital Management Services was supposed to make loans to disadvantaged small business owners.

The loans and the land purchases at issue in this trial are not directly related to the Whitewater deal in which Clinton and his wife Hillary were partners with James and Susan McDougal. The trial is being prosecuted by the office of Whitewater independent counsel Kenneth W. Starr.

Hale, who spent almost two weeks on the stand as a prosecution witness, has said Clinton pressured him to make a $300,000 loan to Susan McDougal. The president has denied the allegation and is to rebut Hale’s testimony in a videotaped deposition later this month.

Smith worked for Clinton in 1977 when the president was the Arkansas attorney general. He was an executive assistant during Clinton’s first term as governor in 1979.

Tags: ethics

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