Mcdougal’s Death Setback For Starr’s Probe

Of all the problems Kenneth Starr’s Whitewater investigation has faced, James’ McDougal’s death may be the most difficult to overcome. A former friend and partner of President Clinton and first lady Hillary Rodham Clinton, McDougal became their principal and potentially most knowledgable accuser.

It took Whitewater prosecutors 2-1/2 years to win McDougal’s cooperation. It came only after they convicted him of 18 felonies. Once he started talking, he gave prosecutors details of two real estate developments - Whitewater and Castle Grande - that have been at the center of the criminal investigation since it began in 1994.

Left unanswered at his death was who was telling the truth, McDougal or the Clintons.

Why did he turn against the president? McDougal was once asked.

“I just got sick and tired of lying for the fellow,” was McDougal’s memorable reply.

McDougal’s allegations were that the Clintons knew he was using a fraudulent loan to prop up Whitewater and that many people in the Little Rock establishment, including the Clintons, were aware of the fraudulent nature of Castle Grande.

The Clintons were partners in Whitewater and Hillary Rodham Clinton worked on Castle Grande as a partner at the Rose Law Firm in Little Rock. The question: What did the Clintons know about a series of fraudulent transactions that bolstered both?

The Clintons said they knew nothing. McDougal said they knew a lot.

The 1,050-acre tract known as Castle Grande south of Little Rock became a sinkhole for McDougal’s savings and loan. Little Rock city fathers unloaded the land on McDougal, who turned around and sold the pieces at inflated prices to make the books of his failing S&L look good. In fact, the deals were a sham and taxpayers ultimately footed the $4 million losses from Castle Grande when McDougal’s institution collapsed.

While McDougal’s credibility was low, he was nonetheless one of those witnesses prosecutors in all white-collar investigations need the most - an insider who knew the details of what was going on and had face-to-face contact with the principals, in this case the Clintons.

Prosecutors now are likely to turn up the heat even more against Susan McDougal, who worked closely with her ex-husband in some of his illegal dealings. She was convicted of fraud in the same trial as her former husband.

The assessment Starr must now face is whether he has enough information from other cooperating witnesses to avoid what could be a serious setback for his investigation.

Former Arkansas Gov. Jim Guy Tucker - who used money from McDougal’s S&L in one of the money-losing real estate deals at Castle Grande - began cooperating with prosecutors in recent weeks. Tucker and McDougal were friends, but Tucker had little if any contact with Clinton. The two were political rivals.

Individuals familiar with Tucker’s cooperation say he is providing information useful to prosecutors regarding Mrs. Clinton.

Lawyers from Mrs. Clinton’s former law firm have gone before the Whitewater grand jury repeatedly for the past four months. The illegal transactions at Castle Grande are focus of the questioning, according to lawyers and others familiar with the probe.

In an interview last fall, McDougal referred to Starr’s gathering of documents that pertain to the president and the first lady.

“They’re going to hang them with the documents that they got,” McDougal said.