Arkansas Governor, McDougals Convicted in Whitewater Case

By SARA FRITZ

May 29, 1996 12 AM PT

TIMES STAFF WRITER

LITTLE ROCK, Ark. — In a sweeping verdict that will intensify the Whitewater controversy as the November election draws near, a jury on Tuesday convicted President Clinton’s two investment partners, James B. McDougal, his former wife Susan McDougal and Arkansas Gov. Jim Guy Tucker, of participating in a $3-million conspiracy to defraud two federally backed financial institutions.

The convictions provided a victory for embattled independent counsel Kenneth W. Starr in the first Whitewater-related case to go to trial as a result of his lengthy investigation of the president and his Arkansas associates.

Starr told reporters that he was encouraged by the outcome of the 12-week trial. “The investigation is actively underway,” Starr said.

Clinton, who was the chief defense witness at the trial, expressed sympathy for the defendants “on a personal level.” Asked during a brief White House appearance whether the verdicts meant that jurors did not believe him, he said: “I doubt that. I doubt that that’s what was going on but you ought to ask them.”

A juror said afterward that the panel questioned the relevance but not the veracity of Clinton’s testimony.

“President Clinton is a very credible witness, but his testimony didn’t really relate to the transactions we were dealing with,” said Risa Gayle Briggs, a 41-year-old schoolteacher.

The government’s star witness, former Municipal Judge David Hale, accused Clinton of being a co-conspirator. But the president was not charged in the case and immediately after the verdict his aides issued a statement noting that even the prosecution had said that Clinton played no active role in the conspiracy.

“There was one thing everyone involved with this trial--prosecutors and defense--could agree on: The president had nothing to do with the allegations that were the subject of the trial,” White House special counsel Mark D. Fabiani said in a brief written statement.

Briggs, asked whether the investigation of the president should continue, replied: “No, I don’t think there is enough evidence.”

The case began, however, with allegations that the president and First Lady Hillary Rodham Clinton had profited illegally from an Ozark land partnership with the McDougals.

James McDougal was found guilty on all but one of the 19 counts against him. His former wife was convicted on all four of the counts against her. Tucker was judged to be guilty on two of the seven counts against him.

Hale said in his testimony that he conspired in the mid-1980s with the McDougals, Tucker, Clinton and others to defraud both McDougal’s Madison Guaranty Savings & Loan and Hale’s small-business investment firm, Capital Management Services.

Essentially, Hale said, the three defendants improperly used money from Madison, a federally insured institution, to leverage additional capital from Capital Management, which was funded largely by the Small Business Administration. Most of the money passed through a wide variety of real estate deals.

Bank Account

The president was linked tangentially to the alleged conspiracy because some of the money from Capital Management passed through the Whitewater bank account held jointly by the McDougals and the Clintons and because land purchased with the money was briefly held by their jointly owned Whitewater land development company. Nevertheless, there was no evidence that the Clintons were aware of the transactions.

The defense alleged that Hale concocted the conspiracy story to win leniency from the government on charges that he had defrauded the government. Hale has been sentenced to 24 months in prison as a result of a plea bargain with the independent counsel.

The verdict was not at all what most of the participants had expected. Stunned silence gripped the courtroom as the court clerk pronounced the defendants guilty on 24 of the 30 counts at issue. Not even the prosecutors had anticipated such a sweeping decision in what was a complex case with more than 700 exhibits and 35 witnesses.

Fines, Prison Terms

The defendants face fines and prison terms if their convictions are upheld on appeal.

The convictions, all felonies, carry maximum penalties for James McDougal of 84 years in prison and a fine of $4.5 million. Susan McDougal faces a maximum sentence of 17 years and a $1-million fine, while Tucker could receive a 10-year sentence and a $500,000 fine.

Sentencing has not yet been scheduled, however, and punishment is not expected to approach the maximum prescribed by law. Neither of the McDougals, who were tried as indigents, have money to pay such fines. In addition, James McDougal’s poor health is likely to be taken into account by the sentencing judge.

Tucker, a multimillionaire, is the only defendant who could afford to pay a fine. He also must contend with another indictment brought by Starr that bears no direct relationship to Whitewater.

The verdicts brought a swift and surprising end to Tucker’s once-promising political career. Tucker, who had served as Clinton’s lieutenant governor, announced afterward that he will step down as governor July 15, although Arkansas law probably would have allowed him to serve during the appeals process.

“Although I am innocent of all charges, I cannot and should not let the people of Arkansas bear the burden of my appeal,” said Tucker, whose confident smile dissolved into a grimace upon hearing that he had been found guilty of conspiracy and mail fraud in the case.

He will be succeeded by a Republican, Lt. Gov. Mike Huckabee, who is also the GOP candidate for the U.S. Senate seat of retiring Democrat David Pryor.

Sen. Bob Dole, the presumptive Republican presidential candidate, declined to comment about the verdicts.

“The jury reached a verdict. It’s out there,” Dole said. “But I am not going to get involved in it.”

James McDougal, the eccentric former savings and loan owner whose decision to develop an Ozark Mountains resort called Whitewater in the mid-1970s has been the central focus of this controversy, accepted the verdict philosophically and said that he was simply glad the trial was over. An invalid, he expects to undergo heart surgery within the next few months.

Susan McDougal refused to talk to reporters afterward. Her attorney, Bobby McDaniel, said that, while she accepted it, “she does not agree with it.” She had been viewed by most courtroom observers as the least likely of the defendants to be convicted.

Hale’s Allegations

Hale claimed that Clinton participated in a meeting in which Hale agreed to loan $300,000 to Susan McDougal. But the prosecution offered no corroborating evidence to support Hale on this point and Clinton said that he had no recollection of any such meeting.

It was this loan on which Susan McDougal’s fraud conviction hinged. The jury found her and James McDougal guilty of filing a false application for the loan. On her application, she said that the money would be used for a public relations business. Instead, it was spent on real estate development.

Both James McDougal and Tucker were found guilty of conspiracy but the conspiracy count against Susan McDougal had been dismissed earlier by presiding Judge George Howard Jr. The conspiracy charges were mostly dependent on Hale’s testimony.

McDougal also was convicted of fraud in a number of other transactions and Tucker was convicted of fraud in his Madison-financed purchase in the mid-1980s of a sewer and water company previously owned by the thrift.

James McDougal and Clinton are longtime friends dating back to the days when both of them worked for the late Sen. J. William Fulbright (D-Ark.). Tucker, on the other hand, has been a political foe of Clinton.

Republican Sen. Alfonse M. D’Amato, whose Senate Whitewater Committee is to end its investigation next month, said in a statement that the convictions “indicate the seriousness and depth of the Whitewater tragedy.”

“To those who said there was nothing to Whitewater--today the jury’s verdict in Arkansas has proven them wrong,” the New York lawmaker said.

Rep. Jim Leach (R-Iowa), whose House Banking and Financial Services Committee has investigated Whitewater, argued that the trial was mistakenly characterized by the news media as a contest between Hale and the president. Noting that the prosecution has considerable documentary evidence, he portrayed it instead as “the president versus the paper trail.”

The jurors, most of whom took extensive notes during the trial, were praised by Judge Howard for being unusually conscientious in their deliberations. He also lauded them for beginning and ending every day’s deliberations with a prayer.

In a statement issued after the trial concluded, members of the jury described their task as “a long and tedious process.” The statement added: “We want to assure the public that we have served with pride and integrity.”

In light of the overwhelming verdict, defense lawyers are likely to be second-guessed on their decision to call only two witnesses: Clinton and James McDougal. Some jurors said that McDougal’s rambling, often inconsistent testimony was far more damaging to his case than much of the prosecution’s evidence.

At the same time, the outcome should serve to silence criticism of the prosecution’s heavy reliance on a complex chain of documents to prove its case. These critics accused Starr’s staff of confusing the jury with too much evidence.

Starr did not attend the trial and left the prosecution entirely to one of his assistants, W. Ray Jahn, an experienced prosecutor who handled the case against Branch Davidian cultists in Waco, Texas. Yet when Starr emerged from his Washington office in shirt sleeves to discuss the verdict Tuesday, he clearly took pride in the outcome.

Criticism of Starr

The victory comes as Starr, a Republican, and his assistants have been under heavy fire from Democrats for prosecuting the case in a partisan manner. In addition, Starr, who earns $1.5 million annually in private practice, has been criticized for continuing to defend high-profile clients while serving as independent counsel.

In responding to the criticisms, Starr said: “We have instituted in this office . . . a very careful, elaborate, deliberative process. It is not the judgment of one individual. It is the judgment of a group of professionals who have taken an oath of office and who take that oath seriously.”

Starr also said that the verdict was “a great tribute” to and “a vindication” of the nation’s much-criticized system of justice.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Conspiracy Verdicts

Tuesday’s verdicts in the Whitewater affair, a complex web of business deals and personal ties that began with the purchase of some Arkansas vacation land in 1978:

JAMES B. McDOUGAL

* Convicted of: Conspiracy, mail fraud, wire fraud, bank fraud, misapplication of funds, making false records, making false statements

* Faces: 84 years in prison and $4.5 million in fines

* Reaction: “Maybe they didn’t believe me.”

****

SUSAN McDOUGAL

* Convicted of: Mail fraud, misapplication of funds, making false statements, making a false record

* Faces: 17 years and a $1 million fine

* Reaction: She smiled as she left court but refused to answer questions.

****

GOV. JIM GUY TUCKER

* Convicted of: Conspiracy and mail fraud