Whitewater

• Author: Jeffrey Lehman, Shirelle Phelps

Page 365

Whitewater is the name given to the scandal involving President BILL CLINTON, First Lady HILLARY RODHAM CLINTON, members of the Clinton administration, and private individuals and public officials in Arkansas. Though the alleged wrongdoing took place before Clinton was elected president in 1992, investigations by an INDEPENDENT COUNSEL continued into Clinton's second term of office. As with President RICHARD M. NIXON's WATERGATE scandal, the focus of the independent counsel's investigation shifted from the underlying event to the question of whether the president and members of his administration participated in a cover up. The role of Hillary Clinton in these events also became a target of investigators. As in Watergate, the Whitewater scandal quickly became politicized. Democrats accused Republicans in Congress as well as the Republican independent counsel of conducting a political witch hunt.

Whitewater is the name of a failed resort development on the White River in the Ozark Mountain region of Arkansas. In 1978 Bill Clinton, then Arkansas attorney general, and Hillary Clinton joined a partnership with James and Susan McDougal to form Whitewater Development Corporation, a real estate development firm that built vacation homes near the White River. When Clinton was elected governor that year, he appointed James McDougal his top aide.

In 1980 Clinton lost his re-election race. McDougal bought the Madison Bank and Trust in 1980 and in 1982 purchased a small savings and loan company and renamed it Madison Guaranty. In 1982 Clinton was again elected governor.

By 1984 Madison Guaranty Savings and Loan was in financial trouble, with federal regulators questioning its lending practices and its financial stability. Under Arkansas law, the state's SECURITIES commission could have closed Madison Guaranty. However, in January 1985, Clinton appointed Beverly B. Schaffer to head the commission. She approved two stock sale plans to raise money to keep Madison Guaranty solvent. Madison had retained the Rose Law Firm of Little Rock to help it secure approval of its stock sale applications. Hillary Clinton, the wife of the governor, worked as an attorney at Rose and was also a partner of McDougal in the Whitewater development. In addition, McDougal held a fund-raising event for governor Clinton in 1985 to help pay off a Clinton campaign debt. Investigators later determined some of the money was improperly withdrawn from depositor funds.

Despite the stock sales, the bank failed to raise enough capital, and by 1986, the Resolution Trust Corporation (RTC), the federal agency responsible for handling savings and loan failures, took over the bankrupt thrift. McDougal was charged with bank FRAUD. Four years later, McDougal was acquitted of the charge, based on an INSANITY DEFENSE. Meanwhile, the Whitewater development proved a financial disappointment, providing the Clintons with losses rather than profits. The Clintons sold their interest in the Whitewater corporation before Bill Clinton was sworn in as president in 1993.

The Whitewater scandal is grounded in these events of the 1970s and 1980s. It appeared that McDougal had been helped by his business partner Hillary Clinton, the wife of the governor. She had appointed the securities commissioner who allowed the failing thrift institution to stay open. By the time Bill Clinton was running for president in 1992, the national news media was investigating whether favors had been granted and conflicts of interest had been overlooked in apparent disregard for Arkansas state law.

The news media and members of Congress pursued Whitewater during the first months of Clinton's presidency. The July 1993 suicide of Deputy White House Counsel Vincent Foster heightened interest in Whitewater, as Foster had several links to it. Foster had worked at the Rose

Page 366

Law Firm with Hillary Clinton, had handled the sale of the Clintons' interest in Whitewater, and had talked to an attorney who had previously prepared a report for the Clintons on the investment just hours before his suicide. Finally, after Foster's death, White House staff removed Whitewater files from Foster's office. Critics suspected that the removal of files was part of a White House cover up...