The Journalistic Reporting of Whitewater

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How the media convicted Hillary Clinton

Confused by the complexities of Whitewater and too willing to accept Kenneth Starr's version, the media rushed to convict Hillary Clinton of crimes -- with no evidence.

By Mollie Dickenson

(Topics: Hillary Rodham Clinton, The New York Times, Washington Post, News)

At the annual convention of the American Society of Newspaper Editors in April, one speaker, Richard A. Oppel, editor of the Austin American-Statesman, worried out loud about press coverage of the Whitewater/Lewinsky stories. “We are at the mercy of the New York Times and the Washington Post as far as the White House scandal goes,” he said. “We are resting our credibility on the credibility of two or three major newspapers. This is not the way we operate in our own hometowns.”

A few weeks later, on May 5, as if to dramatize Oppel’s concern, word came out of Arkansas: there would be no indictment of Hillary Rodham Clinton. (Whitewater charges against the president himself had long since disappeared.) Independent counsel Kenneth Starr’s move to close down his long-running Whitewater grand jury in Arkansas was a pivotal moment. After six years of media allegations against Hillary Clinton, largely spearheaded by the New York Times and Washington Post, and after four and a half years of independent counsel investigations, including rumblings and rumors of imminent indictments, in the end the charges of wrongdoing against the Clintons had evaporated. All this sound and fury signified nothing.

Just days before the Arkansas grand jury closed down, however, Starr and his prosecutors grilled Hillary Clinton — for the sixth time — in the White House, reigniting headlines suggesting she had committed crimes 13 years ago in her 60 hours of legal representation on behalf of James McDougal’s Madison Guaranty Savings and Loan and his real estate business. The four-and-a-half-hour interrogation kept media speculation alive, once again led by the New York Times and Washington Post, that Starr’s grand jury was preparing to indict the first lady.

But then, nothing. Just as there had been no charges during the 1996 presidential race, when another whisper campaign implied that Hillary Clinton was about to be put on trial. In bidding farewell to his Arkansas grand jury in May, Starr kept the sword hanging over her head, declaring the end of his investigation was “not in sight.” Starr’s spokesman, Charles Bakaly, added that the Arkansas probe could be moved to the independent counsel’s Washington grand jury, or even that another grand jury could be impaneled in Arkansas.
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How the media convicted Hillary Clinton, Part 2

At this point, a more skeptical press might have begun to question Starr’s case against the Clintons. But instead the Washington press corps, with the Times and Post again setting the pace, turned immediately back to the Monica Lewinsky beat. Starr’s vanishing Whitewater investigation was largely overlooked.

Despite the impression left lingering by the nation’s leading newspapers, a close scrutiny of the record fails to show that Hillary Clinton is guilty of any Whitewater crimes. In spite of the strenuous efforts of the independent counsel’s lengthy, multimillion-dollar investigation, there still has not been any evidence presented to show that the first lady broke the law, or even did anything unethical.

Take the infamous missing billing records of Hillary Clinton’s work for Madison Guaranty. When the records finally turned up in the White House in 1996, after having been subpoenaed two years earlier, charges of “obstruction of justice” filled the airwaves and the halls of the Republican Congress. New York Times columnist William Safire called the first lady a “congenital liar.” Drowned out in the hubbub was the fact that the records actually substantiated in great detail what Hillary Clinton had repeatedly testified to, publicly and under oath.

A deeper examination of Hillary Clinton’s work on behalf of McDougal’s S&L, while she was a partner in the Rose Law Firm of Little Rock, corroborates her testimony that she is innocent of any wrongdoing. Clinton first represented Madison Guaranty in April 1985, when McDougal was seeking both to improve his S&L’s capital position and to invest further in the booming commercial real estate market. To raise money, McDougal wanted to sell $600,000 in uninsured preferred stock. The legal question that McDougal hired the Rose Law Firm to determine was a straightforward one: Did Arkansas state law allow a state-chartered S&L to sell preferred stock? Federal law permitted it and Reagan-era regulators were urging it on S&Ls nationwide, with the laissez faire idea that they could “grow” out of their troubles caused by government-imposed high interest rates of the late l970s and early 1980s. But McDougal needed assurance that such an offering would be legal under state law before he could proceed.

A young associate for the Rose firm, Rick Massey, procured the Madison account and did most of the work on it. Republican charges — echoed in the media — that Hillary Clinton procured the account are unsubstantiated. Clinton was made the billing partner on the account and the Rose firm asked her to exact a $2,000 monthly retainer from McDougal, because in a previous representation he had failed to pay part of his bill. After Massey researched the preferred stock question, a letter arguing that it was legal and appropriate for Madison to sell such stock was mailed, under Hillary Clinton’s signature, to Arkansas bank regulator Beverly Bassett Schaffer. Clinton also phoned Schaffer to say the letter with the law firm’s view was on its way. The response that came back from Schaffer was in agreement: Yes, Arkansas law, as well as federal law, permitted the sale of preferred stock in state-chartered thrifts. Schaffer didn’t approve the stock issue, because Madison would have to meet stringent net worth requirements before that could occur, but she did agree that such an offering would be legal.

Massey did further work for Madison under Hillary Clinton’s aegis to determine whether the stock and other securities could be sold out of the S&L itself. That, too, Schaffer’s office determined, was legal, but after months of correspondence between the Rose Law Firm and the state regulators, in December 1985 Madison finally acknowledged that it had not met the capital requirements that Schaffer had imposed. Accordingly, Madison never filed a formal application.

There was clearly no hint of impropriety involved in determining these matters for Madison, and Hillary Clinton’s actions were in no way related to the later takeover of Madison by federal regulators in 1989. And there is no contradiction between Clinton’s and Schaffer’s recollections of the matter, despite media reports to the contrary. ABC News’ Jackie Judd, for example, reported that Schaffer’s 1996 testimony “undermined” Clinton’s.

There also is no evidence of any coddling of McDougal’s S&L by Gov. Clinton-appointed state
regulator Schaffer, which Republicans have charged. Indeed, in July 1986, federal regulators — supported by Schaffer — ordered the Madison board to remove McDougal from control of the institution. The following year, after the 1986 federal tax law caused a huge nationwide drop in commercial real estate values, Schaffer sent registered letters recommending that federal regulators — who were the only ones empowered to do so — take over Madison. Two years later, in 1989, federal regulators finally put Madison out of business, prompting McDougal to complain, as have hundreds of others who were once in community banking, “The federal government came in and took my business away from me.”
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How the media convicted Hillary Clinton, Part 3

In late 1985 and early ’86, before Madison fell afoul of federal regulators, the Rose firm performed some additional work for McDougal, with Hillary Clinton again acting as the Rose firm’s billing partner and another young associate, Richard Donovan, taking the lead. Donovan researched whether McDougal could build a brewery on the 1,050-acre International Development Corporation property that he and entrepreneur Seth Ward had bought and divided between them in October 1985. It turned out that he could not.

Donovan also researched whether the IDC property’s water and sewer system could sell water to another real estate development outside its property lines. That, it turned out, was legally permissible.

This brings us to a central issue in the official investigations of the Clintons. Starr and congressional investigators have focused much attention on a $1,000 option agreement involving the IDC property, which Hillary Clinton devoted two hours to working on in May 1986. Under the agreement, McDougal optioned a 22.5-acre parcel of Seth Ward’s 650-acre share of the IDC property. McDougal believed that the 22.5 acre parcel, known as “Holman Acres,” would ultimately be very valuable because on-and-off ramps were slated to be built on the property as part of a proposed “ring road” around Little Rock. But Senate Whitewater Committee testimony showed that this obscure $1,000 option agreement was never exercised.

Option agreements are ordinary, everyday transactions in the real estate industry, according to real estate experts. “Anyone can go to a stationery store and buy an option form, or download one off your computer,” says Baltimore real estate developer Richard Rymland. But this particular option has excited enormous interest from reporters, who accepted Republican charges that Ward acted as a “straw buyer” for McDougal when he bought 650 acres of the 1,050-acre IDC property. (McDougal bought the other 400 acres.) Adding to the media excitement over the purchase is the fact that Ward is Webster Hubbell’s father-in-law. Hubbell, President Clinton’s former associate attorney general, was convicted of mail fraud and tax evasion in connection with the overbilling of clients when he was a law partner at the Rose firm.

A $3.8 million investigation assigned by the federal government to the blue-chip San Francisco law firm Pillsbury Madison & Sutro, however, exonerated Hillary Clinton of any knowledge of alleged wrongdoing by McDougal or Ward in the transaction. The 1995 Pillsbury report further stated, “The theories that tie this option to wrongdoing … are strained at best.” Translation: It appears that there was nothing at all improper about the option agreement, let alone anything involving Hillary Clinton.

By March 1986, most of Ward’s share of the IDC property had been subdivided into smaller parcels and resold to Madison insiders and other McDougal cronies in transactions completely financed by the S&L. All but one of them, according to Pillsbury Madison & Sutro, “appeared to be suspect.” The Pillsbury report added, “There is no evidence, however, that the Rose Law Firm had anything to do with these sales.” Rose’s billing records do not refer to any work done on them. Nonetheless, reports in the New York Times, Washington Post and other media outlets erroneously linked Hillary Clinton to the IDC transactions through her two hours of work on the completely unconnected option agreement two months later.

The news media have also gotten very confused about Hillary Clinton’s testimony that she did not do any work for McDougal’s Castle Grande development. Castle Grand Estates was the name McDougal gave a portion of the IDC property set aside for residential development. But since federal regulators came to refer to the entire IDC transaction by the shorthand “Castle Grande,” many in the press falsely concluded that the first lady must have been involved in this residential deal. Here again, however, the documents support her testimony that she worked only on the commercial part of the IDC property, and not the residential area, which included Castle Grande Estates.

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How the media convicted Hillary Clinton, Part 4

Additional Whitewater accusations made repeatedly against President and Mrs. Clinton are based on the false presumption ¡ª repeated by the Times, the Post and the New Yorker ¡ª that the fraudulent $300,000 SBA loan that the McDougals received from David Hale¡¯s Capital Management Services, for which the McDougals were convicted, aided the Clintons financially as co-owners of the Whitewater tract. On March 9, both the Post and the Times repeated their erroneous conclusions about the loan proceeds paying Whitewater expenses. On April 8, Washington Post reporter Susan Schmidt wrote that ¡°a portion of the ($300,000) loan proceeds benefited Whitewater Development Corp. owned jointly by the Clintons and the McDougals.¡± When Jim McDougal died this spring, the papers repeated the error, as they did again in May, when the Arkansas grand jury closed down.

Gilbert Cranberg, former editor of the Des Moines Register¡¯s editorial pages, conducted a detailed analysis of the story for Harvard¡¯s Nieman Foundation and concluded that reporters for the Post, the Times and the New Yorker, as well as Times columnist William Safire, had wrongly reported that $50,000 of the admittedly felonious $300,000 loan made by Clinton¡¯s chief accuser, David Hale, went to prop up Whitewater.

In his report, Cranberg, who is currently George H. Gallup Professor at the University of Iowa¡¯s School of Journalism and Mass Communication, meticulously followed the loan¡¯s money trail and found that the reporting was done ¡°carelessly, or incompletely, or just plain falsely.¡±

Cranberg points out, for example, that the New York Times edited the Associated Press story it ran about the verdict in the McDougals¡¯ trial in a way that significantly altered the story¡¯s meaning. The original AP story reported that prosecutors rested their case ¡°without showing how [President] Clinton benefited¡± from the loan. Further, said the AP article, an FBI agent¡¯s testimony ¡°made no direct link between the loan¡± and President Clinton.¡± But the New York Times edited the AP piece to say that testimony was presented ¡°that money from an allegedly fraudulent loan went to benefit the Whitewater development ¡_ (and) that nearly $50,000 from a $300,000 loan was used to cover Whitewater expenses.¡± The Washington Post article about the verdict similarly stated, ¡°About $50,000 of the $300,000 loan went into a Whitewater account.¡± And Safire wrote, ¡°A large chunk was used to buy property for Whitewater Development.¡±

The Times and the Post erred, according to Cranberg, by overlooking the fact that the ¡°nearly $50,000¡å was actually two separate chunks of money: one totaling $24,455, the other $25,000. The first chunk did not come from the $300,000 loan. The second chunk did not benefit Whitewater. The first chunk, Cranberg noted, came from an entirely different loan that had been deposited in the Whitewater account in April 1985, one year before the Hale loan. James McDougal repaid $40,000 of the bank loan in January 1986, several months before the Hale loan, more than covering that first chunk.

To say that the second portion benefited Whitewater is even more of a stretch, observed Cranberg. That $25,000 was never deposited in the Whitewater account, but in the McDougals¡¯ personal account, and was used as a down payment for development land McDougal briefly put under the Whitewater Corporation¡¯s name. Indeed, McDougal left Whitewater liable for the $470,000 mortgage on that land when he transferred the asset to another entity without informing the Clintons.

Most important, as noted by the Pillsbury Madison & Sutro report, the Clintons¡¯ signatures ¡°do not appear on the relevant documents. McDougal¡¯s letters to them do not mention the transaction. The transaction did not benefit Whitewater or the Clintons; in fact, it left Whitewater with a large mortgage but no corresponding asset, and eventually it led to litigation and the entry of a judgment against Whitewater.¡±

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How the media convicted Hillary Clinton, Conclusion

At James McDougal’s 1996 trial, brought by the independent counsel, prosecutor Ray Jahn’s closing argument made much of the defendant’s deception of the Clintons in connection with this very matter. McDougal had testified that he placed the newly purchased property in the name of Whitewater only because, Jahn reminded jurors, he “believed he had spoken to the president and believed that the president and the first lady had abandoned their interest in Whitewater Development Corporation. Mr. McDougal testified that in March of 1986, he thought the Clintons had withdrawn from Whitewater Development Corporation. Quote, ‘It was my understanding that they had assigned their stock to Susan and me.’ End quote.”

Jahn argued that McDougal had misrepresented these facts in a futile attempt to fool the jury. He reminded the jury that President Clinton had testified that “toward the end of year 1986 … Mr. McDougal called him and said, quote, ‘I’d like for you to sign your (Whitewater) stock over to me and — so we can use it for — I think for tax purposes or something.’ Mr. Clinton then went on to say that he discussed it with his wife, and that in the end, ‘We decided not to do it.’”

Amply supported by the documentary evidence, Jahn argued that McDougal had deceived the Clintons and abused their trust. But hardly anybody in the national press appears to have been paying attention. As Cranberg noted, Michael Kelly erroneously wrote in the New Yorker, “It has now been proved in a court of law that nearly $50,000 obtained by defrauding the United States government went into a company that was co-owned by Bill and Hillary Clinton.” In an Oct. 2, 1997, New York Times story, reporter Todd Purdum wrote that $50,000 “of the loan later wound up paying for expenses related to” Whitewater. Purdum later told Cranberg he “simply repeated what he found in clips.” Cranberg also noted that Peter Boyer’s “Frontline” documentary “Once Upon a Time in Arkansas” erroneously reported that $25,000 of the loan went to cover the Whitewater debt.

In a speech to the Economic Club of Detroit just before the 1996 election, Starr repeated the misinformation about the $300,000 loan from Hale to the McDougals, saying the money “ended up on the account of Whitewater Development.” Of all people, Starr surely knew better, knew that McDougal only briefly kept the loan in the Whitewater account before he transferred the asset out, leaving a large mortgage debt for the Whitewater Corp. and, of course, for the unsuspecting Clintons as well. But the nation’s leading journalists did not leap to correct him, since they were laboring under the same misimpressions.

“Whatever you think of President Clinton, no president has ever been subjected to such intense press scrutiny of things that are alleged to have happened before he became president,” remarks longtime PBS, Wall Street Journal and NBC journalist Paul Duke. All that press scrutiny, however, has failed to convey accurately the Clintons’ roles in the long-ago Arkansas financial and legal transactions known as Whitewater. The failure by the press — particularly by the New York Times and Washington Post — to grasp the complexities of the Whitewater story and accurately report it has led to the vilification of President and Mrs. Clinton and to one of the most bitterly divisive political controversies in the nation’s history.

-- Mollie Dickenson

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http://www.salon.com/1998/06/29/cov_29news/

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