Whitewater controversy
The Whitewater controversy, Whitewater scandal, or simply Whitewater, was an American political controversy during the 1990s, surrounding the Whitewater Development Corporation, a real estate company owned by President Bill Clinton and First Lady Hillary Clinton and their associates, Jim and Susan McDougal.
In 1979, while Clinton was governor of Arkansas, the Clintons and McDougals incorporated the Whitewater Development Corporation with the purpose of building vacation properties on land along the White River near Flippin, Arkansas. The corporation was not a success. In 1989, Madison Guaranty, a savings and loan association owned by Jim McDougal, collapsed amid the national savings and loan crisis. Whitewater came to public attention on March 8, 1992, when The New York Times reported on Whitewater during Clinton's campaign for president of the United States.
Neither Bill nor Hillary Clinton was prosecuted for their role in the corporation or their conduct during the numerous investigations. Three separate independent inquiries found insufficient evidence linking them with the criminal conduct of the others involved in Whitewater. However, the McDougals; Jim Guy Tucker, Clinton's successor as governor of Arkansas; and twelve other people involved in the scandal were convicted for over forty financial crimes. President Clinton pardoned Susan McDougal before leaving office; Jim McDougal died in 1998.
Nomenclature
The term "Whitewater" is sometimes used to include other controversies from the Bill Clinton administration, such as Travelgate, Filegate, and the circumstances surrounding Vince Foster's death, that were also investigated by the Whitewater Independent Counsel, but Whitewater properly refers to the matters stemming from the Whitewater Development Corporation, the association between the Clintons and McDougals, and subsequent developments.Background
Whitewater Development Corporation
Bill Clinton first met Jim McDougal, an Arkansas businessman and political figure, in 1968. Clinton first invested in real estate with McDougal in 1977. In spring 1978, McDougal proposed that the Clintons join him and his wife, Susan, in buying of undeveloped land on the south bank of the White River near Flippin, Arkansas, in the Ozark Mountains. The goal was to subdivide the site into lots for vacation homes for the large number of Midwesterners interested in Ozark vacation homes, owing to the low property taxes, fishing, rafting, and mountain scenery. The plan was to hold the property for a few years and then sell the lots at a profit.The Clintons and McDougals borrowed $203,000 to buy the land and subsequently transferred ownership to the newly created Whitewater Development Corporation, in which all four participants had equal shares. In the following years, the Clintons contributed additional funds to Jim McDougal, which he claimed were necessary to pay interest on the loan and other expenses; the Clintons later claimed to have no knowledge of how these funds were used. Susan McDougal chose the name "Whitewater Estates," and their sales pitch was, "One weekend here and you'll never want to live anywhere else." The business was incorporated on June 18, 1979.
By the time the lots were surveyed and available for sale at the end of 1979, interest rates in the United States had climbed to near 20%, and prospective buyers could no longer afford vacation homes. Rather than accepting a loss on the venture, the four decided to build a model home and wait for better economic conditions to sell. In May 1985, Jim McDougal sold the remaining lots to a local realtor, Chris Wade. By 1993, when the property attracted public attention as part of the controversy, there were a few occupied houses on the site, but most of the properties were still for sale. One owner, tired of the many reporters who visited the site, hung a sign saying "Go Home, Idiots".
Ultimately, the Clintons lost between $37,000 and $69,000 on their investment in Whitewater, less than the McDougals despite their equal legal ownership. The cause of the unequal losses are unknown, but Clinton's critics later cited the discrepancy as evidence that Clinton provided intangible, potentially corrupt, contributions to the project.
Madison Guaranty and Castle Grande investment
When Bill Clinton lost his campaign for re-election as governor in 1980, McDougal lost his job as the governor's economic aide and decided to go into banking. He acquired the Bank of Kingston in 1980, which he renamed Madison Bank & Trust, and the Woodruff Savings & Loan in 1982, which he renamed the Madison Guaranty Savings & Loan. Clinton was returned to office in the 1982 election and re-elected in 1984, 1986, and 1990.In spring 1985, McDougal held a fundraiser for Clinton at Madison Guaranty's office in Little Rock, which paid off $50,000 in campaign debt. McDougal personally raised $35,000, of which $12,000 was in Madison Guaranty cashier's checks.
In 1985, Jim McDougal purchased Castle Grande, a 1,000 acre real estate development south of Little Rock. The investment required about $1.75 million, more than McDougal could afford on his own, and under law at the time, McDougal could borrow only $600,000 from his own savings and loan association. Therefore, McDougal and others, including Madison Guaranty official Seth Ward, funneled the additional $1.15 million from Madison Guaranty through several other investors and intermediaries. Hillary Clinton, then an attorney at Rose Law Firm in Little Rock, provided legal services to Castle Grande.
In 1986, federal regulators investigated McDougal and Castle Grande for fraud. In July, McDougal resigned from Madison Guaranty, and Ward and the Rose Law attorney who drafted the agreement fell under investigation. In 1989, Castle Grande collapsed, at a cost of $4 million, in turn triggering the collapse and federal takeover of Madison Guaranty. Taking place in the midst of the nationwide savings and loan crisis, the failure of Madison Guaranty cost the United States government $73 million.
After the dissolution of Madison Guaranty, the Resolution Trust Company, a government-owned company charged with liquidating the assets of insolvent S&Ls, hired the law firm Pillsbury, Madison & Sutro to investigate. The Pillsbury report concluded that Clinton had been a passive investor in the Whitewater venture. The Associated Press characterized it as "generally support the Clintons' description of their involvement in Whitewater." However, Charles Patterson, the supervising attorney "refused... to call it a vindication" of the Clintons, as the White House claimed, testifying before the Whitewater Committee, "it was not our purpose to vindicate, castigate, exculpate."
Initial investigations
During Bill Clinton's 1992 presidential run, he was asked by New York Times reporters about the failure of the Whitewater development. The subsequent New York Times article, by reporter Jeff Gerth, appeared on March 8, 1992. The Clintons acknowledged that on their 1984 and 1985 tax returns, they had claimed improper tax deductions for interest payments made by the Whitewater Development Company. Due to the age of the mistake, the Clintons were not obligated to rectify the claim, but Bill Clinton announced that they would do so.On December 28, 1993, almost two years after the original Times report, the Clintons made a reimbursement payment of $4,900 to the Internal Revenue Service. The payment was made without filing an amended return and included full interest on the amount of the error, including the additional two-year delay. Files which were later publicly released in August 1995 showed that the Clintons were aware that the interest payments in question were paid by the corporation and not them personally.
Resolution Trust Corporation investigation
As a result of The New York Times article, the Department of Justice opened an investigation into the failed Whitewater investments. The ''New York Times'' article stimulated the interest of L. Jean Lewis, an investigator with the Resolution Trust Corporation looking into the Madison Guaranty failure. Lewis sought to connect the Clintons to Madison Guaranty and on September 2, 1992, she submitted a criminal referral to the FBI naming them as witnesses. U.S. Attorney for the Eastern District of Arkansas Charles Banks and the Federal Bureau of Investigation determined that the referral lacked merit, but Lewis persisted to recommend criminal prosecutions. Her referrals eventually became public knowledge, and she testified before the Senate Whitewater Committee in 1995.On February 25, 1994, White House senior advisor George Stephanopoulos and deputy chief of staff Harold M. Ickes held a conference call with Deputy Secretary of the Treasury Roger Altman, in which they protested the hiring of Jay Stephens, who was heading the Resolution Trust Company investigation into Madison Guaranty. On the call, Stephanopoulos asked Altman if Stephens could be removed. Altman resigned on August 17, 1994 under scrutiny.
White House Counsel investigation
was investigating Whitewater at the time of his suicide on July 20, 1993. Within hours of Foster's death, chief counsel Bernard Nussbaum removed documents, some of which concerned Whitewater, from Foster's office and gave them to Maggie Williams, chief of staff to Hillary Clinton. According to The New York Times, Williams then placed the documents in a safe in the Clinton residence on the third floor of the White House for five days, before turning them over to the Clinton family lawyer. Nussbaum was accused of obstructing investigations by both the Department of Justice and National Park Service into Foster's death by refusing to hand over documents found in Foster's briefcase.On April 22, 1994, Hillary Clinton gave a press conference in the State Dining Room of the White House to address questions on Whitewater and the separate controversy surrounding her 1978–79 investments in cattle futures. During the conference, she claimed that the Clintons were passive investors in Whitewater and had committed no wrongdoing. She said that she no longer opposed the appointment of a special prosecutor to investigate the matter and won praise for her conduct in the press conference.