Origins of Whitewater Development Corporation
Bill Clinton had known Arkansas businessman and political figure Jim McDougal since 1968, and had made a previous small real estate investment with him in 1977.[9] The Clintons were seeking ways of supplementing their income: Bill Clinton's salary was $26,500 as Arkansas Attorney General (which would rise to $35,000 if his campaign for Governor of Arkansas succeeded) and Hillary Clinton's salary was $24,500 as a Rose Law Firm associate[10][11] for a combined income in 1978 of $51,173,[12] equivalent to $186,000 in 2015. It was around this time that Hillary Clinton also began trading cattle futures.[9]
In spring of 1978, McDougal proposed that the Clintons join him and his wife, Susan, in buying 230 acres (0.93 km2) of undeveloped land along 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, intended for the many people coming south from Chicago and Detroit who were interested in 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.[9]
The four borrowed $203,000 to buy land, and subsequently transferred ownership of the land to the newly created Whitewater Development Corporation, in which all four participants had equal shares.[9] Susan McDougal chose the name "Whitewater Estates" and their sales pitch was, "One weekend here and you'll never want to live anywhere else."[11][13][14] The business was incorporated on June 18, 1979.
Failure of Whitewater Development Corporation
By the time the Whitewater lots were surveyed and available for sale at the end of 1979, interest rates had climbed to near 20 percent. Prospective buyers could no longer afford to buy vacation homes. Rather than take a loss on the venture, the four decided to build a model home and wait for better economic conditions.[9]
Following the land purchase, Jim McDougal asked the Clintons for additional funds for interest payments on the loan and other expenses; the Clintons later claimed to have no knowledge of how these contributions were used.[9][15] When Bill Clinton failed to win re-election in 1980, Jim McDougal lost his job as the governor's economic aide and decided to go into banking.[11] He acquired the Bank of Kingston in 1980 and the Woodruff Savings & Loan in 1982,[16] renaming them the Madison Bank & Trust and the Madison Guaranty Savings & Loan, respectively.[13]
In spring 1985, McDougal held a fundraiser at Madison Guaranty's office in Little Rock that paid off Clinton's 1984 gubernatorial campaign debt of $50,000. McDougal raised $35,000; $12,000 of that was in Madison Guaranty cashier's checks.[17][18]
In 1985, Jim McDougal invested in a local construction project called Castle Grande. The 1,000 acres (4 km²), located south of Little Rock,[13] were priced at about $1.75 million, more than McDougal could afford on his own. According to current law, McDougal could borrow only $600,000 from his own savings and loan, Madison Guaranty. Therefore, McDougal involved others to raise the additional funds. Among these was Seth Ward, an employee of the bank, who helped funnel the additional $1.15 million required. To avoid potential investigations, the money was moved back and forth among several other investors and intermediaries. Hillary Clinton, then an attorney at Rose Law Firm (which is based in Little Rock) provided legal services to Castle Grande.
In 1986, federal regulators realized that all of the necessary funds for this real estate venture had come from Madison Guaranty; regulators called Castle Grande a sham. In July of that year, McDougal resigned from Madison Guaranty. Seth Ward fell under investigation, along with the lawyer who helped him draft the agreement. Castle Grande earned $2 million in commissions and fees for McDougal's business associates, as well as an unknown amount in legal fees for Rose Law Firm, but in 1989, it collapsed, at a cost to the government of $4 million.[19] This in turn helped trigger the 1989 collapse of Madison Guaranty, which federal regulators then had to take over.[19] Taking place in the midst of the nationwide savings and loan crisis, the failure of Madison Guaranty cost the United States $73 million.[20]
The Clintons lost between $37,000 and $69,000 on their Whitewater investment; this was less than the McDougals lost.[21] The reasons for the unequal capital contributions by the Clintons and McDougals are unknown but the President's critics cited the discrepancy as evidence that then-Governor Clinton was to contribute to the project in other ways.[15]
The White House and the President's supporters claimed that they were exonerated by the Pillsbury Report. This was a $3 million study done for the Resolution Trust Corporation by the Pillsbury, Madison & Sutro law firm at the time that Madison Guaranty Savings & Loan was dissolved. The report concluded that James McDougal, who had set up the deal, was the managing partner, and Bill Clinton was a passive investor in the venture; the Associated Press characterized it as "generally support[ing] the Clintons' description of their involvement in Whitewater."[22][23] However, Charles Patterson, the attorney who supervised the report, "refused ... to call it a vindication" of the Clintons, stating in testimony before the Senate Whitewater Committee that "it was not our purpose to vindicate, castigate, exculpate."[23]
Convictions
Ultimately the Clintons were never charged, but 15 other persons were convicted of more than 40 crimes, including Bill Clinton's successor as governor, who was removed from office.[43]
- Jim Guy Tucker: Governor of Arkansas at the time, removed from office (fraud, 3 counts)
- John Haley: attorney for Jim Guy Tucker (tax evasion)
- William J. Marks, Sr.: Jim Guy Tucker's business partner (conspiracy)
- Stephen Smith: former Governor Clinton aide (conspiracy to misapply funds). Bill Clinton pardoned.
- Webster Hubbell: Clinton political supporter; Rose Law Firm partner (embezzlement, fraud)
- Jim McDougal: banker, Clinton political supporter: (18 felonies, varied)
- Susan McDougal: Clinton political supporter (multiple frauds). Bill Clinton pardoned.
- David Hale: banker, self-proclaimed Clinton political supporter: (conspiracy, fraud)
- Neal Ainley: Perry County Bank president (embezzled bank funds for Clinton campaign)
- Chris Wade: Whitewater real estate broker (multiple loan fraud). Bill Clinton pardoned.
- Larry Kuca: Madison real estate agent (multiple loan fraud)
- Robert W. Palmer: Madison appraiser (conspiracy). Bill Clinton pardoned.
- John Latham: Madison Bank CEO (bank fraud)
- Eugene Fitzhugh: Whitewater defendant (multiple bribery)
- Charles Matthews: Whitewater defendant (bribery)
Tax returns
In March 1992, during his presidential campaign, 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.[44] Due to the age of mistake, the Clintons were not obligated to make good the error, but Bill Clinton announced that they would nonetheless do so.[44]
Deputy White House counsel Vince Foster looked into this matter, but did not take any action before his death.[44] On December 28, 1993, almost two years after the original announcement, the Clintons did make a reimbursement payment, for $4,900, to the Internal Revenue Service. This was done just before Justice Department investigators started seeking the Clintons' Whitewater files. The payment was made without filing an amended return (possibly because the three-year period for amended return filing had passed), but did include full interest on the amount of the error, including the additional two-year delay.[44] The Whitewater files in question, publicly released in August 1995, cast some doubt on the Clintons' assertions in the matter, as they showed that the couple was aware that the interest payments in question were paid by the Whitewater corporation, and not them personally.[44]
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