Ken Starr's Secret

Ken Starr's Secret

Ken Starr's Secret

The conventional wisdom debunked.
June 22 1997 3:30 AM

Ken Starr's Secret

How he knows that Whitewater is bunk.

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For many of us home folks, the greatest irony of the Clinton presidency has been the export of traditional slapstick Arkansas political theater to an unexpectedly gullible nation. Who could have predicted that down-home buncombe artists like Judge David Hale and Jim and Susan McDougal would take center stage in a national melodrama partly scripted by a washed-up segregationist?

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Yes, we're talking Whitewater. But before you mouse-click away, consider the tale of the Dog That Didn't Bark in the Night. According to the Official Whitewater Press--those who take their leaks directly from the office of independent counsel Kenneth Starr--the heart of the matter is supposed to be a bogus $300,000 loan made by Hale's Capital Management Services to a nonexistent marketing company owned by Susan McDougal. Last year, both McDougals were convicted of fraud for having misapplied the proceeds of the so-called "Master Marketing" loan.

H ale testified at the trial that he, Jim McDougal, and Bill Clinton had had a surreptitious meeting at which the then-governor urged him to make the loan and offered collateral in the form of real estate in the famous, misbegotten Whitewater development. According to Jeffrey Rosen's recent, Starr-approved version of the story in the New York Times Magazine, "almost $50,000 of the $300,000 loan ultimately wound up paying for expenses for the Whitewater land venture, in which the Clintons and McDougals were partners." According to Hale, Clinton told him, "My name cannot show up on this.".

At his own trial, Jim McDougal repeatedly denied that any such meeting between himself, Hale, and Clinton had taken place. Now, after being convicted of conspiracy and bank fraud in crimes not involving the Clintons, McDougal says the meeting did occur. Susan McDougal, as the world knows, isn't talking. Her story is that she fears the independent counsel will stick her with a perjury charge if she fails to confirm the lies of David Hale and her ex-husband. In his own videotaped trial testimony, Clinton not only denied any knowledge of the Master Marketing loan but also contended that he'd never had a substantive conversation on any topic with Hale--any time, anywhere.

Clinton didn't get to be president of the United States by telling thunderous, easily exposed whoppers where a cunning equivocation would have sufficed. "Sure, I asked Hale to help Jim and Susan out," the president might have testified, "but I didn't think they were going to default on the loan and steal the money." Nor did the independent counsel present any evidence to contradict his total denial.

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Clinton's claim to be barely acquainted with Hale does not strike local observers as improbable. Appointed to a municipal judgeship by Gov. Frank White, Clinton's Republican predecessor, Hale was a longtime associate of Sheffield Nelson, the president's bitterest GOP rival. Also known as something of a nut case, Hale was once successfully sued to the tune of $486,000 by his mistress for having swindled her grandparents out of the family farm.

So here's the non-barking hound I promised: In a recent interview with Associated Press reporter Pete Yost, Hale claimed that he once had documentary evidence of Clinton's participation in the bogus Master Marketing loan, but that federal investigators stole it! FBI agents executed a search warrant on his office on July 21, 1993. "The file on the $300,000 loan was 3 to 4 inches thick when the FBI took it," Hale claimed. "But when my attorney and I asked to see it a month or so later, the U.S. attorney's office gave us maybe an inch of stuff."

Supposedly the key purloined document was a handwritten letter from Jim McDougal to Hale promising that Clinton would make good on the Master Marketing loan. Not that a letter from one con man to another would prove anything, but it would certainly make a dandy stage prop. So why were you unaware of this until now? Here, after all, is Special Prosecutor Starr's ace witness against the president of the United States accusing federal investigators of filching the evidence. Where are Ted Koppel and Jeff Greenfield on this explosive story? Where, for that matter, is the New York Times' Whitewater Nostradamus, William Safire?

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A nswer: No one is pursuing this story because no one believes it--including Kenneth Starr's prosecutors. Also, the allegation isn't new. Hale first made it four years ago, when he was facing indictment for embezzling $2.04 million from the Small Business Administration. That episode involved dozens of phone calls with a jackleg Arkansas pol and professional Clinton-phobe named "Justice Jim" Johnson. The FBI and the Senate Whitewater Committee have already looked into this charge and apparently found it empty.

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The point is that even Starr can't possibly believe what David Hale says. But to fully grasp how poor a witness Hale would make in a case against Bill Clinton, it's also helpful to know a bit more about what the FBI and U.S. attorney had on Hale back in 1993, when his accusations against the president helped initiate the first full-scale Whitewater media freakout.

Hale's Capital Management Services was a federally chartered small-business-investment company that theoretically made start-up loans to disadvantaged entrepreneurs. In practice, the SBA had dropped the "socially and economically disadvantaged" part of its mandate during the Reagan years, and Hale's government-backed, low-interest loans went mainly to himself and a group of well-connected Little Rock businessmen and politicians. More were Republicans than Democrats, incidentally, including two former GOP state chairmen. None of those lenders was named Clinton.

When federal auditors dug into Hale's records, they found that 13 of 57 companies CMS had on its books were dummy corporations controlled by Hale. Altogether, he'd advanced the phony companies about $2.04 million. The beautiful part of the scam was SBA matching funds. For every dollar of operating capital CMS came up with, the taxpayers kicked in three. It worked like a pyramid scheme. Hale would finance a loan to one of his dummy companies, default, and then use the embezzled funds to generate more operating capital on a 3-to-1 basis. Then rinse and repeat. Hale and several crooked associates also ran various real-estate and insurance scams to raise more operating capital.

Soon after the FBI raid on his office in July 1993, Hale availed himself of the services of one Justice Jim Johnson: unrepentant seg, founder of Arkansas' "White Citizens' Council" back in the '50s, and star narrator of the Rev. Jerry Falwell's almost insanely scurrilous video The Clinton Chronicles. When Johnson ran for governor against reformist Republican Winthrop Rockefeller back in 1966, Johnson's pamphlets depicted Rockefeller--whom he called a "prissy sissy" and a "Santa Gertrudis steer" in campaign speeches--as a drunken thief and pornographer who indulged in homosexual affairs with black men and favored racial "mongrelization" and "one-world government." The bit about drinking had some merit.

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Openly endorsed by the Ku Klux Klan, Johnson never repudiated the Klan's support. His 1966 defeat was the watershed event of modern Arkansas political history, allowing the emergence of moderate Democrats like Sen. Dale Bumpers, Sen. David Pryor, and Clinton himself.

Justice Jim told a local reporter that when he read about the charges against Hale, he wrote Hale a letter saying, "Son, it looks like they're about to hang you out to dry." Evidence at the McDougal trial showed that the two men subsequently exchanged over 40 phone calls. Thanks to Justice Jim's contacts, Hale soon had a national audience for his story that Bill Clinton made him do it. Identified only as a former chief justice of the Arkansas Supreme Court, he has written occasional columns for the Washington Times, and brags to interviewers about his influence on the Wall Street Journal editorial page.

Hale was a cooked goose anyway. Little Rock U.S. Attorney Paula Casey demanded that he plead guilty to at least one felony charge before she'd listen to his allegations about anybody else. The Journal and others charged Casey, a Clinton appointee, with covering up for the president. But independent counsel Robert Fiske later forced Hale to take two counts.

Hale appeared in court on March 24, 1994, and admitted to using "deceit, fraud, trickery, and dishonest means" to embezzle cash from the U.S. government. The judge asked Hale what had happened to the $900,000 he'd falsely obtained from the SBA.

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"It was loaned out to various entities," Hale said.

"Were any of the entities [ones] that you had an interest in?" In other words, had Hale stolen the money twice--once when he fraudulently obtained it as working capital, and another time by lending it to one of his bogus companies?

"I don't believe so," Hale replied.

Fast forward two years to April 9, 1996. Hale was on the witness stand in the Jim McDougal trial, being cross-examined by a defense lawyer. Had he loaned part of the $900,000 to entities owned by himself? "Yes, sir."

Fact is, according to his own books, Hale had helped himself to an additional $174,900 through the two bogus companies. Nevertheless, of late Kenneth Starr has been going around the country giving speeches in which he praises David Hale's religious piety and honest repentance. He has even asked for a reduction in Hale's 28-month sentence.

Oddly enough, however, Hale's story about the purloined letter never came up during his nine days of testimony at the McDougal trial. Hale testified at great length about the $300,000 Master Marketing loan and Bill Clinton's purported role in it, so that omission must have taken some serious coaching by the independent counsel. But Hale's utterly unbelievable story would certainly come up in any prosecution of President Clinton over Whitewater. Which is why, dear reader, it's never going to happen.