Starr-Crossed Investigation Poised for the Quick Kill or a Slow Death

WASHINGTON —  Whitewater independent counsel Kenneth W. Starr stands at a critical juncture as he moves into his fourth year of what began as an investigation of links between President Clinton and a failed savings and loan.

The Whitewater inquiry--named for the Arkansas vacation property in which Clinton and his wife invested while he was the state’s governor--has already veered off in many other directions. But there is no indication that Starr is close to charging wrongdoing by the Clintons or senior administration officials.

Now he must decide whether to follow the much-criticized road traveled by Iran-contra prosecutor Lawrence E. Walsh, whose dogged investigation of Reagan administration figures consumed seven years before it was finally aborted by presidential pardons.

Possibly paving the way for this course, Starr told an Arkansas judge in April that he had found “extensive evidence” of a possible cover-up.

Or will Starr choose to make one last effort to put the squeeze on Webster L. Hubbell, a longtime confidant and golf buddy of the president’s and a former colleague of First Lady Hillary Rodham Clinton’s, in hopes that Hubbell would re-energize the investigation by providing incriminating information about higher-ups?

Hubbell, once the third-ranking official in the Justice Department, has already served one prison term for defrauding Rose Law Firm of Little Rock, Ark., where both he and Hillary Clinton were partners.

Either way, the most prominent figure appearing to face any jeopardy from Starr’s investigation is the first lady, although most Washington attorneys familiar with the inquiry regard charges against her as unlikely.

One wild card is how Starr uses a recent Supreme Court ruling that required the White House to turn over confidential notes of conversations between Hillary Clinton and two White House lawyers. That ruling opened the door for Starr to seek more White House notes and documents, some of which may prove incriminating.

Catching Heat for Investigation

For Starr, choosing which fork in the road to take is made all the more difficult by the intense criticism he has drawn during his three years of investigation.

Sen. Carl Levin (D-Mich.), who has led the effort in Congress to keep alive the use of independent counsels to investigate allegations of wrongdoing by top administration officials, marked Starr’s third anniversary by accusing him of discrediting the office.

“One might conclude that he is carrying on a one-man crusade to undermine the Independent Counsel Act, since he has done more to politicize and bring discredit on the institution of the independent counsel than those who oppose the law,” Levin said.

Levin criticized Starr’s insistence on maintaining a private legal practice even as he has served as independent counsel.

He pointed to Starr’s speaking at a university founded by Pat Robertson, a Christian broadcaster and Clinton critic who has said he believes that former White House Deputy Counsel Vincent Foster was murdered in 1993. Starr recently concluded that Foster committed suicide.

Levin also condemned Starr for his decision, reversed after intense criticism last February, to step down as independent counsel by Aug. 1 to accept posts at Pepperdine University, one of which was heavily funded by Richard Scaife, who backs an organization that contends there was a conspiracy to murder Foster.

Starr also has critics on the right. “Every time he steps out of his professional role, he demonstrates a tin ear for politics and gives ammunition to his enemies,” said David Keene, chairman of the American Conservative Union and a GOP political consultant.

Moreover, Starr draws fire from some veteran Washington defense lawyers for the slow pace of his investigation. Although he served as a federal appellate judge and the solicitor general of the United States, critics say he shows his lack of experience as a prosecutor or criminal defense attorney.

“The fact that Ken has not been entirely familiar with criminal law, that he has never been a prosecutor nor even a defense lawyer, is a big hindrance to him as far as bringing things to closure,” said a leading Washington defense lawyer who has known Starr for years and who has no Whitewater-related clients. “He seems unable to work at a faster pace.”

Laying Blame on ‘Obstructionism’

Defending Starr is Joseph E. diGenova, himself an independent counsel in 1992, who blamed “obstructionism” for his slow pace.

“There’s no bigger example than the immaculate conception of the billing records,” he said in a facetious reference to the sudden appearance of the Rose Law Firm’s billing records in the White House living quarters nearly two years after they had been subpoenaed.

Starr, apparently seeking to build momentum, in June brought in to his Washington office two experienced public corruption attorneys: Michael W. Emmick from the U.S. attorney’s office in Los Angeles and Bruce L. Udolf, an assistant U.S. attorney from Miami. He also added Mary Anne Wirth, who had served as a federal and county prosecutor in New York.

At the same time, John D. Bates, a 17-year veteran of the U.S. attorney’s office in the District of Columbia, who rejoined Starr’s office as deputy independent counsel in June, will soon return to his former job with the U.S. attorney’s office here. A knowledgeable source said this move should not be read as signaling that Starr has decided to wrap matters up.

Starr was sworn in as independent counsel on Aug. 9, 1994, after a special federal court, acting under a newly revived independent counsel law, dumped Robert B. Fiske Jr. because he had been appointed seven months earlier by Atty. Gen. Janet Reno, a member of Clinton’s administration. He has presented evidence to grand juries in Little Rock and Washington.

At the core of the investigation is the Clintons’ role as investment partners with James B. McDougal and his former wife, Susan, in an Arkansas resort property known as Whitewater. James McDougal was president of Madison Guaranty Savings & Loan in Little Rock, which lost so much money on Whitewater and other investments that it went bankrupt, forcing a $60-million bailout of its depositors by federal insurance programs.

As chief Whitewater prosecutor, Starr to date has obtained guilty pleas from nine people and convictions of three others who have gone to trial. Only Hubbell was a present or former Clinton administration figure.

The three found guilty by a jury of participating in a $3-million conspiracy to defraud two federally insured financial institutions were James and Susan McDougal and Jim Guy Tucker, who had succeeded Clinton as Arkansas governor.

Clinton gave videotaped testimony for the defendants, but jurors said afterward they doubted its relevance. The president was not charged in the case.

Trying to Draw a Line to First Lady

The prosecution’s chief witness, former Municipal Judge David Hale, testified that he had conspired in the 1980s with the McDougals, Tucker, Clinton and others to defraud Madison Guaranty and Hale’s small-business investment firm to benefit the Whitewater real estate development. But prosecutors acknowledged that Clinton had played no active role in the conspiracy and was apparently unaware of some key transactions.

Hale pleaded guilty to defrauding the government through his investment firm, which was subsidized by the Small Business Administration.

Starr has been exploring whether he can develop a case of obstruction of justice against Hillary Clinton in the matter of her billing records dealing with her work on behalf of Madison Guaranty when she was with the Rose Law Firm. But Starr has not been able to produce any evidence that Hillary Clinton or any other White House official deliberately hid the records, according to legal sources.

Federal financial investigators subpoenaed the records in 1993, but the records could not be found until they suddenly materialized nearly two years later on a table in the White House living quarters, an area of the residence that adjoins Hillary Clinton’s private office and is off limits to the general White House staff, according to congressional testimony.

The first lady, the president and everyone close to the matter said they had no idea where the long-missing records had been or who put them on that table.

Responding to a subpoena from Starr, Mrs. Clinton appeared before grand jurors in January 1996 to answer questions about the files. Afterward she told reporters she had testified that “I do not know how these records came to be found where they were found.”

White House aides have said the files support Mrs. Clinton’s position that she did very little work for Madison Guaranty. According to the documents, she performed about 60 hours of work over a 15-month period.

However, the most controversial issue raised by the billing records concerns a legal document drawn by Mrs. Clinton that figured in what investigators have described as a sham real estate deal known as Castle Grande. The deal involved illegal financing that accounted for nearly $4 million of the thrift’s losses, mainly through large commissions paid to Arkansas businessmen who served as straw investors.

Before the appearance of the billing records, Mrs. Clinton had been asked under oath whether she had been involved as a lawyer with Castle Grande. “I don’t believe I knew anything about any of these real estate projects,” she replied.

The records show she worked on several matters related to Castle Grande and had at least 14 meetings or telephone conversations with Seth Ward, Hubbell’s father-in-law, who was one of the straw investors.

Former federal prosecutors note that it is difficult to make a perjury case unless the sworn testimony clearly conflicts with the truth as it was known. In this instance, involving memory of events several years after the fact, there appears to be no conflict either clear or serious enough to warrant a perjury charge, according to legal sources.

Starr has been looking into other possible perjury matters as well, including the congressional testimony of two confidantes of the first lady’s: Margaret Williams, her former chief of staff, and New York lawyer Susan Thomases. There is no indication, however, that Starr has been able to build a case.

Nor are there signs of any impending perjury cases against former White House aides Harold M. Ickes and David Watkins in response to year-old requests from congressional Republicans for Starr to examine their testimony.

The tactic of moving against Hubbell again, perhaps on tax charges, runs the risk of appearing to pile on an individual who already has been thoroughly disgraced. He plunged from public service as mayor of Little Rock, chief justice of the Arkansas Supreme Court and former U.S. associate attorney general to a felon who stole from his law partners and clients.

But arguing for another shot at Hubbell, who has acknowledged knowing “a lot” about Whitewater while insisting “there’s no crime there,” is prosecutors’ belief that he has kept to himself information central to their core mandate.

Intensifying the focus on Hubbell has been the network of presidential aides and supporters who came to Hubbell’s rescue in 1994, after he resigned his Justice Department post, by steering at least 14 consulting jobs and other deals to him worth about $500,000.

Whether these and subsequent opportunities for Hubbell were motivated by “compassion,” as many of those involved insist, or reflect an effort to encourage his silence in response to investigators’ questions, is under close scrutiny by Starr’s prosecutors.

“Hubbell was certainly in a position to know,” one source familiar with many of the facts of the case noted, “but do they [prosecutors] have the leverage to crack him? So far, they haven’t.”

“The money and the jobs to Hubbell don’t smell right,” this source acknowledged. But without proof beyond a reasonable doubt, “that’s a smell test and not a prosecution.”

Times staff writer David Willman contributed to this story.

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3 Years and Counting

Independent counsel Kenneth W. Starr has spent three years investigating the Whitewater affair. Here is how his investigation compares to that of Lawrence E. Walsh, whose probe of the Iran-contra scandal during the Reagan administration lasted seven years.

THE WHITEWATER PROBE

August 1994: Starr is appointed by U.S. Court of Appeals panel to replace Robert B. Fiske Jr.

December 1994: Webster L. Hubbell pleads guilty to overbilling legal clients and defrauding his partners in the Rose Law Firm.

January 1996: First Lady Hillary Rodham Clinton responds to subpoena from Starr and testifies four hours about missing law firm billing records.

May 1996: James B. McDougal and his former wife, Susan, are convicted on fraud and conspiracy charges, along with then-Arkansas Gov. Jim Guy Tucker.

February 1997: Starr postpones taking post at Pepperdine University until investigation is completed.

June 1997: The Supreme Court upholds ruling requiring White House lawyers to turn over confidential notes of their talks with Mrs. Clinton.

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Starr/Fiske* Walsh Cost $34 million $47 million Staff 35 (21 lawyers, 118 (28 lawyers, 14 support personnel) 90 support) Time elapsed 3 years, 7 months 7 years

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* includes seven months of time under Robert B. Fiske Jr., Staff’s predecessor