Clinton business partnership facing scrutiny

March 08, 1992|By Jeff Gerth | Jeff Gerth,New York Times News Service

WASHINGTON -- Bill Clinton and his wife were business partners with the owner of a failing savings and loan association that was subject to state regulation early in his tenure as governor of Arkansas, records show.

The partnership, a real estate joint venture that was developing land in the Ozarks, involved the Clintons and James B. McDougal, a former Clinton aide turned developer.

It started in 1978, and at times money from Mr. McDougal's savings and loan was used to subsidize the development venture. The corporation continues but does not appear to be active.

Mr. McDougal gave a detailed account of his relationship with Clinton in several interviews in the last two weeks. This account, along with an examination of related local, state and federal records and interviews with dozens of others in Arkansas, found the following:

* Available records appear to show that Mr. McDougal heavily subsidized the real estate corporation, called Whitewater Development, insuring that the Clintons were under little financial risk in what turned out to be an unsuccessful enterprise. The corporation bought 200 acres of Ozark Mountain vacation property and planned to sell it in lots. The Clintons invested little money in the enterprise, so stood to lose little if the venture failed, but might have cashed in on their 50 percent interest had the venture done well.

* The Clintons and Mr. McDougal disagree about what happened to Whitewater's records. Mr. McDougal says that, at Mr. Clinton's request, they were delivered to the governor's mansion. The Clintons say that many of them have disappeared. Many questions about the enterprise cannot be answered definitively without the records.

* After federal regulators found that Mr. McDougal's savings institution, Madison Guaranty, was insolvent, meaning that it faced possible closure by the state, Mr. Clinton appointed a new state securities commissioner, who had been a lawyer in a firm that represented the savings and loan. Mr. Clinton and the commissioner deny giving any preferential treatment. The new commissioner approved two novel proposals to help keep the savings and loan alive that were offered by Hillary Clinton, Gov. Clinton's wife and a lawyer. She and her firm had been retained to represent the institution.

* The Clintons improperly deducted at least $5,000 in interest payments on their personal tax returns in 1984 and 1985, interest paid on a portion of at least $30,000 in bank loan payments that Whitewater made for them. The improper deductions saved them about $1,000 in taxes, but since the error occurred more than three years ago, under IRS regulations, the Clintons are not required to pay it back

The complicated relationship between Mr. McDougal and the Clintons' came to light in an investigation by the New York Times of the Clintons' tax records and business relationships.

It raises questions of whether a governor should be involved in a business deal with the owner of a business regulated by the state and whether, having done so, the governor's wife, through her law firm, should be receiving legal fees for work done for the business.

The Clintons retained two lawyers to answer questions about Whitewater and Mr. McDougal. The lawyers said the improper tax deductions were honest errors, made because there was confusion over who owned a piece of Whitewater property and who was responsible for the loan taken out to buy it, Whitewater Development or the Clintons.

The lawyers said they were not in a position to answer questions about where the money that went into Whitewater came from, though the records that are available indicate that Mr. McDougal and his wife provided most of the money for the venture.

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