WASHINGTON -- A federal bank examiner suggested in congressional testimony yesterday that Hillary Rodham Clinton ought to have known that a 1985 land deal arranged by an Arkansas thrift she represented was structured in a way that violated state law.
The examiner, James T. Clark, told the Senate Whitewater Committee he found no evidence during his 1986 review of the thrift, Madison Guaranty Savings & Loan, that then-Arkansas Gov. Bill Clinton or his wife had been personally involved in a series of fraudulent transactions known as Castle Grande.
But when asked if counsel for the thrift would have known that the real estate deal had been arranged to evade state law, Mr. Clark replied, "I would expect outside counsel to be aware of this."
Recently discovered billing records of Little Rock's Rose Law Firm showed Mrs. Clinton, then a senior partner, had worked on legal matters dealing with Castle Grande and had been the law firm's principal billing partner on Madison-related work.
The first lady has said she recalls very little about the Castle Grande residential development project and denied knowing about any improprieties. She also said she knew it not as Castle Grande but as IDC (Industrial Development Corp.), which is the name of the company that sold the 1,100-acre parcel to Madison and a businessman, Seth Ward. The project was later referred to as Castle Grande.
Mr. Clark described Castle Grande as a series of land purchases by Mr. Ward and other Madison "insiders," all secretly financed by Madison but structured to evade an Arkansas law that limited such purchases by an S&L to 6 percent of its net worth. The real purpose of Castle Grande, he testified, was to enrich Madison officers and consultants like Mr. Ward.
As a result of Castle Grande and other irregularities and bad loans, Madison became insolvent -- and cost U.S. taxpayers more than $60 million.
Sen. Frank Murkowski, an Alaska Republican on the committee, noted that Mr. Ward was the father-in-law of Webster L. Hubbell, then a Rose senior partner along with Mrs. Clinton.
Referring to the law firm, Mr. Murkowski said, "You'd have to be blind not to know there was some sort of a scam going on."
Hubbell, who became a high-ranking Justice Department official in the Clinton administration, pleaded guilty last year to overbilling his clients and defrauding his law partners and is serving a prison sentence.
Mr. Clark testified that the land was purchased on behalf of Madison by Mr. Ward and five other "straw" parties -- including Gov. Jim Guy Tucker, then a private attorney. The purchases were made with about $4 million in loans from Madison that never were meant to be repaid.
Mr. Clark said his six-month review at Madison in 1986 revealed sloppy or missing financial records and elicited "vague responses" from Madison executives, including the owner, James B. McDougal, the Clintons' investment partner in the Whitewater Development Co.
Democratic committee members Paul S. Sarbanes of Maryland and Christopher J. Dodd of Connecticut complained that the panel was wasting time and money by hearing from witnesses like Mr. Clark, who had testified about Madison before the House Banking Committee last year. But the committee chairman, Sen. Alfonse M. D'Amato, a New York Republican, said Mr. Clark never had been questioned extensively before about Castle Grande.