They’ve all said it so much that it is a given in the Whitewater coverage. It’s one of those “facts” you don’t even need to check out.
The New York Times says it. The Washington Post says it. The New Yorker says it. William Safire says it.
They and others say that Bill Clinton’s chief accuser on Whitewater, David Hale, made a felonious $300,000 loan of government-backed funds to Susan McDougal, and that is true. Then they all say or imply that nearly $50,000 of that money propped up Whitewater, Bill and Hillary Clinton’s ill-starred adventure in Arkansas real estate.
And that is false.
It’s complicated, but it shouldn’t be too complicated for The New York Times, The Washington Post, The New Yorker or William Safire.
First, you need to know that that “nearly $50,000” is in two chunks, one for $24,455 and one for $25,000. The first chunk did not come from that corrupt $300,000 loan. The second chunk did not benefit Whitewater. Now, follow the chunks.
Chunk #1. A check for $24,455 was indeed deposited to Whitewater’s account. It was used to cover an earlier $25,000 Whitewater check to Ozark Realty, apparently for commissions for sales of Whitewater lots.
That Chunk #1 deposit was made on April 9, 1985.
Nineteen-eighty-five.
David Hale’s illicit $300,000 loan to Susan McDougal — $24,455 of which reports say ended up in the Whitewater account — was made April 3, 1986.
Nineteen-eighty-six.
Again: the money was put in the Whitewater account in 1985 — a year before Hale made that infamous loan to Susan McDougal. It’s impossible, absent a time warp, for any of Chunk #1 to have been part of a deposit made a year earlier.
So what was the source of the $24,455 chunk that went to Whitewater? It came from part of a $I35,000 loan James McDougal obtained from the Stephens Security Bank in early April I985 for Flowerwood Farms, one of his developments. McDougal wrote a $24,455 check to Whitewater from the Flowerwood Farms account less than a week after he deposited the $I35,000 to the Flowerwood Farms account. Clearly, the Whitewater money came from the Stephens bank loan.
But wait a minute. A big portion — $111,500 — of that fraudulent $300,000 loan from David Hale to Susan McDougal was used to repay that Stephens loan. And since it was the Stephens money that went into Whitewater, can’t you say that the misbegotten money from David Hale really did go into Whitewater since it was used to replace the Stephens money? You can’t. McDougal repaid $40,000 of the $135,000 Stephens loan on January 2I, I986, four months before Susan McDougal got her money from David Hale. That $40,000 repayment more than covered the $24,455 portion of the Stephens loan that went to Whitewater. So how can anyone say whether the $24,455 eventually was covered by tainted dollars or by the apparently legitimate $40,000 repayment?
No one can. “The fungibility of money makes it difficult to say which transaction [the January 1986 transaction or theApril1986 transaction] funded the repayment to Stephens Security Bank of the funds that went to Whitewater,” says the Pillsbury Report, the $3.6 million study of McDougal’s Madison Guaranty Savings & Loan that the San Francisco law firm of Pillsbury, Madison & Sutro made for the Resolution Trust Corp. Linking the Hale money to Whitewater is “tenuous” and “a stretch, ” Drake University’s Director of the School of Accounting, Dr. Patrick Heaston, said after looking at the accompanying diagram.
So much for Chunk #1.
Chunk #2. To imply that this $25,000 chunk benefited Whitewater is even more of a stretch.
All of the $300,000 Hale loan was deposited in the McDougals’s joint personal account. In April 1986 James McDougal wrote a check on that account for $25,000 as earnest money for purchase of 810 acres south of Little Rock, and he put the tract for less than two months in Whitewater’s name. Despite erroneous reports to the contrary, Chunk #2 did not come from Whitewater’s account. According to the Pillsbury Report, “Whitewater itself never contributed any money to this land transaction.” Whitewater basically contributed its name, a fact that would harm — not help — the Clintons, who were investors in the Whitewater Development Corp.
For while McDougal shortly switched ownership of those 810 acres from Whitewater to another land-development company the McDougals owned, Whitewater’s name remained on the mortgage, and it still was liable for the $470,000 balance due on the 810 acres. In other words, McDougal messed up Whitewater’s balance sheet by the deal, adding a huge liability to the corporation and thus its owners, including the Clintons. The use of Whitewater initially to buy the land, which the Clintons say they knew nothing about, “did not benefit Whitewater or the Clintons,” the Pillsbury Report concluded. “In fact, it left Whitewater with a large mortgage but no corresponding asset.”
FBI agent Michael Patkus testified May 3, 1996, at the trial on fraud and conspiracy charges of the McDougals and then-Arkansas Gov. Jim Guy Tucker, about how Chunk #2, the $25,000 earnest money, came from Hale’s $300,000 loan. That cropped up in stories repeatedly thereafter, but not that the money was for a tract just temporarily in Whitewater’s name, nor that the chunk did anything but prop up Whitewater; it hurt the enterprise.
So much for Chunk #2.
Why, then, could the press be so wrong?
Let’s start from the beginning. The New York Times on May 4, 1996, carried its edited version of a dispatch attributed to The Associated Press:
Little Rock, Ark., May 3 (AP)—The prosecution rested its case today in the trial of Gov. Jim Guy Tucker and President Clinton’s former Whitewater partners after presenting testimony that money from an allegedly fraudulent loan went to benefit the Whitewater development ....
The end of the nine-week prosecution case came after jurors heard an F.B.I. agent testify that nearly $50,000 from a $300,000 loan to the defendant Susan McDougal was used to cover Whitewater-related expenses. The other partners in the real estate development were James, who was then her husband and is also a defendant; Bill Clinton, who was then Governor, and his wife, Hillary.
In his testimony Special Agent Michael Patkus summarized his analysis of expenditures from the April 1986 loan.
Mr. Patkus said Mr. McDougal had used $25,000 as part of a down payment for land he bought on behalf of the Whitewater Development Corporation. Eventually $24,455 more was deposited in the Whitewater account of Madison Guaranty Savings and Loan to cover a Whitewater payment to a realty company, the agent testified.
Mr. Patkus also listed $13,810 in advertising bills that the McDougals paid for Bill Henley’s legislative campaign. Mr. Henley is Mrs. McDougal’s brother.
Prosecutors say that the $300,000 loan from Capital Management Services was supposed to be used only for Mrs. McDougal’s advertising company, Master Marketing, and that the other uses were illegal. The allegation is part of the Federal bank fraud case against the defendants. Mr. Patkus said there were no checks made on behalf of Master Marketing.
On Thursday, Judge Howard limited Mr. Patkus’s testimony to summarizing complex financial documents already in evidence. Lawyers for Mr. Tucker accused prosecutors of planning to use Mr. Patkus’s testimony as a ploy to get two shots at closing arguments.
The McDougals and Mr. Tucker are accused of misusing $3 million in loans from two federally backed lenders. One was the McDougals own Madison savings and loan; the other was Capital Management Services, licensed by the Small Business Administration to make business loans. Capital Management Services was run by David Hale, who was the chief prosecution witness.
However, the story AP distributed on its wire differed in significant respects from the edited account that ran in The Times. Here is the original dispatch:
Little Rock, Ark—Prosecutors rested their case against Gov. Jim Guy Tucker and President Clinton’s former business partners Friday without showing how Clinton benefited from a $300,000 loan, as another witness had claimed.
David Hale, the Whitewater prosecutor’s chief witness, testified a month ago that James McDougal and Clinton benefited from the loan, which was made in the name of Susan McDougal’s advertising business.
But an FBI agent’s testimony Friday made no direct link between the loan proceeds and Clinton, leaving the issue hanging after nine weeks of testimony.
Tucker and the McDougals are accused of fraud and conspiracy. Prosecutors say they illegally obtained nearly $3 million in loans from a pair of federally backed banks.
Clinton has not been charged. He was called to testify as a defense witness by the McDougals, who say that only Clinton could counter claims Hale made during two years of cooperation with Whitewater prosecutors ... .
Prosecutor Ray Jahn said it was not important to link Clinton to money from the $300,000 loan, even if the omission might undermine Hale’s credibility.
“We do know it was Mr. McDougal and Mrs. McDougal who controlled how the money was spent,” Jahn said. It was only necessary to prove that it was not spent on Mrs. McDougal’s Master Marketing business, he said.
Hale claimed Clinton asked him for a $150,000 loan in January 1986 and that McDougal later called and asked Hale to increase the loan amount to $300,000 and write a check payable to Master Marketing.
Jahn said Friday that Hale didn’t know what happened to the money, but under prosecution questioning April 2, Hale testified the money ultimately went to McDougal and Clinton.
When asked who would pay back the money, Hale said then, “I was looking to Jim McDougal and Bill Clinton.” When asked who benefited from the loan, Hale said, “Jim McDougal and Bill Clinton.”
But FBI Special Agent Michael Patkus' accounting of the money Friday did not mention the president by name. Of the $300,000, he referred to only two payments, totaling about $50,000, that could have benefited Clinton as a Whitewater partner, and did not make a direct connection.
Patkus said $25,000 of the loan was used as a down-payment on land south of Little Rock that Whitewater bought. Another $24,455 covered a Whitewater payment to a realty company for land the company owned in northern Arkansas. While the Clintons and McDougals were joint owners of Whitewater, McDougal ran it.
The Washington Post also erred when it reported, “About $50,000 of the proceeds of that [$300,000] loan went into a Whitewater account” (R. H. Melton and Michael Haddigen, May 29, 1996.)
William Safire went further: “That [$300,000] was supposed to be used only to help the ’economically disadvantaged,’ but a large chunk was used to buy property for Whitewater Development. If the Clintons knew about this abuse ... then they would be accomplices in stealing $50,000 from the poor.” (New York Times, May30, 1996.)
The New Yorker went even further: “The verdict established as fact-proved by the prosecution, backed by documents, and certified by a jury-that some of the money that the McDougals obtained by fraud did indeed end up in Whitewater at a time when the Clintons co-owned the company .... One of the fraudulent loans, for $300,000, went to Susan McDougal. Of this $300,000, $50,000wasfunneledbytheMcDougals into Whitewater. To put it simply, it has now been proved in a court of law that nearly $50,000 obtained by defrauding the United States government went into a company that was co-owned by Bill and Hillary Clinton.” (Michael Kelly, June 10, 1996.)
In recent months the error has persisted. On October 2 of this year The New York Times reported: “ ... $50,000 of [the $300,000] later wound up paying for expenses related to the [Whitewater] land development .... ” (Todd S. Purdum).
And Frontline’s “Once Upon a Time in Arkansas” announced: “What happened to that $300,000 loan Susan [McDougal] received from [David] Hale? Twenty-five thousand dollars of it covered a debt [on Whitewater]. ” (Michael Kirk and Peter Boyer, PBS, Oct. 7, 1997.)
How could they all say that?
Perhaps because the testimony of FBI agent Patkus was complicated and confusing. Patkus, who has a background in accounting, was quite precise, though, in identifying Chunk #1 as coming from the Stephens Security Bank, not the government-backed $300,000 loan, despite what the AP and The New York Times wrote. He was never asked if he thought the repayment of part of that Stephens loan with part of the $300,000 loan amounted to use of the illegal Hale loan to benefit Whitewater, nor did he characterize it that way.
The initial misreports of Patkus ’s testimony seem to have infected subsequent coverage. Purdum of The Times, for instance, says he simply repeated what he found in clips. Robert L. Shaw, AP’s Little Rock Bureau Chief, said: “Our story is a fair summation of the agent’s testimony.” The New York Times did not respond to requests for comment.
Perhaps the reporters were following the prosecutors, who seemed willing to put the worst possible spin to Whitewater by categorically tying Chunk #1 to Hale’s loan. Independent Counsel Kenneth Starr, moreover, told a Detroit audience last fall that agent Patkus had found “some [of the $300,000] ended up on the account of Whitewater Development.”
Perhaps the stories were wrong because they reported a fact that left an implication opposite of the truth. It is true that Chunk #2 helped — for less than two months — buy land for Whitewater, but, regardless of the intent by McDougal in transferring the money, that was a transaction that turned out to be detrimental, not helpful, to Whitewater and the Clintons. That last part — the impact — was ignored.
Perhaps some reporters are just careless.
But all those perhapses are disturbing. The press has been preoccupied by Whitewater since 1992. Coverage of the “nearly $50,000,” which reputedly made Whitewater (i.e. the Clintons) akin to fraud, has been a key element.
And it’s been a key element that’s been written about carelessly, or incompletely, or just plain falsely.