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Hale Implicates Clinton, Others in Whitewater Trial

By Susan Schmidt
The Washington Post
LITTLE ROCK, Ark.

David Hale, a onetime Arkansas political insider who has spent the past two years in hiding, took the witness stand in federal court Monday and began describing a financial fraud scheme whose players including Bill Clinton's former business partners, his successor as governor of Arkansas - and, Hale has claimed, Clinton himself.

Hale, soft-spoken and matter-of-fact, told the jury how a conspiracy to milk federal lending institutions for some $3 million was hatched at now-governor Jim Guy Tucker's kitchen table in the fall of 1985. The participants that night, he said, were himself, Tucker and one of the trial's other three defendants, James B. McDougal, the owner of a savings and loan and the Clintons' Whitewater business partner.

Hale's testimony in the federal court trial is central to Whitewater independent counsel Kenneth W. Starr's charges that Tucker, McDougal and McDougal's ex-wife Susan conspired to defraud Madison Guaranty S&L and Hale's federally financed company that was supposed to make loans to small business owners.

Hale, a confessed felon, is the only witness to have claimed firsthand knowledge of criminal activity by Clinton, and this is the first time he has testified in public.

On the stand Monday Hale testified that during the meeting at Tucker's home, McDougal said they needed to free up loan money from Hale's company, Capital Management Services. Hale said McDougal told him "We're going to need to clean up some members of the political family."

Hale said he knew what McDougal meant, " that it involved Bill Clinton and maybe some of his aides and political associates, and Jim Guy Tucker."

Hale has publicly alleged that Clinton subsequently pressured him during several encounters to complete the loan transactions. Hale is expected to testify about conversations with Clinton in the coming days.

Clinton has said that Hale fabricated his allegations to try to make a deal with prosecutors when he was facing federal indictment in 1993. The president has been subpoenaed as a witness by the defense to rebut Hale's claims and cast doubt on his credibility.

Hale, a former municipal judge, has pled guilty to defrauding the Small Business Administration, the federal agency that financed his company. He was sentenced last week to 28 months in prison and is testifying under a grant of immunity from further federal prosecution. Defense lawyers have vowed to put his shady past on trial when they cross-examine him.

Under questioning from the government's lead prosecutor, Ray Jahn, Hale described how Tucker and McDougal asked him to meet them one evening at a piece of property outside Little Rock that Tucker was going to buy from Madison. Hale said the trio rode out to the property in McDougal's Jaguar. When he saw the swampy land, he said he asked Tucker, "How did he let McDougal pawn that turkey off on him." Hale said Tucker replied that, "McDougal made him an offer he couldn't refuse." It was clear to him, Hale said, that McDougal was giving Tucker a "sweet deal."

By the time they left Tucker's house later that night, said Hale, "We agreed on what our duties were and what we were going to do." Their plan, he said, was to sell off a piece of real estate controlled by Hale to a straw buyer at an inflated price. Madison would provide the loan, Hale would inject the profits into his company and the SBA would in turn match those funds three-to-one. They would use the money - some $2 million - to make loans to Tucker, the McDougals and others in the "political family," said Hale.

Prosecutors set the stage for Hale's story by having him describe his long-standing ties to McDougal, Tucker and to a lesser extent, Clinton.

Hale described how he and McDougal have been friends since they met as fraternity brothers at the University of Arkansas about 35 years ago.

Both were active in Democratic politics even then. Hale's friendship with Tucker goes back almost as far, he said, recounting how he served as co-chairman of Tucker's unsuccessful 1978 campaign for the U.S. Senate.

Tucker later served as Capital Management's lawyer and began receiving loans in 1983. Describing how one CMS loan to Tucker violated SBA rules, Hale said, "He was not only my personal friend, but my corporate attorney." Describing how they hid those relationships from SBA officials, Hale said, "We had to put the loan in someone else's name."