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Whitewater Counsel Starr Prepares to Try McDougal

By Charles V. Zehren

After 19 months of investigation, Independent Counsel Kenneth Starr begins trying his first Whitewater-related criminal fraud case here Monday.

A jury will consider the guilt or innocence of James McDougal and his ex-wife Susan - partners in the failed 1979 Whitewater real estate development with President Clinton and first lady Hillary Rodham Clinton - and co-defendant Jim Guy Tucker, the sitting governor.

The Clintons face no charges in the case, but the president has been subpoenaed as a witness. And even the Clintons' Democratic supporters in Washington and Arkansas acknowledge the president's testimony - via videotape or satellite link with the White House - will resonate politically as he seeks re-election. The Tucker-McDougal trial, these supporters say, is sure to add to the character questions that will dog the first couple.

Attorneys for the defendants say the charges are old, false and unsubstantiated. They dismiss Starr's prosecution as nothing but an election-year witchhunt aimed at Clinton and the Democrats. And they brand David Hale - the convicted swindler who has already pleaded guilty in Whitewater and who will be the government's central witness - as an inveterate liar out to save his own skin.

Attorneys suggest the trial will last at least until early May. The U.S. District Court judge who will hear the case, George Howard Jr., a former civil rights lawyer and Democratic appointee, is regarded as a fair-minded jurist. Howard, who presided over James McDougal's 1990 acquittal on related charges, is also known for his deliberative style and careful adherence to proper courtroom procedure.

"The duration of this trial rests to a large extent with the prosecution," said McDougal's attorney, Sam Heuer. "This trial could be conducted with as few as 15 witnesses to as many as 80. They have the sole ability to determine how long this trial will last."

How long the trial lasts could affect how long the Senate Whitewater probe lasts. In seeking an extension of his Senate investigation - so far, Democrats have bottled up that request - Sen. Alfonse D'Amato, R-N.Y., said the Whitewater Committee could not complete its work until participants in the trial are available for congressional testimony. Therefore, it's possible the White House and the Clinton campaign will face Whitewater allegations through this summer's political conventions and into the early fall.

Yet the Clintons got some good news last week, when an investigative team led by former District of Columbia U.S. Attorney Jay B. Stephens, a Republican who is a Clinton administration critic, issued a report to the Federal Deposit Insurance Corp. concluding that the Rose Law Firm, Hillary Clinton's former Little Rock firm, should not be sued for work it did for McDougal's Madison Guaranty Savings & Loan.

While they have unearthed what Republicans say are lapses in judgment and ethical miscues by the Clintons and their aides, neither Starr nor the committee has shown evidence of illegality.

And despite concerns among Democrats and hopes among Republicans, it is unlikely that secret grand juries convened by Starr will offer up an "October Surprise" and indict the president, lawyers involved in the case say.

In August, a federal grand jury in Little Rock returned a 21-count felony indictment accusing Tucker and the McDougals of engaging in a broad conspiracy of fraudulent transactions, including illegally obtaining $3 million in loans from federally insured lenders in 1985 and 1986. The loans, the indictment charges, were designed to benefit Tucker, the McDougals and Hale, who was then operating through Capital Management Services, an investment company.

Hale has said - without presenting proof - that then-Gov. Clinton pressured him to make a $300,000 federally backed loan to Susan McDougal. The loan to her company, Master Marketing, was supposed to be used to promote McDougal projects including Whitewater, a 230-acre development along the White River in Marion County. That loan was never repaid.

Much of the upcoming trial will focus on fraud allegations swirling around the failure of the thrift, which federal investigators say McDougal operated like a piggy bank for the Arkansas political and business elite. In addition, Starr recently obtained indictments against Herby Branscum Jr. and Robert M. Hill for allegedly using Perry County (Ark.) Bank funds to illegally help the Clintons.