[Congressional Record Volume 140, Number 35 (Thursday, March 24, 1994)]
[House]
[Page H]
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[Congressional Record: March 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
H O U S E O F R E P R E S E N T A T I V E S
Vol. 140
WASHINGTON, THURSDAY, MARCH 24, 1994
No. 35--Part II
House of Representatives
A POINT OF PERSONAL PRIVILEGE--ALLEGED BREAKDOWN OF COMITY AMONG
COMMITTEE MEMBERS IN RELATION TO OVERSIGHT HEARINGS ON RESOLUTION TRUST
CORPORATION
Mr. LEACH. Madam Speaker, I rise to a point of personal privilege of
the House.
The SPEAKER pro tempore (Mrs. Kennelly). The gentleman from Iowa has
risen to a point of personal privilege, and he has indicated to the
Chair the press accounts which give rise to the request for the
personal privilege.
The gentleman from Iowa [Mr. Leach] is now recognized for 1 hour.
Mr. LEACH. Madam Speaker, I rise to a point of personal privilege of
the House.
In rising to this point of privilege, I wish to express concern about
the breakdown of comity that has occurred on a personal and procedural
level in the House Banking Committee.
On a personal level, unfortunate adjectives have been used; on a
procedural level, unprecedented tactics have been employed.
I don't wish to dwell on the personal, except to stress my high
regard for the chairman of the Banking Committee and to suggest that,
as the theologian Reinhold Niebuhr once observed, the temper and
integrity of the political debate is more important in our kind of
democracy than the outcome of any issue.
Motivational aspersions are no substitute for full disclosure;
indignation no substitute for pursuit of truth.
Members of the majority may be speaking the truth when they indicate
they have no evidence of a link between the failure of an Arkansas S&L
and Whitewater and that they know of no improprieties at issue. But it
should be understood that not speaking an untruth is not the same as
describing a truthful situation, particularly if there has been no
serious effort to pursue the truth.
Constitutionally it is the duty of Congress to oversee breaches of
law or public ethics in the executive branch. During the 12 years of
the so-called divided Government of the Reagan/Bush era, the
legislative branch took its constitutionally mandated oversight
function seriously, as witnessed by the expansion in the size of its
staff and the number of investigations undertaken.
Now both the executive and the legislative branches of Government are
controlled by the same political party. The oversight mandate thus
falls disproportionately upon the ranking members of the respective
committees for those areas of the executive branch over which they have
jurisdiction. Not to assume leadership in performing the oversight
function with regard to the way in which the financial institutions of
this country are managed and regulated would be to violate my oath to
``support and defend the Constitution of the United States * * * and *
* * well and faithfully discharge the duties of the office.''
If the majority party refuses to uphold its responsibilities because
of political embarrassment to its party's top elected official, the
minority party is left with the choice either of joining in a
complicity of silence or pursuing investigations that run the danger of
being partisan.
In this context, I would simply emphasize that I raised the
Whitewater issue with great reluctance, realizing the import as well as
the power of the Presidency. I fully understand the political and
personal liabilities involved. Nonetheless, I feel it would be
inconsistent, indeed, hypocritical, to my own values, if I refused to
pursue a line of inquiry potentially embarrassing to the President of a
country which from its inception was intended to be hallmarked by law
and its applicability to all citizens. It is, after all, the
establishment of a government of laws, not men, that defines the
uniqueness of the American experiment with democracy.
Procedurally, it should be noted that the minority is currently
engaged in one of the most profound checks and balances philosophical
engagements with the executive branch in the modern history of the
Congress. This engagement carries far greater implications than any
judgment relating to a particular embarrassment of a particular public
official at a particular time because at issue is precedent: whether in
future circumstances the oversight capacities of Congress can be
thwarted if the majority party of Congress is the same as that in
control of the executive branch and chooses to refrain from its
oversight obligations in order not to embarrass its party's standings.
It is possible that the constitutional precedent for our checks and
balances system surrounding the refusal of the administration to
cooperate with an oversight probe of the executive branch which the
majority party does not sanction may have more long-term negative
consequences than any episodic embarrassment that might relate to this
or any President's past. What is at issue is the definition of Congress
as it applies to the constitutionally granted oversight
responsibilities of the legislature. In our checks and balances system,
Congress was given oversight responsibilities, but this administration
is suggesting in response to minority requests for documentation from
executive agencies that only chairmen speak for Congress. The minority
in Congress, by this logic, has no power to advance or fulfill its
constitutional rights if the majority does not concur in request for
information. If such precedent is allowed to stand, Congress's
oversight capacities will for all practical purposes be hamstrung
whenever the executive and legislative branches of Government are
controlled by the same party. Would our Founding Fathers have had this
in mind?
In this connection, on December 9, 1993, as ranking member of the
Banking Committee, I wrote Federal regulatory agencies to request
certain documents of an oversight interest [example, Tab A]. In a
followup letter I pointed out, as the courts have noted, ``The Congress
rarely acts as a body. Its manifold duties in the legislative,
investigative, and oversight fields are almost invariably carried out
through committees, committee chairmen, individual members, and staff
personnel.'' Murphy v. Department of Army, 613 F.2d 1151, 1156 (1979).
In addition, the court stated:
The Senate and the House are so organized that certain
legislative and quasi-legislative activities may be
accomplished only through committee action. In other
respects, however, the legislature acts through its
individual Members. All Members have a constitutionally
recognized status entitling them to share in general
congressional powers and responsibilities, many of them
requiring access to executive information. It would be an
inappropriate intrusion into the legislative sphere for the
courts to decide without congressional direction that, for
example, only the chairman of a committee shall be regarded
as the official voice of the Congress for purposes of
receiving such information, as distinguished from its ranking
minority member, or other committee members, or other members
of Congress. Each of them participates in the law-making
process; each has a voice and a vote in that process; and
each is entitled to request such information from the
executive agencies as will enable him to carry out the
responsibilities of a legislator.
Agency heads responded that a ranking member only has the authority
of an individual Member of Congress and, therefore, may only obtain
information that would be available to the public pursuant to the
Freedom of Information Act. In addition, the Office of Thrift
Supervision asserted that it differs ``with the view that Rules X and
XI of the House of Representatives grant to a ranking minority member--
or any individual member--the same authority to request information
that a committee chairman possesses.'' In short, the agencies contend
that only chairmen, not ranking members, speak for Congress.
Subsequently, on March 8, 1994, I wrote requesting information for
the Banking Committee's upcoming RTC oversight hearing [Tab B]. Agency
heads again responded by holding to the position that only the chairman
of a committee would be permitted access to agency documents.
In this dispute about who is entitled to speak for Congress in the
context of Congress' right and obligation under Article I of the
Constitution to conduct oversight of the executive branch, the chairman
of the Banking Committee, in what may have been an effort to bolster
the executive's position, wrote agency heads on March 10, 1994, to
suggest that they deny my document request and wrote separately on
March 14, 1994, to state that they need not answer questions concerning
Madison Guaranty Savings and Loan at the scheduled hearings [Tabs C and
D]. The chairman's letter contained an implicit and unprecedented
philosophical assertion that not only does a chairman have the
exclusive right to obtain oversight documents from the executive
branch, but the right to deny such documentation to other Members and
the right even to deny inquiries about issues clearly germane to the
subject of hearings.
So that there is no misunderstanding, the RTC oversight hearing was
scheduled under requirement of law, section 21A(k)(6) of the Federal
Home Loan Bank Act (12 U.S.C. Sec. 1441a(k)(6)), and there is no
provision in that law for exceptions to congressional oversight that
relate to a single State and its institutions. The U.S. Congress wrote
a law applicable to all 50 States, not 49, and the oversight of our
laws applies throughout this country. Just as in America no individual
is above the law, no State is beyond its reach. Just as no individual
is entitled to violate the law out of ignorance of it, no person, even
the chairman of a congressional committee, is entitled after the fact
to be sole interpreter of a law's meaning or serve as a censor to
another Member's inquiries. Indeed, no Member of Congress has the right
or power to deny relevant information to another Member.
In addition to the Federal Home Loan Bank Act, the committee's role
in oversight is buttressed by the House rules as modified under the
Legislative Reorganization Act of 1970. I refer to paragraph 2 of House
Rule X providing for the committee's ``General Oversight
Responsibilities'' which states:
(b)(1) Each standing committee . . . shall review and
study, on a continuing basis, the application,
administration, execution, and effectiveness of those laws,
or parts of laws, the subject matter of which is within the
jurisdiction of that committee and the organization and
operation of the Federal agencies and entities having
responsibilities in or for the administration and execution
thereof, in order to determine whether such laws and the
programs thereunder are being implemented and carried out in
accordance with the intent of the congress and whether such
programs should be continued, curtailed, or eliminated.
Separate procedural rules may apply to an investigative hearing, but
such rules do not apply in this case. The statutorily mandated RTC
hearing is an oversight hearing in accordance with rule X. Any reliance
on investigative hearing procedures to deny information to committee
members is misplaced. Any information requests or questions by Members
related in any manner to RTC operations are authorized under the
committee's oversight authority. It is also expected that in answering
questions witnesses have the obligation either to assert appropriate
privileges or fully respond with answers to the questions (See, 2
U.S.C. Sec. 192, Sinclair v. United States, 279 U.S. 263 (1929)) and
such answers shall be truthful. (See, 18 U.S.C. Sec. 1001, U.S. v.
Poindexter, 951 F.2d 369 (D.C. Cir. 1991)).
Moreover, the precedent of the Banking Committee is clear with
respect to the relevance of specific questions on specific
institutions. On numerous occasions at past RTC oversight hearings,
questions related to individual institutions have been asked by
committee members, including the chairman, and answered by witnesses.
In fact, the committee's invitation letter of March 3, 1994, to
Treasury Secretary Bentsen for purposes of the RTC oversight hearing,
seeks testimony and documents related to a specific institution,
Homefed Savings. Of relevance also is the following statement last week
of the chairman of the Senate Banking Committee:
So we have had now over the years since 1989, a very long
series of regular oversight hearings where we call in the
officials responsible for implementing that law to find out
exactly how it is working and if there is a need to change
any particular part of it. Is it working the way it was
designed to work? Have we corrected all the abuses? We were
so concerned about that issue that, in fact, we built into
that 1989 law a requirement that there has to be a hearing
here in Congress every 6 months on how that cleanup effort is
doing and how that law is being implemented. Within the text
of that part of the law we went so far as to say that any
institutions that failed in that time period, in the mid-
1980's, that if any Senator on the committee wanted to come
in and ask questions about that particular institution, that
they had a right in law to do so. We did not foresee the
Madison case at that time, but it applies precisely to the
Madison case and every other case out of that time period.
(Cong. Rec. S3153, March 17, 1994).
To the degree the chairman's letters are open to an interpretation
that would imply the possibility that they have been requested by the
administration to bolster its efforts to deny information to the
Congress and thereby the public, at issue would be a collusive effort
by the majority party in the Congress to aid and abet the executive
branch in its concerted effort to deny disclosure of information
related to legitimate congressional oversight.
In this regard, a letter recently copied to Representative William
Clinger, ranking member of the Government Operations Committee,
evidences a comparable approach in another committee of Congress [Tab
E].
It is the minority's position that executive branch witnesses must
address their obligations to respond to legitimate oversight requests
and legitimate inquiries on the subject of hearings as required by the
law and the Constitution, not in conjunction with any arbitrary desire
of a chairman to deny discussion on a subject the executive branch
would rather not forthcomingly address. The minority party, has a
baseline assumption that officials of the U.S. Government will comply
with the law and, when appearing before a committee of Congress, abide
by the Code of Government Ethics for Federal employees to ``Uphold the
Constitution, laws, and regulations of the United States and all
governments therein and never be party to their evasion.'' [Public Law
No. 96-303, July 3, 1980, 94 Stat. 855].
The constitutionally-derived obligation of oversight cannot be short-
circuited at the whim of the congressional majority. It is just as much
the duty of the minority party, as the majority. Indeed, in real life
circumstance as evidenced in this particular incident, oversight may in
practice imply a greater obligation on the party out of power than the
party in control of the executive branch.
Hodding Carter, the distinguished journalist from Mississippi,
recently noted that southerners of virtually all philosophical stripes
recognized a little or a lot of truth in certain northern concerns
about discrimination that existed in the South in the heyday of civil
rights activism. But with understandable resentment all felt that
northerners had a duty to look a little more assiduously in their own
backyards. In this probe of Whitewater, I believe an outsider might
conclude that the single party concentration of political power in
Arkansas may be in need of review that the shadow of Lyndon Johnson and
Huey Long may have been cast to greatly on a former governorship. But
as a northerner, I am obligated to note that my primary responsibility
is my backyard, in this case the body to which I am elected to serve.
While I believe it would be unfair to suggest that one of America's
great political parties is more honest than the other, I believe the
concerted effort to avoid accountability and full disclosure in the
Whitewater incident, and the unfortunate institutional precedents in
process of being established, reflect attitudes more associated with
single party governance of closed than open societies. Competition is
the American way. When single party dominance is long and deep,
arrogance associated with power creeps incontestably into the system.
Whitewater, in the end, may tell more about Congress than the executive
branch.
In this context, the minority raised concerns about the manner in
which the RTC oversight hearing scheduled this week might have been
conducted. Nevertheless, the minority was disappointed the hearing was
abruptly postponed.
Postponement of the hearing by the majority raises, above anything
else, the issue of compliance with the law. Compliance with the law is
not a matter of convenience or discretion. The majority party has no
prerogative to avoid capriciously its legal obligations.
Hearings mandated by statute were to have occurred by December 3,
1993. It is a statutory obligation of the majority in the legislative
branch to conduct on a timely basis RTC oversight; it is the statutory
obligation of the executive to cooperate with Congress and comply with
its legal responsibilities.
The negotiations this week between leaders of the House which led to
the passage of a bipartisan resolution expressing the sense of the
House as to the need to hold bipartisan hearings are promising. The
subsequent statements by the Speaker that these discussions were of the
``possibility of hearings, not a concession that hearings are not
necessarily going to take place,'' is disappointing. The majority that
an obligation to ensure the decision to postpone indefinitely RTC
hearings does not amount to yet another example of Congress not
applying the law to itself.
With regard to a possible hearing, let me stress the minority has
offered to cooperate fully with the special counsel. We have
transferred substantial information to his office. We have given him
our proposed witness list and offered to support a delay in the day of
hearings provided under House rules to the minority to allow him a
chance to depose witnesses first. For his part, the special counsel, in
a meeting on March 17, 1994, with the minority, said that he would not
impede in any manner executive branch testimony and that he would not
stand in the way of an RTC oversight hearing. Mr. Fiske also stated
that he did not object to the disclosure of copies of documents to
Congress, other than White House documents. The existence of a special
counsel appointed in the Madison case cannot be used as a rationale to
avoid providing RTC oversight information to Congress.
Congress and prosecuting attorneys have differentiated roles, but
they are by no means incompatible. In fact, they are generally
complementary. Indeed, in the Banking Committee hearings over the past
decade on institutions such as Lincoln--Charles Keating, and
Silverado--Neil Bush, the Justice Department had tandem investigations
underway. Hearings almost always reveal knowledge and perspective that
is helpful to prosecutors. It was, after all, Senator Ervin's committee
that revealed the existence of the Watergate tapes and it was the
recent Senate hearing that revealed improper contacts between executive
branch agencies and the White House. The major recent exception where a
prosecutor was undercut by Congress involved excessive zeal to
embarrass Presidents Reagan and Bush that caused a committee to offer
immunity to certain witnesses in the Iran Contra people. But the more
general proposition is that constraining a congressional inquiry has
the effect of reducing knowledge, thus reducing prosecutorial
discretion.
Mr. Speaker, in a country in which process is our most important
product, it is the belief of this Member that the precedents
established in this investigation are more important than the
investigation itself. Nevertheless, I come to the floor this afternoon
to present to the attention of the House and the American people some
findings, with supporting documentation, the Minority has uncovered in
its ongoing investigation of the Whitewater/Madison affair.
Accordingly, I would like to review in both a perspective and
information dispensing sense the Madison/Whitewater issue and divide
the remainder of my discussion in two categories: what happened and how
the administration has responded.
On the landscape of political scandals Whitewater may be a bump, but
it speaks mountains about me-generation public ethics as well as single
party control of certain States and the U.S. Congress.
In a nutshell, Whitewater is about the arrogance of power--
Machiavellian machinations of single-party Government. It all began in
the late 1970's when a budding S&L owner named James McDougal formed a
50-50 real estate venture with a young politician, the then Attorney
General of Arkansas, Bill Clinton. In this venture called Whitewater,
the S&L owner and S&L affiliated entities provided virtually all,
perhaps, all, the money; the Governor-in-the-making provided his name.
Over the years, the company received infusions of cash from the S&L
as well as from a small business investment corporation which diverted,
allegedly at the Governor's request, federally-guaranteed funds from a
program designed for socially and economically disadvantaged people to
the Governor's partners and thence, in part, to Whitewater.
Some of these funds were used to pay off personal and campaign
liabilities of the Governor; some to purchase a tract of land from a
company to which the State had just given a significant tax break.
Whitewater records have apparently been largely lost. A review of the
numerous land transactions, however, raises questions of what happened
to the money that came into the company and a review of the President's
tax records raises questions about tax deductions that were taken and
income that may not have been declared.
Under the governorship of Bill Clinton, Jim McDougal was named a
Gubernatorial aide to serve principally liaison to the Economic
Development, Commerce, and Highway and Transportation Departments; the
first lady of Arkansas was hired to represent the S&L before State
regulators; the president of the S&L was placed on the State S&L
commission; an attorney who represented the S&L was named the State S&L
regulator; the S&L received rent from State agencies; Whitewater had
roads constructed using a State agency program and State funds; and the
S&L was allowed to operate, despite being insolvent for an extended
period, providing millions in loans and investment dollars to insiders
and the Arkansas political establishment.
Under the governorship of Bill Clinton, the S&L was allowed to grow
25-fold until Federal regulators forced its closing, at which time
taxpayers picked up the tab for losses that amounted to approximately
50 percent of the institutions's deposit base.
Under the governorship of Bill Clinton, the total number of State-
chartered savings associations declined dramatically. Over the period
December 1979 to December 1992, the number of stock State-chartered
thrifts in Arkansas declined from the 33, with assets of $961,002,000
to 3, with assets of $146,072,000. Viewed another way, the amount of
assets available to support home mortgage lending for the people of
Arkansas declined.
The story of Whitewater is thus part and parcel the story of the
greatest domestic policy mistake of the century--the quarter-trillion
dollar S&L debacle. It is the story of a company which in one sense was
a simple real estate development venture, but in another was a vehicle
used to spirit federally insured deposits from an S&L and compromise a
significant political figure.
In the largest series of bank robberies in history, which
precipitated an industry bail out larger than the taxpayers provided
Lockheed, Chrysler, and New York City times a factor of 10, it is fair
to ask: ``What happened? Who is responsible.''
An answer to these inquiries requires an understanding that those
accountable are not only a few negligent and corrupt S&L owners, but
attorneys, accountants, State and Federal legislators, regulator and
assorted public officials. As wide ranging as the responsibility is,
however, it is a mistake to be so glassy eyed as not seek lessons for
the future through a demand for individual accountability for breaches
of law and ethics in the past.
Macroeconomics aside, public responsibility for the S&L debacle is of
a tripod nature, involving: First, the conflict-ridden role of Congress
in passing loose laws; second, the ideological mistake of the Reagan
administration in urging deregulation in an industry which requires
responsible standards; and third, the culpability of a small number of
State governments, such as in California, Texas, Louisiana, and
Arkansas, which failed to rein in high flying State-chartered, State-
regulated institutions, which because of the Federal nature of deposit
insurance, precipitated a massive transfer of wealth from States with
responsible governments to those without.
In Arkansas it is impressive how the Federal Government was obligated
to close more than 80 percent of State-chartered S&L's in the 1980's
and how large taxpayer losses were in relation to the State's S&L
deposit base. The failure of the Clinton administration in Little Rock
to fulfill its responsibility to police State financial institutions
had the effect of increasing tax burdens on citizens of Arkansas as
well as other States.
While taxpayers at the national level were forced to pick up the tab
for the mistakes of politicians in whose elections they could not vote,
citizens in States like Arkansas were doubly shortchanged. Not only did
they have to share in eventual bail out costs, but when their home-
based financial institutions frittered away the hard earned deposit
savings of the their State to insiders, fewer resources were made
available to potential homeowners and minority entrepreneurs.
What the Keating-5 scandal was all about was the attempt of an S&L
owner to compromise through political contributions significant
political players, in this case five Senators, to influence regulators
to keep an insolvent, corruptly run, institution from being closed.
What makes Governor Clinton's involvement with a company which helped
breach the vaults of an Arkansas S&L philosophically at least equal to,
but in reality more troubling than the Keating model is that not only
did the institution's management organize conflict-ridden fund-raising
endeavors for the key politician in the State, but through Whitewater
it put the Governor in a compromising personal finance position as
well.
What is extraordinary is the hypocrisy of the circumstance. The
following 1991 announcement statement of Governor Clinton speaks for
itself:
For 12 years of this Reagan-Bush era, the Republicans have
let S&L crooks and self-serving CEO's try to build an economy
out of paper and perks instead of people and products. They
stack the deck in favor of their friends at the top and tell
everybody else to wait for whatever trickles down.
Despite the rhetoric it is remarkable how time after time in the
1980's, alleged defenders of the little guy in American politics found
themselves advancing the interests of a small number of owners of
financial institutions which were run as private piggy banks for
insiders. The intertwining of greed and ambition turned democratic
values upside down.
In our kind of democracy ends simply don't justify means. Just as a
conservative, who may despise government, has no ethical right not to
pay taxes, a liberal has no ethical basis to put the public's money in
his own or his campaign's pocket just because he may have the arrogance
to believe he is advancing a political creed that is in the public's
interest.
Why does all this matter?
Here, it would perhaps be appropriate to paraphrase the great
Illinois Senator, Ev Dirksen: a few thousand here and a few thousand
there and pretty soon it adds up to a real scandal. Put another way, an
ethical lapse here and an ethical lapse there and pretty soon it adds
up to a character deficit.
I have never known anyone in public life better able to put
embarrassing episodes behind him than Bill Clinton. Accordingly, I
couldn't have been more surprised by the discombobulation of the
administration at the minority's restrained request last November for
hearings and full disclosure.
As in most serious public scandals, coverups can prove as troubling
as acts at their source.
Much press attention has centered in recent weeks on the revelations
of improper contact between employees of independent Federal agencies
and the White House. The question of whether a heads up was appropriate
is of significance. More so, is whether the line between a heads up and
coverup was crossed.
By background, for several years a group of criminal investigators
for the RTC in Kansas City reviewed the failure of Madison Guaranty
Savings & Loan in Little Rock and came to the conclusion criminal
referrals were appropriate. In the last week of September 1993, they
sent copies of their referrals to Washington. Within a few days of
receipt of the referrals from the Kansas City office, RTC Washington
officials visited the White House. Within a few weeks, in an
unprecedented change of procedure, Washington demanded to review all
Madison referrals. Within a few months, a senior Kansas City criminal
investigator was removed from the case. Within a few more months,
officials from RTC Washington visited Kansas City to pass on the
determined message that senior RTC officials in Washington wanted it
understood that they wished to claim Whitewater was not responsible for
any losses at Madison.
Courageously, Kansas City investigators refused to allow Washington
RTC objections to change the content of the referrals they sent in the
second week of October 1993, to the Justice Department.
Courageously, Kansas City investigators refused to back the
Washington position that Madison's losses were unrelated to Whitewater
and pointed out to their superiors that in one intensely reviewed 6-
month period alone approximately $70,000 was transferred from Madison
and Madison affiliated companies to Whitewater.
Courageously, Kansas City investigators have sought whistleblower
protection rather than comply with the Washington RTC gag order that no
one form Kansas City could speak with Special Counsel Fiske without
clearance through and accompaniment of Washington RTC officials.
The briefing of the White House by high ranking Department of
Treasury and RTC employees must be understood in the context of the
development and transmittal to the Justice Department of these
referrals and in the context of the possibility Kansas City was in the
process of developing further referrals.
There are many elements of the Whitewater affair that are a bit
esoteric. But the revelations that U.S. Government officials briefed
key White House aides on potential legal actions which independent
regulatory agencies might be obligated to take implicating but not
charging the President and First Lady subvert one of the fundamental
premises of American democracy--that this is a country of laws and not
men.
In America no individual, whatever his or her rank, is privileged in
the eyes of the law. No public official has the right to influence
possible legal actions against him or herself. For this reason agencies
of the Government as well as the White House have precise rules that
govern their employees.
The following standards--31 CFR Sec. 0.735-30--apply to the
Department of Treasury:
An employee should avoid any action . . . which might
result in, or create the appearance of . . .
(2) Giving preferential treatment to any person; . . .
(4) Losing complete independence or impartiality;
(5) Making a Government decision outside official channels;
or
(6) Affecting adversely the confidence of the public in the
integrity of the Government.
Similarly, the following standards contained in 12 CFR Sec. 1605.7
apply to RTC employees:
No employees shall engage in any action, which might result
in, or create the appearance of . . .
(b) giving preferential treatment to any person; . . .
(d) losing complete independence or impartiality;
(e) making an RTC decision outside official channels; or,
(f) adversely affecting the public's confidence in the
integrity of the RTC.
Likewise, the following standards apply to the White House--3 CFR
Sec. 100.735-4:
In all circumstances employees shall conduct themselves so
as to exemplify the highest standards of integrity. An
employee shall avoid any action, whether or not specifically
prohibited by this subpart, which might result in, or create
the appearance of:
(1) Using public office for private gain;
(2) Giving preferential treatment to any person; . . .
(4) Losing complete independence or impartiality;
(5) Making a Government decision outside official channels;
or
(6) Affecting adversely the confidence of the public in the
integrity of the Government.
Perhaps laws have not been broken, but seldom have the public and
private ethics of professionals in the White House and executive
departments and branch agencies been so thoroughly devalued.
The point of all this is that there is a disjunction in this
administration between public policy and private ethics. Americans
abhor privilege; hypocrisy gnaws at the American soul; it leaves a
dispiriting residue of resentment.
What is also extraordinary is the absence of simple truth.
Administration claim: Whitewater caused no losses to Madison.
Fact: As reflected in the minority-developed charts and evidenced by
supporting documentation, Madison and affiliated companies transferred
significant resources to Whitewater. In addition to being a modest-
sized real estate company, with a cash flow derived from land sales,
Whitewater appears to be one of a dozen so companies with direct or
indirect access to Madison and its taxpayer guaranteed deposits.
Administration claim: The Clintons lost money in Whitewater.
Fact: To have lost in Whitewater implies that the Clintons invested
sums which were unrecovered. Their Whitewater partner, James McDougal,
claims at most the Clintons over the years put in $13,500 in
Whitewater. The minority has provided evidence that one land
transaction alone returned more than this amount to the Clintons and
published reports indicate tax deductions of some value were taken. The
Lyons report, as well as a review of land sales, indicates substantial
sums were taken out of Whitewater over the years. It is not clear how
disbursements were arranged. What is clear is that infusions of capital
from land sales, from Madison-affiliated entities and possibly from
others appear to have covered loans the company and the Clintons took
out. The company may have had a negative value when the Clintons sold
their half interest in 1992, but that neither means the Clintons
themselves lost money, nor that questions ought not be asked about how
direct or contingent liabilities may have been disposed of as late as
1992.
Administration claim: The President and his staff would fully
cooperate with Congress.
Fact: The executive branch is actively working to prevent full
disclosure of documents and committee access to witnesses.
Administration claim: It has done nothing wrong in relation to the
RTC investigation into the failure of Madison and is fully cooperating
with Special Counsel Fiske's probe.
Fact: Officials of an independent regulatory agency--the RTC--
immediately notified the White House of the probe of Madison by its
Kansas City office and attempted to put in place procedural techniques
to undercut the traditional independence of its regional offices.
Fact: In January 1994, RTC Washington met with Kansas City staff.
After the meeting the Kansas City office filed a formal complaint with
Washington RTC.
Fact: On February 2, 1994, the day Roger Altman briefed the White
House on Madison Guaranty, RTC senior attorney, April Breslaw visited
the Kansas City office and said that Washington would like to say that
Whitewater caused no losses to Madison. Kansas City employees protested
that this was not the case.
Fact: On September 29, 1993, before the new criminal referrals were
sent to the Justice Department, Treasury General Counsel Jean Hanson
briefed White House Counsel on them. Nine days after the meeting, the
referrals were sent to the Justice Department. On October 14, Jean
Hanson with Secretary Bentsen's press secretary and chief of staff met
with Presidential advisors ostensibly to discuss press inquiries
related to Madison Guaranty.
Fact: On February 2, right after the appointment of Special Counsel
Robert Fiske, Roger Altman gave the White House a heads-up briefing on
Madison. At the Senate oversight board hearing, Roger Altman revealed
his February 2 meeting, but no others. Several days later, the
September and October White House briefings were revealed. On March 9,
the Washington Post reported that there were numerous other contacts
between the Treasury and the White House on Madison. After subpoenas
are issued it is revealed that there are over 3,500 pages of
documentation surrounding these contacts which the White House terms as
inconsequential.
Fact: After the appointment of Special Counsel Fiske, Washington RTC
officials imposed censorship guidelines on Kansas City RTC employees.
No discussion with Fiske could be made without going through
Washington. No meetings between Kansas City office and Fiske could take
place without accompaniment of Washington officials. No materials could
be forwarded without going through Washington. All information
concerning attorney-client privilege was to be redacted, with
Washington RTC determining the scope.
Administration claim: No fundraising improprieties occurred.
Fact: On April 4, 1985, Jim McDougal hosted a fundraiser for Governor
Clinton. The Clinton's repeatedly asked McDougal to host the fundraiser
to pay off the $50,000 personal loan that Clinton had taken out in the
final weeks of his 1984 campaign. The question at issue is whether some
of the money appears to have been diverted from Madison Guaranty, which
would then, with the failure of Madison, imply deferred Federal
financing of a gubernatorial election. For example, one cashier's check
for $3,000 was made in the name of Charles Peacock III, then a 24-year-
old college student who disclaims any knowledge of having made a
contribution. Mr. Peacock's father was a major Madison borrower and
served at one time on Madison's board. Other checks that the RTC is
reviewing include a $3,000 check from the late Dean Landrum, an
employee of Charles Peacock, and one from Susan McDougal. In the former
Governor's defense, candidates are not always in a position to verify
their campaign contributions.
Mr. Speaker, the President's former partner, Jim McDougal, in a
number of occasions has contested the assertion that no resources were
taken from Madison Guaranty and its related entities and given to
Whitewater. In an AP story on February 4, 1994, and on the ``David
Brinkley Show'' on March 13, 1994, he specifically raised concerns that
Madison Marketing was not owned by Madison Guaranty, but was instead a
sole proprietorship owned by his former wife. He has cited documents
filed with the Arkansas secretary of state's office to buttress his
claim.
Mr. McDougal apparently believes there are subtleties about the
nature of Madison Marketing that need clarification. Mr. McDougal gives
great credence to the circumstance that at some point Madison Marketing
may have been operating as an intended proprietorship of his wife, but,
whether this is true, this appears to be a distinction without a
difference, form over substance. The overwhelming perspective as
contained in the 1986 Federal Home Loan Bank Board Report of
Examination is that all Madison Marketing resources were derived from
Madison Guaranty or its subsidiaries. Any money transferred to
Whitewater from Madison Marketing would thus have had as its source the
S&L. The 1986 FHLBB exam, upon which the earlier staff memo on this
subject was based, states:
A. Objectionable Conflicts of Interest: Conflicts of
interest involving James McDougal, Susan McDougal, and
William Henley have been detrimental to the safety and
soundness of the Institution. These individuals are in
control of the Institution (Madison Guaranty) through their
stock ownership. James McDougal owns 63.5 percent of the
outstanding Madison shares. His wife, Susan McDougal, owns
12.6 percent, and her brother, William Henley owns 8.5
percent. In addition to his ownership control, Mr. McDougal,
as President of the Institution's subsidiary (Madison
Financial), has complete control of the land development
projects discussed in comment.
B. This control enabled Mr. McDougal to structure the
development and financing of the projects so that substantial
cash payments could be diverted to himself, Susan McDougal,
William Henley and others. These payments have directly
benefited these individuals, but Madison Guaranty has
received little or nothing in return. Though they have been
structured to avoid specific Insurance Regulations, these
payments are contrary to the general policy of the FHLBB
concerning conflicts of interest as stated in Insurance
Regulation 571.9 and FHLBB Memorandum R-19a.
Many of these payments have been funneled through business
entities which are owned or controlled by the McDougals,
employees, relatives of employees, or close friends of the
McDougals and Henley.
Madison Marketing: Madison Marketing is paid for doing all
the general advertising for Madison Guaranty and most of the
advertising for Madison Financial's land development
projects. All of Madison Marketing's business is derived from
Madison Guaranty or its subsidiaries. Since 1983 these
payments total $1,532,000.
Given the evidence of Madison Marketing's invoices, it is
questionable how much of these advertising services are
actually performed by the firm. The actual work of
advertising, such as the design and production of commercials
and providing air time or newspaper space, appears to be
performed by others. Madison Marketing apparently just pays
the bills of other providers and adds a 15 percent fee of its
own. Examiners estimated this fee to be approximately
$200,000 since 1983. It would appear that Madison Guaranty
could have an employee perform similar work for much less
money.
Mr. Latham stated that Madison Marketing made no payments
to any stockholders. This statement is false. As a part of a
test for such payments, the examiners discovered two
remittances from Madison Marketing to Susan McDougal which
total $50,000. This was a test, and there may be additional
payments.
Mr. McDougal apparently believes Madison Marketing should be
understood simply as a sole proprietorship of his wife with no ties to
the S&L. This view is in discordance with that of the U.S. Government,
as indicated by the FHLBB report cited above; it is also in discordance
with a contemporaneous view of the legal situation as defined and
described by Mr. McDougal in a July 1, 1986, memorandum from him to
Madison guaranty's president, Mr. John Latham. In this memorandum,
which is a copy of an original Madison document in the possession of
the RTC and the minority of the House Banking Committee, Mr. McDougal
asserts:
In late January 1985, Mrs. McDougal permitted Madison
Marketing to become a subsidiary of Madison Financial
Corporation.
In addition, Mr. Jeff Gerth of the New York Times has reported on
March 8, 1992, an earlier instance in which Madison Marketing
transferred resources to Whitewater. Mr. Gerth reported:
Whitewater's check ledger shows that Whitewater's account
at Madison was overdrawn in 1984, when the corporation was
making payments on the Clinton's loan. Money was deposited to
make up the shortage from Madison Marketing, an affiliate of
the savings and loan that derived its revenues from the
institution, records also show.
In addition, David Hale and his attorney Randy Coleman have asserted
in recent days that it was proceeds of an $825,000 Madison loan that
was used to leverage SBA funds and to make the $300,000 loan to Susan
McDougal, of which $110,000 was deposited to Whitewater.
This evidentiary material coupled with the April 17, 1985, minutes of
Madison Financial's board authorizing a transfer of $30,000
from Madison Financial to Whitewater, the memo of L. Jean Lewis of the
Kansas City RTC office showing over a 6-month period reviewed that
approximately $70,000 was transferred from Madison or affiliated
entities to Whitewater, plus other more confidential RTC material in
our possession indicates there is every credible reason to believe that
Madison Guaranty through affiliated entities did transfer money to
Whitewater.
Furthermore, records filed with the Arkansas Secretary of State's
office show that Mr. McDougal, as president of Madison Financial
Corp.--a subsidiary of Madison Guaranty--on July 26, 1986, filed an
application for registration of fictitious name. The application was
for Madison Financial to do business as Madison Marketing. This
document does not represent incorporation papers. This application
appears to be in response to the 1986 Federal Home Loan Bank exam which
noted that with regard to Madison Marketing and Madison Real Estate,
Madison Financial had not registered as a ``doing business as'' in the
county records.
The effect of this statement with its supporting documentation is to
evidence that:
First, Whitewater may have begun as a legitimate real estate venture
but it came to be used to skim, directly or indirectly, federally
insured deposits from an S&L and a Small Business Investment
Corporation. When each failed, the U.S. taxpayer became obligated to
pick up the tab;
Second, the family of the former Governor of Arkansas received value
from Whitewater in excess of resources invested;
Third, taxpayer guaranteed funds were in all likelihood used to
benefit the campaign of a former Governor;
Fourth, the independence of the U.S. Government's regulatory system
has been flagrantly violated in an effort to protect a single American
citizen; and
Fifth, Congress and the Executive are employing closed society
techniques to resist full disclosure of an embarrassing circumstance,
with unfortunate precedent setting ramifications.
Last month a BBC reporter asked me if we Americans weren't making too
much of this scandal. He raised a fair question. Compared with petty
potentates around the world, who routinely walk off with millions and
in some cases billions, conflicts of interest in American politics are
of petty variety. In this case, however, we have a situation where a
multithousand-dollar conflicts of interest led to a multimillion-dollar
hit on the taxpayer. That is the meaning to the failure of Madison
Guaranty. That is also the meaning of the Small Business Investment
Corporation called Capitol.
It is simply not appropriate to shrug it off and say that this is the
way things are done in small States. They aren't in Nebraska, South
Dakota, or Iowa. It is simply not appropriate to say it isn't a Federal
issue. It is. The U.S. taxpayer has lost millions; homeowners in
Arkansas have lost institutions that were established to serve their
needs; minorities throughout the country cannot lightly shrug off yet
another instance in which a program designed to give them a crack at
the American dream was redirected to serve the investment ego a State
political establishment.
It is suggested by the majority that we have better things to do
around here. There again is some truth to this. The minority also wants
to get on with the business of health care, welfare reform, crime
legislation. Indeed, we pledge to be constructive and are not blocking
any congressional consideration of these issues. But, in a larger
sense, it should be understood that these--we have better things to
do--laments suggest that ethics, governmental integrity, and the
possible misuse of the public's money should be secondary
considerations--something to worry about only when we have time. In a
democratic system, built and maintained on the confidence of the
people, placing such considerations last on the list of priorities is a
highly dubious game. Nothing works over the long haul if the public
loses confidence in its governmental institutions and the people who
operate those institutions. The task of keeping the people's confidence
may not be pretty or pleasant, but it is a first priority in our
system--not a last priority as all too many are suggesting today.
Whitewater is less about the issues of the day than it is the ethics
of our time. It is a central issue not because it is big, but precisely
because it is small.
The way we in America keep our scandals from becoming too big is by
holding people accountable when the amounts of money at issue are
relatively small. It is the principles at issue, not the dollar amounts
that matter.
In conclusion, let me stress that the most difficult issue to deal
with is the question of proportionality. When the minority made its
restrained request for hearings last November, I suggested that while
there was fire with the smoke, Whitewater appeared to be more a camp
than forest fire. I now believe the fire has spread to the grass and is
heading to the trees but that it is still not too late to put it out
with full disclosure and full accountability. In this regard, I
suggested in a December, Washington Post editorial that when breaches
of law or public ethics occur, options often exist as to whether civil
or criminal remedies are appropriate. I presumptuously concluded then
and maintain now that there is no reason not to proceed with civil
accountability in a civil way. The last thing this country needs is a
year long trial or travail for the President of the United States. It
would divide the country and be unfair to the public as well as the
President.
Accordingly, I have pledged to the President's counsel as well as to
the special counsel that I will do my best to put the issue behind once
disclosure is provided. Accountability is in order; a constitutional
crisis is not. The Presidency should neither be jeopardized nor
debilitated. Rather than high crimes and misdemeanors, the issue today
relates to high improprieties and breaches of the public trust.
Additional Supporting Documentation
statement of the honorable james a. leach
1. Notes of Conversation between L. Jean Lewis and April
Breslaw, February 2, 1994. ``(T)he `head people', would like
to be able to say that Whitewater did not cause a loss to
Madison, but the problem is that so far no one has been able
to say that to them.'' Describes losses to Madison caused by
Whitewater.
2. Board of Directors Minutes, Madison Financial
Corporation, April 17, 1985. ``RESOLVED, that the Corporation
pre-pay to Jim McDougal $30,000.00 of his annual bonus in
recognition of the profits of the prior year and that said
bonus is to be paid directly to Whitewater Development.''
3. Application for Registration of Fictitious Name,
Applicant--Madison Financial, Fictitious Name--``Madison
Marketing'' (July 25, 1986).
4. Chronology of Criminal Investigation.
5. Letter of September 1, 1992 from L. Richard Iorio (RTC-
KC) to Steve Irons (FBI) transmitting criminal referral.
6. Letter of September 1, 1992 from L. Richard Iorio (RTC-
KC) to Charles A. Banks (DOJ) transmitting criminal referral.
7. RTC Internal Memorandum, May 3, 1993. Background remarks
and conversation with AUSA Bob Roddey's office re: Madison
Guaranty Savings referral.
8. RTC Internal Memorandum, May 19, 1993. Additional
conversation with Office of Legal Counsel for U.S.
Attorney's, U.S. Justice Department, Washington, D.C. No
record of Madison criminal referral at Washington DOJ.
9. RTC-KC E-Mail, May 19, 1993. Madison matter forwarded to
Donna Henneman in ``Legal Counsel.'' Referral submitted to
that office ``because of the political ramifications and
political motivations.''
10. RTC-KC E-Mail, May 26, 1993. Follow-up call from Donna
Henneman (DOJ). RTC advised by an FBI agent in Little Rock
that it was a ``very solid case of check kiting, and was
highly prosecutable.'' Henneman was growing increasingly
frustrated by the situation, because she had seen the
information, knew that it had come in, and couldn't
understand why she was having such a hard time tracking where
the referral and exhibits had gone.
11. RTC-KC E-Mail, June 8, 1993. Conversation with Donna
Henneman (DOJ). Madison Referral has reappeared on her desk.
Criminal Division has sent memo to Doug Frazier (in Depty
Atty General Heyman's office) advising him that there was
``no identifiable basis for recusal of the U.S. Attorney in
the Eastern District of Arkansas.'' Referral sent to Frazier
for review and final decision.
12. RTC-KC E-Mail, June 23, 1993. Conversation with Donna
Henneman (DOJ). Package returned from Frazier. Frazier
appointed U.S. Attorney in Florida.
13. RTC-KC E-Mail, June 23, 1993. Further Conversation with
Donna Henneman (DOJ). Spoke with Doug Frazier. Decision made
to return the referral back to the Arkansas U.S. Attorney. No
basis for recusal.
14. RTC-KC E-Mail, June 29, 1993. Source indicates Madison
referral has been returned to Little Rock. Acting U.S.
Attorney will not act on referral. It is being held until
U.S. Attorney designee Paula Casey takes office.
15. RTC-KC E-Mail, September 23, 1993. Conversation with
Donna Henneman (DOJ). Washington DOJ would like to be copied
on all future transmittal letters concerning Madison
referrals with an additional one paragraph summary of the
content of the referrals with the transmittal letters, so
that Henneman will be aware of those with ``sensitivity
issues.''
16. RTC-KC E-Mail, September 29, 1993. Conversation with
Donna Henneman (DOJ). DOJ would like copies of all future
Madison referrals sent to Washington in addition to sending
to U.S. Attorney in Little Rock. Henneman will confirm this
in writing.
17. RTC-KC E-Mail, September 29, 1993. Conversation with
Donna Henneman (DOJ). Washington DOJ withdrawing request for
referrals to be sent directly to Washington, but would still
like copies of transmittal letters with addendum summary
paragraph.
18. RTC-KC E-Mail, October 26, 1993. Conversation with
FDIC-Memphis concerning Exam Reports.
19. RTC-KC E-Mail, October 27, 1993. Conversation with
Donna Henneman (DOJ). Inquiry on whether declination letter
had arrived from Little Rock U.S. Attorney.
20. Letter of October 27, 1993 from Paula J. Casey (U.S.
Attorney) to L. Jean Lewis (RTC). Declination letter on the
Madison referral.
21. Letter of November 1, 1993 from L. Jean Lewis (RTC) to
Paula J. Casey (U.S. Attorney). Confirmation of declination
letter and the stipulation from October 27th letter that the
matter was concluded prior to the beginning of Paula Casey's
tenure and that the RTC had never been advised of such
result. Chronology of correspondence between RTC and DOJ.
22. RTC-KC E-Mail, November 10, 1993. Notice of new RTC
lead investigator on Madison. L. Jean Lewis removed as lead
investigator. ``The Powers That Be have decided that I'm
better off out of the line of fire . . .''
23. RTC-KC E-Mail, November 15, 1993. Transmittal of white
paper outlining chronology of events related to 1992 Madison
referral. Challenges news article indicating that decision to
decline Madison referral had been prior to Paula Casey's
appointment.
24. RTC-KC E-Mail, November 15, 1993. Discussion of meeting
with Donald MacKay. ``He's coming here to evaluate us, our
work, and to try and decide just how good this case is, and
how he can best deal with a very sensitive political
situation.''
25. Letter of December 21, 1993 from Michael Caron (RTC) to
Bill Houston (FDIC-Memphis). Seeking information on banks
involved in loan swapping.
26. RTC-KC E-Mail with attachment, January 6, 1994.
Discussion of contact with reporter.
27. RTC Memorandum of January 14, 1994 from Jack Ryan to
RTC Vice Presidents and Assistant Vice Presidents.
Requirement that the collection and distribution of all
information and material responsive to requests concerning
Madison be coordinated through RTC-Washington.
28. RTC-KC E-Mail, January 25, 1994. Establishment of
Madison review team.
29. RTC-KC E-Mail, February 7, 1994. Conversation with
Little Rock U.S. Attorney's office. ``(H)e'd spoken to Jeff
Gerrish recently, and that Gerrish was `absolutely astounded'
that nothing more was ever done criminally with Madison,
beyond the Castle Grande transaction.
30. RTC-KC E-Mail, January 5, 1994. RTC Washington review
of Madison investigators. Response memo from supervisor
stating, ``FYI. This is way out of line. I have already
contacted WDC and filed a formal complaint.''
31. Letter of October 10, 1983 from C.J. Giroir, Jr. (Rose)
to James B. McDougal. Pursuant to discussion with Hillary
Clinton enclosing a billing for Madison Bank & Trust dated
December 23, 1981.
32. Memorandum to Governor Bill Clinton from Jim McDougal,
February 7, 1985. ``Kathy called yesterday to ask for my
recommendations for two people to fill the vacancies on the
State Savings and Loan Board. * * * Bill, we are down to only
about 15 State-chartered savings and loan institutions and I
am about the only one around who has any interest in this
board.''
33. Letter of December 12, 1984 from James B. McDougal
(Whitewater Development Co.) to Ron Proctor (Citizens Bank).
``I have been unsuccessful in trying to meet with Bill and
Hillary to sign the vote renewal. I have forwarded to them by
messenger this morning the note and an envelope with which to
forward it to you. Each month we will deposit into our
account at Flippin an amount sufficient to cover the monthly
payment.''
34. Memorandum to John Latham from Jim Mcdougal, April 18,
1985. ``I want this preferred stock matter cleared up
immediately as I need to go to Washington to sell stock.''
35. Memorandum to John Lathan from Jim McDougal, February
19, 1985. ``Proceed with your idea on the subordinated notes.
We need to make a decision on Madison Bank & Trust.''
36. Memorandum to John from Jim, January 7, 1985. ``You,
Greg, and I need to discuss Securities License. First South
has one on by its Service Corporation.''
37. Memorandum to John Lathan from Jim McDougal, July 11,
1985. ``I need to know everything you have pending before the
Securities Commission as I intend to get with Hillary Clinton
within the next few days.''
____
Notes From the Conversation Between RTC Senior Criminal Investigator L.
Jean Lewis and FDIC Attorney April Breslaw on February 2, 1994, From
Approximately 3:50 p.m. Until 4:35 p.m.
April stated that ``the people at the top'' keep getting
asked about Whitewater, which seems to have become a catch
all phrase for Madison and it's related investigations. She
said that eventually ``this group'' is going to have to make
a statement about whether or not Whitewater caused a loss to
Madison, but the fact that Whitewater had no loan at Madison
provided less potential for a loss. April stated very clearly
that Ryan and Kulka (?), the ``head people'', would like to
be able to say that Whitewater did not cause a loss to
Madison, but the problem is that so far no one has been able
to say that to them. She felt like they wanted to be able to
provide an ``honest answer'', but that there were certain
answers that they would be ``happier about, because it would
get them off the hook.''
April felt that it would have been difficult to determine
exactly what happened with the Whitewater account, because so
many checks had gone in and out of the account, and made a
reference to the end resulting netting itself out. She asked
about Greg Young's work papers on the Maple Creek Farms
reserve for development analysis, and how it didn't seem to
have any apparent tie to Whitewater. I concurred that it
didn't have any legitimately defined tie, which is precisely
why it was included in the referral.
She inquired about the $30,000 check to Jim McDougal from
Whitewater in 5/85, and about the disposition of the funds. I
explained the transaction as I know it: the $30,000 had been
converted to a MGS&L cashier's check, which was subsequently
endorsed by ?????? and deposited to Riggs National Bank. I
explained that when the check was force paid, the Whitewater
account was overdrawn by over $28,000 which was then
subsequently covered by the payment of a $30,000 bonus from
MFC to Jim McDougal, deposited directly to Whitewater on
McDougal's orders.
She asked how we could get to a clear cut answer as to
whether or not Whitewater caused a loss to Madison. I stated
that, as far as I am concerned, there is a clear cut loss. I
also stated that any attempt to extract Whitewater as one
entity from the rest of the McDougal controlled entities
involved in the alleged check kite will distort the entire
picture. I further pointed out that I would produce the
answers that were available, but that I would not facilitate
providing ``the people at the top'' with the ``politically
correct answers just to get them off the hook''.
She asked questions about the specifics of the checks going
through the Whitewater account. I stated that it appeared
that the majority of the checks written out of the Whitewater
account during the window time frame were going to other
financial institutions to make loan payments. I also said
that the referral focused only on a short time frame, but
that if that same research were conducted for a two year
period, it was my belief that the losses to Madison from the
Whitewater account alone would easily exceed $100,000, given
that $80,000 had gone out of the account during the six month
window time frame. I further added that the end loss result
from the entire scam, using all 12 companies/entities, would
be hundreds of thousands of dollars in what were essentially
unauthorized loans.
I stated that if she wanted me to tell her, unequivocally,
that Whitewater didn't cause a loss, I could not do that. I
could only reiterate the allegations contained in the
referral, which are based on fact, and that it is my opinion
and belief that Whitewater did, in fact, cause a loss to
Madison because of the amount of the unauthorized loans that
McDougal made, through the check kite, to entities in which
he was a primary party and beneficiary. I also pointed out
that this ultimately benefited his business partners--the
same business partners that knew they had real estate
ventures that were not cash flowing, but that also knew their
mortgages and/or notes were somehow being paid. I pointed out
that these business partners are intelligent individuals, the
majority of them being attorneys, who must have concluded
that McDougal was making the payments for their benefit. I
posed the question to her, if you know that your mortgages
are being paid, but you aren't putting money into the
venture, and you also know the venture isn't cash flowing,
wouldn't you question the source of the funds being used to
your benefit? Would you just assume that your partner was
making these multi-thousand dollar payments out of the
goodness of his heart? Wouldn't you wonder even more if you
knew that your business partner's main source of income, and
S&L, was in serious financial difficulty, which by 1985 was
fairly common knowledge?
We discussed the initiation of the MGSL investigation, and
how evidence of the check kite came to light. I explained
that after reviewing a series of checks, all of which noted
``loan'' in the memo field, I discerned a pattern that looked
like a check kite, and proceeded to trace funds through the
various accounts, which is a standard investigations
procedures. The end result was the referral alleging a
massive check kite. I also advised April that I had been told
by both the U.S. Attorney's office (Mac Dodson), and the FBI
(Steve Irons) that this was a highly prosecutable case of
check kiting. I also told her that I disputed the declination
of that referral on the basis of ``insufficient
information''. She commented that ``that's what Grand Juries
are for'', and I pointed out that it generally seemed to be
the policy of the U.S. Attorney to agree to open a case
before they would start Grand Jury proceedings. I also noted
that I found the treatment of that particular referral by the
Justice Department to be highly unusual. This concluded our
discussion.
____
Minutes of Meeting Madison Financial Corp.
The Board of Directors of Madison Financial Corporation met
on April 17, 1985, at 1:00 p.m. at the offices of Madison
Financial Corporation at 16th and Main Streets, Little Rock,
Arkansas. All directors were present. The minutes of the
previous meeting were read and approved as recorded.
The first order of business, introduced by John Latham, was
the matter of authorizing prepayment of Jim McDougal's bonus.
After a full discussion, the following resolution was
unanimously adopted, with Jim McDougal abstaining from the
voting:
``Resolved, that the Corporation pre-pay to Jim McDougal
$30,000.00 of his annual bonus in recognition of the profits
of the prior year, and that said bonus is to be paid directly
to Whitewater Development.''
There being no further business, the meeting was adjourned.
James B. McDougal,
Chairman.
____
State of Arkansas
office of the secretary of state,
Application for Registration of Fictitious Name
To: W. J. ``Bill'' McCuen,
Secretary of State
State Capitol, Little Rock, AK.
Pursuant to the provisions of Section 95 of the Arkansas
Business Corporation Act, (Act 576 of 1965), the undersigned
corporation hereby applies for the registration of the use of
a fictitious name and submits herewith the following
statement:
1. The fictitious name under which the business is being,
or will be conducted by this corporation is: Madison
Marketing.
2. The character of the business being or, to be conducted,
under such fictitious name is: Advertising and public
relations.
3. (a) The corporate name of the applicant is: Madison
Financial Corp.
(b) the State of incorporation is: Arkansas.
(c) The location (giving city and street address) of the
registered office of the applicant corporation in Arkansas
is: 2124 First Commercial Building, Little Rock, AR.
4. The applicant states that if it is a foreign corporation
that it is admitted to and authorized to do business in the
State of Arkansas.
5. The filing fee in the amount of $10.00 is enclosed.
Name of Applicant Corporation: Madison Financial
Corporation.
Signature: James B. McDougal, President.
Address: P.O. Box 1583, Little Rock, AR.
____
Criminal Investigative Chronology of Events
march 9 to 23, 1992
Madison Guaranty Savings & Loan ("MGSL") and it's alleged
ties to Whitewater Development Corporation (``Whitewater'')
and Bill & Hillary Clinton were reported in a 3/8/92 New York
Times article by Jeff Gerth. MGSL owner and board chairman,
James B. McDougal, had been previously tried and acquitted on
bank fraud charges in 6/90.
Inquiries regarding these ties emanated from both RTC
Investigations in Washington, D.C., and the former Director
of the Tulsa Consolidated Office. The Washington inquiry went
through the Kansas City Regional Investigations Office to the
Tulsa Consolidated Investigations office, who was responsible
for investigating failed Arkansas thrifts. The question was
raised as to whether Whitewater's relationship with MGSL had
been reviewed, and were there any resulting losses or
potential criminal activity documented. As a result of this
inquiry, the Tulsa office criminal investigator assigned to
the Arkansas thrifts was asked to work with the civil
investigator in reviewing the completed investigative
findings to date. Over a two week period, the criminal
investigator reviewed all thrift records obtained from the
institution at the time of conservatorship which were stored
in the Tulsa office. These records included the available
Board Minutes, committee and subsidiary minutes, Fidelity
Bond policies, FHLB exams from prior years, outside audits,
legal correspondence files and various limited loan files. No
mention was found of any Whitewater relationship with MGSL.
march 25 to April 15, 1992
During this time frame, Tulsa Investigations learned that a
former MGSL employee, subsequently (and still) an attorney in
the employment of a Little Rock law firm handling extensive
litigation in Arkansas for the TRC, had allegedly fabricated
at least two years of minutes for an MGSL subsidiary, Madison
Financial Corporation (``MFC''). The criminal investigator
was asked to review daily records created by the former
employee, who was at that time the executive assistant to
former MGSL president, John Latham. Latham pled guilty to one
charge of bank fraud in 1989. Copies of the former employee's
records had been shipped to Tulsa, where it would be
determined if further investigation was appropriate. An
affirmative decision was reached during the first week of 4/
92. While this review was being conducted, the civil
investigator was reviewing additional Madison records stored
in Little Rock under the control of the post-receivership
assuming bank, Central Bank & Trust(``CB&T''). These records,
which had never been inventoried by either MGSL or CB&T, were
stored in a downtown Little Rock warehouse, and included, but
were not limited to, former officer correspondence, legal
files, subsidiary land development and investment files,
microfilm, demand deposit (checking) account records/binders,
cancelled checks, etc.
Based on the findings of these concurrent criminal and
civil investigative reviews, the decision was made that both
investigators should travel to Little Rock for a more
extensive review of the warehoused documents. At this point,
the criminal investigation, which had been previously
scheduled for late 1992, was rescheduled to 4/92.
april 20 to 24, 1992
The investigators conducted an extensive review of the
warehoused records, and the criminal investigator talked with
the FBI and U.S. Attorney's office regarding the 1990 trial
of former MGSL owner James B. McDougal. The criminal
investigator learned that the FBI was previously aware of the
fabricated subsidiary minutes and had taken no criminal
action. Tulsa Investigations management was advised
accordingly and that aspect of the review was suspended.
The warehoused records revealed additional Whitewater
checking account statements, raising further questions about
the payee's on some of Whitewater's checks. A number of
documents belonging to the former Chief Financial Officer of
MGSL/MFC were located. Among these documents were several
accountant/ledger worksheets on numerous MFC subsidiary land
``developments'', all of which were heavily subsidized by
MGSL. Included in one of the development worksheets marked
``Maple Creek Farms'' was an item denoting a $30,000 charge
to Whitewater for the cost of an engineering survey; this was
the first indication of a relationship between MGSL and/or
MFC and Whitewater beyond the existence of the Whitewater
checking account. Original microfilm, along with pertinent
original documents from the warehouse, were sent back to
Tulsa for further investigation. Research was conducted on
twelve McDougal and/or McDougal business partner controlled
accounts, including Whitewater. Check copies were produced
for a two year period between 6/84 and 6/86; a standard
investigative procedure when tracing the flow of funds.
may 1 to july 15, 1992
During the first week of 5/92, all Tulsa Consolidated
Office employees were advised that the Tulsa office would be
permanently closing at the end of 7/92. All Tulsa
Investigations records were shipped to the Kansas City
Office, thus putting the Madison investigation on hold. The
copy process on the McDougal and/or McDougal business partner
controlled accounts was suspended as well, due to equipment
and records relocation.
august 1 to september 2, 1992
The criminal investigator transferred to the Kansas City
office at the end of 7/92, resuming the analysis of Madison
documents and checks. A criminal referral (#C0004) was
subsequently generated alleging a $1.5 million check kiting
scheme between the McDougal and/or McDougal business partners
controlled entities, including Whitewater. This referral was
submitted to the FBI and U.S. Attorney, Eastern District of
Arkansas on 9/2/92.
september 3 to december 15, 1992
Having submitted the initial referral on MGSL, the criminal
investigator redirected priorities to the ongoing
investigations of three other failed thrifts, which were
intensifying. First Federal Savings, Paragould, Arkansas,
which was reaching suspect plea negotiations, First America
Savings, Ft. Smith, Arkansas, which had been referred from
jurisdiction in the Western District of Arkansas to the
Dallas Fraud Task Force, and Cimmaron Federal Savings,
Muskogee, Oklahoma, for which investigations had received an
allegation of potential fraud from the managing agent.
Throughout these investigations, the criminal investigator
continued to request and monitor a response on MSGL referral
#C0004.
december 15, 1992, to March 14, 1993
The U.S. Attorney's office did not offer any standard
response to the MGSL referral, advising either that a case
would be opened or that prosecution would be declined, for
three months. In response to numerous calls from the criminal
investigator during that time, the Little Rock FBI Special
Agent in Charge sent a letter of acknowledgement to the RTC
stating that both the FBI and U.S. Attorney had received the
referral and exhibits. The investigator continued to work on
the aforementioned institutions while continuing to monitor a
potential response on the MGSL referral.
march 15 to may 4, 1993
The criminal investigator initiated a preliminary review of
criminal activity at Savers Savings, Little Rock, Arkansas,
out of which a former borrower had been convicted and
sentenced in conjunction with a failed Texas S&L. This review
involved extensive interviews with the borrower, and a review
of his personal and corporate records prior to his
sentencing and incarceration in late 4/93. The
investigator continued to make verbal requests for a
written response from the FBI or U.S. Attorney on MGSL
referral C0004.
may 4 to 25, 1993
On 5/4/93, the criminal investigator sent a letter to the
U.S. Attorney inquiring about the status of the referral. The
response from the U.S. Attorney referred the investigator to
the U.S. Justice Department in Washington D.C. The criminal
investigator initiated a series of calls to DOJ/Washington to
ascertain the status of the referral. Simultaneously, the
criminal investigator, criminal investigations department
head and the field investigations officer determined that the
most expedient way to complete the investigation of
previously defined criminal allegations at MGSL was to
supplement the investigative manpower.
may 31 to june 4, 1993
Three additional criminal investigators were assigned the
task of reviewing loan transactions, checking accounts and
subsidiary lending transactions to ascertain the level of
criminal activity at both MGSL and MFC. The lead
investigator, along with another task assigned investigator,
returned to the Little Rock warehouse for further document
review. The investigators additionally travelled to four
other counties to review land records pertaining to property
sales, loan and mortgages reflected in the County Clerk's
offices. Those findings were shared with the other assigned
investigators.
june 5 to october 8, 1993
The four investigators reviewed and analyzed all available
MGSL transactional information for the ensuing 120 days. As a
result, nine additional criminal referrals involving multiple
MGSL and MFC transactions were generated and submitted to the
U.S. Attorney and FBI on 10/8/93.
october 17, 1993
The lead criminal investigator received a letter from the
new U.S. Attorney for the Eastern District of Arkansas, Paula
J. Casey. The letter stated that referral #C0004, submitted
9/2/92, had been declined due to ``insufficient
information''.
november 1, 1993 to January 24, 1994
RTC Criminal investigations continues to support the
investigative efforts of the FBI and U.S. Attorney by
providing MGSL and MFC documents warehoused in Kansas City,
and offering assistance with ongoing subpoena compliance.
The responsibility for investigation of all failed Arkansas
thrifts was assumed by the Tulsa RTC Office of Investigations
during the first quarter of 1991. Responsibility was assumed
from the Eagan/Minneapolis RTC Office of Investigations; the
lead Eagan investigator for Madison Guaranty Savings, Little
Rock, Arkansas at that time was Mike Hammerly.
When the Tulsa office assumed this responsibility, Madison
Guaranty was assigned to civil Investigator Wyatt Adams.
Shortly after the reassignment of the Arkansas thrifts,
several members of the Tulsa Office of Investigations made a
sweep through the failed Arkansas shops and appropriated all
the records deemed necessary for the effective completion of
both civil and criminal investigations.
In mid summer 1991, Investigator Wyatt Adams traveled to
Little Rock to review Madison Guaranty records held by the
acquiring entity, Central Bank and Trust, in an old, non-
climate controlled building downtown on the river, which had
been converted to a ``records storage'' facility. According
to Adams, when he arrived there were extensive records in
poor condition, haphazardly heaped into the storage space on
the second floor, which was poorly lit and protected by a
chain link fence and a padlock. Boxes were on their sides
with records dumped out, DDA binders were poorly stacked in
one corner, and multiple boxes had been shoved into shelving,
with no identifiable inventory. It should be noted that these
records were already in the warehouse at the time of the
Investigations team Spring 1991 ``sweep'' through the
Arkansas thrifts, and that the former Managing Agent concurs
that, to his knowledge, there was no inventory of these
records.
In July 1991, the criminal investigation of Madison
Guaranty was assigned to Investigator Jean Lewis. A follow-up
criminal investigation was tentatively slated to begin during
the third quarter of 1992, due to the fact that former thrift
owner James B. McDougal had previously been tried on Bank
Fraud charges stemming from Madison Guaranty, and was
acquitted in 1990. The follow-up investigation was intended
to ensure that any remaining potential criminal matters had
been properly reviewed and addressed.
In March 1992, Senior Investigator Specialist Jon Walker
contacted the Kansas City regional RTC office regarding an
article that has appeared in the New York Times stating
possible ties between Whitewater Development, Madison
Guaranty Savings and Loan, and Bill & Hillary Clinton.
Personnel in the KC regional office then contacted the Tulsa
office with a request that this issue be reviewed to
determine if Investigations was aware of, had reviewed and/or
appropriately addressed matters pertaining to the possible
relationship between Whitewater Development and Madison
Guaranty.
After a review of all available Tulsa Investigations
inventory documents, Investigators Adams and Lewis were
detailed to the warehouse in Little Rock to review the
remaining Madison records and ensure that nothing had been
overlooked with regard to any potential action on this
matter. Investigator Lewis noted, with concurrence from
Adams, that upon arrival that the records were in very poor
condition, appeared to have been dumped and/or crammed into
the warehouse space, and that there was no available
inventory provided by Central Bank & Trust personnel which
could identify the nature of these records. Investigator
Adams noted that this was the same condition in which he'd
found the records in 1991. Boxes had to be rearranged in
order to establish work space and room for a table and two
chairs.
During the review of these records, neither Investigator
Adams or Lewis located any loan files and loan records
relating specifically to Whitewater Development or the
Clintons. Investigator Adams then went through a number of
Demand Deposit Account binders, to ascertain if Whitewater
had maintained a checking account at Madison Guaranty. He
located an account and statements for 1984, 1985 and 1986.
Investigator Lewis reviewed multiple boxes of records, and
recovered several documents from former thrift officer files
that warranted further review. Among those documents was a
ledger sheet marked ``Reserve for Development--Maple Creek
Farms'' from the records of former Madison CFO Greg Young. On
that ledger sheet was noted a $30,000 development reserve
cost for an engineering survey charged to Whitewater
Development. There was also a limited amount of microfilm
located at the warehouse, which was appropriated under the
terms of the P&A Agreement and returned to Tulsa along
with several DDA binders, with permission from Central
Bank & Trust. A signed receipt containing an itemized list
of the documents taken by Investigators Adams and Lewis
was left with * * * of CB&T.
Prior to departing Little Rock, Investigators Adams and
Lewis reviewed the Madison daily work film held by Central
Bank & Trust to research the flow of funds through the
Whitewater account as pulled from the monthly statements,
which is a standard operating procedure for Investigations.
Several checks payable to the Bank of Cherry Valley which
identified loan numbers, were identified and copied from the
daily work. Also copied were numerous checks payable to
entities entitled Pembroke Manor, Rolling Manor, Madison
Marketing and others, all of which were signed by James or
Susan McDougal, payable to Whitewater Development and
contained the notation ``loan'' in the memo filed on the
check. Accounts were located and reviewed for these other
identified entities; similar checks containing the ``loan''
notation were found to have been paid between the entities.
At that time, both investigators concurred that additional
research would be appropriate, and requested all available
film relating to Madison Guaranty and returned it to Tulsa,
leaving a receipt for the film, binders and original
documents pulled from former office files with CB&T employee
Bonnie Crocheron. Copies of the entity statements and checks
were pulled and/or duplicated from film for the years 1984,
1985 and 1986. * * *
After the original film was duplicated, the duplicates were
returned to Central Bank & Trust for their retention, and the
original film was retained in Tulsa by an RTC research
contractor. The criminal investigation of Madison then
continued, as the civil claims had previously been closed out
by PLS.
In conjunction with the ongoing Madison investigation,
Kansas City Investigators Jean Lewis and Randy Knight
traveled to Little Rock in 5/93 to revisit the Madison
records held in the downtown warehouse. Upon arrival
Investigator Lewis immediately noted the condition of the
records was significantly more organized than it had been
during the previous visit, and it was evident that a number
of boxes had been cleared out.
During this visit to the warehouse, Investigator Lewis
learned from the storage facility attendant that the law firm
of Mitchell, Selig, Jackson, Tucker & White, former general
counsel to Madison Guaranty Savings, also stored records at
the warehouse.
A number of the remaining boxes were reviewed, and the keys
returned to * * * at Central Bank & Trust. At that time,
Investigator Lewis noted to * * * that the warehouse seemed
to lack a number of boxes that had previously been there, and
* * * advised that some of the records had been retrieved and
were being held in a back room at the bank (CB&T). When asked
why this had not been disclosed when the keys had been picked
up rather than returned, Ms. Crocheron's response was ``you
didn't ask.''
It should be noted that, according to the US Attorney's
staff in Little Rock, * * * to Madison and was summoned
before the Grand Jury for testimony. The outcome of that
investigation has never been disclosed to this office.
In conjunction with the ongoing FBI investigation of the
RTC's referrals, Investigations advised the FBI that
additional original Madison Guaranty microfilm, along with
the records at the warehouse, were under the control of
Central Bank & Trust. It is the understanding of Kansas City
Office of Investigations that the aforementioned records have
now been subpoenaed by the U.S. Attorney's office and are now
under the control of the Little Rock FBI. The original
Madison film held by Investigators has also been turned over
to the FBI along with other records subject to Grand Jury
Subpoena.
____
Resolution Trust Corporation,
Kansas City, MO, September 1, 1992.
Ms. Steve Irons,
Supervisory Special Agent, White Collar Crime Unit, Federal
Bureau of Investigation, Two Financial Centre, Suite 200,
Little Rock, AR.
Re: No. 7236 Madison Guaranty Savings & Loan, Little Rock,
Arkansas--In Receivership (11/29/90), Criminal Referral
Number C0004.
Dear Sir: Certain matters have come to our attention which
may constitute criminal offenses under Federal law. Enclosed
is a report of an Apparent Criminal Irregularity.
Information in this referral may have been derived from
financial records of customers of federally insured financial
institutions. I hereby certify that (A) there is reason to
believe that these records may be relevant to a violation of
Federal criminal law, and (B) the records were obtained in
the exercise of the RTC's supervisory or regulatory
functions.
Due to the extensive nature of the exhibits relating to
this referral, they are being submitted to the U.S.
Attorney's office under separate cover at a later date.
Please direct any inquiries to the Investigator identified
on the referral form, or to Lee O. Ausen, Department Head/
Criminal Investigations, Kansas City Consolidated Office.
Sincerely,
L. Richard Iorio,
Field Investigation Officer.
Enclosure.
____
Resolution Trust Corporation,
Kansas City, MO, September 1, 1992.
Hon. Charles A. Banks,
U.S. Attorney, Eastern District of Arkansas, U.S. Post Office
and Courts Building, Little Rock, AR.
Re: No. 7236 Madison Guaranty Savings & Loan, Little Rock,
Arkansas--In Receivership (11/29/90), Criminal referral
Number C0004.
Dear Sir: Certain matters have come to our attention which
may constitute criminal offenses under Federal law. Enclosed
is a report of an Apparent Criminal Irregularity.
Information in this referral may have been derived from
financial records of customers of federally insured financial
institutions. I hereby certify that (A) there is reason to
believe that these records may be relevant to a violation of
Federal criminal law, and (B) the records were obtained in
the exercise of the RTCs supervisory or regulatory functions.
Due to the extensive nature of the exhibits relating to
this referral, they are being sent to your office under
separate cover.
Please direct any inquiries to the Investigator identified
on the referral form, or to Lee O. Ausen, Department Head/
Criminal Investigations, Kansas City Consolidated Office.
Sincerely,
L. Richard Iorio,
Field Investigations Officer.
Enclosure.
____
memorandum
To: Criminal Admin File.
From: Jean Lewis, Criminal Investigator.
Date: May 3, 1993.
Re: Background remarks and conversation with AUSA Bob
Roddey's office re: Madison Guaranty Savings referral.
In March 1993, shortly after the departure of former U.S.
Attorney Chuck Banks, I was advised by AUSA Bob Roddey on an
unofficial basis, that Banks had forwarded the ``Madison
referral'' to Justice in Washington D.C. almost immediately
after receiving it last September; Roddey also added that
Banks had taken this action as the referral was ``politically
hot''.
I contracted Roddey's office early this afternoon to see if
AUSA Floyd Mac Dodson was still with the U.S. Attorney's
office, or if he had left with Chuck Banks. I was advised by
Roddey's secretary, Laura, that Dodson did, in fact, leave
with Chuck Banks, and she offered me their number, which I
declined. I asked her what would have happened to Dodson's
cases, and she offered to ``check the computer'' and call me
back, if I could give her a specific case, which I did,
identifying Madison Guaranty Savings criminal referral
#C0004.
Approximately five minutes later, Laura called back and
advised me that no record of that referral showed up in their
computer system; she then advised me that in conversing with
AUSA Roddey, he told her that Banks had sent it to Justice in
Washington, and that ``we'd probably never hear about it
again''.
A letter inquiring about the status of the referral has
been prepared to send to U.S.A. Pence later today.
Richard Iorio
Lee Ausen.
____
memorandum
To: Criminal Admin. File.
From: Jean Lewis.
Date: May 19, 1993.
Re: Additional conversation with Office of Legal Counsel for
U.S. Attorney's, U.S. Justice Department, Washington,
D.C.
In following up my previous discussion with the Office of
Legal Counsel on May 13, I contacted Dyone Mitchell
(secretary) of that office to see if she had been able to
determine the status of the Madison referral, as I had not
heard back from her. She consulted her notes and advised me
that they ``have no record of that referral, it is not in
their computer system, it has not been given to an
attorney''; upon repeating this response to her, she
reiterated ``no ma'am, that referral has not been submitted
to this office.''
After advising Lee Ausen and Richard Iorio of this
conversation, the decision was made to resubmit the referral
through the U.S. Attorney's office in Little Rock, and
contact Ms. Mitchell in the Office of Legal Counsel to see if
that office should be copied on the referral and letter to
Richard Pence, U.S. Attorney in Little Rock. I contacted Ms.
Mitchell again to inquire as to whether that office should be
copied on the referral. She said yes, and when I asked to
whose attention it should be directed, she responded that it
should be sent to Acting Assistant Attorney General Daniel
Koffsky, as the Assistant Attorney General, Mr. Dellinger,
has not yet been confirmed.
The letter of re-submission will be prepared this
afternoon, with a copy going to Mr. Koffsky's attention.
____
To: L. Richard Iorio and Lee O. Ausen.
From: L. Jean Lewis.
Subject: No. 7236/Madison Guaranty Savings.
Date: Wednesday, May 19, 1993.
In following up on the suggestion that Mr. Daniel Koffsky,
Acting Assistant Attorney General, be sent a copy of Madison
referral No. C0004, I contacted the Office of Legal Counsel
to verify the correct address. In speaking with Dyone
Mitchell of that office, I reiterated the address provided by
US Atty Richard Pence, which reads: Office of Legal Counsel,
Executive Office for U.S. Attorneys, U.S. Justice Department,
Washington, DC 20530.
The letter provided the phone number (202) 514-2041.
Ms. Mitchell advised that the Office of Legal Counsel and
the Executive Office for the U.S. Attorney's were two
separate sections, and that the referral may have been
forwarded to the Executive Office instead of legal Counsel.
She then connected me with the operator, who put me through
to the Executive Office where I spoke with Stephanie Kennedy.
I explained to Ms. Kennedy what I was looking for, and she
said she would get back to me this afternoon.
She called me back at 3:30, and advised that she had
forwarded the matter on to Donna Henneman in ``Legal
Counsel'', who would check it out and call me back tomorrow.
I then contacted Ms. Henneman to offer background information
on what I was looking for. When I explained that it was a
referral out of Madison Guaranty, forwarded to that office by
Chuck Banks, she had immediate knowledge, stating ``oh, the
one involving the President and his wife''. She then stated
that the referral had been sent to that office (exactly which
office is till unclear to me) as a special report for the
attention of the Attorney General, and not as a referral for
prosecution. She then stated that ``anytime a referral comes
in that would make the department look bad, or has political
ramifications, it goes to the Attorney General.'' She further
added that the referral had been submitted to that office
``because of the political ramifications and political
motivations'', and then told me that referrals were not
prosecuted out of that office. She then stated that the
referral had been declined. I advised her that the referral
had not been declined, and read her the letter sent to this
office by U.S. Attorney Richard Pence. She acknowledged that
she was confused, and told me she would speak with her
supervisor, Deborah Westbrook, and have her call me back
tomorrow. I then asked for Ms. Henneman's title, and she
informed me that she was the Ethics Program Manager. I
thanked her and ended the conversation.
I'll keep you posted if and when I hear from Ms. Westbrook.
____
To: L. Richard Iorio and Lee O. Ausen.
From: L. Jean Lewis Investigations
Subject: No. 7236/Madison Guaranty.
Date: Wednesday, May 26, 1993.
I've just received a follow-up call from Donna Henneman at
Justice in D.C. She informed me that after speaking with
Deputy Director/EO Wayne Rich she learned that referral
#C0004 had been sent to former Special Counsel Ira Raphelson.
I noted that Mr. Raphelson is now in private practice, she
concurred and said that she wasn't sure where it had gone
after he left, but that she was going to call the ``criminal
fraud division at Justice'' and see if they are prosecuting
the case or if a declination letter has been issued. I
restated that, to my knowledge, the referral had not been
declined, and that I had been advised by an FBI agent in
Little Rock that it was a ``very solid case of check kiting,
and was highly prosecutable.''
I then identified the suspects named in the referral for
her reference, and she thanked me and told me she'd be back
in touch as soon as she found something. She also stated that
she was growing increasingly frustrated with the situation,
because she had seen the information, knew that it had come
in, and couldn't understand why she was having such a hard
time tracking where the referral and exhibits had gone.
To date, each time she has given me a date that she would
call back, she has kept her word. I'll let you know when I
hear from her again.
____
To: L. Richard Iorio Investigations.
From: L. Jean Lewis Investigations.
Date: Tuesday, June 8, 1993.
As we discussed this morning, I was going to contact Audrey
Word at DOJ in Washington this afternoon; however, before I
could call, Donna Henneman in the Executive Office for U.S.
Attorneys called me. It seems that Madison referral #C0004
has reappeared on her desk. Audrey Word was successful in
locating the referral within the Fraud section of the
Criminal Division and determined that the individual assigned
to the referral ``didn't want to deal with it'', so she sent
the referral and all pertinent info back to Donna Henneman
for further disposition.
Donna advised me that the Criminal Division (no one
specifically identified) sent a memo to Doug Frazier,
Associate Deputy Attorney General (in Deputy Atty General
Heyman's office) advising him that there was ``no
identifiable basis for recusal of the U.S. Attorney in the
Eastern District of Arkansas''; this was a direct quote from
the memo, as she read it. She then told me that she'd
contacted Mr. Frazier who did not remember receiving the
memo, and suggested that she get the memo and the referral to
him for review and a final decision.
She has subsequently sent him both the referral and the
memo, and said she'll keep me posted. I then advised her that
during the intervening period, additional information has
surfaced that would further support the allegations contained
in the referral, so I would be most curious as to their
decision. I then concluded the conversation by telling her
``whatever the decision is, I need something in writing so
that I can close out the file with a declination, or offer
support for an ongoing case.'' She agreed and said she'd stay
in touch.
I'll keep you posted.
____
To: L. Richard Iorio Investigations.
From: J. Jean Lewis Investigations.
Date: Wednesday, June 23, 1993.
At approximately 3:00 this afternoon, I spoke with Donna
Henneman in the Executive Office for U.S. Attorneys,
regarding the status of the Madison referral #C0004. She
advised that she had sent the ``package'' to Associate Deputy
Attorney General Doug Frazier on June 8, as we had previously
discussed, but that she had received the entire package back
on her desk today with no further answers, as Mr. Frazier was
now the new U.S. Attorney in one of the Florida districts;
she had not determined whether Mr. Frazier had taken any
action prior to his departure, and had spoken with her
supervisor regarding her next action shortly before I
contacted her. She advised that she will attempt to contact
Mr. Frazier in Florida sometime tomorrow, and determine what
decision, if any, had been made.
She then advised that ``this sort of thing happens all the
time when we're trying to get the guys upstairs to make a
decision.'' She said she'd be back in touch as soon as she
had an answer from Doug Frazier, or his replacement, a Mr.
Dave Margolis.
This was the 8th conversation I've had with Ms. Henneman
since I first contacted her on May 19, 1993.
I'll keep you posted.
____
To: L. Richard Iorio Investigations.
From: J. Jean Lewis Investigations.
Date: Wednesday, June 23, 1993.
Donna Henneman (EO/US Attorneys) just called me back to let
me know she'd spoke with former Associate Deputy Attorney
General Doug Frazier. He advised her that he met with Tony
Muscato, the Director of the Executive Office for U.S.
Attorney's, and that the decision has been made to return the
referral to the U.S. Attorney in the Eastern District of
Little Rock, as there was ``no basis for the recusal of the
U.S. Attorney'', and apparently a lack of ``conflict of
interest.''
Ms. Henneman then added that she doubted whether or not the
U.S. Attorney, Eastern District/Arkansas would be aware of
this situation yet, but suggested that I wait a few days and
then contact that office in Little Rock.
She asked to be kept posted on the outcome, and offered her
continued assistance whenever and however possible.
____
To: L. Richard Iorio Investigations.
From: L. Jean Lewis Investigations.
Date: Tuesday, June 29, 1993.
I received a call this afternoon from a highly reliable and
confidential source, that the Madison referral (C0004) has
been returned to the U.S. Attorney's office in Little Rock,
Arkansas. My source has advised me that the acting U.S.
Attorney, Richard Pence, has stated he has no intention of
acting on this referral, and plans to let it sit until such
time as the new U.S. Attorney designee Paula Casey, takes
office on either an interim or permanent basis. It was stated
that there was displeasure at the fact that the referral had
been returned to the Little Rock office, and that the reason
cited for its' return was that the Executive Office for U.S.
Attorney's found no basis for recusal, and no conflict of
interest emanating from the U.S. Attorney's office in the
Eastern District. However, the acting U.S. Attorney is of the
opinion that if the (strong) case against James McDougal is
taken to trial, it will appear to the ``sour grapes'' due to
his acquittal during his first bank fraud trial.
I was further advised that there is no definite date yet as
to when Ms. Casey's confirmation will occur, and that is
likely that she will assume her responsibilities on an
interim basis. My source has advised that I will get a
``head's up'' call when Ms. Casey assumes her new
responsibilities, but that such appointments have been
delayed in the past, and may take a while.
I'll keep you advised should I hear anything further.
____
To: L. Richard Iorio Investigations.
From: L. Jean Lewis Investigations.
Date: Thursday, September 23, 1993.
I've just had a conversation with Donna Henneman, Ethics
Program Manager, Executive Office for U.S. Attorneys. I
called Donna to make a final determination as to whether or
not she wants formal notification of the existence of the
subsequent referrals being submitted to the U.S. Attorney,
Eastern District of Little Rock, on Madison.
In discussing the standard RTC procedure of the submission
of referrals, she has requested that she be copied on the
transmittal letters that go to the U.S. Attorney and FBI. At
the time she receives the copies of those letters, she will
then request the referrals and exhibits from the U.S.
Attorney's office for any necessary follow up. So, at her
request, I'll ask Donna Minton to cc: Ms. Henneman in her
official capacity. She felt that a letter requesting copies
at this point was unnecessary, and if it becomes necessary,
she will go through her channels at Justice to obtain the
documentation from U.S. Attorney Paula Casey. Donna has also
requested that I provide a brief one paragraph summary of the
content of the referrals with the transmittal letters, so
that she will be aware of those with ``sensitivity issues.''
I will be glad to provide the requested summary as an
addendum paragraph to the bottom of each transmittal letter.
She then asked me about the final disposition of MGS&L
referral C0004. I told her that I had been advised that it
was received back in the U.S. Attorney's office, but that I
had received no formal notification that a case had been
opened, nor a declination letter. I expressed my concerns
that the same situation could befall the next referrals to be
submitted, and she assured me that she and her supervisor,
Deb Westbrook, would stay closely in touch with the
situation, due its potentially political ramifications, some
of which I explained for her edification.
She asked me to stay in touch as to the responses that I
get from the U.S. Attorney's office, and assured me that, if
necessary, the ``higher-ups'' at Justice would make sure
something got done with these referrals, including the first
one, which in her words ``should have been handled by now,
one way or the other.''
I'll keep you posted.
____
To: L. Richard Iorio Investigations.
From: L. Jean Lewis Investigations.
Date: Wednesday, September 29, 1993.
I've just received a call from Donna Henneman, Ethics
Program Manager, Executive Office for U.S. Attorney's,
Washington, D.C. She advised that she had spoken to her
supervisor, Deb Westbrook, and Ms. Westbrooks supervisor,
Doug Frazier, regarding whether or not the Executive Office
wanted copies of the madison referrals slated for submission
this week. Ms. Westbrook and Mr. Frazier have determined that
the Executive office should receive copies of the referrals
and exhibits. Upon receipt, they will review them and
determine whether to instruct the U.S. Attorney's office to
act on them accordingly, or if they should be forwarded to
the Public Integrity Section of DOJ for further review. In
inquired as to the nature of the Public Integrity Section and
was advised that it is the section of DOJ responsible for the
prosecution of public officials. Ms. Henneman also advised
that they have made the decision to get the Deputy Attorney
General's office involved in this situation, and bring them
up to speed.
I asked her to submit this request in writing, in order to
document the Investigations file and she responded that she
would do so, faxing me a letter this afternoon. I've provided
her with the fax number and will copy you upon receipt of her
letter.
To briefly summarize the situation to date, I contacted the
Executive Office for U.S. Attorney's on May 13, 1993, at the
written suggestion of U.S. Attorney Richard Pence, pursuant
to his letter of May 10, 1993 regarding my written inquiry as
to the final disposition of Madison referral #C0004,
submitted on 9/1/92. Mr. Pence advised that the referral had
been forwarded to the Executive Office by former U.S.
Attorney Charles A. Banks due to what he deemed was a
``conflict of interest''. This information was relayed to Ms.
Henneman during my first conversation with her. During
subsequent calls I received from Ms. Henneman, she advised me
as to her progress in tracking the whereabouts of referral
#C0004, which she finally located and had forwarded back to
her office on June 8, 1993. At that time, Ms. Henneman
advised me that the decision had been made by personnel in
the Criminal Division of DOJ that there was ``no identifiable
basis for recusal of the U.S. Attorney in the Eastern
District of Arkansas'', and that the referral would be
forwarded back to the U.S. Attorney's office in Little Rock.
Since that time, Ms. Henneman has contacted me to follow up
on the final disposition of the referral. I have advised her
that this office has not yet received notification of an
opened case, or a letter declining prosecution. During these
aforementioned conversations, the issue was raised as to
further referrals, and whether the Executive Office should be
copied on any further referrals to avoid a recurrence of
circumstances. I received notification of that decision today
when Ms. Henneman contacted me, as previously outlined.
Please let me know if you have any questions.
____
To: L. Richard Iorio Investigations.
From: L. Jean Lewis Investigations.
Date: Wednesday, September 29, 1993.
I've received a follow-up call from Donna Henneman with the
Executive Office for U.S. Attorneys. She spoke with her
supervisor, Deb Westbrook, regarding my request for a written
follow-up to her verbal request that the Executive Office be
copied on all the Madison referrals and exhibits. Ms.
Westbrook has withdrawn her initial request for copies, and
stated that they will go through the U.S. Attorney's office
to obtain copies rather than having us copy their office
directly. Ms. Henneman indicated that this route would not
make the U.S. Attorney's office feel as though the Executive
Office was ``going behind their back'' in requesting copies
of the referrals.
She then reiterated that she would like to be copied on the
transmittal letters that will be sent with the referrals to
the U.S. Attorneys and the FBI, with a brief summary
paragraph outlining the suspects and content of each
referral. I agreed to her request, and will make arrangements
to provide the requested summary on the transmittal letters.
I'll let you know if I hear from her again.
____
To: Lee O. Ausen.
From: L. Jean Lewis.
Subject: #7236 Madison Guaranty.
Date: Tuesday, October 26, 1993.
Just FYI...
Based on our conversation this afternoon regarding the
OCC's inability to locate their past exams for UNB/Little
Rock, I took a shot at a hunch, and made another call to
Cristina Flechas, the attorney for the FDIC in Memphis who
had previously advised me (in response to my written request
of 6/23) that OCC would have been the regulatory agency for
UNB during 1986.
Cristina, so I have learned, is no longer with the FDIC in
Memphis. However, I spoke to her successor, Broderick
Nichols, and outlined the previous request with him, asking
him if he would do some additional followup just on the off
chance that the FDIC might have done a concurrent exam on UNB
with OCC at some point between 1983 and 1987. I then
explained to him that the OCC seemed to be having some
difficulty in locating their records, and advised him that I
was informed by OCC that prior to 1991, UNB was actually
First National Bank of Jacksonville. Well, it turns out that
Broderick Nichols is from Little Rock. What a small world!
And he evidently grew up knowing where Union National Plaza
is and that Union National Bank was, and still is, the
largest bank in Little Rock. He was somewhat concerned about
the fact that OCC couldn't find their exams, and has offered
his expeditious assistance in locating any concurrent exams
done by FDIC. He's also offered to aid me in locating other
potential leads and sources within OCC that might be able to
rediscover the whereabouts of the UNB exams. He couldn't
quite understand how the OCC could lose a $500 million bank.
Does this sound familiar?
I'll keep you posted.
____
To: L. Richard Iorio.
From: L. Jean Lewis.
Subject: #7236 Madison Guaranty.
Date: Wednesday, October 27, 1993.
Just got a call from Donna Henneman, Ethics Program
Manager, Executive Office for U.S. Attorneys. She asked if
I'd received a declination letter on the first referral
(C0004) from the U.S. Attorney in Little Rock. I told her
that we had not received a declination to date. She then
advised that her supervisor, Deb Westbrook, had evidently had
a conversation with U.S. Attorney Paula Casey, and that Ms.
Casey stated that she would be sending a declination letter
to the RTC on that particular referral. No date was given,
and Donna did not reference the date of the conversation
between Ms. Westbrook and Ms. Casey. I asked Donna if she
knew the basis for the declination, and she responded that
she did not, and hadn't seen a copy of the letter either. She
then suggested that if I do not receive the letter of
declination within a fairly short time frame, to please let
her know.
Donna also noted that Ms. Westbrook advised her that USA
Casey had stated she would ``deal'' with the other referrals
as well.
I'll keep you posted as to any further calls from Ms.
Henneman.
____
United States Attorney,
Eastern District of Arkansas,
Little Rock, AR, October 27, 1993.
Ms. L. Jean Lewis,
Criminal Investigator,
Resolution Trust Corporation,
Kansas City, MO.
Re #7236 Madison Guaranty Savings and Loan Criminal Referral
Number C0004
Dear Ms. Lewis: I am writing at the request of the Office
of Legal Counsel, Executive Office for U.S. Attorneys of the
U.S. Department of Justice to let you know the status of this
referral.
As you know, this referral was reviewed by the Criminal
Division of the U.S. Department of Justice at the request of
the previous United States Attorney for the Eastern District
of Arkansas. The matter was concluded before I began working
in this office, and I was unaware that you had not been told
until I was contacted by the Office of Legal Counsel. After
receiving the call from Legal Counsel I reviewed the
referral, and I concur with the opinion of the Department
attorneys that there is insufficient information in the
referral to sustain many of the allegations made by the
investigators or to warrant the initiation of a criminal
investigation.
Although I am declining to take further substantive action
on this referral, my decision does not foreclose future
prosecutions about the matters covered by the referral or
related matters in the event that my office and the FBI are
given access to records or information indicating that
prosecutable cases can be made.
Sincerely,
Paula J. Casey,
United States Attorney.
____
Resolution Trust Corporation,
Kansas City, MO, November 1, 1993.
Re #7236 Madison Guaranty Savings & Loan Criminal Referral
Number C0004
Hon. Paula J. Casey,
U.S. Attorney, Eastern District of Arkansas, Little Rock, AR.
Dear Ms. Casey: I have received your October 27, 1993
letter regarding the above captioned thrift and referral. On
the basis of comments contained within your letter, I am
interpreting that correspondence as a formal declination to
prosecute referral #C0004. You stipulated in your letter that
this matter was concluded prior to the beginning of your
tenure as the United States Attorney for the Eastern District
of Arkansas. Prior to the receipt of your letter, RTC
Investigations was not advised that the matter had been
formally concluded.
Between September 1, 1992 and today's date, this office has
received a total of three letters with regard to the
aforementioned referral, including your letter of
declination. The other two letters were from FBI/SAC Don
Pettus, 12/15/92, acknowledging receipt of the referral, and
from Acting United States Attorney Richard Pence, 5/10/93,
advising this office that he was unaware of the referral
status as it had been forwarded to the Executive Office for
United States Attorney's by former United States Attorney
Chuck Banks.
If there were other documents produced that are relative to
the conclusion of this matter, I would appreciate receiving
the appropriate copies.
The RTC Kansas City Office of Investigations will continue
it's policy of cooperation with both the United States
Attorney's office and the FBI on all referral related and
investigate matters, making all pertinent records accessible
as requested.
Should you have any further questions, or if this office
may be of further assistance, please do not hesitate to
contact me at (816) 968-7237, or if I am unavailable,
Supervisory Investigator Lee Ausen at (816) 968-7243 or Field
Investigations Officer Richard Iorio at (816) 968-7212.
Very truly yours,
L. Jean Lewis,
Senior Criminal Investigator.
____
To: Jane M. Dankowski.
From: L. Jean Lewis.
Subject: Madison Guaranty.
Date: Wednesday, November 10, 1993.
Hey you! Just a heads up to let you know that Mike Caron,
Senior Criminal Investigator, is now the lead investigator on
Madison . . . so anymore faxes you send should come to Mike's
attention, and any further communication about Madison should
go to him, too. The Powers That Be have decided that I'm
better off out of the line of fire (and I ain't arguing), but
please let me assure you, that we are leaving you in very
capable hands! Got any questions beyond that, ask Lee or
Richard.
____
To: James R. Dudine.
From: L. Richard Iorio
Subject: Madison Guaranty.
Date: Monday, November 15, 1993.
On Thursday, November 11, 1993, there was an article that
appeared in the Washington Post concerning declination of
prosecution on the first Madison referral that was
transmitted to the Department of Justice (DOJ) on August 31,
1992.
Contained in the article was information that the referral
had been reviewed by DOJ and that a decision had been made
early on to decline on this referral and that when Paula
Casey US Attorney, Little Rock, Arkansas, in fact issued the
declination in October 1993, she was simply bringing this
matter to a close.
The document attached clearly refutes this train of
thought. In fact, it appears that no thorough review of the
document had been conducted as late as June 23, 1993, some
ten months after the referral had been initially transmitted.
It was not until September 29, 1993 that this office was
advised that the referral would be reviewed.
This whole issue might not be important, however, for
purposes of credibility with regard to the RTC's efforts in
this area, this memo and attachment are submitted for factual
clarity.
____
RTC Criminal Referral #C0004 on Madison Guaranty Savings
was completed on August 31, 1992, signed by RTC Kansas City
Investigations management on September 1, 1992, and sent via
certified mail on September 2, 1992, to Charles A. Banks U.S.
Attorney, Eastern District of Arkansas, and SSA Steve Irons,
FBI, Little Rock.
By early November 1992, no standard written response of
prosecution or declination had been forthcoming from the U.S.
Attorney's office. In mid-November 1992, the lead criminal
investigator made the first of a number of verbal requests to
both the U.S. Attorney and FBI in Little Rock for some form
of written acknowledgement that the referral had been
received and reviewed. A written acknowledgement dated
December 15, 1992, from FBI SAC Don K. Pettus, was received
by the lead criminal investigator on January 4, 1993. This
acknowledgement stated that the referral had been received,
and that further questions should be directed to AUSA Floyd
Mac Dodson, who had also received the referral and exhibits.
On January 7, 1993, the lead investigator had a conversation
with AUSA Mac Dodson in which he advised that he wasn't sure
the referral was still in the U.S. Attorney's office in
Little Rock, and that if prosecution occurred, it would
probably be through a special attorney sent to Little Rock to
handle the situation.
For four months, there was no further communication or
correspondence received by Investigations on this matter. In
a May 3, 1993, conversation between Investigations and the
U.S. Attorney's office, it was indicated that referral #C0004
had been ``sent to Justice in Washington almost as soon as it
was received last September''. On May 4, 1993 Investigations
sent a written inquiry to Acting U.S. Attorney, Richard M.
Pence, requesting the status of the referral. On May 12,
1993, Investigations received a letter from Mr. Pence (dated
May 10, 1993) stating that former U.S. Attorney Charles Banks
had determined that his office had a conflict of interest
with conducting an investigation or prosecuting criminal
charges relating to referral #C0004, and had sent the
referral and exhibits to the Office of Legal Counsel
(``OLC''), Executive Office for U.S. Attorney's, U.S. Justice
Department, Washington D.C. He stated that any further
inquiries as to the status of the referral should be directed
to that office, providing a phone number in Washington D.C.
As suggested by Mr. Pence, the lead investigator called the
OLC on May 13, 1993. This initiated a series of 15 phone
calls between the OLC and Investigations; 10 taking place
between May 13 and June 29, 1993, and five transpiring
between September 23 and October 27, 1993. The majority of
these calls were incoming to Investigations, and provided
information as to the progress being made with regard to
locating and determining the status of the referral.
The June 23, 1993 conversation between Investigations and
OLC indicated that the decision had been made to return the
referral to the U.S. Attorney in Little Rock as there was
``no basis for recusal of the U.S. Attorney'' and apparent
``lack of conflict of interest.'' During a conversation on
September 23, the OLC inquired as to the ``final
disposition'' of referral #C0004. They were advised by
Investigations that no formal notification had been received
of either a declination or intent to prosecute,
Investigations then advised OLC that there were additional
referrals pending; OLC then requested that Investigations
remain in contact with the OLC regarding further
communication from the U.S. Attorney in Little Rock.
On September 29, 1993, the OLC contacted Investigations and
advised that 1) the Deputy Attorney General's office had been
advised of the situation and 2) that the pending and prior
referrals would be reviewed and a decision made as to whether
or not they be forwarded to the Public Integrity Section of
Justice and reviewed for potential prosecution. A verbal
request was then made by OLC that they be copied on the
transmittal letters to the U.S. Attorney accompanying the new
referrals, and that they be further provided with a summary
of each referral.
The nine new referrals were submitted to the U.S. Attorney
and FBI in Little Rock on October 8, 1993. On October 13,
1993, the Office of Legal Counsel was provided with copies of
the transmittal letters, and the requested summaries on each
referral.
On October 27, 1993, Investigations received a call from
OLC inquiring as to whether or not Investigations had
received a declination letter on referral #C0004; the
response was ``no.'' Investigations was advised that U.S.
Attorney Paula Casey had advised the OLC that she would be
sending a letter of declination to RTC Investigations.
On November 1, 1993, Investigations received a letter dated
October 27, 1993, from U.S. Attorney Paula Casey stating that
the disposition of referral #C0004 had been concluded prior
to her taking office, and that she ``concurred with the
opinion of the Department attorneys that there is
insufficient information . . . in the referral to warrant the
initiation of a criminal investigation.''
On November 11, 1993, RTC Investigations learned through an
article in the Washington Post, that Paula Casey had recused
herself and her staff from any further dealing with the
Madison referrals.
____
To: Lee O. Ausen.
From: L. Jean Lewis.
Date: Monday, November 15, 1993.
A few comments with regard to our conversation this
afternoon about the pending meeting with Donald Mackay and
his staff on 11/22.
You know, Richard knows, Donohue knows, Mike knows, and I
know that Mackay is not coming here to look at records. Cut
to the bottom line. He is coming here because he wants to be
convinced that there either IS or IS NOT a very good case
behind those referrals. He isn't coming specifically to
discuss subpoena compliance, because he hasn't opened any
cases yet. He's coming here to evaluate us, our work, and to
try and decide just how good this case is, and how he can
best deal with a very sensitive political situation. What
would be easiest for him is to decide that, after meeting
with RTC Investigations, he can conclude that there is no
merit, and has accordingly advised Investigations that the
matter will be dropped. If we don't convince him that those
referrals are exceptionally solid, well prepared and
supportable cases, then there is very little doubt that he
will dispense with this situation in very short order.
Regardless of stated agenda, and regardless of whether or
not I'm in attendance, he's going to try and make an
objective assessment based on what is presented to him during
the meeting. If that's the way the meeting starts out, then
you better pull out all the stops to support the work we've
done, or that's the last we'll hear of the Madison
investigation. That's my instinct talking, and so far, it's
been pretty much on target.
Michael is extremely knowledgable about Madison, and very
capable of handling the situation. I would not do him the
injustice of thinking otherwise. But internal political crap
notwithstanding, if this meeting is going to turn into a
turkey shoot, then you are going to need every loaded gun
you've got to assist you in convincing this special
prosecutor that the case is as good as it looks on the
surface. And yes, we have strong documentation to support the
allegations. But what's beneath the surface, including where
we looked and why, who's tied to who, who's in business with
who, who got paid for what and where all the internal and
external ties are, isn't in writing. It's in my head.
I've had my say. The decision is up to you and Richard.
____
Resolution Trust Corporation,
Kansas City, MO, December 21, 1993.
Mr. Bill C. Houston,
Regional Director, Division of Supervision, Federal Deposit
Insurance Corporation, 5100 Poplar Avenue, Suite 1900,
Memphis, TN.
Dear Mr. Houston: The Resolution Trust Corporation's
(``RTC'') Kansas City Office of Investigations is currently
conducting an investigation into matters relating to an
insolvent Little Rock, Arkansas savings & loan. Significant
evidence points to the possibilities of loan ``parking'',
loan ``swapping'', insider abuse and collaboration between
specific borrowers and the principals of the Bank * * *
financial institutions in * * * and Little Rock, Arkansas
including the aforementioned insolvent thrift. In order to
expedite this investigation, I would appreciate your
assistance in providing this office with copies of the
Reports of Examination (``ROE'') from 1983 through the most
recent exam for the above captioned institutions.
This written request is made pursuant to the terms of the
Agreement Regarding Confidential Information between the FDIC
and RTC, as signed by FDIC General Counsel Alfred J. Byrne
and RTC General Counsel Gerald L. Jacobs, effective January
1, 1992.
Should you have any questions or require additional
information, please do not hesitate to contact me at (816)
968-7191. Your expedited attention to this matter is
appreciated.
Very truly yours,
Michael E. Caron,
Senior Criminal Investigator,
Office of Investigations.
____
To: Jane M. Jankowski, L. Richard Iorio, Lee O. Ausen,
Michael X. Caron.
From: L. Jean Lewis.
Date: Thursday, January 6, 1994.
This is just to advise that earlier this evening, I
received a call from * * * who started out her call with
I've been lied to by the Justice Department''. I advised her
that I could not offer any comment, but that I would listen
to what she had to say.
She stated that her sources from DOJ, who were there during
the end of the Bush Administration, had advised her that the
original RTC referral was taken much more seriously than the
public has been led to believe, and that while they believed
that the Clintons definitely stood to benefit from the
alleged check kiting activities, they may not have had
serious criminal culpability. They also advised her that the
referral was left in Little Rock to prosecute by former USA
Chuck Banks, because for Washington to be involved would look
``too political.'' She said that they (her four DOJ sources)
all told her that there was no basis for recusal, and no
conflict of interest in Little Rock.
She then advised that Justice sources today informed her
that it was line staff attorneys in the Criminal section of
DOJ/DC that decided the referral warranted no further
investigation, and instructed Paula Casey to decline.
She also noted that her previous DOJ sources had said that
after the Clinton administration came into Washington, there
were roadblocks put up around this referral, and that it had
been their opinion that the RTC staff was attempting to do a
legitimate job, but was being stymied by personnel at Justice
for some reason. She asked me if it was true that the
Clintons were named as witnesses on the referral; I declined
comment. She asked me if it was true that the RTC had not
been notified for months after the referral was allegedly
declined by the staff attorneys in DC; I declined comment.
I told her that she would have to call you (Jane) in Public
Affairs for any additional information, and she advised me
that she'd already talked to you, and got no information. She
stated that she understood that I was in a difficult
position, for which I thanked her, and the conversation
ended.
I found what she had to say very interesting. In the
future, I'll comply with Richard and Lee's wishes that I not
even listen to what a reporter has to say, and just offer a
no comment. However, when someone starts out with ``I've been
lied to by the Justice Department'', it's human nature to
wonder whether or not it is true.
Thus endeth the lesson.
This document is a recap of a phone call that I just
received from * * * , reporter * * * whose opening comment
was ``I've just been lied to by the Justice Department.'' My
comment was that I would not be able to respond to any of her
questions, but that I was fascinated by the fact that she
thought she'd been lied to, so I would listen to what she had
to say.
She outlined her credentials, stating that she'd written a
book on drug trafficking, and had covered the ``peanut
loans'', Bert Lance, Billy Carter, Jimmy Carter and the major
governmental agencies during the Carter administration.
She'd been advised that I was the investigator on the case,
and wanted to know which of the stories she'd been told by
her sources at Justice were correct. Evidently, she had four
former Justice sources who were there during the Bush
administration, and that had been there when Chuck Banks sent
the referral to Washington. The story they told her was as
follows:
The referral was originally sent to DC as an ``urgent
report'' for the Attorney General's review, due in part to
the political sensitivity of some of the identified names,
stating that Banks felt his office had a conflict of
interest. (This coincides with what my letter from Richard
Pence states, and what Donna Henneman told me during our many
conversations on the whereabouts of the referral). There are
conflicting stories about why Keeney wrote the memo
referenced in the Schmidt/Isikoff story of 1/5; her sources
stated that when the RTC referral was reviewed at Justice, it
was taken much more seriously than the public has been led to
believe, and that they believed that the Clinton's stood to
benefit from the check kite although they may not have had
serious criminal culpability. She asked if it was true that
the Clinton's were named as witnesses on the referral; I told
her no comment.
She said that her former Justice sources advised her that
Banks had never recused himself, and that CID/DOJ DC left the
referral in Little Rock and told Banks to prosecute, because
1) there was no conflict of interest, 2) there was no basis
for recusal, and 3) that for Washington to get involved would
``look too political'' since it was right before and after
the '92 election. Her sources also indicated that DOJ now
seems to be deliberately making it look like the referral was
``vague'' and ``ambiguous'', and not to be taken seriously.
She stated that her sources told her that it appeared that
the RTC folks were legitimately trying to do their job, and
had legitimate concerns relating to the allegations contained
in the referral, but that when the Clinton administration
came in, somebody started putting up roadblocks on the
referral, and her sources didn't know where it was coming
from.
Her current Justice sources state that it was the line
staff attorneys in CID/DOJ DC that made the decision several
months ago that the referral warranted no further
investigation, and instructed Paula Casey to decline
accordingly; however, the RTC wasn't notified for months,
which should have been corrected.
* * * went on to ask several questions, all of which I
replied I could not answer, and referred her Public Affairs
and Jane Jankowski. She stated that she'd already talked to
Jane, and that it had gotten her nowhere. She asked if I knew
anyone else that she could talk to, or if anyone that had
left the RTC would have any information. I stated that there
were no names that I could give her other than Jane Jankowski
in Public Affairs. She then asked me if it was true that the
RTC had not been notified of the referral declination for
several months after it had been allegedly declined, and I
told her no comment.
She said that she understood that I was in a difficult
position, and but that she needed all the help she could get.
I thanked her for understanding the difficultly of my
position, advised her that I understood that she was only
trying to do her job as a professional, but that I could not
professionally or ethically make any comment about the
investigation. She offered her phone numbers, which I did not
write down. She thanked me for my time, and hung up.
My overall impression of this conversation was that she is
very close to the heart of this story, and that she is almost
on top of the ``white paper'' chronology outlining the
sequence of events and communication between DOJ and RTC on
C0004.
Lee Ausen was present for the entire conversation that I
had with * * *, and suggested to me shortly before the
conversation ended that I terminate the call with a ``time
out'' gesture. He and Richard Iorio both advised that if she
included anything in her story regarding that fact that I'd
even listened to what she had to say, it would look bad for
the RTC, and recommended that in the future, I not even
listen to what a reporter has to say.
I advised them both that I felt that listening to what * *
* had to say provided valuable information, and that there
was no point in being rude to the press, anymore than there
was any point in being rude to Justice or the FBI. ``No
comment'' does not have to be offensive. I further stated
that I would never do anything to undermine that efforts that
the RTC has made, or take any action that would question our
credibility or integrity, let alone do anything to compromise
the investigation on which I have spent the past two years as
the lead investigator.
I concurred that in the future, I would simply send the
reporters to Public Affairs. However, I am very much inclined
to believe that, on the basis of my personal, and documented,
knowledge of what transpired during the conversations I had
with Donna Henneman of DOJ/Office of Legal Counsel/Ethics
section, that * * * is not far from the truth: it's beginning
to sound like somebody, or multiple ``somebodies'' are trying
to carefully control the outcome of any investigation
surrounding the RTC referrals, and that the beginnings of a
cover-up may have already started months ago.
____
Resolution Trust Corporation,
Washington, DC, January 14, 1994.
memorandum
To: Vice Presidents, Assistant Vice Presidents.
From: Jack Ryan, Deputy CEO.
Re: Madison Guaranty Savings and Loan Association.
The RTC has received numerous requests for information on
Madison Guaranty Savings and Loan Association and related
matters. Interim CEO Roger Altman is committed to responding
to these requests as promptly and thoroughly as possible.
In order to assure that the RTC's response to requests on
these matters is thorough, accurate, and timely, I have
established a working group to coordinate the collection and
distribution of all information and material responsive to
the requests. The working group is comprised of James Dudine,
William Collishaw, and Peter Knight.
I am sure that I can count on the full cooperation of you
and your staff with the working group. Please see that this
memorandum is distributed to the appropriate staff.
____
To: L. Richard Iorio and Dennis M. Cavinaw.
From: James R. Dudine.
Date: Tuesday, January 25, 1994.
At the request of General Counsel Kulka and Deputy CEO
Ryan, PLS and The Washington Office of Investigations have
established a team to ascertain if any liability claims
remain viable as a result of the recent legislation extending
the statute of limitations from two to five years. In this
case the resurrected statute expires at the end of February
1994.
Gary Watts of my staff, assisted by Tom Murray will be
visiting your office this week and next. Please give them
access to all records and workpapers, and to knowledgeable
members of your staff, including records and documents that
are covered by a Federal Grand Jury Subpoena.
Gary and Tom will be working with a team of PLS attorneys
headed by Sr. Counsel Mark Gabrellian and including Terry
Arbit, Jim Igo, April Breslaw, Carl Gamble and Suzanne Rigby.
The objective is to complete the review of claims potential
by next week. In addition the team will assist in compiling a
detailed history of events, including the criminal referral
and document control issues, to assist RTC management in
communicating in a factual and unified way to Treasury and
Justice officials, the special counsel and to appropriate
committees and members of Congress.
____
To: L. Richard Iorio, Lee O. Ausen, Michael X. Caron.
From: L. Jean Lewis.
Date: Monday, February 7, 1994.
This is to advise you that I've had a conversation this
morning with AUSA Fletcher Jackson of the U.S. Attorney's
office in Little Rock. I called Mr. Jackson last week to make
an inquiry regarding Independence Federal Savings in
Batesville, Arkansas, out of which he had prosecuted a case
regarding Duane Kepford sent me a memo quite some time ago
about another; I recalled in having done a preliminary review
of Independence, that Edney was given immunity for
cooperating. I called Mr. Jackson last week to verify that
fact, which he in turn did verify when he called back.
Mr. Jackson called Friday afternoon, and as I was out of
the office, I intended to call him back this morning. Before
I had the opportunity to call him, he called me.
We discussed, and he then changed the topic by asking me if
Steve Irons had told me last fall not to talk to Fletcher. I
told him that I preferred not to answer the question. He then
stated that he ``didn't have much use for ether Steve Irons
or Gretchen Hall'', and wanted to know what I'd been told. I
advised him that Steve Irons had told me last fall that he
thought it was a good idea if we (being Steve and myself)
didn't talk to each other for a while about Madison. I
further added that if had been suggested to me by my
management here that any questions directed to me by the U.S.
Attorney's office should probably come through Steve Irons or
another FBI agent, and that since the FBI was my most
appropriate contact, I should funnel responses to any
questions through them. Mr. Jackson made a comment that he,
and he was just looking for some input from me. He didn't get
any.
He then added that he'd spoken to Jeff Gerrish recently,
and that Gerrish was ``absolutely astounded'' that nothing
more was ever done criminally with Madison, beyond the Castle
Grande transaction. He asked me if I knew who Gerrish was; I
advised him that year, I knew Jeff Gerrish, and no, I was not
aware of Mr. Gerrish's opinions regarding the prosecution of
criminal actions out of Madison, and that I'd formed by own
conclusions on that point, and that's where they would stay--
my own. I then advised Mr. Jackson that I did not wish to
discuss Madison Guaranty, and we could change the subject, or
hang up. He persisted, and I explained to him that I'd
developed a respect for him during the past 2\1/2\ years, and
that out of respect for the working relationship we've
previously had, I wasn't going to talk about Madison. We then
hung up after a coridal goodbye.
____
To: Thomas L. Hindes, James R. Dudine, L. Richard Iorio, Glen
A. Penrose, April A. Breslaw, David G. Eisenstein,
Russell F. Kaufman, Philip J. Adams.
From: Julie F. Yanda.
Date: Wednesday, January 5, 1994.
Today at 1:30 p.m., Russ Kaufman and I received word that
OCOS wanted to talk to us about the Madison Guaranty
``investigation''. We met with representatives of both WDC
and KCO OCOS: Leonard Newmark (WDC), Michael Kohn (KCO) and a
third individual whose name I cannot now remember. When Russ
asked who had sent them to talk to us, Mr. Newmark replied
that it had been his supervisor who had sent them and who had
instructed them to be ``proactive'' in dealing with the
issues this case would raise. Mr. Newmark indicated that they
were not conducting an investigation, but rather an
``inquiry''.
The first question they asked was who had made the criminal
referral on Madison Guaranty. Russ indicated that the
referrals were made in accordance with RTC policy and
committed to providing Mr. Kohn with a copy of the RTC
policy. There was no further discussion of the referrals.
The second series of questions they asked dealt with what
they characterized as ``fitness and integrity'' issues
concerning the Rose Law Firm. First, they asked what
investigation PLS had done into the representations the Rose
Firm had made to state regulators to convince the regulators
that Madison should remain open. I replied that PLS only
investigates issues dealing with professional malpractice and
that such inquiries would be made only in the context of
conflict of interests issues involving outside counsel. I
then explained that this case was not regionalized and that
April had served as the PLS attorney on this case. Second,
they asked who was the FDIC ``conflicts contact'' on this
case. Third, they asked what information we had concerning
the audit report the Rose Firm had used to convince
regulators that Madison should remain open and then later
relied upon in a malpractice claim against Frost & Co. Again,
I told them that I had no information concerning these
issues.
Our discussion lasted no more than 10 minutes. Russ and I
then called Richard Iorio and discussed with him the
substance of our conversation with OCOS.
____
Rose Law Firm,
Little Rock, AR, October 10, 1983
Mr. James B. McDougal,
Chairman of the Board, Bank of Kingston,
Kingston, AR.
Dear Jim: Pursuant to your discussion with Hillary Rodham
Clinton, I am enclosing herewith a copy of our firm
statement, dated December 23, 1981, covering services
rendered in connection with the matter of the First National
Bank of Huntsville v. Madison Bank and Trust.
Very truly yours,
C.J. Giroir, Jr.
Enclosures.
Rose Law Firm,
Little Rock, AR, December 23, 1981.
Mr. James B. McDougal,
Chairman of the Board, Bank of Kingston,
Kingston, AR.
For legal services and professional advice rendered by Vincent
Foster, Jr., Carol Arnold and Mary Ellen Russell subsequent to our
billing dated December 23, 1981, through May 15, 1982 in
connection with the matter of First National Bank of Huntsville v.
Madison Bank and Trust; Madison Chancery E-81-112...........$5,000.00
Costs advanced subsequent to our billing dated December 23, 1981,
through July 31, 1982:
Long distance telephone........................................$91.17
Xerox charges...................................................21.40
Extraordinary postage............................................1.56
Package delivery expenses........................................6.70
Supreme Court Clerk............................................100.00
Computer Research...............................................92.70
Trevathan Printing Company.....................................580.10
__________
Total costs................................................893.63
==========
_______________________________________________________________________
Total fees and costs..........................................$5,893.63
____
[Memorandum]
February 7, 1985.
To: Governor Bill Clinton.
From: Jim McDougal.
Kathy called yesterday to ask for my recommendations for
two people to fill the vacancies on the State Savings and
Loan Board.
For the industry position from the 2nd Congressional
District, I recommend John Latham, who is chairman of the
board of Madison Guaranty Savings and Loan Association. Mr.
Latham is a CPA and a licensed attorney. He is a major
contributor to your campaign. His board of directors is 50%
Black, giving his institution the largest minority
representation of any financial institution in the state.
For the consumer position from the 4th Congressional
District, I recommend Dr. Jerry Kendall of Camden. Dr.
Kendall is a popular figure at Camden. His wife, Nancy from
Magnolia, is widely and favorably know. Their complete
support of your administration is a certainty.
Bill, we are down to only about 15 state chartered savings
and loan institutions and I am about the only one around who
has any interest in this board.
____
December 12, 1994.
Mr. Ron Proctor,
Citizens Bank,
Flippin, AR.
Dear Ron: I have been unsuccessful in trying to meet with
Bill and Hillary to sign the note renewal. I have forwarded
to them by messenger this morning the note and an envelope
with which to forward it to you.
Each month we will deposit into our account at Flippin an
amount sufficient to cover the monthly payment.
Thank you very much for your patience and tolerance in this
matter.
Sincerely,
James B. McDougal,
Whitewater Development Co.
____
[Memorandum]
April 18, 1985.
To: John Latham
From: Jim McDougal.
I want this preferred stock matter cleared up immediately
as I need to go to Washington to sell stock.
____
[Memorandum]
February 19, 1985
To: John Latham
From: Jim McDougal
Subject: Harvey Bell Cars.
He wants us to do a leasing arrangement on his funeral
cars. Please assign someone to discuss this with him. His
number is 376-1600.
Proceed with your idea on the subordinated notes. We need
to make a decision on Madison Bank & Trust.
I need to close on my house loan and commercial loan
pronto.
____
[Memo]
January 7, 1985
To: John
From: Jim.
1. See me about Steve Smith and Rolls Royce.
2. You, Greg, and I need to discuss Securities License.
First South has one on by its Service Corporation.
3. Ask Greg how we get a market survey for shopping center.
4. We need to talk about how to handle first payment on the
90-day plan.
------ ------.
------ ------.
------ ------.
____
[Memo]
July 11, 1985.
To: John Latham
From: Jim McDougal.
1. This is probably a good time to take in some 5-year
money cheap. Let's discuss rates.
2. I need to know everything you have pending before the
Securities Commission as I intend to get with Hillary Clinton
within the next few days.
____
Index to Tabs
Tab A--December 9, 1993 letters from Congressman Leach to
the Federal banking agencies requesting all documents related
to Madison Guaranty Savings and Loan and its subsidiaries.
Tab B--March 8, 1994 letters from Congressman Leach to the
Office of Thrift Supervision (OTS) and the Resolution Trust
Corporation (RTC) requesting access to all documents related
to Madison Guaranty Savings and Loan and its subsidiaries, to
prepare for the RTC Oversight Hearings.
Tab C--March 10, 1994 letters from Chairman Gonzalez to the
OTS and the RTC requesting that the agencies deny Congressman
Leach's document request.
Tab D--March 14, 1994 letters from Chairman Gonzalez to the
Federal banking agencies and the RTC stating that the
agencies need not answer questions Madison at scheduled RTC
Oversight Hearings.
Tab E--March 1, 1994 letter copied to Congressman William
Clinger.
Tab F--Charts and other supporting documentation concerning
Whitewater's losses to Madison.
a. charts
Total Arkansas State Chartered S&Ls from 1979 to 1992
Madison Guaranty Rate of Growth
Asset Growth of Madison Guaranty
Payment of Clinton Loan by Madison Related Entity
Funds from Madison Financial Corporation to Whitewater
Funds Transferred from Madison Related Entities to the
Whitewater Development Corporation
b. other documents
April 17, 1985 Board of Directors Meeting Minutes
July 1, 1986 Memorandum from Jim McDougal to John Latham
concerning status of Madison Marketing
February 3, 1994 letter from Congressman Leach to Roger
Altman with attached staff memorandum on links between
Madison and Whitewater
[Tab A]
House of Representatives, Committee on Banking, Finance
and Urban Affairs,
Washington, DC, December 9, 1993.
Mr. Andrew C. Hove,
Acting Director, Federal Deposit Insurance Corporation,
Washington, DC.
Dear Mr. Hove: I am writing in reference to the House
Banking Committee Minority investigation of the failure of
Madison Guaranty Savings and Loan (Madison). As you know,
Madison was taken over by federal regulators in March 1989
and resolved by the Resolution Trust Corporation (RTC) in
November, 1990.
To assist in this investigation, I request that the Federal
Deposit Insurance Corporation (FDIC) provide access to all
documents related to Madison and its subsidiaries. Such
documents would include, but not be limited to,
administrative files, examination reports, interoffice
memorandum, notes and minutes of meetings (including
telephonic meetings), correspondence, electronic mail, and
agreements the FDIC entered into with private sector firms to
perform legal and other services related to Madison. In
addition to documents in possession at FDIC-Washington, I
request access to all documents related to Madison held at
FDIC field offices. Furthermore, please provide the names and
titles of all FDIC employees involved with the examination
and supervision of Madison.
Please have your staff contact Mike McGarry at 202-225-2258
to discuss arrangements to review the aforementioned
documents as soon as possible.
I appreciate your assistance and look forward to your
cooperation.
Sincerely,
James A. Leach,
Ranking Member.
____
House of Representatives, Committee on Banking, Finance
and Urban Affairs,
Washington, DC, December 9, 1993.
Mr. Joe Madden,
Commissioner, Arkansas Securities Department, Little Rock,
AR.
Dear Mr. Madden: I am writing in reference to the House
Banking Committee Minority investigation of the failure of
Madison Guaranty Savings and Loan (Madison). As you know,
Madison was taken over by federal regulators in March 1989
and resolved by the Resolution Trust Corporation (RTC) in
November, 1990.
To assist in this investigation, I request that the
Arkansas Securities Department provide access to all
documents related to Madison and its subsidiaries. Such
documents would include, but not be limited to administrative
files, examination reports, interoffice memorandum, notes and
minutes of meetings (including telephonic meetings),
correspondence, electronic mail, and supervisory actions.
Furthermore, please provide the names and titles of all State
Securities Department employees involved with the examination
and supervision of Madison.
Please have your staff contact Mike McGarry at 202-225-2258
to discuss arrangements to review these documents as soon as
possible.
I appreciate your assistance and look forward to your
cooperation.
Sincerely,
James A. Leach,
Ranking Member.
____
House of Representatives, Committee on Banking, Finance
and Urban Affairs,
Washington, DC, December 9, 1993.
Mr. Erskine Bowles,
Administrator, Small Business Administration, Washington, DC.
Dear Mr. Bowles: I am writing in reference to the House
Banking Committee Minority investigation of the failure of
Madison Guaranty Savings and Loan (Madison). As you know,
Madison was taken over by federal regulators in March of 1989
and resolved by the Resolution Trust Corporation (RTC) in
November, 1990.
To assist in this investigation, I request that the Small
Business Administration (SBA) provide access to all documents
related to Madison and its subsidiaries, the Whitewater
Development Corporation, and Capital Management Services,
Inc. Such documents would include, but not be limited to,
administrative files, interoffice memorandum, notes and
minutes and meetings (including telephonic meetings),
correspondence, electronic mail, and loan applications and
approvals. Furthermore, please provide the names and titles
of all SBA employees involved with these entities.
Please have your staff contact Mike McGarry at 202-225-2258
to discuss arrangements to review these documents as soon as
possible.
I appreciate your assistance and look forward to your
cooperation.
Sincerely,
James A. Leach,
Ranking Member.
____
House of Representatives, Committee on Banking, Finance
and Urban Affairs,
Washington, DC, December 9, 1993.
Mr. Jonathan Fiechter,
Acting Director, Office of Thrift Supervision, Washington,
DC.
Dear Mr. Fiechter: I am writing in reference to the House
Banking Committee Minority investigation of the failure of
Madison Guaranty Savings and Loan (Madison). As you know,
Madison was taken over by federal regulators in March of 1989
and resolved by the Resolution Trust Corporation (RTC) in
November, 1990.
To assist in this investigation, I request that the Office
of Thrift Supervision (OTS) provide access to all documents
related to Madison and its subsidiaries. Such documents would
include, but not be limited to, administrative files,
examination reports, interoffice memorandum, notes and
minutes and meetings (including telephonic meetings),
correspondence, electronic mail. In addition to documents in
possession at OTS-Washington, I request access to all
documents related to Madison held at OTS field offices.
Furthermore, please provide the names and titles of all OTS
employess involved with the examination and supervision of
Madison as well as those who were assigned to work with the
RTC when the institution was closed in 1989.
Please have your staff contact Mike McGarry at 202-225-2258
to discuss arrangements to review the aforementioned
documents as soon as possible.
I appreciate your assistance and look forward to your
cooperation.
Sincerely,
James A. Leach,
Ranking Member.
____
House of Representatives, Committee on Banking, Finance
and Urban Affairs,
Washington, DC, December 9, 1993.
Hon. Roger C. Altman,
Interim Chief Executive Officer, Resolution Trust
Corporation, Washington, DC.
Dear Mr. Altman: I am writing in reference to the House
Banking Committee Minority investigation of the failure of
Madison Guaranty Savings and Loan (Madison). As you know,
Madison was taken over by federal regulators in March of 1989
and resolved by the Resolution Trust Corporation (RTC) in
November 1990.
To assist in this investigation, I request that the RTC
provide access to all documents related to Madison and its
subsidiaries. Such documents would include, but not be
limited to, administrative files, examination reports,
interoffice memorandum, notes and minutes of meetings
(including telephonic meetings), correspondence, electronic
mail, and agreements the RTC entered into with private sector
contractors during the resolution of Madison. In addition to
documents in possession at RTC-Washington, I request access
to all documents related to Madison held at RTC field
offices. Furthermore, please provide the names and titles of
all RTC employees involved with the disposition of Madison.
Please have your staff contact Mike McGarry at 202-225-2258
to discuss arrangements to review the aforementioned
documents as soon as possible.
I appreciate your assistance and look forward to your
cooperation.
Sincerely,
James A. Leach,
Ranking Member.
[Tab B]
House of Representatives,
Committee on Banking, Finance
and Urban Affairs,
Washington, DC, March 8, 1994.
Mr. Jonathan Fiechter,
Acting Director, Office of Thrift Supervision, Washington,
DC.
Dear Mr. Fiechter: I am writing in reference to the House
Banking Committee's statutorily mandated, semiannual RTC
Oversight Hearings which are scheduled for the end of March.
As you know, a major area of oversight at these hearings will
be the failure and resolution of Madison Guaranty Savings and
Loan, Little Rock, Arkansas. Madison was taken over by
federal regulators in March of 1989 and resolved by the
Resolution Trust Corporation (RTC) in November, 1990.
As ranking Member of the House Banking Committee, I request
that the OTS provide the Committee with access to all
documents related to Madison and its subsidiaries. Members of
the Committee will need access to this material to prepare
for the upcoming hearings and to perform their ongoing
oversight responsibilities. (As I am sure you are aware,
documents provided to the Ranking Member are available to the
Committee as a whole under the Committee rules.) The
documents requested would include, but not be limited to,
administrative files, examination reports, interoffice
memorandum, notes and minutes of meetings (including
telephonic meetings), correspondence, electronic mail, and
agreements the RTC entered into with private sector
contractors during the resolution of Madison. In addition to
documents in possession at OTS-Washington, I request access
to all documents related to Madison held at OTS field
offices. Furthermore, please provide the names and titles of
all OTS employees involved with the supervision of Madison.
Please have your staff contact Joe Seidel at (202)226-3241
or Mike McGarry at (202)225-2258 to discuss arrangements to
review the aforementioned documents as soon as possible. As
you are aware, I have previously requested access to these
documents for use in performing other Committee functions. My
final letter concerning that request, was forwarded
yesterday, March 7, 1994. If the agency decides to comply
with that request, we will, of course, consider this request
satisfied as well.
I appreciate your assistance and look forward to your
cooperation.
Sincerely,
James A. Leach,
Ranking Member.
____
House of Representatives Committee on Banking, Finance
and Urban Affairs,
Washington, DC, March 8, 1994.
John E. Ryan,
Deputy Chief Executive Officer, Resolution Trust Corporation,
Washington, DC.
Dear Mr. Ryan: I am writing in reference to the House
Banking Committee's statutorily mandated, semi-annual RTC
Oversight Hearings which are scheduled for the end of March.
As you know, a major area of oversight at these hearings will
be the failure and resolution of Madison Guaranty Savings and
Loan, Little Rock, Arkansas. Madison was taken over by
Federal regulators in March of 1989 and resolved by the
Resolution Trust Corporation (RTC) in November, 1990.
As ranking Member of the House Banking Committee, I request
that the RTC provide the Committee with access to all
documents related to Madison and its subsidiaries. Members of
the Committee will need access to this material to prepare
for the upcoming hearings and to perform their ongoing
oversight responsibilities. (As I am sure you are aware,
documents provided to the Ranking Member are available to the
Committee as a whole under the Committee rules.) The
documents requested would include, but not be limited to,
administrative files, examination reports, interoffice
memorandum, notes and minutes of meetings (including
telephonic meeting), correspondence, electronic mail, and
agreements the RTC entered into with private sector
contractors during the resolution of Madison. In addition to
documents in possession at RTC-Washington, I request access
to all documents related to Madison held at RTC field
offices. Furthermore, please provide the names and titles of
all RTC employees involved with the disposition of Madison.
Please have your staff contact Joe Seidel at (202)226-3241
or Mike McGarry at (202)225-2258 to discuss arrangements to
review the aforementioned documents as soon as possible. As
you are aware, I have previously requested access to these
documents for use in performing other Committee functions. My
final letter concerning that request, was forwarded
yesterday, March 7, 1994. If the agency decisions to comply
with the request, we will, of course, consider this request
satisfied as well.
I appreciate you assistance and look forward to your
cooperation
Sincerely,
James A Leach,
Ranking Member.
[Tab C]
Committee on Banking, Finance and Urban Affairs,
Washington, DC, March 10, 1994.
Mr. Jonathan Fiechter,
Acting Director, Office of Thrift Supervision, Washington,
DC.
Dear Mr. Fiechter: You have recently received letters from
Congressman Jim Leach requesting access to all documents you
possess concerning Madison Guaranty Savings and Loan and its
subsidiaries. The March 8, 1994 letter states that, ``Members
of the Committee will need access to this material to prepare
for the upcoming [RTC oversight] hearings and to perform
their ongoing oversight responsibilities.''
This letter is to inform you that the Banking Committee is
not conducting an investigation of Madison Guaranty Savings
and Loan or related matters at this time. Mr. Leach's
requests do not constitute a Rule X or Rule XI investigation
under the House Rules. A hearing does not provide the basis
for a member of Congress to obtain documents to which he or
she is not otherwise entitled. I will request any information
needed by the Committee in order to prepare for any Thrift
Depositor Protection Board Oversight hearings pursuant to
section 21A(k)(6) of the FHLB Act and will make it available
to members of the Committee, as appropriate.
I trust that you will give Congressman Leach's requests the
consideration they merit and extend to him the same
courtesies you would extend to any member of Congress.
Sincerely,
Henry B. Gonzalez,
Chairman.
____
Committee on Banking, Finance and Urban Affairs
Washington, DC, March 10, 19094.
Mr. John E. Ryan,
Deputy Chief Executive Officer, Resolution Trust Corporation,
Washington, DC.
Dear Mr. Ryan: You have recently received letters from
Congressman Jim Leach requesting access to all documents you
possess concerning Madison Guaranty Savings and Loan and its
subsidiaries. The March 8, 1994 letter states that, ``Members
of the Committee will need access to this material to prepare
for the upcoming [RTC oversight] hearings and to perform
their ongoing oversight responsibilities.''
This letter is to inform you that the Banking Committee is
not conducting an investigation of Madison Guaranty Savings
and Loan or related matters at this time. Mr. Leach's
requests do not constitute a Rule X or Rule XI investigation
under the House Rules. A hearing does not provide the basis
for a member of Congress to obtain documents to which he or
she is not otherwise entitled. I will request any information
needed by the Committee in order to prepare for any Thrift
Depositor Protection Board Oversight hearings pursuant to
section 21A(k)(6) of the FHLB Act and will make it available
to members of the Committee, as appropriate.
I trust that you will give Congressman Leach's requests the
consideration they merit and extend to him the same
courtesies you would extend to any member of Congress.
Sincerely,
Henry B. Gonzalez,
Chairman.
____
[Tab D]
House of Representatives,
Washington, DC, March 14, 1994.
Mr. Andrew C. Hove, Jr.,
Acting Chairman, Federal Deposit Insurance Corporation,
Member, Thrift Depositor Protection Oversight Board,
Washington, DC.
Dear Mr. Hove: You have previously been invited by letter
dated March 3, 1994 to appear before the Committee on
Banking, Finance and Urban Affairs for the purpose of the
semiannual appearance of the Thrift Depositor Protection
Oversight Board. I expect that Republican members of the
Committee may use the opportunity of the Oversight Board
hearing to pursue extraneous matters, including Madison
Guaranty Savings and Loan. Any questions regarding Madison
Guaranty Savings and Loans, matters that are the subject of
pending investigations by Special Counsel Fiske or other law
enforcement authorities, or other extraneous matters not
specifically set forth in section 21A(k)(6) of the Federal
Home Loan Bank Act or the March 3, 1994 invitation letter
will not be considered pertinent at the hearing and need not
be answered by you.
I was the primary sponsor of the provision to require the
Oversight Board to appear on a semiannual basis so that the
Committee could oversee its activities. The recent
appropriation of funds to the RTC, the management reforms,
and FDIC-RTC transition measures required under Public Law
103-24 clearly require the complete and full attention of the
Committee in order to have a successful Oversight Board
hearing. I intend to keep the hearing so focused.
I look forward to your March 4, 1994 appearance.
Sincerely,
Henery B. Gonzalez,
Chairman.
____
Washington, DC, March 14, 1994.
Hon. Alan Greenspan,
Chairman, Board of Governors of the Federal Reserve System,
Member, Thrift Depositor Protection Oversight Board,
Washington, DC.
Dear Mr. Greenspan: You have previously been invited by
letter dated March 3, 1994 to appear before the Committee on
Banking, Finance and Urban Affairs for the purpose of the
semiannual appearance of the Thrift Depositor Protection
Oversight Board. I expect that Republican members of the
Committee may use the opportunity of the Oversight Board
hearing to pursue extraneous matters, including Madison
Guaranty Savings and Loan. Any questions regarding Madison
Guaranty Savings and Loans, matters that are the subject of
pending investigations by Special Counsel Fiske or other law
enforcement authorities, or other extraneous matters not
specifically set forth in section 21A(k)(6) of the Federal
Home Loan Bank Act or the March 3, 1994 invitation letter
will not be considered pertinent at the hearing and need not
be answered by you.
I was the primary sponsor of the provision to require the
Oversight Board to appear on a semiannual basis so that the
Committee could oversee its activities. The recent
appropriation of funds to the RTC, the management reforms,
and FDIC-RTC transition measures required under Public Law
103-24 clearly require the complete and full attention of the
Committee in order to have a successful Oversight Board
hearing. I intend to keep the hearing so focused.
I look forward to your March 4, 1994 appearance.
Sincerely,
Henry B. Gonzalez,
Chairman.
____
House of Representatives,
Washington, DC, March 14, 1994.
Mr. Jonathan Fiechter,
Acting Director, Office of Thrift Supervision, Member, Thrift
Depositor Protection Oversight Board, Washington, DC.
Dear Mr. Fiechter: You have previously been invited by
letter dated March 3, 1994 to appear before the Committee on
Banking, Finance and Urban Affairs for the purpose of the
semiannual appearance of the Thrift Depositor Protection
Oversight Board. I expect that Republican members of the
Committee may use the opportunity of the Oversight Board
hearing to pursue extraneous matters, including Madison
Guaranty Savings and Loan. Any questions regarding Madison
Guaranty Savings and Loans, matters that are the subject of
pending investigations by Special Counsel Fiske or other law
enforcement authorities, or other extraneous matters not
specifically set forth in section 21A(k)(6) of the Federal
Home Loan Bank Act or the March 3, 1994 invitation letter
will not be considered pertinent at the hearing and need not
be answered by you.
I was the primary sponsor of the provision to require the
Oversight Board to appear on a semiannual basis so that the
Committee could oversee its activities. The recent
appropriation of funds to the RTC, the management reforms,
and FDIC-RTC transition measures required under Public Law
103-24 clearly require the complete and full attention of the
Committee in order to have a successful Oversight Board
hearing. I intend to keep the hearing so focused.
I look forward to your March 24, 1994 appearance.
Sincerely,
Henry B. Gonzalez,
Chairman.
____
House of Representatives,
Washington, DC, March 14, 1994.
Hon. Lloyd Bentsen,
Secretary of the Treasury, Chairman, Thrift Depositor
Protection Oversight Board, Washington, DC.
Dear Mr. Secretary: You have previously been invited by
letter dated March 3, 1994 to appear and testify before the
Committee on Banking, Finance and Urban Affairs for the
purpose of the semiannual appearance of the Thrift Depositor
Protection Oversight Board. That letter specifies in detail
the matters to which you should direct your testimony. I
expect that Republican members of the Committee may use the
opportunity of the Oversight Board hearing to pursue their
stated interest in extraneous matters, including Madison
Guaranty Savings and Loan. Any questions regarding Madison
Guaranty Savings and Loans, matters that are the subject of
pending investigations by Special Counsel Fiske or other law
enforcement authorities, or other extraneous matters not
specifically set forth in section 21A(k)(6) of the Federal
Home Loan Bank Act or the March 3, 1994 invitation will not
be considered pertinent at the hearing and need not be
answered by you.
I was the primary sponsor of the provision to require the
Oversight Board to appear on a semiannual basis so that the
Committee could oversee its activities. The recent
appropriation of funds to the RTC, the management reforms,
and FDIC-RTC transition measures required under Public Law
103-24 clearly require the complete and fully attention of
the Committee in order to have a successful Oversight Board
hearing. I intend to keep the hearing so focused.
I look forward to your March 24, 1994 appearance.
Sincerely,
Henry B. Gonzalez,
Chairman.
____
House of Representatives,
Washington, DC, March 14, 1994.
Hon. Roger Altman,
Chief Executive Officer, Resolution Trust Corporation,
Member, Thrift Depositor Protection Oversight Board,
Washington, DC.
Dear Mr. Altman: You have previously been invited by letter
dated March 3, 1994 to appear before the Committee on
Banking, Finance and Urban Affairs for the purpose of the
semiannual appearance of the Thrift Depositor Protection
Oversight Board. I expect that Republican members of the
Committee may use the opportunity of the Oversight Board
hearing to pursue extraneous matters, including Madison
Guaranty Savings and Loan. Any questions regarding Madison
Guaranty Savings and Loans, matters that are the subject of
pending investigations by Special Counsel Fiske or other law
enforcement authorities, or other extraneous matters not
specifically set forth in section 21A(k)(6) of the Federal
Home Loan Bank Act or the March 3, 1994 invitation letter
will not be considered pertinent at the hearing and need not
be answered by you.
I was the primary sponsor of the provision to require the
Oversight Board to appear on a semiannual basis so that the
Committee could oversee its activities. The recent
appropriation of funds to the RTC, the management reforms,
and FDIC-RTC transition measures required under Public Law
103-24 clearly require the complete and full attention of the
Committee in order to have a successful Oversight Board
hearing. I intend to keep the hearing so focused.
I look forward to your March 24, 1994 appearance.
Sincerely,
Henry B. Gonzalez,
Chairman.
[Tab E]
House of Representatives,
Washington, DC, March 1, 1994.
Hon. Carol K. Browner,
Administrator, U.S. Environmental Protection Agency,
Washington, DC.
Dear Madam Administrator: You have recently received a
request from various minority members of the Committees on
Armed Services, Energy and Commerce, Government Operations,
and Natural Resources for information concerning the Waste
Isolation Pilot Plant (WIPP) Test Phase. Their letter
requests answers to a number of questions concerning WIPP as
well as numerous documents, and cites Rules X and XI of the
House of Representatives as the basis for the request.
This letter is to inform you that the above mentioned
committees have no ongoing investigations of the WIPP Test
Phase at this time. Therefore, the minority members' request
does not constitute a Rule X or Rule XI investigation under
the House Rules.
This is not intended in any way to direct the nature of
your response to that letter. Indeed, we expect that you
would show the members the same courtesies as you would any
member of Congress.
Sincerely,
John Conyers, Jr.,
Chair, Committee on Government Operations.
George Miller,
Chair, Committee on Natural Resources.
John D. Dingell,
Chair, Committee on Energy and Commerce.
Ronald V. Dellums,
Chair, Committee on Armed Services.
[Tab F]
Charts not reproducible in the Record.
Minutes of Meeting, Board of Directors, Madison Financial Corporation,
April 17, 1985
The Board of Directors of Madison Financial Corporation met
on April 17, 1985, at 1:00 p.m. at the offices of Madison
Financial Corporation at 16th and Main Streets, Little Rock,
Arkansas. All directors were present. The minutes of the
previous meeting were read and approved as recorded.
The first order of business, introduced by John Latham, was
the matter of authorizing prepayment of Jim McDougal's bonus.
After a full discussion, the following resolution was
unanimously adopted, with Jim McDougal abstaining from the
voting: ``RESOLVED, that the Corporation pre-pay to Jim
McDougal $30,000.00 of his annual bonus in recognition of the
profits of the prior year, and that said bonus is to be paid
directly to Whitewater Development.''
There being no further business, the meeting was adjourned.
James B. McDougal,
Chairman.
____
Memo
To: John Latham.
From: Jim McDougal.
Date: July 1, 1986.
Madison Marketing
When the service corporation undertook its first land
development project in the spring of 1983, it was determined
to primarily advertise the home sites through the use of
television. The firm of Rothman and Lowery was retained as
Madison's advertising agency. Because her education is in
speech and drama, Mrs. McDougal assisted in preparing of copy
for the commercials, appeared in the commercials, and
assisted in editing the commercials. She either wrote or
rewrote all newspaper copy to advertise the subdivision.
Until the summer of 1984, the corporation undertook the
development of other subdivisions in addition to Maple Creek
Farms.
During this period the creative audio and visual quality of
the production produced for the media by Rothman and Lowery
progressively deteriorated. Additionally, the firm frequently
made mistakes as to the placement of advertising or omitted
to place advertising when instructed to do so.
In late summer 1984, after advising the board of directors
of the savings and loan and after seeking the legal opinion
from counsel, Mrs. McDougal formed Madison Marketing. She
undertook, with hired assistants, the writing of copy, taping
of spots, and placement of advertising for both the savings
and loan and the service corporation. For the work she
received exactly the same fee which had been paid Rothman and
Lowery, with the exception of the fact that she did not
charge for production of television spots or the writing of
newspaper copy.
Additionally, she negotiated a much lower rate structure
with the television stations than the company had been paying
when the ads were placed through Rothman and Lowery. In late
January, 1985, Mrs. McDougal permitted Madison Marketing to
become a subsidiary of Madison Financial Corporation. Because
Madison Marketing was at this point a ``recognized agency''
by the electronic media, this resulted in Madison Financial
Corporation receiving the 15 percent discount normally given
advertising agencies. Mrs. McDougal continues to perform all
the aforementioned duties in connection with the company's
advertising at no fee.
Madison Real Estate
When initial sales began at Maple Creek Farms in April of
1983, the listing broker was Perryman Realty Company, Inc.
Mr. Perryman had, at this time, other interests including his
own subdivisions. This prohibited his devoting the seven days
a week necessary to the sales effort then under way at Maple
Creek Farms and his listing was terminated.
Some of Mr. Perryman's better salesmen desired to remain at
Maple Creek and continue selling. However, Arkansas law
requires that real estate salesmen be under the direct
supervision of a licensed real estate broker. Mrs. McDougal
holds a valid broker's license. In 1983, her license was held
under the name ``McDougal Real Estate'' although she was not
actively involved in the sale of real estate at this time.
Upon the termination of Mr. Perryman's activities, Mrs.
McDougal changed the name of her real estate company to
``Madison Real Estate Company''. Madison Real Estate became a
wholly owned subsidiary of Madison Financial Corporation.
From that time until the present, Mrs. McDougal has performed
the duty of supervision broker for the various salesmen
working for Madison Real Estate. Although it is normal
practice that the supervising broker receives at least thirty
percent of commissions generated by the salesmen under their
supervision, Mrs. McDougal charged no such fees. The only
fees Mrs. McDougal has received from Madison Real Estate are
fees for sales she made personally.
Sorenson Enterprises
Sorenson Enterprises is a sole proprietorship owned by Erik
Sorenson. Mr. Sorenson is a general contractor engaged in
construction and landscaping work. He built the sales office
for the subdivision at Camden known as Greentree Farms. He
also built the sales office at Fair Oaks. At several of our
subdivisions in southern Arkansas, he supervised the painting
and erection of signs in entranceways. He employed in these
subdivisions a crew of men engaged in selective clearing of
trees, planting of grass, and the general beautification of
the subdivisions. Concurrent with this activity, Mr. Sorenson
was engaged in building houses for other persons unrelated to
this company.
Because of the observed quality of his workmanship, he was
placed under Mr. Dutton's command at Little Rock, and given
the responsibility of constructing or making additions to
various houses at Maple Creek Farms owned by the company.
When the company undertook the development of Castle Grande
Estates, an arrangement was negotiated with Mr. Sorenson
whereby for a flat monthly fee he would supervise the
assembling of the modular houses and these duties involved
the preparation of footings and foundations, the adding of
brick trim, and supervision of correcting any defect in
the workmanship of the house, and supervision of the
installation of central air conditioning and utilities.
Madison Properties
Madison Properties assets consists primarily of a very
large masonry building located on several acres with two
producing gas wells in Madison County just south of the
county seat of Huntsville. Madison Properties has no
connection to Madison Guaranty Savings and Loan or Madison
Financial Corporation.
Master Developers
Three stockholders are working in conjunction with the
development of 59 acres located on 145th Street. Two
stockholders have extensive experience in real estate
development and sales. These individuals have engaged in
exhaustive market research to determine immediate commercial
use for subject property. Their feasibility and marketing
studies indicate the immediate need for a fast-food outlet to
serve the several hundred industrial and service employees
presently employed within 1,500 feet of subject location.
There is no such outlet within several miles to serve the
heavily populated suburban areas surrounding the property.
Additional trade is anticipated from traffic generated by the
freeway which services the location.
For the same reasons outlined above, need is indicated for
a convenience store and gasoline outlet. As mentioned above a
convenience store is essential to the successful sale of
residential lots. Roadrunner, Incorporation, a highly
successful Arkansas based convenience store and gasoline
outlet franchiser, has conducted an extensive market survey
which has concluded that such a facility located on subject
property would be successful. Two of the principals of Master
Developers have arranged for separate financing to erect such
a facility.
Also, negotiations are far advanced for the sale of two
acres of the property to a building supply and insulation
firm.
The preliminary master development plan for the business
park to be created is completed and a copy is attached.
Island Construction
The lots at Campobello which were under development last
year, were so heavily overgrown with spruce trees and other
foliage, that our sales people were finding it difficult to
walk the prospects from the road to the ocean therefore,
greatly inhibiting the sale of frontage lots.
Additionally, the density of the foliage prohibited a view
of the ocean from the interior lots lying immediately behind
the ocean fronts lots, thereby diminishing the value of those
lots because of this lack of view of the water.
Initially, unsuccessful attempts were made to employ timber
cutters with chain saws to selectively clear the ocean front
lots. This process proved too slow and too costly. When it
was determined that lot preparation could not keep pace with
sales using this method and further determined that this
process distracted from the beauty of the lots because it
left them covered with stumps, another solution was sought.
Mr. Randolph, who was thoroughly familiar with the use of
mechanical methods employed by the company to prepare lots
for sale and who had had extensive experience working in
various subdivisions owned by the company, was asked to come
to Campobello to devise a method of overcoming this
landscaping and marketing problem. Upon his arrival he
immediately leased the proper bull dozer for such work and
trained bull dozer operators living on the island as to the
proper method of selectively clearing the lots and removal of
the resulting debris from the lots. Direct correlation by the
increasing sales and his arrival is easily demonstrative. For
example, every lot he caused to be prepared in his first week
of work was sold that weekend. His additional duties involved
building driveways which permitted access from the main
thoroughfare through the lot to the water's edge.
The company owns a large tract of land abutting the highway
immediately at the entrance to the island. Our predecessor in
title had cut the timber from this tract some years ago. When
this sort of clear cutting occurs on that island, a large
bushy plant, which is quite unattractive, grows to a great
height and has an especially virulent root system which
inhibits its removal effectively even by a bull dozer. Mr.
Randolph purchased a new 70 horsepower tractor than attached
a device known as a ``tree eater'' to be used in the
eradication of this plant. This method was beautified to as
to make the ocean visible, thus greatly enhancing the value
of our entire property. Mr. Randolph left the tractor he
purchased at Campobello where it is in use until this time.
Personnel he trained in the proper method of beautification
of our property are continuing the process this year with
very beneficial effects.
____
Committee on Banking, Finance
and Urban Affairs,
Washington, DC, February 3, 1994.
Mr. Roger C. Altman,
Interim CEO, Resolution Trust Corporation, Washington, DC.
Dear Mr. Altman: I am in receipt of your February 1, 1994
response to the letter initiated by Senate Republican
leadership concerning Madison Savings and Loan and I am
pleased to learn that the RTC ``will vigorously pursue all
appropriate remedies'' with regard to Madison's failure. It
seems self-apparent that in order for the RTC to pursue
vigorously all remedies it must have all relevant information
at its disposal. Accordingly, I urge the RTC to seek and
review all Whitewater Development Corporation documents
turned over by the White House to the Justice Department.
In its investigation of Madison, the Minority has uncovered
links between Madison and Whitewater, some of which may have
contributed to the thrift's failure. Not only did James and
Susan McDougal hold significant ownership interest in both
entities (approximately two thirds in Madison and one half in
Whitewater), but the other joint owners of Whitewater (Bill
and Hillary Clinton) appear to have benefited directly and
indirectly from the application of Madison resources. [See
the attached memo.]
If the White House choose to use the Justice Department to
shield Whitewater documents not only from the public and
Congress, but from other government agencies, such as the
RTC, which have legitimate public law enforcement
responsibilities, it is hard to believe a responsible
resolution of the issues involved can be made by regulatory
authorities.
I have high regard for your personal integrity, but as you
know, from the beginning, it has been an awkward situation to
have a presidentially appointed and confirmed officer of the
Treasury Department also head an independent federal agency,
the Resolution Trust Corporation (RTC). When this prospect
was first suggested at the beginning of the Clinton
Administration, it did not strike the Minority as overly
unreasonable for a month or two given the fact that no RTC
head had been selected.
However, it has been over a year since the Administration
has been in office and it can only be described as
structurally unseemly for a political appointee of an
Executive branch department to make what are in effect, law
enforcement decisions for an independent federal agency as
they may touch upon the President.
Accordingly, I would urge that you request from the
Department of Treasury's General Counsel and Ethics Office
advice as to whether you, as interim CEO of the RTC, are
obligated to rescue yourself from any decisions concerning
the resolution of Madison Guaranty. Just as the special
counsel law was designed to relieve the Attorney General from
an ethical dilemma of being both chief law enforcement
officer for the nation and chief legal advisor to the
President in circumstances when the President or a high level
Administration officer is the subject of investigation, so it
would appear ethically questionable for a political appointee
of the Department of Treasury to make decisions for an
independent federal agency when the President may be
implicated in enforcement and civil actions.
In this regard, it should be clear that the issue is not
whether a presidentially appointed official can oversee an
investigation involving the President. Rather the issue is
that officials with this responsibility should be confirmed
for the job with that particular accountability. As you will
recall it was a political appointee confirmed by the Senate
that issued a cease and desist order for engaging in
conflicts of interest against the son of a former President.
As you know, despite your strong letter to the Chairman of
the House Banking Committee recommending against extension,
Congress last year extended the statute of limitations for
civil lawsuits brought against S&L wrongdoers. As you pointed
out in your most recent letter, this extension ``has afforded
the RTC an opportunity to investigate further any civil
claims which may be asserted against individuals or entities
associated with Madison Guaranty for fraud, intentional
misconduct resulting in unjust enrichment, or international
misconduct resulting in substantial loss to the
institution.'' Given, however, the impending running of the
statute of limitations for certain kinds of actions, time is
clearly of the essence for the RTC to make judgments about
civil accountability in the failure of Madison.
Finally, I would like to reiterate my request, pursuant to
Rules X and XI of the House Rules for all documents related
to Madison Guaranty Savings and Loan, Little Rock, Arkansas.
As you know, on December 9, 1993, I wrote the RTC requesting
access to all documents related to Madison Guaranty and
its subsidiaries.
House and Committee Rules, House practices, and judicial
precedent support the proposition that the Ranking Minority
Member is the functional counterpart to the Chairman for
Committee action. This being the case, a request for
documents made by the Ranking Minority Member has parallel
standing with a request made by the Chairman of the
Committee. The Ranking Minority Member clearly has a voice in
the process and is entitled to information that will enable
the Ranking Minority Member to carry out his constitutionally
mandated oversight responsibilities.
Therefore, the courtesy of a definitive reply to this
document request is requested by 12 noon, Monday, February 7,
1994. On this matter, it is urged that you also consult with
the Ethics Office as to the relevance of the previously
discussed recusal issue.
Again, let me stress that to the degree a conflict
situation may exist in this matter in no way reflects on your
personal integrity. It is simply an awkward circumstance in
contrast to a personal embarrassment.
Sincerely,
James A. Leach,
Ranking Member.
Enclosure.
Memorandum
To: Congressman Leach.
From: Banking Minority Staff.
Re: Madison Guaranty (``Madison'').
In reviewing documents related to Madison in the possession
of Minority Banking, we have come across material which may
indicate direct payment of a loan of Bill Clinton's by
Madison through a subsidiary.
Since the Minority's investigation is concerned with the
possible misuse of federally insured funds to assist
Whitewater and/or the former Governor, we thought we should
share the following information with you.
summary
Based on documentary evidence available to the Minority, it
appears that Madison Marketing served, in at least one
instance, as a conduit of funds from Madison Guaranty to
Whitewater and Governor Clinton. If this is correct, it would
appear that insured funds from the failed Madison Guaranty
were diverted and directly benefitted the Governor and his
investment in Whitewater, a claim Clinton had denied.
documentation
The 1983, Bill Clinton obtained a loan from Security Bank
of Paragould, Arkansas for approximately $20,800 (loan #975-
585, Bill Clinton). The money from this loan was used to pay
off the remaining balance of a loan at Madison Bank and Trust
of Kingston, Arkansas that was provided for the purpose of
constructing a modular home on lot #13 at Whitewater Estates.
The loan at Madison Bank was provided in 1980 to Hillary
Clinton in the amount of $30,000.
On November 8, 1985, James McDougal sent a letter
accompanied by a check to Charles Campbell, Vice President of
Security Bank of Paragould, for $7,322.42. The letter from
McDougal states that the check is principal and interest
payment on ``Note #957-585, Bill Clinton.'' [Note: It appears
that the loan number is a typographical error with the
superimposing of numbers 5 and 7 in the first three digits.]
The check McDougal enclosed with his letter to Mr. Campbell
is a Whitewater Development Corporation check dated November
7, 1985. The loan number referenced on the memo portion of
the check is ``Note #95-585.''
According to the check ledgers for the Whitewater
Development Corporation (WDC), the corporation's checking
account had the following balances: $189.50 on 10-10-85; and,
$12.49 on 10-31-85. However, in order to cover the payment of
$7,322.40 on the Clinton loan, a deposit is recorded on
November 8, 1985 in the amount of $7,500.00. The deposit is
listed as coming from ``Madison Marketing.''
A 1986 Federal Home Loan Bank Board exam gives the
impression that Madison Marketing was largely a sham
corporation used to divert federally insured resources to
insiders. The exam notes that ``Until 1986, Susan McDougal
owned Madison Marketing.'' The report also states the
following:
``Madison Marketing is paid for doing all the general
advertising for Madison Guaranty and most of the advertising
for Madison Financial's land development projects. All of
Madison Marketing's business is derived from Madison Guaranty
or its subsidiaries. Since 1983 these payments total
$1,532,000.
``Given the evidence of Madison Marketing's invoices, it is
questionable how much of these advertising services are
actually performed by the firm. The actual work * * * appears
to be performed by others. It would appear that Madison
Guaranty could have an employee perform similar work for much
less money.
``Mr. Latham [an officer of Madison] stated that Madison
Marketing made no payments to any stockholders. This
statement is false. As part of a test for such payments, the
examiners discovered two remittances from Madison Marketing
to Susan McDougal [a large stockholder of Madison] which
total $50,000. This was a test, and there may be additional
payments.''
conclusion
Given the above circumstances, it would appear that
federally insured deposits (i.e., funds from Madison Guaranty
through Madison Marketing), which, with the later failure of
Madison became, in effect, taxpayer obligations, were
transferred for the direct personal benefit of the former
Governor.
The above payment also raises the question of whether
Whitewater was treated as an affiliate or related interest of
Madison Guaranty and therefore subject to conflict of
interest statutes. From a legal perspective, it could be
argued that the McDougals' controlling interest in Madison
Guaranty and their substantial ownership interest in
Whitewater could qualify Whitewater as an ``affiliate'' of
Madison Guaranty. Even if Whitewater is not considered a
subsidiary, related interest, or affiliate of Madison
Guaranty, such an extension of funds to a presumably
``unaffiliated'' entity would be very unusual and suspect.
It has been publicly reported, with respect to this loan
repayment, that both Whitewater and the Clintons took a tax
deduction related to interest paid on the same loan--which
the Clintons later recognized as improper double deduction
after an article ran in the New York Times. What remains
unclear is the largest question of whether the funds provided
by Madison to reduce the Clinton's liability were proper or
properly reported as income for income tax purposes.
As you know, we have received broad hints from within the
RTC that the agency has had under review money transfers from
Madison to Whitewater. We will not know whether this type of
activity was more pervasive and part of a larger pattern
unless, and until, the agency provides us the documents we
have requested. If Madison provided any direct or indirect
assistance to Whitewater, presumably half the value of such
would redound to the advantage of each of the half owners. In
any regard, the above money transfer underscores that then
Governor Clinton had personal liabilities reduced by a
payment from Madison. Such payment presumably carries ethical
as well as tax implications and is part and parcel of the $47
to $60 million estimated taxpayer loss at Madison.
Attachments.
September 30, 1983.
Governor Bill Clinton,
Little Rock, AR.
Dear Governor Clinton: Enclosed is a copy of our check
#12677 in the amount of $20,800.00 representing the proceeds
of your note. The original was mailed to: Madison Bank &
Trust, Kingston, Arkansas.
Sincerely,
Charles D. Campbell,
Vice President.
____
Jim McDougal,
Little Rock, AR, November 8, 1985.
Mr. Charles D. Campbell,
Vice President, Security Bank,
Paragould, AR.
Re: Note #957-585, Bill Clinton.
Dear Mr. Campbell: Enclosed is a White Water Development
Corporation check for $7,322.42, representing principal
payment of $5,000 and interest payment of $2,322.42, on the
above note.
Thank you for your attention to this matter.
Sincerely,
Jim McDougal.
In the Circuit Court of Pulaski County, Arkansas, Second Division
MADISON GUARANTY SAVINGS AND LOAN ASSOCIATION, a State
Chartered Savings and Loan; MADISON FINANCIAL CORPORATION, a
Wholly Owned Subsidiary of Madison Guaranty Savings and Loan
Association, Plaintiffs, versus ERNST & CO., an Arkansas
Professional Association, and its directors James Alford,
Michael Robinson, Gary Grey, Gaines Morton, Tim Gibbon, Steve
Humphries, Alan Duncan, Frank Butts, Marjorie Itskowitz, John
Does A., B, C, D, Defendant. (No. 88-1193)
first amended complaint
COKES NOW, Plaintiffs, and for cause of action states as
follows:
I
parties
1. Plaintiff Madison Guaranty Savings and Loan Association
(hereinafter, Madison Guaranty) is a state savings & loan
association duly chartered under the laws of the State of
Arkansas. Plaintiff Madison Financial Corporation
(hereinafter, Madison Financial) is a state chartered
corporation and wholly owned subsidiary of Madison Guaranty.
2. Defendant Frost & Company is a professional association
or partnership of public accountants with its principal place
of business in Little Rock, Arkansas, comprised of the
following individual partners who are set forth as Defendants
in paragraph 3.
* * * * *
7. John Latham at all relevant times was the President and
Chief Executive Officer of Madison Guaranty and a member of
its Board of Directors; and a member of the Board of
Directors and the Secretary of MFC.
8. Susan McDougal was at all relevant times wife of James
B. McDougal, member of the Board of Directors of Madison
Guaranty, President of Madison Real Estate, a division of
MFC, and President of Madison Marketing, a service provider
to Madison Guaranty and MFC.
9. Madison Real Estate was a real estate brokerage
operation owned and operated by Madison Financial with its
principal broker Susan McDougal.
10. Madison Marketing was an advertising agency through
which Madison Financial and Madison Guaranty purchased all of
its advertising for itself and KFC's real estate
developments.
11. Jim, David and Bill Kenley (``Kenley Brothers'') were
real estate agents and/or developers for Madison Real Estate,
who sold property and received substantial commissions and/or
development fees from Madison Financial.
12. Frost & Company purported to serve as independent
auditor of Madison Guaranty and its consolidated subsidiary
Madison Financial for the years 1984 and 1985.
13. James D. Alford at all relevant times was the audit and
accounting partner of Frost & Company in charge of the
Madison Guaranty audit.
14. Federal Home Loan Bank Board (``FHLBB'') is the primary
federal regulator of Madison Guaranty. FHLBB has oversight of
the Federal Home Loan Bank of Dallas which has direct
supervisory responsibility for Madison Guaranty.
* * * * *
Federal Home Loan Bank Board Office of Examinations and Supervision
Name and Address of Institution Madison Guaranty Savings
and Loan Association, 1501 Main Street, Little Rock, Arkansas
72203.
District Number 9, Docket Number 7601.
Examination as of March 4, 1986.
Service Corporations and Other Affiliates Examined: Madison
Financial Corporation.
report of examination
Prohibition of disclosure or release
This document is the property of the Federal Home Loan Bank
Board and is furnished to the Institution for its
confidential use. Under no circumstances shall the
Institution, or any of its directors, officers, or employees,
disclose or make this document or any portion of it public in
any manner.
If a subpoena or other legal process is received calling
for production of this document, the District Director--
Examinations should be notified immediately. The attorney at
whose instance the process was issued, and, if necessary, the
court which issued the process, should be advised of the
above prohibition, and referred to Part 505 of the General
Regulations of the Federal Home Loan Bank Board.
Directors, in keeping with their responsibilities, should
review this report thoroughly. This report should not be
considered an audit report.
Comments
Information concerning the Institution's policies,
practices and condition, considered to be of supervisory
interest or concern, is shown below.
A. Objectionable Conflicts of Interest
Conflicts of interest involving James McDougal, Susan
McDougal, and William Henley have been detrimental to the
safety and soundness of the Institution. These individuals
are in control of the Institution (Madison Guaranty) through
their stock ownership. James McDougal owns 63.5% of the
outstanding Madison shares. His wife, Susan McDougal, owns
12.6%, and her brother, William Henley owns 8.5%. In addition
to his ownership control, Mr. McDougal, as President of the
Institution's subsidiary (Madison Financial), has complete
control of the land development projects discussed in comment
B.
This control enabled Mr. McDougal to structure the
development and financing of the projects so that substantial
cash payments could be diverted to himself, Susan McDougal,
William Henley and others. These payments have directly
benefited these individuals, but Madison Guaranty has
received little or nothing in return. Though they have been
structured to avoid specific Insurance Regulations, these
payments are contrary to the general policy of the FHLBB
concerning conflicts of interest as stated in Insurance
Regulation 571.7 and FHLBB Memorandum R-19a.
Many of these payments have been funneled through business
entities which are owned or controlled by the McDougals,
employees, relatives of employees, or close friends of the
McDouglas and Henley. In the report, reference will be made
to these individuals as the McDougal-Henley Group. Though the
activities of these business entities may be appropriate for
a savings and loan institution to perform, the advantages
associated with these activities accrue to the McDougals and
Henley, rather than Madison Guaranty. As such, these
arrangements are contrary to the FHLBB's policy concerning
appropriations of corporate opportunity as explained by
Insurance Regulation 571.9.
Mr. McDougal stated that there were no violations of the
conflict of interest regulations.
There are several of these business entities, none of which
are disclosed on the Examination Management Questionnaire.
The investigation of these businesses remains incomplete. For
example, the amount of Madison Guaranty loan proceeds going
to many of the entities is unknown. Formal investigative
powers have been granted; in this case, under Section
407(m)(2) of the National Housing Act. Current findings, with
respect to three of the more important business entities, are
discussed below.
1. Madison Real Estate
Madison Financial pays commissions to Madison Real Estate
for selling land from Madison Financial's developments. These
commissions in turn are distributed to the sales personnel.
Mr. Latham stated that Madison Real Estate was ``a division''
of Madison Financial. Mr. McDougal stated that Madison Real
Estate was essentially formed in order to use Susan
McDougal's real estate sales license which, in turn, was
being used by Madison Financial to market the projects. But
Madison Real Estate's checking account was not on Madison
Financial's books until after management was notified of this
fact by the examiners. Also, Madison Real estate is not
registered in county records as a name being used by Madison
Financial or anyone else.
Since the beginning of 1983, after the McDougals and Henley
acquired Madison Guaranty, substantial commissions were paid
through Madison Real Estate to William Henley ($427,683) and
Susan McDougal ($137,500). In Henley's case, a substantial
portion of these funds were advances against commissions to
be earned on future land sales. Other McDougal-Henley Group
members, who received substantial commissions, are Pat Harris
($242,289) and James Henley ($154,690), who is the brother of
Susan McDougal and William Henley. These payments represent
most of the commissions paid by Madison Financial to
Madison Real Estate, which significantly derives all of
its business from Madison Financial
Many of the sales, which generated these commissions, were
to McDougal-Henley Group members who are acting as straw
buyers. Madison Guaranty essentially retained the risks of
ownership on these transactions because it fully financed
these sales including the cash sales commissions. Thus,
Madison Guaranty's position deteriorated because it retained
the same ownership risks as before, but paid cash fees to
these individuals. In addition, fees paid through Madison
Real Estate were used as down payments in some of the straw
land purchases in an apparent attempt to disguise 100%
funding of the purchase by Madison Guaranty and its
subsidiaries.
Messrs. McDougal and Latham cited an April 24, 1985 letter
from a Federal Home Loan Bank of Dallas Supervisory Agent as
permission to pay real estate sales commissions to Madison
Real Estate. However, this letter in part, asks that the
Board of Directors review Insurance Regulation 571.7 which is
cited above in this comment.
2. Madison Marketing.
Madison Marketing is paid for doing all the general
advertising for Madison Guaranty and most of the advertising
for Madison Financial's land development projects. All of
Madison Marketing's business is derived from Madison Guaranty
or its subsidiaries. Since 1983 these payments total
$1,532,000. Until February 1986, Susan McDougal owned Madison
Marketing. During a portion of this time, it was a
corporation which was incorporated by Lisa Aunspaugh,
reportedly a close friend of Susan McDougal.
Mr. Latham stated that after February 1986, Madison
Marketing became an entity ``d/b/a (doing business as)'' for
Madison Financial and ceased to be a corporation. However, it
is not registered as a ``d/b/a'' in the County records. Also,
its checking account has never been recorded on the books of
Madison Financial.
Given the evidence of Madison Marketing's invoices, it is
questionable how much of these advertising services are
actually performed by the firm. The actual work of
advertising, such as the design and production of commercials
and providing air time or newspaper space, appears to be
performed by others. Madison Marketing apparently just pays
the bills of other providers and adds a 15% fee of its own.
Examiners estimated this fee to be approximately $200,000
since 1983. It would appear that Madison Guaranty could have
an employee perform similar work for much less money.
Mr. Latham stated that Madison Marketing made no payments
to any stockholders. This statement is false. As a part of a
test for such payments, the examiners discovered two
remittances from Madison Marketing to Susan McDougal which
total $50,000. This was a text, and there may be additional
payments.
3. Designer's Construction
Designer's Construction performs construction work on some
of the land development projects and on some of the property
securing Madison Guaranty loans. In 1985 and to date in 1986,
$247,000 was paid for work performed for Madison Guaranty and
its subsidiaries. The amount of loan proceeds paid to
Designer's Construction on work for third party borrowers is
unknown.
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