Whitewater prosecutor to conduct first trial


LITTLE ROCK, Ark. -- For months, a special prosecutor has worked with little public display on a variety of questions involving the Whitewater case. But today, one aspect of that investigation will assume a more visible role as the prosecutor, Robert B. Fiske Jr., and his team of lawyers conduct their first trial.

The case involves two men accused of conspiring to defraud the Small Business Administration.

Whether this otherwise garden-variety trial involving defendants peripheral to the overall Whitewater investigation will disclose any new details of the operations of the Whitewater Development Co. depends on the possible testimony of David Hale, a former municipal judge cooperating as part of a plea agreement.

In March, Hale pleaded guilty to a federal charge of conspiring to defraud the Small Business Administration of $900,000 through his lending company, Capital Management Services, which was backed by the agency. Prosecutors assert that the men going on trial today, Eugene Fitzhugh and Charles Matthews, both Arkansas lawyers, were involved in that conspiracy. Each has been charged with one count of conspiracy, and could face up to $250,000 in fines and five years imprisonment if found guilty.

Mr. Fitzhugh and Mr. Matthews have denied the charges.

Hale, who also pleaded guilty to a mail fraud charge, has maintained that President Clinton, while governor of Arkansas in 1985 and 1986, twice pressured him to lend money to politically connected friends. One of those friends, he says, was Susan McDougal, who with her husband James, invested with Mr. Clinton and his wife, Hillary Rodham Clinton, in a venture to develop vacation homes in the Ozarks.

Hale has asserted that he made a $300,000 loan to Mrs. McDougal's company that was later partly diverted to the venture, the Whitewater Development Co.

Mr. Clinton has said that he remembers no such conversation, and the White House has contended that Hale made the accusation to avoid prison.

In the case going to trial today, the lawyer for Mr. Fitzhugh has indicated that he may call Hale to testify. Mr. Fiske's office sought to limit the scope of the testimony, saying that parts of the Whitewater investigation could otherwise be endangered.

But Chief Judge Stephen M. Reasoner of Federal District Court ruled Friday that Hale could be questioned as a witness about his activities that led to his guilty plea, dealing a loss to Mr. Fiske.

Although this is the first trial in the investigation, Mr. Fiske is keeping a low profile by having most of the work in court handled by a Missouri lawyer, James E. Reeves. Mr. Reeves, a native of Memphis and a former U.S. attorney in Missouri, has been described as having a country-lawyer style that is more familiar to juries here.

The indictment charged that from September 1988 to March 1989, Hale, Mr. Fitzhugh and Mr. Matthews conspired to misrepresent the status of delinquent loans and the financial health of Capital Management so the company could meet requirements to secure matching money from the Small Business Administration.

It asserts that in 1988 the three men arranged the temporary transfer of at least $800,000 to Capital Management from a client's account at Prudential-Bache Securities, where Mr. Matthews was a broker. The money, prosecutors say, was put in Capital Management's accounts to make it appear as if some delinquent loans had been repaid on time.

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