James McDougal, key Whitewater witness, dies Death of Clinton's former partner is blow to Starr's case; 'Sick and tired of lying'

WASHINGTON — WASHINGTON -- James B. McDougal, a former Clinton business partner who had been cooperating with independent counsel Kenneth W. Starr in the Whitewater investigation, died yesterday in a federal prison hospital in Texas. He was 58.

McDougal was serving a 3 1/2 -year sentence after Starr's office successfully prosecuted him on fraud charges stemming from the collapse of Madison Guaranty Savings & Loan, a McDougal-owned Arkansas thrift that cost taxpayers $60 million when it failed.


His death appears to reduce the legal risks to President Clinton and Hillary Rodham Clinton, and was a clear setback to Starr and his prosecutors, who huddled in their offices last night after McDougal's death was announced.

McDougal, who suffered from heart disease and blocked arteries, died of cardiac arrest, the Justice Department said. He had often predicted that his health wouldn't hold out long enough for him ever to be free again.


At the White House, the president issued a statement referring to the early years of his friendship with McDougal.

"I am saddened to learn about Jim McDougal's death today," Clinton said. "I have good memories of the years we worked together in Arkansas, and I extend my condolences to his family."

The key accusation against Clinton in the Whitewater land deal phase of Starr's investigation centers on a claim by former municipal judge David Hale, who maintains Clinton urged him in 1986 to seek a fraudulent $300,0000 government-backed loan.

The money was never repaid, and prosecutors alleged that some of it was used to prop up the Whitewater Development Corp., a firm co-owned by McDougal, his then-wife, Susan, and the Clintons. At his own trial, McDougal and the president testified that Hale's account was inaccurate.

But after an Arkansas jury convicted him, Susan McDougal and then-Arkansas Gov. Jim Guy Tucker of fraud and conspiracy in 1996, James McDougal changed his story -- and was prepared to testify that Hale was telling the truth and that Clinton was not.

"I just got sick and tired of lying for the fellow," he explained in a televised interview last year. "Yes, I was trying to protect him."

McDougal's recollections are not likely to be admissible as evidence now.

McDougal told prosecutors that he steered Madison legal business to Hillary Clinton's Rose Law Firm at the Clintons' request. Mrs. Clinton has denied that assertion. In an interview on "Larry King Live," McDougal said that if the first lady told the grand jury the same story she told the public "then she has perjured herself."


But McDougal's unavailability to be cross-examined means that whatever he told the Whitewater grand jury is now considered hearsay -- and is not admissible in a criminal trial.

"The quick answer is that the grand jury testimony or testimony given in a formal interrogation probably cannot come in," said James E. Moliterno, a law professor at the College of William and Mary. "That's because no one was there representing the targeted person."

But because this case involves a sitting president, there is one interesting legal wrinkle: If the evidence Starr uncovers results in an impeachment, rather than a court trial, Congress decides what evidence is admissible and what isn't.

The independent counsel is also able under the law to use records provided by McDougal, to pursue any leads he gave them and to use information originating with McDougal so long as it is corroborated by other witnesses.

For example, McDougal told the prosecutors of another questionable loan -- this one made by Madison to Clinton directly -- to prop up Whitewater. Later, McDougal said, it was wiped off the books. Clinton denied the existence of any such loan, but a canceled cashier's check for more than $27,000 from Madison to Clinton was found in the trunk of an abandoned car last year by a garage mechanic, who turned it over to Starr.

Nevertheless, Starr's luck in getting witnesses to turn on Clinton has been mostly bad.


After former Justice Department official Webster Hubbell was given immunity, he couldn't recall anything relating to Whitewater that the prosecutors asked him. Susan McDougal was given immunity after her conviction, but she clammed up when Starr's investigators began to question her -- and is close to completing an 18-month sentence for contempt of court.

And in more than six weeks, Starr has been thwarted in his attempts to get former White House intern Monica Lewinsky before his grand jury.

A flamboyant entrepreneur and Arkansas political character who once harbored political ambitions of his own, McDougal was the brains behind the Whitewater Development Corp., a land speculation scheme he assured his wife and the Clintons would make them all rich.

After the real estate crash of the late '80s caused both Madison and Whitewater to go belly up, state bank examiners went after McDougal. He was acquitted of wrongdoing in Arkansas courts, and as he once noted, that would have been the end of the controversy -- except that his former partner ended up running for president.

"I think the Clintons are really sort of like tornadoes moving through people's lives," he once said. "I'm just one of the people left in the wake of their passing by."

But when sentenced to prison, McDougal made no excuses.


"I take full and complete responsibility for my crimes and misdeeds," he told U.S. District Court Judge George Howard in Little Rock. "I've embarrassed the people in my community. I don't know how I can even make amends to them for their goodness and their trust. All I have is to ask humbly for their mercy."

Pub Date: 3/09/98