January 25, 1996
Web posted at: 5:30 p.m. EST
From Congressional Correspondent Bob Franken
WASHINGTON (CNN) -- Nine days before a federal crackdown on the failing Madison Guaranty Savings and Loan, an Arkansas regulator warned the office of then-Arkansas Governor Bill Clinton that it was coming, she testified Thursday.
The now-defunct financial institution was owned by James and Susan McDougal, who were partners with Clinton and his wife, Hillary Rodham, in the failed Whitewater real estate venture in the Ozark Mountains of Arkansas.
Beverly Bassett Schaffer, former Arkansas Securities Commissioner, told the Senate Whitewater Committee that she handwrote a letter to Sam Bratton, a top aide to the governor, in which she said, "because of Bill's relationship" with James McDougal, "we probably ought to talk about" the situation.
Schaffer said she thought Clinton and McDougal were friends at the time, but that McDougal "abused" the relationship. She testified she wrote the letter to warn the governor's office to have nothing further to do with McDougal, because she felt McDougal might "blind-side" Clinton.
"My impression was that Jim McDougal exaggerated his relationship with Bill Clinton," Schaffer told the committee.(221K AIFF sound or 221K WAV sound)
She said McDougal previously had tried to influence Clinton and that she wanted the governor's office not to respond to any more overtures from him. McDougal recommended nominees for state banking posts to Clinton, who acted favorably on them.
Furthermore, she told the committee that "press calls" had been made to her asking if Madison was going to fail, which further prompted her to write the letter because she didn't want the governor to hear the news from "press people."(306K AIFF sound or 306K WAV sound)
Schaffer, who was appointed by Clinton to her post in the mid-1980s, had ruled that Madison could issue preferred stock to raise money. Hillary Clinton was Madison's attorney.
Republicans charge this was a conflict of interest and contributed to the failure of Madison, which has cost taxpayers more than $60 million. Schaffer said she did not know that Clinton and McDougal were Whitewater business partners.
Her testimony came a day after a Democratic defender of President Clinton and his wife said the White House should be "more forthcoming, more quickly." Sen. Patty Murray, D- Washington, said the Clintons have mistakenly "reverted to their roles as lawyers" in facing the investigation.
Murray also said that Mrs. Clinton, who will appear before a grand jury on Friday, has left herself open to partisan attacks.
The Clintons "really misunderstood the potential vulnerability they would be placed in. They reverted to their roles as lawyers and failed to recognize the personal story side of this," Murray said.
Mrs. Clinton has been subpoenaed to appear before a federal grand jury Friday for questioning about the discovery and content of the billing records outlining her work for Madison. The grand jury is trying to determine whether anyone tried to hide the records after prosecutors subpoenaed them two years ago.
White House officials originally said the records could not be found, but an aide recently stumbled across them on a table inside a room in the White House used by the first family and their visitors.
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