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How Ken Starr tried to prevent state prosecutors from charging his prime witness with defrauding poor black people of burial insurance.
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PART ONE OF A TWO-PART SERIES
BY MURRAY WAAS | LITTLE ROCK, Ark. --Whitewater independent counsel Kenneth Starr intervened with Arkansas state prosecutors on several occasions between 1994 and 1996 in an attempt to prevent them from bringing criminal charges against David Hale, then the central witness in his investigation of President Clinton, according to law enforcement records and sources.
Starr's pressure on the state prosecutors culminated during a meeting with them on Sept. 21, 1995, when one of his senior advisors warned that Starr might even consider charging the local law enforcement officials with federal witness intimidation if they proceeded with bringing criminal charges against Hale, according to three sources familiar with the discussions.
The new information indicates that even some of Starr's own investigators had privately raised questions among themselves about the fairness and integrity of Starr's four-year investigation of the president -- an investigation that led to the impeachment report sent to Congress Wednesday. The criminal case against Hale that Starr attempted to derail involved a scam in which Hale looted funds from an insurance company that sold funeral and burial insurance to Arkansas residents, mostly poor African-Americans.
The facts in this case, had it been allowed to proceed to trial in a timely manner, may have further eroded Hale's credibility as a witness against Clinton, and thereby negatively affected Starr's entire effort long before the Monica Lewinsky scandal salvaged the independent counsel's investigation of the Clinton presidency. As it is, the insurance scam trial of Hale is now finally scheduled to begin on Oct. 6, far too late to be relevant to Clinton's predicament now that his presidency has been crippled by the Lewinsky affair, and his possible impeachment appears imminent.
Starr's previously undisclosed intervention in the state case was opposed by at least two FBI agents and a federal prosecutor working for him, who said they believed that the Whitewater counsel should have taken a neutral position regarding the returning of any criminal charges against Hale by the local authorities, according to federal law enforcement officials.
The career law enforcement officials working for Starr believed that his intervention was unjustified, and reflected an inappropriate closeness between Hale and Starr's top prosecutors that often colored their judgment during the course of the long Whitewater probe. Starr has often cited the work of such career law enforcement officers on his staff as evidence that neither politics nor a personal agenda has played any role in his investigation, but this case raises new doubts about that claim.
Starr's intervention in the state case dramatically reversed the position of his predecessor as Whitewater independent counsel, Robert Fiske, who had advocated a posture of strict neutrality regarding the probe of Hale by Arkansas authorities. Starr himself had originally followed Fiske's lead by taking a position of neutrality, only to later abruptly -- and mysteriously -- reverse himself in the matter.
His reversal took many of the career law enforcement officials who were working for him at the time by surprise, three sources said in interviews. The officials involved said that they were kept in the dark regarding Starr's reasoning in reversing his own previous position.
Starr's office also secretly monitored the progress of the state investigation through a series of informal contacts with the Little Rock Police Department, which was conducting the probe of Hale for the state prosecutors, according to law enforcement documents and sources.
The contacts between the Whitewater investigators and the Little Rock Police Department are detailed in dozens of pages of handwritten notes by the police detective who directed the state investigation of Hale, as well as in contemporaneous records also kept by two FBI agents working for Starr.
Starr and his senior prosecutors had about a half dozen meetings with the state prosecutors regarding the state's potential prosecution of Hale, according to the law enforcement records and sources. FBI agents working for Starr also had at least a dozen contacts with a Little Rock police detective to covertly monitor the activities of the state prosecutors.
Initially, Starr and his top aides made the contacts with the state prosecutors to discuss how they might coordinate their various efforts and encourage cooperation between their respective agencies. Starr at first only requested that Hale not be arrested by state authorities during a period of time that he was giving sensitive federal grand jury testimony and also that Starr be given advance notice of any arrest, four law enforcement officials said in interviews.
But soon Starr and his top aides began to question not only the standing of the state prosecutors to bring any charges against Hale, but also their motivations. Next, Starr started aggressively pressuring the local law enforcement offices not to issue any indictment against Hale at all, according to sources and documents.
Starr also proposed an alternative to the state prosecutors returning an indictment against Hale by raising the possibility that Hale's state offenses might be brought up during a federal sentencing hearing of Hale for his Whitewater crimes. The state prosecutors rejected Starr's proposal as insufficient, saying that Hale would almost certainly escape any significant punishment under the plan -- if he was even punished at all.
On Sept. 21, 1995, during an impasse in their discussions, Sam Dash, a senior advisor to Starr, told the state prosecutors that their actions might be construed as federal witness tampering if they were to bring any indictment of Hale, according to three law enforcement officials who were present at the meeting.
Starr did not attend that particular meeting, though he had been at most of the others with the state prosecuting attorneys. But three other Whitewater prosecutors, Bradley E. Lerman, Ray Jahn and Amy St. Eve, as well as three Arkansas state prosecutors, were present when the witness-tampering issue was raised, according to the same sources.
The intervention by Starr's office did in fact intimidate Mark Stodola, then the prosecuting attorney for Arkansas' sixth judicial district, to some degree and delayed the bringing of criminal charges against Hale, law enforcement sources said. The delay may have also significantly weakened the ability of the state to make its most effective case against Hale, the sources said.
Ultimately, however, the state prosecutors went ahead and signed an arrest warrant against Hale in early July 1996. Criminal charges filed by the state prosecutors charged that Hale had made misrepresentations to the state insurance commission regarding the solvency of an insurance company that he had owned, National Savings Life. The prosecutors also alleged in court papers that Hale had made the misrepresentations to conceal the fact that he had looted the insurance company.
National Savings Life had marketed so-called burial insurance to a mostly poor, African-American clientele residing in the delta surrounding the town of Pine Bluff, Ark. In exchange for a modest monthly premium, the insurance company paid out a benefit to a beneficiary's family upon the beneficiary's death, to cover the costs of a funeral and burial plot. State regulators seized the firm after they discovered that Hale had looted funds from the insurance company, and that therefore no funds would be available to pay for any funerals or burials.
Hale was to stand trial on the state charges last April, but the case was delayed when Hale complained of chest pains and entered a local hospital. The trial was delayed a second time in July when Hale's attorneys filed an appeal with the state Supreme Court. He is currently scheduled to stand trial on Oct. 6.
Hale is also currently the subject of a federal grand jury investigation examining allegations that he received covert payments of money and other gratuities from conservative political activists during a period of time that he was a cooperating witness in Starr's Whitewater investigation. That federal criminal inquiry is being directed by Michael Shaheen Jr., a former senior Justice Department official.
Charles G. Bakaly III, a spokesman for the Whitewater independent counsel, has said Starr and other prosecutors in his office "followed the letter and spirit of the law" while consulting with the state authorities. Tona De Mers, an attorney for Hale, declined to comment. Stodola also said he would have no comment for this story.
Sources close to Starr say that the intervention on Hale's behalf was appropriate because they believed that the state prosecutors were interfering with their own federal investigation. They also said they believed the state prosecution to be politically motivated.
In private conversations with other Whitewater investigators, Starr and his top deputy in Arkansas, W. Hickman Ewing III, said they believed that the state prosecution was done at the behest of allies of then-Arkansas Gov. Jim Guy Tucker. Tucker, along with Jim and Susan McDougal, the Clintons' partners in their failed Whitewater real estate investment, were convicted by a federal jury in June 1996 on mail fraud and conspiracy charges brought by Starr's office. Hale was the government's chief witness during that trial.
Among other things, Starr and Ewing pointed out that the investigation by state prosecutors originated from a referral from the Arkansas state insurance commissioner, Lee Douglass, who had first been appointed by then-Gov. Clinton and was later reappointed by Tucker. Douglass has said that his office stumbled upon the fraud at Hale's insurance company while conducting a routine audit, and that when the fraud was discovered, he had no other choice but to notify the appropriate law enforcement authorities.
Despite an exhaustive investigation, Starr's office was unable to find any evidence of any role by Tucker or any of his political allies to attempt to influence the state prosecutors, according to federal law enforcement officials. Tucker himself became a cooperating witness in Starr's investigation in February 1998 and confirmed that he had had no contacts with the state prosecutors regarding Hale, according to federal law enforcement officials.
In a telephone interview, Tucker repeated his denials that he had had any role in the state case: "My policy was to stay as far away from the insurance investigation as possible ... I had a man [Hale] who was making allegations against me while someone who I had appointed was recommending actions against Hale," Tucker said. "I didn't want to be seen in any way to be impeding any investigation."
And a federal judge also subsequently found no evidence of any wrongdoing by the state prosecutors in their decision to charge Hale. The judge's ruling was in response to a civil lawsuit Hale filed against the state prosecutors alleging that their prosecution of him was politically motivated and thus denied him his due process under the law. Hale sought to have the federal court enjoin the state prosecution, a request that was turned down in especially harsh language by Federal District Court Judge George Howard Jr., who presided over the case.
"After a thorough review of the record, the Court cannot find that the criminal prosecution against Hale was instituted for any impermissible purpose," Judge Howard wrote in his March 4, 1998, ruling. "The charges were brought after a thorough investigation. There is no evidence, either direct or by inference, that the prosecution is motivated to harass or punish Hale for cooperating with the federal government, or was brought because of some political agenda on the part of the Prosecutor ... The evidence reveals that the State has a very valid and legitimate reason to prosecute Hale for violation of state law."
Howard also ruled that Hale's allegations were "fraught with innuendo and speculation." He went on to rule: "Hale implies that a conspiracy exists involving Stodola and other persons out to retaliate against him for cooperating with the Independent Counsel. There is absolutely no evidence that any of the entities or individuals identified by Hale ever even talked to Stodola about Hale, let alone tried to influence the decision to prosecute."
The state case against Hale began after state regulators discovered during a routine audit that Hale's insurance company, National Savings Life, was insolvent. On Sept. 27, 1993, Lee Douglass, the state insurance commissioner, seized National Savings Life, saying the firm was "technically insolvent and needed to be placed in a rehabilitation posture for the protection of its policyholders."
Just four days before Hale's insurance company was seized by the state regulators, a federal grand jury in Little Rock had also indicted Hale on four felony counts that he had defrauded the federal Small Business Administration of more than $3.4 million. Hale later pleaded guilty to two felonies, admitting that he had committed the fraud through Capital Management Services, a federally subsidized lending company that Hale also headed at the time.
The state investigation of National Savings Life and the federal investigation of CMS were unrelated, according to several law enforcement officials. CMS's mandate was to provide federal funds and private capital to minority and disadvantaged businesses, but the federal investigation found that Hale misappropriated monies from the SBA program for himself, and that he made fraudulent and illegal loans to a number of Arkansas political and business leaders.
Hale was facing that federal indictment when he first made allegations of criminal wrongdoing against President Clinton. Hale alleged that in 1986 then-Gov. Clinton pressured Hale to have CMS make a fraudulent $300,000 loan to Susan McDougal, one of the Clintons' partners in their failed Whitewater land investment.
In defending their actions, state officials point out that their investigation of Hale's National Savings Life preceded the time when Hale first started making his charges against Clinton and Tucker, and thus they could not possibly have undertaken their probe as retaliation for his charges against the two popular Arkansas political figures. State records show that the audit and review of National Savings began in August 1993, several months before state officials could even have learned of Hale's charges against Clinton and Tucker.
The state regulators then referred the matter for potential criminal action to the prosecuting attorney for Arkansas' sixth judicial district during early summer 1994, according to court records. The state regulators and law enforcement officials said their actions were exactly what was required by law.
Almost from the inception of the state probe of Hale, Starr's office took an intense interest in the case, according to law enforcement sources and records. Initially, Fiske, Starr's predecessor as Whitewater independent counsel, and Starr simply monitored the state investigation and took no position at all regarding any local charges against Hale, according to law enforcement records and sources.
Then, for reasons that are not known, Starr and his top Arkansas deputy, Ewing, abruptly reversed their own position in the summer or fall of 1995. In doing so, Starr and Ewing were also overruling the concerns of FBI agents assigned to the Whitewater investigation who thought Starr should not interfere with the state probe.
Starr and Ewing then began making demands to the state prosecutors that they not go forward with any criminal charges against Hale, according to the law enforcement records and sources.
Federal Whitewater investigators say they were not consulted concerning the abrupt shift of positions by Starr and Ewing: "There has generally been a very deliberative and corroborative atmosphere around here," recalled one of the federal investigators. "Everybody is asked for their input, from the youngest, most inexperienced legal assistant on up ... There was none of that type of discussion on this one."
The pressure on the state prosecutors culminated in the Sept. 21, 1995, meeting, when Starr's senior advisor, Sam Dash, told three of the state prosecutors during a meeting held at the offices of the independent counsel that if the local law enforcement officials were going to proceed with an indictment of Hale, they could in turn find themselves facing federal witness tampering charges.
Ultimately, however, the Arkansas state prosecutors disregarded this threat and filed both arrest warrants and a "criminal information" (the equivalent of an indictment) against Hale. On Feb. 13, 1996, Stodola defiantly wrote Starr that his office intended to prosecute Hale, notwithstanding the Whitewater independent counsel's wishes:
"We have completed our ... investigation of David Hale and have decided to charge him with violating Arkansas law. Mr. Hale not only committed multiple crimes against the federal government, but there is also probable cause to believe he has independently violated state law as well ...
"In the final analysis, it is
ultimately a decision for the prosecutor, either state or federal, to
determine how best to protect society's interest in bringing wrongdoers
to justice. In the case at the bar, David Hale should be held to answer
for what he has done."
Also contributing reporting to this story was George Wells, a freelance writer who had covered the federal courts for more than a decade for the Arkansas Gazette. Research assistance by Nat Parry and Deidre Hussey.
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ILLUSTRATION BY CHARLIE POWELL