T30.7 JOURNAL OF THE MARCH 24 with the Senate thereon, was, by unan- and faithfully discharge the duties of latory agencies to request certain doc- imous consent, laid on the table. the office.’ uments of an oversight interest [exam- Thereupon, the SPEAKER pro tem- ‘‘If the majority party refuses to up- ple, Tab A]. In a followup letter I pore, Mrs. KENNELLY, by unanimous hold its responsibilities because of po- pointed out, as the courts have noted, consent, announced the appointment of litical embarrassment to its party’s ‘The Congress rarely acts as a body. Its Messrs. BRYANT, GLICKMAN, FRANK, top elected official, the minority party manifold duties in the legislative, in- FISH and GEKAS, as managers on the is left with the choice either of joining vestigative, and oversight fields are al- part of the House at said conference. in a complicity of silence or pursuing most invariably carried out through Ordered, That the Clerk notify the investigations that run the danger of committees, committee chairmen, in- Senate thereof. being partisan. dividual members, and staff personnel.’ ‘‘In this context, I would simply em- Murphy v. Department of Army, 613 F.2d T30.7 POINT OF PERSONAL PRIVILEGE phasize that I raised the Whitewater 1151, 1156 (1979). In addition, the court Mr. LEACH rose to a question of per- issue with great reluctance, realizing stated: sonal privilege. the import as well as the power of the The Senate and the House are so organized The SPEAKER pro tempore, Mrs. Presidency. I fully understand the po- that certain legislative and quasi-legislative KENNELLY, pursuant to clause 1 of litical and personal liabilities involved. activities may be accomplished only through rule IX, recognized Mr. LEACH for one Nonetheless, I feel it would be incon- committee action. In other respects, how- hour. sistent, indeed, hypocritical, to my ever, the legislature acts through its individ- Mr. LEACH made the following state- own values, if I refused to pursue a line ual Members. All Members have a constitu- ment: of inquiry potentially embarrassing to tionally recognized status entitling them to share in general congressional powers and re- ‘‘Madam Speaker, I rise to a point of the President of a country which from its inception was intended to be sponsibilities, many of them requiring access personal privilege of the House. to executive information. It would be an in- ‘‘In rising to this point of privilege, I hallmarked by law and its applicability appropriate intrusion into the legislative wish to express concern about the to all citizens. It is, after all, the estab- sphere for the courts to decide without con- breakdown of comity that has occurred lishment of a government of laws, not gressional direction that, for example, only on a personal and procedural level in men, that defines the uniqueness of the the chairman of a committee shall be re- the House Banking Committee. American experiment with democracy. garded as the official voice of the Congress ‘‘On a personal level, unfortunate ad- ‘‘Procedurally, it should be noted for purposes of receiving such information, jectives have been used; on a proce- that the minority is currently engaged as distinguished from its ranking minority in one of the most profound checks and member, or other committee members, or dural level, unprecedented tactics have other members of Congress. Each of them been employed. balances philosophical engagements participates in the law-making process; each ‘‘I don’t wish to dwell on the per- with the executive branch in the mod- has a voice and a vote in that process; and sonal, except to stress my high regard ern history of the Congress. This en- each is entitled to request such information for the chairman of the Banking Com- gagement carries far greater implica- from the executive agencies as will enable mittee and to suggest that, as the the- tions than any judgment relating to a him to carry out the responsibilities of a leg- ologian Reinhold Niebuhr once ob- particular embarrassment of a particu- islator. served, the temper and integrity of the lar public official at a particular time ‘‘Agency heads responded that a political debate is more important in because at issue is precedent: whether ranking member only has the author- our kind of democracy than the out- in future circumstances the oversight ity of an individual Member of Con- come of any issue. capacities of Congress can be thwarted gress and, therefore, may only obtain ‘‘Motivational aspersions are no sub- if the majority party of Congress is the information that would be available to stitute for full disclosure; indignation same as that in control of the execu- the public pursuant to the Freedom of no substitute for pursuit of truth. tive branch and chooses to refrain from Information Act. In addition, the Office ‘‘Members of the majority may be its oversight obligations in order not of Thrift Supervision asserted that it speaking the truth when they indicate to embarrass its party’s standings. differs ‘with the view that Rules X and they have no evidence of a link be- ‘‘It is possible that the constitutional XI of the House of Representatives tween the failure of an Arkansas S&L precedent for our checks and balances grant to a ranking minority member— and Whitewater and that they know of system surrounding the refusal of the or any individual member—the same no improprieties at issue. But it should administration to cooperate with an authority to request information that be understood that not speaking an un- oversight probe of the executive branch a committee chairman possesses.’ In truth is not the same as describing a which the majority party does not short, the agencies contend that only truthful situation, particularly if there sanction may have more long-term chairmen, not ranking members, speak has been no serious effort to pursue the negative consequences than any epi- for Congress. truth. sodic embarrassment that might relate ‘‘Subsequently, on March 8, 1994, I ‘‘Constitutionally it is the duty of to this or any President’s past. What is wrote requesting information for the Congress to oversee breaches of law or at issue is the definition of Congress as Banking Committee’s upcoming RTC public ethics in the executive branch. it applies to the constitutionally oversight hearing [Tab B]. Agency During the 12 years of the so-called di- granted oversight responsibilities of heads again responded by holding to vided Government of the Reagan/Bush the legislature. In our checks and bal- the position that only the chairman of era, the legislative branch took its con- ances system, Congress was given over- a committee would be permitted access stitutionally mandated oversight func- sight responsibilities, but this adminis- to agency documents. tion seriously, as witnessed by the ex- tration is suggesting in response to mi- ‘‘In this dispute about who is entitled pansion in the size of its staff and the nority requests for documentation to speak for Congress in the context of number of investigations undertaken. from executive agencies that only Congress’ right and obligation under ‘‘Now both the executive and the leg- chairmen speak for Congress. The mi- Article I of the Constitution to conduct islative branches of Government are nority in Congress, by this logic, has oversight of the executive branch, the controlled by the same political party. no power to advance or fulfill its con- chairman of the Banking Committee, The oversight mandate thus falls dis- stitutional rights if the majority does in what may have been an effort to bol- proportionately upon the ranking not concur in request for information. ster the executive’s position, wrote members of the respective committees If such precedent is allowed to stand, agency heads on March 10, 1994, to sug- for those areas of the executive branch Congress’s oversight capacities will for gest that they deny my document re- over which they have jurisdiction. Not all practical purposes be hamstrung quest and wrote separately on March to assume leadership in performing the whenever the executive and legislative 14, 1994, to state that they need not an- oversight function with regard to the branches of Government are controlled swer questions concerning Madison way in which the financial institutions by the same party. Would our Found- Guaranty Savings and Loan at the of this country are managed and regu- ing Fathers have had this in mind? scheduled hearings [Tabs C and D]. The lated would be to violate my oath to ‘‘In this connection, on December 9, chairman’s letter contained an implicit ‘support and defend the Constitution of 1993, as ranking member of the Bank- and unprecedented philosophical asser- the United States * * * and * * * well ing Committee, I wrote Federal regu- tion that not only does a chairman

372 1994 HOUSE OF REPRESENTATIVES T30.7 have the exclusive right to obtain over- sight hearings, questions related to in- duty of the minority party, as the ma- sight documents from the executive dividual institutions have been asked jority. Indeed, in real life circumstance branch, but the right to deny such doc- by committee members, including the as evidenced in this particular inci- umentation to other Members and the chairman, and answered by witnesses. dent, oversight may in practice imply a right even to deny inquiries about In fact, the committee’s invitation let- greater obligation on the party out of issues clearly germane to the subject of ter of March 3, 1994, to Treasury Sec- power than the party in control of the hearings. retary Bentsen for purposes of the RTC executive branch. ‘‘So that there is no misunderstand- oversight hearing, seeks testimony and ‘‘Hodding Carter, the distinguished ing, the RTC oversight hearing was documents related to a specific institu- journalist from Mississippi, recently scheduled under requirement of law, tion, Homefed Savings. Of relevance noted that southerners of virtually all section 21A(k)(6) of the Federal Home also is the following statement last philosophical stripes recognized a little Loan Bank Act (12 U.S.C. § 1441a(k)(6)), week of the chairman of the Senate or a lot of truth in certain northern and there is no provision in that law Banking Committee: concerns about discrimination that ex- for exceptions to congressional over- So we have had now over the years since isted in the South in the heyday of sight that relate to a single State and 1989, a very long series of regular oversight civil rights activism. But with under- its institutions. The U.S. Congress hearings where we call in the officials re- standable resentment all felt that wrote a law applicable to all 50 States, sponsible for implementing that law to find northerners had a duty to look a little out exactly how it is working and if there is not 49, and the oversight of our laws more assiduously in their own back- applies throughout this country. Just a need to change any particular part of it. Is it working the way it was designed to work? yards. In this probe of Whitewater, I as in America no individual is above Have we corrected all the abuses? We were so believe an outsider might conclude the law, no State is beyond its reach. concerned about that issue that, in fact, we that the single party concentration of Just as no individual is entitled to vio- built into that 1989 law a requirement that political power in Arkansas may be in late the law out of ignorance of it, no there has to be a hearing here in Congress need of review that the shadow of Lyn- person, even the chairman of a congres- every 6 months on how that cleanup effort is don Johnson and Huey Long may have sional committee, is entitled after the doing and how that law is being imple- been cast to greatly on a former gover- mented. Within the text of that part of the fact to be sole interpreter of a law’s norship. But as a northerner, I am obli- meaning or serve as a censor to an- law we went so far as to say that any institu- tions that failed in that time period, in the gated to note that my primary respon- other Member’s inquiries. Indeed, no mid-1980’s, that if any Senator on the com- sibility is my backyard, in this case Member of Congress has the right or mittee wanted to come in and ask questions the body to which I am elected to power to deny relevant information to about that particular institution, that they serve. While I believe it would be un- another Member. had a right in law to do so. We did not fore- fair to suggest that one of America’s ‘‘In addition to the Federal Home see the Madison case at that time, but it ap- great political parties is more honest Loan Bank Act, the committee’s role plies precisely to the Madison case and every than the other, I believe the concerted other case out of that time period. (CONG. in oversight is buttressed by the House effort to avoid accountability and full REC. S3153, March 17, 1994). rules as modified under the Legislative disclosure in the Whitewater incident, ‘‘To the degree the chairman’s letters Reorganization Act of 1970. I refer to and the unfortunate institutional are open to an interpretation that paragraph 2 of House Rule X providing precedents in process of being estab- would imply the possibility that they for the committee’s ‘General Oversight lished, reflect attitudes more associ- have been requested by the administra- Responsibilities’ which states: ated with single party governance of tion to bolster its efforts to deny infor- (b)(1) Each standing committee . . . shall closed than open societies. Competi- mation to the Congress and thereby review and study, on a continuing basis, the tion is the American way. When single the public, at issue would be a collusive application, administration, execution, and party dominance is long and deep, arro- effectiveness of those laws, or parts of laws, effort by the majority party in the gance associated with power creeps in- the subject matter of which is within the ju- Congress to aid and abet the executive contestably into the system. White- risdiction of that committee and the organi- branch in its concerted effort to deny water, in the end, may tell more about zation and operation of the Federal agencies disclosure of information related to le- and entities having responsibilities in or for Congress than the executive branch. the administration and execution thereof, in gitimate congressional oversight. ‘‘In this regard, a letter recently cop- ‘‘In this context, the minority raised order to determine whether such laws and concerns about the manner in which ied to Representative WILLIAM the programs thereunder are being imple- the RTC oversight hearing scheduled mented and carried out in accordance with CLINGER, ranking member of the Gov- the intent of the congress and whether such ernment Operations Committee, evi- this week might have been conducted. programs should be continued, curtailed, or dences a comparable approach in an- Nevertheless, the minority was dis- eliminated. other committee of Congress [Tab E]. appointed the hearing was abruptly ‘‘Separate procedural rules may ‘‘It is the minority’s position that ex- postponed. apply to an investigative hearing, but ecutive branch witnesses must address ‘‘Postponement of the hearing by the such rules do not apply in this case. their obligations to respond to legiti- majority raises, above anything else, The statutorily mandated RTC hearing mate oversight requests and legitimate the issue of compliance with the law. is an oversight hearing in accordance inquiries on the subject of hearings as Compliance with the law is not a mat- with rule X. Any reliance on investiga- required by the law and the Constitu- ter of convenience or discretion. The tive hearing procedures to deny infor- tion, not in conjunction with any arbi- majority party has no prerogative to mation to committee members is mis- trary desire of a chairman to deny dis- avoid capriciously its legal obligations. placed. Any information requests or cussion on a subject the executive ‘‘Hearings mandated by statute were questions by Members related in any branch would rather not forthcomingly to have occurred by December 3, 1993. manner to RTC operations are author- address. The minority party, has a It is a statutory obligation of the ma- ized under the committee’s oversight baseline assumption that officials of jority in the legislative branch to con- authority. It is also expected that in the U.S. Government will comply with duct on a timely basis RTC oversight; answering questions witnesses have the the law and, when appearing before a it is the statutory obligation of the ex- obligation either to assert appropriate committee of Congress, abide by the ecutive to cooperate with Congress and privileges or fully respond with an- Code of Government Ethics for Federal comply with its legal responsibilities. swers to the questions (See, 2 U.S.C. employees to ‘Uphold the Constitution, ‘‘The negotiations this week between § 192, Sinclair v. United States, 279 U.S. laws, and regulations of the United leaders of the House which led to the 263 (1929)) and such answers shall be States and all governments therein and passage of a bipartisan resolution ex- truthful. (See, 18 U.S.C. § 1001, U.S. v. never be party to their evasion.’ [Pub- pressing the sense of the House as to Poindexter, 951 F.2d 369 (D.C. Cir. 1991)). lic Law No. 96–303, July 3, 1980, 94 Stat. the need to hold bipartisan hearings ‘‘Moreover, the precedent of the 855]. are promising. The subsequent state- Banking Committee is clear with re- ‘‘The constitutionally-derived obliga- ments by the Speaker that these dis- spect to the relevance of specific ques- tion of oversight cannot be short- cussions were of the ‘possibility of tions on specific institutions. On nu- circuited at the whim of the congres- hearings, not a concession that hear- merous occasions at past RTC over- sional majority. It is just as much the ings are not necessarily going to take

373 T30.7 JOURNAL OF THE MARCH 24 place,’ is disappointing. The majority ‘‘On the landscape of political scan- sas declined from the 33, with assets of that an obligation to ensure the deci- dals Whitewater may be a bump, but it $961,002,000 to 3, with assets of sion to postpone indefinitely RTC hear- speaks mountains about me-generation $146,072,000. Viewed another way, the ings does not amount to yet another public ethics as well as single party amount of assets available to support example of Congress not applying the control of certain States and the U.S. home mortgage lending for the people law to itself. Congress. of Arkansas declined. ‘‘With regard to a possible hearing, ‘‘In a nutshell, Whitewater is about ‘‘The story of Whitewater is thus let me stress the minority has offered the arrogance of power—Machiavellian part and parcel the story of the great- to cooperate fully with the special machinations of single-party Govern- est domestic policy mistake of the cen- counsel. We have transferred substan- ment. It all began in the late 1970’s tury—the quarter-trillion dollar S&L tial information to his office. We have when a budding S&L owner named debacle. It is the story of a company given him our proposed witness list and James McDougal formed a 50–50 real es- which in one sense was a simple real offered to support a delay in the day of tate venture with a young politician, estate development venture, but in an- hearings provided under House rules to the then Attorney General of Arkan- other was a vehicle used to spirit feder- the minority to allow him a chance to sas, Bill Clinton. In this venture called ally insured deposits from an S&L and depose witnesses first. For his part, the Whitewater, the S&L owner and S&L compromise a significant political fig- special counsel, in a meeting on March affiliated entities provided virtually ure. 17, 1994, with the minority, said that he all, perhaps, all, the money; the Gov- ‘‘In the largest series of bank robber- would not impede in any manner exec- ernor-in-the-making provided his ies in history, which precipitated an in- utive branch testimony and that he name. dustry bail out larger than the tax- would not stand in the way of an RTC ‘‘Over the years, the company re- payers provided Lockheed, Chrysler, oversight hearing. Mr. Fiske also stat- ceived infusions of cash from the S&L and New York City times a factor of 10, ed that he did not object to the disclo- as well as from a small business invest- it is fair to ask: ‘What happened? Who sure of copies of documents to Con- ment corporation which diverted, al- is responsible.’ gress, other than White House docu- ‘‘An answer to these inquiries re- legedly at the Governor’s request, fed- ments. The existence of a special coun- quires an understanding that those ac- erally-guaranteed funds from a pro- sel appointed in the Madison case can- countable are not only a few negligent gram designed for socially and eco- not be used as a rationale to avoid pro- and corrupt S&L owners, but attor- nomically disadvantaged people to the viding RTC oversight information to neys, accountants, State and Federal Governor’s partners and thence, in Congress. legislators, regulator and assorted pub- part, to Whitewater. ‘‘Congress and prosecuting attorneys lic officials. As wide ranging as the re- have differentiated roles, but they are ‘‘Some of these funds were used to sponsibility is, however, it is a mistake by no means incompatible. In fact, pay off personal and campaign liabil- to be so glassy eyed as not seek lessons they are generally complementary. In- ities of the Governor; some to purchase for the future through a demand for in- deed, in the Banking Committee hear- a tract of land from a company to dividual accountability for breaches of ings over the past decade on institu- which the State had just given a sig- law and ethics in the past. tions such as Lincoln—Charles nificant tax break. Whitewater records ‘‘Macroeconomics aside, public re- Keating, and Silverado—Neil Bush, the have apparently been largely lost. A re- sponsibility for the S&L debacle is of a Justice Department had tandem inves- view of the numerous land trans- tripod nature, involving: First, the tigations underway. Hearings almost actions, however, raises questions of conflict-ridden role of Congress in pass- always reveal knowledge and perspec- what happened to the money that came ing loose laws; second, the ideological tive that is helpful to prosecutors. It into the company and a review of the mistake of the Reagan administration was, after all, Senator Ervin’s commit- President’s tax records raises questions in urging deregulation in an industry tee that revealed the existence of the about tax deductions that were taken which requires responsible standards; Watergate tapes and it was the recent and income that may not have been de- and third, the culpability of a small Senate hearing that revealed improper clared. number of State governments, such as contacts between executive branch ‘‘Under the governorship of Bill Clin- in California, Texas, Louisiana, and Ar- agencies and the White House. The ton, Jim McDougal was named a Gu- kansas, which failed to rein in high fly- major recent exception where a pros- bernatorial aide to serve principally li- ing State-chartered, State-regulated ecutor was undercut by Congress in- aison to the Economic Development, institutions, which because of the Fed- volved excessive zeal to embarrass Commerce, and Highway and Transpor- eral nature of deposit insurance, pre- Presidents Reagan and Bush that tation Departments; the first lady of cipitated a massive transfer of wealth caused a committee to offer immunity Arkansas was hired to represent the from States with responsible govern- to certain witnesses in the Iran Contra S&L before State regulators; the presi- ments to those without. people. But the more general propo- dent of the S&L was placed on the ‘‘In Arkansas it is impressive how sition is that constraining a congres- State S&L commission; an attorney the Federal Government was obligated sional inquiry has the effect of reduc- who represented the S&L was named to close more than 80 percent of State- ing knowledge, thus reducing prosecu- the State S&L regulator; the S&L re- chartered S&L’s in the 1980’s and how torial discretion. ceived rent from State agencies; White- large taxpayer losses were in relation ‘‘Mr. Speaker, in a country in which water had roads constructed using a to the State’s S&L deposit base. The process is our most important product, State agency program and State funds; failure of the Clinton administration in it is the belief of this Member that the and the S&L was allowed to operate, Little Rock to fulfill its responsibility precedents established in this inves- despite being insolvent for an extended to police State financial institutions tigation are more important than the period, providing millions in loans and had the effect of increasing tax burdens investigation itself. Nevertheless, I investment dollars to insiders and the on citizens of Arkansas as well as other come to the floor this afternoon to Arkansas political establishment. States. present to the attention of the House ‘‘Under the governorship of Bill Clin- ‘‘While taxpayers at the national and the American people some find- ton, the S&L was allowed to grow 25- level were forced to pick up the tab for ings, with supporting documentation, fold until Federal regulators forced its the mistakes of politicians in whose the Minority has uncovered in its ongo- closing, at which time taxpayers elections they could not vote, citizens ing investigation of the Whitewater/ picked up the tab for losses that in States like Arkansas were doubly Madison affair. amounted to approximately 50 percent shortchanged. Not only did they have ‘‘Accordingly, I would like to review of the institutions’s deposit base. to share in eventual bail out costs, but in both a perspective and information ‘‘Under the governorship of Bill Clin- when their home-based financial insti- dispensing sense the Madison/White- ton, the total number of State-char- tutions frittered away the hard earned water issue and divide the remainder of tered savings associations declined dra- deposit savings of the their State to in- my discussion in two categories: what matically. Over the period December siders, fewer resources were made happened and how the administration 1979 to December 1992, the number of available to potential homeowners and has responded. stock State-chartered thrifts in Arkan- minority entrepreneurs.

374 1994 HOUSE OF REPRESENTATIVES T30.7

‘‘What the Keating-5 scandal was all ‘‘By background, for several years a ‘‘The following standards—31 CFR about was the attempt of an S&L group of criminal investigators for the § 0.735–30—apply to the Department of owner to compromise through political RTC in Kansas City reviewed the fail- Treasury: contributions significant political ure of Madison Guaranty Savings & An employee should avoid any action . . . players, in this case five Senators, to Loan in Little Rock and came to the which might result in, or create the appear- influence regulators to keep an insol- conclusion criminal referrals were ap- ance of . . . vent, corruptly run, institution from propriate. In the last week of Septem- (2) Giving preferential treatment to any being closed. What makes Governor ber 1993, they sent copies of their refer- person; . . . Clinton’s involvement with a company (4) Losing complete independence or im- rals to Washington. Within a few days partiality; which helped breach the vaults of an of receipt of the referrals from the (5) Making a Government decision outside Arkansas S&L philosophically at least Kansas City office, RTC Washington of- official channels; or equal to, but in reality more troubling ficials visited the White House. Within (6) Affecting adversely the confidence of than the Keating model is that not a few weeks, in an unprecedented the public in the integrity of the Govern- only did the institution’s management change of procedure, Washington de- ment. organize conflict-ridden fund-raising manded to review all Madison refer- ‘‘Similarly, the following standards endeavors for the key politician in the rals. Within a few months, a senior contained in 12 CFR § 1605.7 apply to State, but through Whitewater it put Kansas City criminal investigator was RTC employees: the Governor in a compromising per- removed from the case. Within a few No employees shall engage in any action, sonal finance position as well. more months, officials from RTC Wash- which might result in, or create the appear- ‘‘What is extraordinary is the hypoc- ington visited Kansas City to pass on ance of . . . risy of the circumstance. The following the determined message that senior (b) giving preferential treatment to any person; . . . 1991 announcement statement of Gov- RTC officials in Washington wanted it ernor Clinton speaks for itself: (d) losing complete independence or impar- understood that they wished to claim tiality; For 12 years of this Reagan-Bush era, the Whitewater was not responsible for any (e) making an RTC decision outside official Republicans have let S&L crooks and self- losses at Madison. channels; or, serving CEO’s try to build an economy out of (f) adversely affecting the public’s con- paper and perks instead of people and prod- ‘‘Courageously, Kansas City inves- fidence in the integrity of the RTC. ucts. They stack the deck in favor of their tigators refused to allow Washington friends at the top and tell everybody else to RTC objections to change the content ‘‘Likewise, the following standards wait for whatever trickles down. of the referrals they sent in the second apply to the White House—3 CFR ‘‘Despite the rhetoric it is remark- week of October 1993, to the Justice De- § 100.735–4: able how time after time in the 1980’s, partment. In all circumstances employees shall con- duct themselves so as to exemplify the high- alleged defenders of the little guy in ‘‘Courageously, Kansas City inves- American politics found themselves ad- est standards of integrity. An employee shall tigators refused to back the Washing- avoid any action, whether or not specifically vancing the interests of a small num- ton position that Madison’s losses were ber of owners of financial institutions prohibited by this subpart, which might re- unrelated to Whitewater and pointed sult in, or create the appearance of: which were run as private piggy banks out to their superiors that in one in- (1) Using public office for private gain; for insiders. The intertwining of greed tensely reviewed 6-month period alone (2) Giving preferential treatment to any and ambition turned democratic values approximately $70,000 was transferred person; . . . upside down. (4) Losing complete independence or im- from Madison and Madison affiliated ‘‘In our kind of democracy ends sim- partiality; companies to Whitewater. ply don’t justify means. Just as a con- (5) Making a Government decision outside servative, who may despise govern- ‘‘Courageously, Kansas City inves- official channels; or ment, has no ethical right not to pay tigators have sought whistleblower (6) Affecting adversely the confidence of protection rather than comply with the the public in the integrity of the Govern- taxes, a liberal has no ethical basis to ment. put the public’s money in his own or Washington RTC gag order that no one his campaign’s pocket just because he form Kansas City could speak with ‘‘Perhaps laws have not been broken, may have the arrogance to believe he is Special Counsel Fiske without clear- but seldom have the public and private advancing a political creed that is in ance through and accompaniment of ethics of professionals in the White the public’s interest. Washington RTC officials. House and executive departments and ‘‘Why does all this matter? ‘‘The briefing of the White House by branch agencies been so thoroughly de- ‘‘Here, it would perhaps be appro- high ranking Department of Treasury valued. ‘‘The point of all this is that there is priate to paraphrase the great Illinois and RTC employees must be under- a disjunction in this administration be- Senator, Ev Dirksen: a few thousand stood in the context of the develop- tween public policy and private ethics. here and a few thousand there and ment and transmittal to the Justice Americans abhor privilege; hypocrisy pretty soon it adds up to a real scan- Department of these referrals and in gnaws at the American soul; it leaves a dal. Put another way, an ethical lapse the context of the possibility Kansas dispiriting residue of resentment. here and an ethical lapse there and City was in the process of developing ‘‘What is also extraordinary is the pretty soon it adds up to a character further referrals. deficit. absence of simple truth. ‘‘I have never known anyone in pub- ‘‘There are many elements of the ‘‘Administration claim: Whitewater lic life better able to put embarrassing Whitewater affair that are a bit eso- caused no losses to Madison. episodes behind him than Bill Clinton. teric. But the revelations that U.S. ‘‘Fact: As reflected in the minority- Accordingly, I couldn’t have been more Government officials briefed key White developed charts and evidenced by sup- surprised by the discombobulation of House aides on potential legal actions porting documentation, Madison and the administration at the minority’s which independent regulatory agencies affiliated companies transferred sig- restrained request last November for might be obligated to take implicating nificant resources to Whitewater. In hearings and full disclosure. but not charging the President and addition to being a modest-sized real ‘‘As in most serious public scandals, First Lady subvert one of the fun- estate company, with a cash flow de- coverups can prove as troubling as acts damental premises of American democ- rived from land sales, Whitewater ap- at their source. racy—that this is a country of laws and pears to be one of a dozen so companies ‘‘Much press attention has centered not men. with direct or indirect access to Madi- in recent weeks on the revelations of ‘‘In America no individual, whatever son and its taxpayer guaranteed depos- improper contact between employees of his or her rank, is privileged in the its. independent Federal agencies and the eyes of the law. No public official has ‘‘Administration claim: The Clintons White House. The question of whether the right to influence possible legal ac- lost money in Whitewater. a heads up was appropriate is of signifi- tions against him or herself. For this ‘‘Fact: To have lost in Whitewater cance. More so, is whether the line be- reason agencies of the Government as implies that the Clintons invested tween a heads up and coverup was well as the White House have precise sums which were unrecovered. Their crossed. rules that govern their employees. Whitewater partner, James McDougal,

375 T30.7 JOURNAL OF THE MARCH 24 claims at most the Clintons over the White House briefings were revealed. stance. The overwhelming perspective years put in $13,500 in Whitewater. The On March 9, the Washington Post re- as contained in the 1986 Federal Home minority has provided evidence that ported that there were numerous other Loan Bank Board Report of Examina- one land transaction alone returned contacts between the Treasury and the tion is that all Madison Marketing re- more than this amount to the Clintons White House on Madison. After subpoe- sources were derived from Madison and published reports indicate tax de- nas are issued it is revealed that there Guaranty or its subsidiaries. Any ductions of some value were taken. The are over 3,500 pages of documentation money transferred to Whitewater from Lyons report, as well as a review of surrounding these contacts which the Madison Marketing would thus have land sales, indicates substantial sums White House terms as inconsequential. had as its source the S&L. The 1986 were taken out of Whitewater over the ‘‘Fact: After the appointment of Spe- FHLBB exam, upon which the earlier years. It is not clear how disburse- cial Counsel Fiske, Washington RTC staff memo on this subject was based, ments were arranged. What is clear is officials imposed censorship guidelines states: that infusions of capital from land on Kansas City RTC employees. No dis- A. Objectionable Conflicts of Interest: Con- sales, from Madison-affiliated entities cussion with Fiske could be made with- flicts of interest involving James McDougal, and possibly from others appear to out going through Washington. No Susan McDougal, and William Henley have have covered loans the company and meetings between Kansas City office been detrimental to the safety and soundness and Fiske could take place without ac- of the Institution. These individuals are in the Clintons took out. The company control of the Institution (Madison Guar- may have had a negative value when companiment of Washington officials. anty) through their stock ownership. James the Clintons sold their half interest in No materials could be forwarded with- McDougal owns 63.5 percent of the outstand- 1992, but that neither means the Clin- out going through Washington. All in- ing Madison shares. His wife, Susan tons themselves lost money, nor that formation concerning attorney-client McDougal, owns 12.6 percent, and her broth- questions ought not be asked about privilege was to be redacted, with er, William Henley owns 8.5 percent. In addi- how direct or contingent liabilities Washington RTC determining the tion to his ownership control, Mr. McDougal, scope. as President of the Institution’s subsidiary may have been disposed of as late as (Madison Financial), has complete control of 1992. ‘‘Administration claim: No fundrais- ing improprieties occurred. the land development projects discussed in ‘‘Administration claim: The Presi- comment. dent and his staff would fully cooperate ‘‘Fact: On April 4, 1985, Jim B. This control enabled Mr. McDougal to with Congress. McDougal hosted a fundraiser for Gov- structure the development and financing of ‘‘Fact: The executive branch is ac- ernor Clinton. The Clinton’s repeatedly the projects so that substantial cash pay- tively working to prevent full disclo- asked McDougal to host the fundraiser ments could be diverted to himself, Susan sure of documents and committee ac- to pay off the $50,000 personal loan that McDougal, William Henley and others. These Clinton had taken out in the final payments have directly benefited these indi- cess to witnesses. viduals, but Madison Guaranty has received ‘‘Administration claim: It has done weeks of his 1984 campaign. The ques- tion at issue is whether some of the little or nothing in return. Though they have nothing wrong in relation to the RTC been structured to avoid specific Insurance investigation into the failure of Madi- money appears to have been diverted Regulations, these payments are contrary to son and is fully cooperating with Spe- from Madison Guaranty, which would the general policy of the FHLBB concerning cial Counsel Fiske’s probe. then, with the failure of Madison, conflicts of interest as stated in Insurance ‘‘Fact: Officials of an independent imply deferred Federal financing of a Regulation 571.9 and FHLBB Memorandum regulatory agency—the RTC—imme- gubernatorial election. For example, R–19a. diately notified the White House of the one cashier’s check for $3,000 was made Many of these payments have been fun- in the name of Charles Peacock III, neled through business entities which are probe of Madison by its Kansas City of- owned or controlled by the McDougals, em- fice and attempted to put in place pro- then a 24-year-old college student who ployees, relatives of employees, or close cedural techniques to undercut the tra- disclaims any knowledge of having friends of the McDougals and Henley. ditional independence of its regional made a contribution. Mr. Peacock’s fa- Madison Marketing: Madison Marketing is offices. ther was a major Madison borrower and paid for doing all the general advertising for ‘‘Fact: In January 1994, RTC Wash- served at one time on Madison’s board. Madison Guaranty and most of the advertis- ington met with Kansas City staff. Other checks that the RTC is reviewing ing for Madison Financial’s land develop- After the meeting the Kansas City of- include a $3,000 check from the late ment projects. All of Madison Marketing’s Dean Landrum, an employee of Charles business is derived from Madison Guaranty fice filed a formal complaint with or its subsidiaries. Since 1983 these payments Washington RTC. Peacock, and one from Susan total $1,532,000. ‘‘Fact: On February 2, 1994, the day McDougal. In the former Governor’s Given the evidence of Madison Marketing’s Roger Altman briefed the White House defense, candidates are not always in a invoices, it is questionable how much of on Madison Guaranty, RTC senior at- position to verify their campaign con- these advertising services are actually per- torney, April Breslaw visited the Kan- tributions. formed by the firm. The actual work of ad- sas City office and said that Washing- ‘‘Mr. Speaker, the President’s former vertising, such as the design and production ton would like to say that Whitewater partner, Jim McDougal, in a number of of commercials and providing air time or occasions has contested the assertion newspaper space, appears to be performed by caused no losses to Madison. Kansas others. Madison Marketing apparently just City employees protested that this was that no resources were taken from pays the bills of other providers and adds a not the case. Madison Guaranty and its related enti- 15 percent fee of its own. Examiners esti- ‘‘Fact: On September 29, 1993, before ties and given to Whitewater. In an AP mated this fee to be approximately $200,000 the new criminal referrals were sent to story on February 4, 1994, and on the since 1983. It would appear that Madison the Justice Department, Treasury Gen- ‘David Brinkley Show’ on March 13, Guaranty could have an employee perform eral Counsel Jean Hanson briefed 1994, he specifically raised concerns similar work for much less money. White House Counsel on them. Nine that Madison Marketing was not owned Mr. Latham stated that Madison Market- ing made no payments to any stockholders. days after the meeting, the referrals by Madison Guaranty, but was instead This statement is false. As a part of a test were sent to the Justice Department. a sole proprietorship owned by his for such payments, the examiners discovered On October 14, Jean Hanson with Sec- former wife. He has cited documents two remittances from Madison Marketing to retary Bentsen’s press secretary and filed with the Arkansas secretary of Susan McDougal which total $50,000. This chief of staff met with Presidential ad- state’s office to buttress his claim. was a test, and there may be additional pay- visors ostensibly to discuss press in- ‘‘Mr. McDougal apparently believes ments. quiries related to Madison Guaranty. there are subtleties about the nature of ‘‘Mr. McDougal apparently believes ‘‘Fact: On February 2, right after the Madison Marketing that need clarifica- Madison Marketing should be under- appointment of Special Counsel Robert tion. Mr. McDougal gives great cre- stood simply as a sole proprietorship of Fiske, Roger Altman gave the White dence to the circumstance that at some his wife with no ties to the S&L. This House a heads-up briefing on Madison. point Madison Marketing may have view is in discordance with that of the At the Senate oversight board hearing, been operating as an intended propri- U.S. Government, as indicated by the Roger Altman revealed his February 2 etorship of his wife, but, whether this FHLBB report cited above; it is also in meeting, but no others. Several days is true, this appears to be a distinction discordance with a contemporaneous later, the September and October without a difference, form over sub- view of the legal situation as defined

376 1994 HOUSE OF REPRESENTATIVES T30.7 and described by Mr. McDougal in a ‘‘Third, taxpayer guaranteed funds it is big, but precisely because it is July 1, 1986, memorandum from him to were in all likelihood used to benefit small. Madison guaranty’s president, Mr. the campaign of a former Governor; ‘‘The way we in America keep our John Latham. In this memorandum, ‘‘Fourth, the independence of the scandals from becoming too big is by which is a copy of an original Madison U.S. Government’s regulatory system holding people accountable when the document in the possession of the RTC has been flagrantly violated in an ef- amounts of money at issue are rel- and the minority of the House Banking fort to protect a single American citi- atively small. It is the principles at Committee, Mr. McDougal asserts: zen; and issue, not the dollar amounts that mat- In late January 1985, Mrs. McDougal per- ‘‘Fifth, Congress and the Executive ter. mitted Madison Marketing to become a sub- are employing closed society tech- ‘‘In conclusion, let me stress that the sidiary of Madison Financial Corporation. niques to resist full disclosure of an most difficult issue to deal with is the ‘‘In addition, Mr. Jeff Gerth of the embarrassing circumstance, with un- question of proportionality. When the New York Times has reported on fortunate precedent setting ramifica- minority made its restrained request March 8, 1992, an earlier instance in tions. for hearings last November, I suggested which Madison Marketing transferred ‘‘Last month a BBC reporter asked that while there was fire with the resources to Whitewater. Mr. Gerth re- me if we Americans weren’t making smoke, Whitewater appeared to be ported: too much of this scandal. He raised a more a camp than forest fire. I now be- Whitewater’s check ledger shows that fair question. Compared with petty po- lieve the fire has spread to the grass Whitewater’s account at Madison was over- tentates around the world, who rou- and is heading to the trees but that it drawn in 1984, when the corporation was is still not too late to put it out with making payments on the Clinton’s loan. tinely walk off with millions and in Money was deposited to make up the short- some cases billions, conflicts of inter- full disclosure and full accountability. age from Madison Marketing, an affiliate of est in American politics are of petty In this regard, I suggested in a Decem- the savings and loan that derived its reve- variety. In this case, however, we have ber, Washington Post editorial that nues from the institution, records also show. a situation where a multithousand-dol- when breaches of law or public ethics ‘‘In addition, David Hale and his at- lar conflicts of interest led to a multi- occur, options often exist as to whether torney Randy Coleman have asserted million-dollar hit on the taxpayer. civil or criminal remedies are appro- in recent days that it was proceeds of That is the meaning to the failure of priate. I presumptuously concluded an $825,000 Madison loan that was used Madison Guaranty. That is also the then and maintain now that there is no to leverage SBA funds and to make the meaning of the Small Business Invest- reason not to proceed with civil ac- $300,000 loan to Susan McDougal, of ment Corporation called Capitol. countability in a civil way. The last which $110,000 was deposited to White- ‘‘It is simply not appropriate to thing this country needs is a year long water. shrug it off and say that this is the way trial or travail for the President of the ‘‘This evidentiary material coupled things are done in small States. They United States. It would divide the with the April 17, 1985, minutes of aren’t in Nebraska, South Dakota, or country and be unfair to the public as Madison Financial’s board authorizing Iowa. It is simply not appropriate to well as the President. a transfer of $30,000 from Madison Fi- say it isn’t a Federal issue. It is. The ‘‘Accordingly, I have pledged to the nancial to Whitewater, the memo of L. U.S. taxpayer has lost millions; home- President’s counsel as well as to the Jean Lewis of the Kansas City RTC of- owners in Arkansas have lost institu- special counsel that I will do my best fice showing over a 6-month period re- tions that were established to serve to put the issue behind once disclosure viewed that approximately $70,000 was their needs; minorities throughout the is provided. Accountability is in order; transferred from Madison or affiliated country cannot lightly shrug off yet a constitutional crisis is not. The Pres- entities to Whitewater, plus other another instance in which a program idency should neither be jeopardized more confidential RTC material in our designed to give them a crack at the nor debilitated. Rather than high possession indicates there is every American dream was redirected to crimes and misdemeanors, the issue credible reason to believe that Madison serve the investment ego a State polit- today relates to high improprieties and Guaranty through affiliated entities ical establishment. breaches of the public trust.’’. did transfer money to Whitewater. ‘‘It is suggested by the majority that ADDITIONAL SUPPORTING DOCUMENTATION ‘‘Furthermore, records filed with the we have better things to do around STATEMENT OF THE HONORABLE JAMES A. Arkansas Secretary of State’s office here. There again is some truth to this. LEACH show that Mr. McDougal, as president The minority also wants to get on with 1. Notes of Conversation between L. Jean of Madison Financial Corp.—a subsidi- the business of health care, welfare re- Lewis and April Breslaw, February 2, 1994. ary of Madison Guaranty—on July 26, form, crime legislation. Indeed, we ‘‘(T)he ‘head people’, would like to be able to 1986, filed an application for registra- say that Whitewater did not cause a loss to tion of fictitious name. The application pledge to be constructive and are not Madison, but the problem is that so far no was for Madison Financial to do busi- blocking any congressional consider- one has been able to say that to them.’’ De- ness as Madison Marketing. This docu- ation of these issues. But, in a larger scribes losses to Madison caused by White- ment does not represent incorporation sense, it should be understood that water. 2. Board of Directors Minutes, Madison Fi- papers. This application appears to be these—we have better things to do—la- ments suggest that ethics, govern- nancial Corporation, April 17, 1985. ‘‘RE- in response to the 1986 Federal Home SOLVED, that the Corporation pre-pay to Loan Bank exam which noted that mental integrity, and the possible mis- use of the public’s money should be Jim McDougal $30,000.00 of his annual bonus with regard to Madison Marketing and in recognition of the profits of the prior year Madison Real Estate, Madison Finan- secondary considerations—something and that said bonus is to be paid directly to cial had not registered as a ‘‘doing to worry about only when we have Whitewater Development.’’ business as’’ in the county records. time. In a democratic system, built and 3. Application for Registration of Ficti- ‘‘The effect of this statement with its maintained on the confidence of the tious Name, Applicant—Madison Financial, supporting documentation is to evi- people, placing such considerations last Fictitious Name—‘‘Madison Marketing’’ (July 25, 1986). dence that: on the list of priorities is a highly du- bious game. Nothing works over the 4. Chronology of Criminal Investigation. ‘‘First, Whitewater may have begun 5. Letter of September 1, 1992 from L. Rich- as a legitimate real estate venture but long haul if the public loses confidence ard Iorio (RTC–KC) to Steve Irons (FBI) it came to be used to skim, directly or in its governmental institutions and transmitting criminal referral. indirectly, federally insured deposits the people who operate those institu- 6. Letter of September 1, 1992 from L. Rich- from an S&L and a Small Business In- tions. The task of keeping the people’s ard Iorio (RTC–KC) to Charles A. Banks vestment Corporation. When each confidence may not be pretty or pleas- (DOJ) transmitting criminal referral. failed, the U.S. taxpayer became obli- ant, but it is a first priority in our sys- 7. RTC Internal Memorandum, May 3, 1993. Background remarks and conversation with gated to pick up the tab; tem—not a last priority as all too many are suggesting today. AUSA Bob Roddey’s office re: Madison Guar- ‘‘Second, the family of the former anty Savings referral. Governor of Arkansas received value ‘‘Whitewater is less about the issues 8. RTC Internal Memorandum, May 19, from Whitewater in excess of resources of the day than it is the ethics of our 1993. Additional conversation with Office of invested; time. It is a central issue not because Legal Counsel for U.S. Attorney’s, U.S. Jus-

377 T30.7 JOURNAL OF THE MARCH 24 tice Department, Washington, D.C. No record 23. RTC–KC E–Mail, November 15, 1993. NOTES FROM THE CONVERSATION BETWEEN of Madison criminal referral at Washington Transmittal of white paper outlining chro- RTC SENIOR CRIMINAL INVESTIGATOR L. DOJ. nology of events related to 1992 Madison re- JEAN LEWIS AND FDIC ATTORNEY APRIL 9. RTC–KC E-Mail, May 19, 1993. Madison ferral. Challenges news article indicating BRESLAW ON FEBRUARY 2, 1994, FROM AP- matter forwarded to Donna Henneman in that decision to decline Madison referral had PROXIMATELY 3:50 P.M. UNTIL 4:35 P.M. ‘‘Legal Counsel.’’ Referral submitted to that been prior to Paula Casey’s appointment. April stated that ‘‘the people at the top’’ office ‘‘because of the political ramifications 24. RTC–KC E–Mail, November 15, 1993. Dis- keep getting asked about Whitewater, which and political motivations.’’ cussion of meeting with Donald MacKay. seems to have become a catch all phrase for 10. RTC–KC E-Mail, May 26, 1993. Follow-up ‘‘He’s coming here to evaluate us, our work, Madison and it’s related investigations. She call from Donna Henneman (DOJ). RTC ad- and to try and decide just how good this case said that eventually ‘‘this group’’ is going to vised by an FBI agent in Little Rock that it is, and how he can best deal with a very sen- have to make a statement about whether or was a ‘‘very solid case of check kiting, and sitive political situation.’’ not Whitewater caused a loss to Madison, was highly prosecutable.’’ Henneman was but the fact that Whitewater had no loan at growing increasingly frustrated by the situa- 25. Letter of December 21, 1993 from Mi- chael Caron (RTC) to Bill Houston (FDIC- Madison provided less potential for a loss. tion, because she had seen the information, April stated very clearly that Ryan and knew that it had come in, and couldn’t un- Memphis). Seeking information on banks in- volved in loan swapping. Kulka (?), the ‘‘head people’’, would like to derstand why she was having such a hard be able to say that Whitewater did not cause time tracking where the referral and exhib- 26. RTC–KC E–Mail with attachment, Jan- a loss to Madison, but the problem is that so its had gone. uary 6, 1994. Discussion of contact with re- far no one has been able to say that to them. 11. RTC-KC E-Mail, June 8, 1993. Conversa- porter. She felt like they wanted to be able to pro- tion with Donna Henneman (DOJ). Madison 27. RTC Memorandum of January 14, 1994 vide an ‘‘honest answer’’, but that there were Referral has reappeared on her desk. Crimi- from Jack Ryan to RTC Vice Presidents and certain answers that they would be ‘‘happier nal Division has sent memo to Doug Frazier Assistant Vice Presidents. Requirement that about, because it would get them off the (in Depty Atty General Heyman’s office) ad- the collection and distribution of all infor- hook.’’ vising him that there was ‘‘no identifiable mation and material responsive to requests April felt that it would have been difficult basis for recusal of the U.S. Attorney in the concerning Madison be coordinated through to determine exactly what happened with Eastern District of Arkansas.’’ Referral sent RTC-Washington. the Whitewater account, because so many to Frazier for review and final decision. checks had gone in and out of the account, 12. RTC-KC E-Mail, June 23, 1993. Conversa- 28. RTC–KC E–Mail, January 25, 1994. Es- and made a reference to the end resulting tion with Donna Henneman (DOJ). Package tablishment of Madison review team. netting itself out. She asked about Greg returned from Frazier. Frazier appointed 29. RTC–KC E–Mail, February 7, 1994. Con- Young’s work papers on the Maple Creek U.S. Attorney in Florida. versation with Little Rock U.S. Attorney’s Farms reserve for development analysis, and 13. RTC-KC E-Mail, June 23, 1993. Further office. ‘‘(H)e’d spoken to Jeff Gerrish re- how it didn’t seem to have any apparent tie Conversation with Donna Henneman (DOJ). cently, and that Gerrish was ‘absolutely as- to Whitewater. I concurred that it didn’t Spoke with Doug Frazier. Decision made to tounded’ that nothing more was ever done have any legitimately defined tie, which is return the referral back to the Arkansas U.S. criminally with Madison, beyond the Castle precisely why it was included in the referral. Attorney. No basis for recusal. Grande transaction. She inquired about the $30,000 check to 14. RTC-KC E-Mail, June 29, 1993. Source 30. RTC–KC E–Mail, January 5, 1994. RTC Jim McDougal from Whitewater in 5/85, and indicates Madison referral has been returned Washington review of Madison investigators. about the disposition of the funds. I ex- to Little Rock. Acting U.S. Attorney will Response memo from supervisor stating, plained the transaction as I know it: the not act on referral. It is being held until U.S. ‘‘FYI. This is way out of line. I have already $30,000 had been converted to a MGS&L cash- Attorney designee Paula Casey takes office. contacted WDC and filed a formal com- 15. RTC-KC E-Mail, September 23, 1993. ier’s check, which was subsequently endorsed plaint.’’ Conversation with Donna Henneman (DOJ). by ?????? and deposited to Riggs National Washington DOJ would like to be copied on 31. Letter of October 10, 1983 from C.J. Bank. I explained that when the check was all future transmittal letters concerning Giroir, Jr. (Rose) to James B. McDougal. force paid, the Whitewater account was over- Madison referrals with an additional one Pursuant to discussion with Hillary Clinton drawn by over $28,000 which was then subse- paragraph summary of the content of the re- enclosing a billing for Madison Bank & Trust quently covered by the payment of a $30,000 ferrals with the transmittal letters, so that dated December 23, 1981. bonus from MFC to Jim McDougal, deposited directly to Whitewater on McDougal’s or- Henneman will be aware of those with ‘‘sen- 32. Memorandum to Governor Bill Clinton ders. sitivity issues.’’ from Jim McDougal, February 7, 1985. She asked how we could get to a clear cut 16. RTC-KC E-Mail, September 29, 1993. ‘‘Kathy called yesterday to ask for my rec- answer as to whether or not Whitewater Conversation with Donna Henneman (DOJ). ommendations for two people to fill the va- caused a loss to Madison. I stated that, as far DOJ would like copies of all future Madison cancies on the State Savings and Loan as I am concerned, there is a clear cut loss. referrals sent to Washington in addition to Board. * * * Bill, we are down to only about I also stated that any attempt to extract sending to U.S. Attorney in Little Rock. 15 State-chartered savings and loan institu- Whitewater as one entity from the rest of Henneman will confirm this in writing. tions and I am about the only one around the McDougal controlled entities involved in 17. RTC-KC E-Mail, September 29, 1993. who has any interest in this board.’’ Conversation with Donna Henneman (DOJ). the alleged check kite will distort the entire 33. Letter of December 12, 1984 from James Washington DOJ withdrawing request for re- picture. I further pointed out that I would B. McDougal (Whitewater Development Co.) ferrals to be sent directly to Washington, but produce the answers that were available, but to Ron Proctor (Citizens Bank). ‘‘I have been would still like copies of transmittal letters that I would not facilitate providing ‘‘the unsuccessful in trying to meet with Bill and with addendum summary paragraph. people at the top’’ with the ‘‘politically cor- 18. RTC-KC E-Mail, October 26, 1993. Con- Hillary to sign the vote renewal. I have for- rect answers just to get them off the hook’’. versation with FDIC-Memphis concerning warded to them by messenger this morning She asked questions about the specifics of Exam Reports. the note and an envelope with which to for- the checks going through the Whitewater ac- 19. RTC-KC E-Mail, October 27, 1993. Con- ward it to you. Each month we will deposit count. I stated that it appeared that the ma- versation with Donna Henneman (DOJ). In- into our account at Flippin an amount suffi- jority of the checks written out of the quiry on whether declination letter had ar- cient to cover the monthly payment.’’ Whitewater account during the window time rived from Little Rock U.S. Attorney. 34. Memorandum to John Latham from frame were going to other financial institu- 20. Letter of October 27, 1993 from Paula J. Jim Mcdougal, April 18, 1985. ‘‘I want this tions to make loan payments. I also said Casey (U.S. Attorney) to L. Jean Lewis preferred stock matter cleared up imme- that the referral focused only on a short (RTC). Declination letter on the Madison re- diately as I need to go to Washington to sell time frame, but that if that same research ferral. stock.’’ were conducted for a two year period, it was 21. Letter of November 1, 1993 from L. Jean 35. Memorandum to John Lathan from Jim my belief that the losses to Madison from Lewis (RTC) to Paula J. Casey (U.S. Attor- McDougal, February 19, 1985. ‘‘Proceed with the Whitewater account alone would easily ney). Confirmation of declination letter and your idea on the subordinated notes. We need exceed $100,000, given that $80,000 had gone the stipulation from October 27th letter that to make a decision on Madison Bank & out of the account during the six month win- the matter was concluded prior to the begin- Trust.’’ dow time frame. I further added that the end ning of Paula Casey’s tenure and that the loss result from the entire scam, using all 12 RTC had never been advised of such result. 36. Memorandum to John from Jim, Janu- companies/entities, would be hundreds of Chronology of correspondence between RTC ary 7, 1985. ‘‘You, Greg, and I need to discuss thousands of dollars in what were essentially and DOJ. Securities License. First South has one on unauthorized loans. 22. RTC–KC E–Mail, November 10, 1993. No- by its Service Corporation.’’ I stated that if she wanted me to tell her, tice of new RTC lead investigator on Madi- 37. Memorandum to John Lathan from Jim unequivocally, that Whitewater didn’t cause son. L. Jean Lewis removed as lead inves- McDougal, July 11, 1985. ‘‘I need to know ev- a loss, I could not do that. I could only reit- tigator. ‘‘The Powers That Be have decided erything you have pending before the Securi- erate the allegations contained in the refer- that I’m better off out of the line of fire ties Commission as I intend to get with Hil- ral, which are based on fact, and that it is . . .’’ lary Clinton within the next few days.’’ my opinion and belief that Whitewater did,

378 1994 HOUSE OF REPRESENTATIVES T30.7

in fact, cause a loss to Madison because of hereby applies for the registration of the use under the control of the post-receivership as- the amount of the unauthorized loans that of a fictitious name and submits herewith suming bank, Central Bank & McDougal made, through the check kite, to the following statement: Trust(‘‘CB&T’’). These records, which had entities in which he was a primary party and 1. The fictitious name under which the never been inventoried by either MGSL or beneficiary. I also pointed out that this ulti- business is being, or will be conducted by CB&T, were stored in a downtown Little mately benefited his business partners—the this corporation is: Madison Marketing. Rock warehouse, and included, but were not same business partners that knew they had 2. The character of the business being or, limited to, former officer correspondence, real estate ventures that were not cash flow- to be conducted, under such fictitious name legal files, subsidiary land development and ing, but that also knew their mortgages and/ is: Advertising and public relations. investment files, microfilm, demand deposit or notes were somehow being paid. I pointed 3. (a) The corporate name of the applicant (checking) account records/binders, cancelled out that these business partners are intel- is: Madison Financial Corp. checks, etc. ligent individuals, the majority of them (b) the State of incorporation is: Arkansas. Based on the findings of these concurrent being attorneys, who must have concluded (c) The location (giving city and street ad- criminal and civil investigative reviews, the that McDougal was making the payments for dress) of the registered office of the appli- decision was made that both investigators their benefit. I posed the question to her, if cant corporation in Arkansas is: 2124 First should travel to Little Rock for a more ex- you know that your mortgages are being Commercial Building, Little Rock, AR. tensive review of the warehoused documents. paid, but you aren’t putting money into the 4. The applicant states that if it is a for- At this point, the criminal investigation, venture, and you also know the venture isn’t eign corporation that it is admitted to and which had been previously scheduled for late cash flowing, wouldn’t you question the authorized to do business in the State of Ar- 1992, was rescheduled to 4/92. kansas. source of the funds being used to your bene- APRIL 20 TO 24, 1992 5. The filing fee in the amount of $10.00 is fit? Would you just assume that your partner The investigators conducted an extensive was making these multi-thousand dollar enclosed. Name of Applicant Corporation: Madison review of the warehoused records, and the payments out of the goodness of his heart? Financial Corporation. criminal investigator talked with the FBI Wouldn’t you wonder even more if you knew Signature: James B. McDougal, President. and U.S. Attorney’s office regarding the 1990 that your business partner’s main source of Address: P.O. Box 1583, Little Rock, AR. trial of former MGSL owner James B. income, and S&L, was in serious financial McDougal. The criminal investigator learned difficulty, which by 1985 was fairly common CRIMINAL INVESTIGATIVE CHRONOLOGY OF that the FBI was previously aware of the knowledge? EVENTS fabricated subsidiary minutes and had taken We discussed the initiation of the MGSL MARCH 9 TO 23, 1992 no criminal action. Tulsa Investigations investigation, and how evidence of the check management was advised accordingly and kite came to light. I explained that after re- Madison Guaranty Savings & Loan ″ ″ that aspect of the review was suspended. viewing a series of checks, all of which noted ( MGSL ) and it’s alleged ties to Whitewater The warehoused records revealed addi- ‘‘loan’’ in the memo field, I discerned a pat- Development Corporation (‘‘Whitewater’’) tional Whitewater checking account state- tern that looked like a check kite, and pro- and Bill & Hillary Clinton were reported in a ments, raising further questions about the ceeded to trace funds through the various ac- 3/8/92 New York Times article by Jeff Gerth. payee’s on some of Whitewater’s checks. A counts, which is a standard investigations MGSL owner and board chairman, James B. number of documents belonging to the procedures. The end result was the referral McDougal, had been previously tried and ac- former Chief Financial Officer of MGSL/MFC alleging a massive check kite. I also advised quitted on bank fraud charges in 6/90. were located. Among these documents were April that I had been told by both the U.S. Inquiries regarding these ties emanated several accountant/ledger worksheets on nu- Attorney’s office (Mac Dodson), and the FBI from both RTC Investigations in Washing- merous MFC subsidiary land ‘‘develop- (Steve Irons) that this was a highly pros- ton, D.C., and the former Director of the ments’’, all of which were heavily subsidized ecutable case of check kiting. I also told her Tulsa Consolidated Office. The Washington by MGSL. Included in one of the develop- that I disputed the declination of that refer- inquiry went through the Kansas City Re- ment worksheets marked ‘‘Maple Creek ral on the basis of ‘‘insufficient informa- gional Investigations Office to the Tulsa Farms’’ was an item denoting a $30,000 tion’’. She commented that ‘‘that’s what Consolidated Investigations office, who was charge to Whitewater for the cost of an engi- Grand Juries are for’’, and I pointed out that responsible for investigating failed Arkansas neering survey; this was the first indication it generally seemed to be the policy of the thrifts. The question was raised as to wheth- of a relationship between MGSL and/or MFC U.S. Attorney to agree to open a case before er Whitewater’s relationship with MGSL had and Whitewater beyond the existence of the they would start Grand Jury proceedings. I been reviewed, and were there any resulting Whitewater checking account. Original also noted that I found the treatment of that losses or potential criminal activity docu- microfilm, along with pertinent original doc- particular referral by the Justice Depart- mented. As a result of this inquiry, the Tulsa uments from the warehouse, were sent back ment to be highly unusual. This concluded office criminal investigator assigned to the to Tulsa for further investigation. Research our discussion. Arkansas thrifts was asked to work with the was conducted on twelve McDougal and/or civil investigator in reviewing the completed McDougal business partner controlled ac- MINUTES OF MEETING MADISON FINANCIAL investigative findings to date. Over a two counts, including Whitewater. Check copies CORP. week period, the criminal investigator re- were produced for a two year period between The Board of Directors of Madison Finan- viewed all thrift records obtained from the 6/84 and 6/86; a standard investigative proce- cial Corporation met on April 17, 1985, at 1:00 institution at the time of conservatorship dure when tracing the flow of funds. which were stored in the Tulsa office. These p.m. at the offices of Madison Financial Cor- MAY 1 TO JULY 15, 1992 poration at 16th and Main Streets, Little records included the available Board Min- During the first week of 5/92, all Tulsa Con- Rock, Arkansas. All directors were present. utes, committee and subsidiary minutes, Fi- solidated Office employees were advised that The minutes of the previous meeting were delity Bond policies, FHLB exams from prior the Tulsa office would be permanently clos- read and approved as recorded. years, outside audits, legal correspondence The first order of business, introduced by files and various limited loan files. No men- ing at the end of 7/92. All Tulsa Investiga- John Latham, was the matter of authorizing tion was found of any Whitewater relation- tions records were shipped to the Kansas prepayment of Jim McDougal’s bonus. After ship with MGSL. City Office, thus putting the Madison inves- tigation on hold. The copy process on the a full discussion, the following resolution MARCH 25 TO APRIL 15, 1992 McDougal and/or McDougal business partner was unanimously adopted, with Jim During this time frame, Tulsa Investiga- McDougal abstaining from the voting: controlled accounts was suspended as well, tions learned that a former MGSL employee, due to equipment and records relocation. ‘‘Resolved, that the Corporation pre-pay to subsequently (and still) an attorney in the AUGUST 1 TO SEPTEMBER 2, 1992 Jim McDougal $30,000.00 of his annual bonus employment of a Little Rock law firm han- in recognition of the profits of the prior dling extensive litigation in Arkansas for the The criminal investigator transferred to year, and that said bonus is to be paid di- TRC, had allegedly fabricated at least two the Kansas City office at the end of 7/92, re- rectly to Whitewater Development.’’ years of minutes for an MGSL subsidiary, suming the analysis of Madison documents There being no further business, the meet- Madison Financial Corporation (‘‘MFC’’). and checks. A criminal referral (#C0004) was ing was adjourned. The criminal investigator was asked to re- subsequently generated alleging a $1.5 mil- JAMES B. MCDOUGAL, view daily records created by the former em- lion check kiting scheme between the Chairman. ployee, who was at that time the executive McDougal and/or McDougal business part- assistant to former MGSL president, John ners controlled entities, including White- STATE OF ARKANSAS Latham. Latham pled guilty to one charge of water. This referral was submitted to the OFFICE OF THE SECRETARY OF STATE, bank fraud in 1989. Copies of the former em- FBI and U.S. Attorney, Eastern District of Application for Registration of Fictitious Name ployee’s records had been shipped to Tulsa, Arkansas on 9/2/92. To: W. J. ‘‘BILL’’ MCCUEN, where it would be determined if further in- SEPTEMBER 3 TO DECEMBER 15, 1992 Secretary of State vestigation was appropriate. An affirmative Having submitted the initial referral on State Capitol, Little Rock, AK. decision was reached during the first week of MGSL, the criminal investigator redirected Pursuant to the provisions of Section 95 of 4/92. While this review was being conducted, priorities to the ongoing investigations of the Arkansas Business Corporation Act, (Act the civil investigator was reviewing addi- three other failed thrifts, which were inten- 576 of 1965), the undersigned corporation tional Madison records stored in Little Rock sifying. First Federal Savings, Paragould,

379 T30.7 JOURNAL OF THE MARCH 24

Arkansas, which was reaching suspect plea NOVEMBER 1, 1993 TO JANUARY 24, 1994 Bank & Trust personnel which could identify negotiations, First America Savings, Ft. RTC Criminal investigations continues to the nature of these records. Investigator Smith, Arkansas, which had been referred support the investigative efforts of the FBI Adams noted that this was the same condi- from jurisdiction in the Western District of and U.S. Attorney by providing MGSL and tion in which he’d found the records in 1991. Arkansas to the Dallas Fraud Task Force, MFC documents warehoused in Kansas City, Boxes had to be rearranged in order to estab- and Cimmaron Federal Savings, Muskogee, and offering assistance with ongoing sub- lish work space and room for a table and two Oklahoma, for which investigations had re- poena compliance. chairs. ceived an allegation of potential fraud from The responsibility for investigation of all During the review of these records, neither the managing agent. Throughout these in- failed Arkansas thrifts was assumed by the Investigator Adams or Lewis located any vestigations, the criminal investigator con- Tulsa RTC Office of Investigations during loan files and loan records relating specifi- tinued to request and monitor a response on the first quarter of 1991. Responsibility was cally to Whitewater Development or the MSGL referral #C0004. assumed from the Eagan/Minneapolis RTC Clintons. Investigator Adams then went through a number of Demand Deposit Ac- DECEMBER 15, 1992, TO MARCH 14, 1993 Office of Investigations; the lead Eagan in- count binders, to ascertain if Whitewater vestigator for Madison Guaranty Savings, The U.S. Attorney’s office did not offer any had maintained a checking account at Madi- Little Rock, Arkansas at that time was Mike standard response to the MGSL referral, ad- son Guaranty. He located an account and Hammerly. vising either that a case would be opened or statements for 1984, 1985 and 1986. Investiga- When the Tulsa office assumed this respon- that prosecution would be declined, for three tor Lewis reviewed multiple boxes of records, sibility, Madison Guaranty was assigned to months. In response to numerous calls from and recovered several documents from civil Investigator Wyatt Adams. Shortly the criminal investigator during that time, former thrift officer files that warranted fur- after the reassignment of the Arkansas the Little Rock FBI Special Agent in Charge ther review. Among those documents was a thrifts, several members of the Tulsa Office sent a letter of acknowledgement to the RTC ledger sheet marked ‘‘Reserve for Develop- of Investigations made a sweep through the stating that both the FBI and U.S. Attorney ment—Maple Creek Farms’’ from the records failed Arkansas shops and appropriated all had received the referral and exhibits. The of former Madison CFO Greg Young. On that the records deemed necessary for the effec- investigator continued to work on the afore- ledger sheet was noted a $30,000 development mentioned institutions while continuing to tive completion of both civil and criminal in- reserve cost for an engineering survey monitor a potential response on the MGSL vestigations. charged to Whitewater Development. There referral. In mid summer 1991, Investigator Wyatt was also a limited amount of microfilm lo- Adams traveled to Little Rock to review MARCH 15 TO MAY 4, 1993 cated at the warehouse, which was appro- Madison Guaranty records held by the ac- The criminal investigator initiated a pre- priated under the terms of the P&A Agree- quiring entity, Central Bank and Trust, in liminary review of criminal activity at Sav- ment and returned to Tulsa along with sev- an old, non-climate controlled building ers Savings, Little Rock, Arkansas, out of eral DDA binders, with permission from Cen- downtown on the river, which had been con- which a former borrower had been convicted tral Bank & Trust. A signed receipt contain- verted to a ‘‘records storage’’ facility. Ac- and sentenced in conjunction with a failed ing an itemized list of the documents taken cording to Adams, when he arrived there Texas S&L. This review involved extensive by Investigators Adams and Lewis was left were extensive records in poor condition, interviews with the borrower, and a review with * * * of CB&T. haphazardly heaped into the storage space of his personal and corporate records prior to Prior to departing Little Rock, Investiga- on the second floor, which was poorly lit and his sentencing and incarceration in late 4/93. tors Adams and Lewis reviewed the Madison protected by a chain link fence and a pad- The investigator continued to make verbal daily work film held by Central Bank & lock. Boxes were on their sides with records requests for a written response from the FBI Trust to research the flow of funds through dumped out, DDA binders were poorly or U.S. Attorney on MGSL referral C0004. the Whitewater account as pulled from the stacked in one corner, and multiple boxes monthly statements, which is a standard op- MAY 4 TO 25, 1993 had been shoved into shelving, with no iden- erating procedure for Investigations. Several On 5/4/93, the criminal investigator sent a tifiable inventory. It should be noted that checks payable to the Bank of Cherry Valley letter to the U.S. Attorney inquiring about these records were already in the warehouse which identified loan numbers, were identi- the status of the referral. The response from at the time of the Investigations team fied and copied from the daily work. Also the U.S. Attorney referred the investigator Spring 1991 ‘‘sweep’’ through the Arkansas copied were numerous checks payable to en- to the U.S. Justice Department in Washing- thrifts, and that the former Managing Agent tities entitled Pembroke Manor, Rolling ton D.C. The criminal investigator initiated concurs that, to his knowledge, there was no Manor, Madison Marketing and others, all of a series of calls to DOJ/Washington to ascer- inventory of these records. which were signed by James or Susan tain the status of the referral. Simulta- In July 1991, the criminal investigation of McDougal, payable to Whitewater Develop- neously, the criminal investigator, criminal Madison Guaranty was assigned to Investiga- ment and contained the notation ‘‘loan’’ in investigations department head and the field tor Jean Lewis. A follow-up criminal inves- the memo filed on the check. Accounts were investigations officer determined that the tigation was tentatively slated to begin dur- located and reviewed for these other identi- most expedient way to complete the inves- ing the third quarter of 1992, due to the fact fied entities; similar checks containing the tigation of previously defined criminal alle- that former thrift owner James B. McDougal ‘‘loan’’ notation were found to have been gations at MGSL was to supplement the in- had previously been tried on Bank Fraud paid between the entities. At that time, both vestigative manpower. charges stemming from Madison Guaranty, investigators concurred that additional re- MAY 31 TO JUNE 4, 1993 and was acquitted in 1990. The follow-up in- search would be appropriate, and requested Three additional criminal investigators vestigation was intended to ensure that any all available film relating to Madison Guar- were assigned the task of reviewing loan remaining potential criminal matters had anty and returned it to Tulsa, leaving a re- transactions, checking accounts and subsidi- been properly reviewed and addressed. ceipt for the film, binders and original docu- ary lending transactions to ascertain the In March 1992, Senior Investigator Special- ments pulled from former office files with level of criminal activity at both MGSL and ist Jon Walker contacted the Kansas City re- CB&T employee Bonnie Crocheron. Copies of MFC. The lead investigator, along with an- gional RTC office regarding an article that the entity statements and checks were other task assigned investigator, returned to has appeared in the New York Times stating pulled and/or duplicated from film for the the Little Rock warehouse for further docu- possible ties between Whitewater Develop- years 1984, 1985 and 1986. * ** ment review. The investigators additionally ment, Madison Guaranty Savings and Loan, After the original film was duplicated, the travelled to four other counties to review and Bill & Hillary Clinton. Personnel in the duplicates were returned to Central Bank & land records pertaining to property sales, KC regional office then contacted the Tulsa Trust for their retention, and the original loan and mortgages reflected in the County office with a request that this issue be re- film was retained in Tulsa by an RTC re- Clerk’s offices. Those findings were shared viewed to determine if Investigations was search contractor. The criminal investiga- with the other assigned investigators. aware of, had reviewed and/or appropriately tion of Madison then continued, as the civil addressed matters pertaining to the possible JUNE 5 TO OCTOBER 8, 1993 claims had previously been closed out by relationship between Whitewater Develop- The four investigators reviewed and ana- PLS. ment and Madison Guaranty. In conjunction with the ongoing Madison lyzed all available MGSL transactional in- After a review of all available Tulsa Inves- investigation, Kansas City Investigators formation for the ensuing 120 days. As a re- tigations inventory documents, Investiga- Jean Lewis and Randy Knight traveled to sult, nine additional criminal referrals in- tors Adams and Lewis were detailed to the Little Rock in 5/93 to revisit the Madison volving multiple MGSL and MFC trans- warehouse in Little Rock to review the re- records held in the downtown warehouse. actions were generated and submitted to the maining Madison records and ensure that Upon arrival Investigator Lewis imme- U.S. Attorney and FBI on 10/8/93. nothing had been overlooked with regard to diately noted the condition of the records OCTOBER 17, 1993 any potential action on this matter. Inves- was significantly more organized than it had The lead criminal investigator received a tigator Lewis noted, with concurrence from been during the previous visit, and it was letter from the new U.S. Attorney for the Adams, that upon arrival that the records evident that a number of boxes had been Eastern District of Arkansas, Paula J. were in very poor condition, appeared to cleared out. Casey. The letter stated that referral #C0004, have been dumped and/or crammed into the During this visit to the warehouse, Inves- submitted 9/2/92, had been declined due to warehouse space, and that there was no tigator Lewis learned from the storage facil- ‘‘insufficient information’’. available inventory provided by Central ity attendant that the law firm of Mitchell,

380 1994 HOUSE OF REPRESENTATIVES T30.7

Selig, Jackson, Tucker & White, former gen- Information in this referral may have been torney’s office in Little Rock, and contact eral counsel to Madison Guaranty Savings, derived from financial records of customers Ms. Mitchell in the Office of Legal Counsel also stored records at the warehouse. of federally insured financial institutions. I to see if that office should be copied on the A number of the remaining boxes were re- hereby certify that (A) there is reason to be- referral and letter to Richard Pence, U.S. At- viewed, and the keys returned to * * * at lieve that these records may be relevant to a torney in Little Rock. I contacted Ms. Central Bank & Trust. At that time, Inves- violation of Federal criminal law, and (B) Mitchell again to inquire as to whether that tigator Lewis noted to * * * that the ware- the records were obtained in the exercise of office should be copied on the referral. She house seemed to lack a number of boxes that the RTCs supervisory or regulatory func- said yes, and when I asked to whose atten- had previously been there, and * * * advised tions. tion it should be directed, she responded that that some of the records had been retrieved Due to the extensive nature of the exhibits it should be sent to Acting Assistant Attor- and were being held in a back room at the relating to this referral, they are being sent ney General Daniel Koffsky, as the Assistant bank (CB&T). When asked why this had not to your office under separate cover. Attorney General, Mr. Dellinger, has not yet been disclosed when the keys had been Please direct any inquiries to the Inves- been confirmed. picked up rather than returned, Ms. tigator identified on the referral form, or to The letter of re-submission will be pre- Crocheron’s response was ‘‘you didn’t ask.’’ Lee O. Ausen, Department Head/Criminal In- pared this afternoon, with a copy going to It should be noted that, according to the vestigations, Kansas City Consolidated Of- Mr. Koffsky’s attention. US Attorney’s staff in Little Rock, * * * to fice. Madison and was summoned before the Sincerely, To: L. Richard Iorio and Lee O. Ausen. Grand Jury for testimony. The outcome of L. RICHARD IORIO, From: L. Jean Lewis. that investigation has never been disclosed Field Investigations Officer. Subject: No. 7236/Madison Guaranty Savings. to this office. Enclosure. Date: Wednesday, May 19, 1993. In conjunction with the ongoing FBI inves- In following up on the suggestion that Mr. tigation of the RTC’s referrals, Investiga- MEMORANDUM Daniel Koffsky, Acting Assistant Attorney tions advised the FBI that additional origi- To: Criminal Admin File. General, be sent a copy of Madison referral nal Madison Guaranty microfilm, along with From: Jean Lewis, Criminal Investigator. No. C0004, I contacted the Office of Legal the records at the warehouse, were under the Date: May 3, 1993. Counsel to verify the correct address. In control of Central Bank & Trust. It is the un- Re: Background remarks and conversation speaking with Dyone Mitchell of that office, derstanding of Kansas City Office of Inves- with AUSA Bob Roddey’s office re: Madi- I reiterated the address provided by US Atty tigations that the aforementioned records son Guaranty Savings referral. Richard Pence, which reads: Office of Legal have now been subpoenaed by the U.S. Attor- In March 1993, shortly after the departure Counsel, Executive Office for U.S. Attorneys, ney’s office and are now under the control of of former U.S. Attorney Chuck Banks, I was U.S. Justice Department, Washington, DC the Little Rock FBI. The original Madison advised by AUSA Bob Roddey on an unoffi- 20530. The letter provided the phone number (202) film held by Investigators has also been cial basis, that Banks had forwarded the 514–2041. turned over to the FBI along with other ‘‘Madison referral’’ to Justice in Washington records subject to Grand Jury Subpoena. Ms. Mitchell advised that the Office of D.C. almost immediately after receiving it Legal Counsel and the Executive Office for last September; Roddey also added that the U.S. Attorney’s were two separate sec- RESOLUTION TRUST CORPORATION, Banks had taken this action as the referral Kansas City, MO, September 1, 1992. tions, and that the referral may have been was ‘‘politically hot’’. forwarded to the Executive Office instead of Ms. STEVE IRONS, I contracted Roddey’s office early this Supervisory Special Agent, White Collar Crime legal Counsel. She then connected me with afternoon to see if AUSA Floyd Mac Dodson the operator, who put me through to the Ex- Unit, Federal Bureau of Investigation, Two was still with the U.S. Attorney’s office, or if ecutive Office where I spoke with Stephanie Financial Centre, Suite 200, Little Rock, he had left with Chuck Banks. I was advised Kennedy. I explained to Ms. Kennedy what I AR. by Roddey’s secretary, Laura, that Dodson was looking for, and she said she would get Re: No. 7236 Madison Guaranty Savings & did, in fact, leave with Chuck Banks, and she back to me this afternoon. Loan, Little Rock, Arkansas—In Receiv- offered me their number, which I declined. I She called me back at 3:30, and advised ership (11/29/90), Criminal Referral Num- asked her what would have happened to that she had forwarded the matter on to ber C0004. Dodson’s cases, and she offered to ‘‘check the Donna Henneman in ‘‘Legal Counsel’’, who DEAR SIR: Certain matters have come to computer’’ and call me back, if I could give would check it out and call me back tomor- our attention which may constitute criminal her a specific case, which I did, identifying row. I then contacted Ms. Henneman to offer offenses under Federal law. Enclosed is a re- Madison Guaranty Savings criminal referral background information on what I was look- port of an Apparent Criminal Irregularity. #C0004. ing for. When I explained that it was a refer- Information in this referral may have been Approximately five minutes later, Laura ral out of Madison Guaranty, forwarded to derived from financial records of customers called back and advised me that no record of that office by Chuck Banks, she had imme- of federally insured financial institutions. I that referral showed up in their computer diate knowledge, stating ‘‘oh, the one involv- hereby certify that (A) there is reason to be- system; she then advised me that in convers- ing the President and his wife’’. She then lieve that these records may be relevant to a ing with AUSA Roddey, he told her that stated that the referral had been sent to that violation of Federal criminal law, and (B) Banks had sent it to Justice in Washington, office (exactly which office is till unclear to the records were obtained in the exercise of and that ‘‘we’d probably never hear about it me) as a special report for the attention of the RTC’s supervisory or regulatory func- again’’. the Attorney General, and not as a referral tions. A letter inquiring about the status of the for prosecution. She then stated that ‘‘any- Due to the extensive nature of the exhibits referral has been prepared to send to U.S.A. time a referral comes in that would make relating to this referral, they are being sub- Pence later today. the department look bad, or has political mitted to the U.S. Attorney’s office under RICHARD IORIO ramifications, it goes to the Attorney Gen- separate cover at a later date. LEE AUSEN. eral.’’ She further added that the referral Please direct any inquiries to the Inves- had been submitted to that office ‘‘because tigator identified on the referral form, or to MEMORANDUM of the political ramifications and political Lee O. Ausen, Department Head/Criminal In- To: Criminal Admin. File. motivations’’, and then told me that refer- vestigations, Kansas City Consolidated Of- From: Jean Lewis. rals were not prosecuted out of that office. fice. Date: May 19, 1993. She then stated that the referral had been Sincerely, Re: Additional conversation with Office of declined. I advised her that the referral had L. RICHARD IORIO, Legal Counsel for U.S. Attorney’s, U.S. not been declined, and read her the letter Field Investigation Officer. Justice Department, Washington, D.C. sent to this office by U.S. Attorney Richard Enclosure. In following up my previous discussion Pence. She acknowledged that she was con- with the Office of Legal Counsel on May 13, fused, and told me she would speak with her RESOLUTION TRUST CORPORATION, I contacted Dyone Mitchell (secretary) of supervisor, Deborah Westbrook, and have her Kansas City, MO, September 1, 1992. that office to see if she had been able to de- call me back tomorrow. I then asked for Ms. Hon. CHARLES A. BANKS, termine the status of the Madison referral, Henneman’s title, and she informed me that U.S. Attorney, Eastern District of Arkansas, as I had not heard back from her. She con- she was the Ethics Program Manager. I U.S. Post Office and Courts Building, Little sulted her notes and advised me that they thanked her and ended the conversation. Rock, AR. ‘‘have no record of that referral, it is not in I’ll keep you posted if and when I hear Re: No. 7236 Madison Guaranty Savings & their computer system, it has not been given from Ms. Westbrook. Loan, Little Rock, Arkansas—In Receiv- to an attorney’’; upon repeating this re- ership (11/29/90), Criminal referral Num- sponse to her, she reiterated ‘‘no ma’am, To: L. Richard Iorio and Lee O. Ausen. ber C0004. that referral has not been submitted to this From: L. Jean Lewis Investigations DEAR SIR: Certain matters have come to office.’’ Subject: No. 7236/Madison Guaranty. our attention which may constitute criminal After advising Lee Ausen and Richard Iorio Date: Wednesday, May 26, 1993. offenses under Federal law. Enclosed is a re- of this conversation, the decision was made I’ve just received a follow-up call from port of an Apparent Criminal Irregularity. to resubmit the referral through the U.S. At- Donna Henneman at Justice in D.C. She in-

381 T30.7 JOURNAL OF THE MARCH 24 formed me that after speaking with Deputy tricts; she had not determined whether Mr. to make a final determination as to whether Director/EO Wayne Rich she learned that re- Frazier had taken any action prior to his de- or not she wants formal notification of the ferral #C0004 had been sent to former Special parture, and had spoken with her supervisor existence of the subsequent referrals being Counsel Ira Raphelson. I noted that Mr. regarding her next action shortly before I submitted to the U.S. Attorney, Eastern Dis- Raphelson is now in private practice, she contacted her. She advised that she will at- trict of Little Rock, on Madison. concurred and said that she wasn’t sure tempt to contact Mr. Frazier in Florida In discussing the standard RTC procedure where it had gone after he left, but that she sometime tomorrow, and determine what de- of the submission of referrals, she has re- was going to call the ‘‘criminal fraud divi- cision, if any, had been made. quested that she be copied on the transmit- sion at Justice’’ and see if they are prosecut- She then advised that ‘‘this sort of thing tal letters that go to the U.S. Attorney and ing the case or if a declination letter has happens all the time when we’re trying to FBI. At the time she receives the copies of been issued. I restated that, to my knowl- get the guys upstairs to make a decision.’’ those letters, she will then request the refer- edge, the referral had not been declined, and She said she’d be back in touch as soon as rals and exhibits from the U.S. Attorney’s that I had been advised by an FBI agent in she had an answer from Doug Frazier, or his office for any necessary follow up. So, at her Little Rock that it was a ‘‘very solid case of replacement, a Mr. Dave Margolis. request, I’ll ask Donna Minton to cc: Ms. check kiting, and was highly prosecutable.’’ This was the 8th conversation I’ve had Henneman in her official capacity. She felt I then identified the suspects named in the with Ms. Henneman since I first contacted that a letter requesting copies at this point referral for her reference, and she thanked her on May 19, 1993. was unnecessary, and if it becomes nec- me and told me she’d be back in touch as I’ll keep you posted. essary, she will go through her channels at soon as she found something. She also stated Justice to obtain the documentation from that she was growing increasingly frustrated To: L. Richard Iorio Investigations. U.S. Attorney Paula Casey. Donna has also with the situation, because she had seen the From: J. Jean Lewis Investigations. requested that I provide a brief one para- information, knew that it had come in, and Date: Wednesday, June 23, 1993. graph summary of the content of the refer- couldn’t understand why she was having Donna Henneman (EO/US Attorneys) just rals with the transmittal letters, so that she such a hard time tracking where the referral called me back to let me know she’d spoke will be aware of those with ‘‘sensitivity and exhibits had gone. with former Associate Deputy Attorney Gen- issues.’’ I will be glad to provide the re- To date, each time she has given me a date eral Doug Frazier. He advised her that he quested summary as an addendum paragraph that she would call back, she has kept her met with Tony Muscato, the Director of the to the bottom of each transmittal letter. word. I’ll let you know when I hear from her Executive Office for U.S. Attorney’s, and She then asked me about the final disposi- again. that the decision has been made to return tion of MGS&L referral C0004. I told her that the referral to the U.S. Attorney in the East- I had been advised that it was received back To: L. Richard Iorio Investigations. ern District of Little Rock, as there was ‘‘no in the U.S. Attorney’s office, but that I had From: L. Jean Lewis Investigations. basis for the recusal of the U.S. Attorney’’, received no formal notification that a case Date: Tuesday, June 8, 1993. and apparently a lack of ‘‘conflict of inter- had been opened, nor a declination letter. I As we discussed this morning, I was going est.’’ expressed my concerns that the same situa- to contact Audrey Word at DOJ in Washing- Ms. Henneman then added that she doubt- tion could befall the next referrals to be sub- ton this afternoon; however, before I could ed whether or not the U.S. Attorney, Eastern mitted, and she assured me that she and her call, Donna Henneman in the Executive Of- District/Arkansas would be aware of this sit- supervisor, Deb Westbrook, would stay close- fice for U.S. Attorneys called me. It seems uation yet, but suggested that I wait a few ly in touch with the situation, due its poten- that Madison referral #C0004 has reappeared days and then contact that office in Little tially political ramifications, some of which on her desk. Audrey Word was successful in Rock. I explained for her edification. locating the referral within the Fraud sec- She asked to be kept posted on the out- She asked me to stay in touch as to the re- tion of the Criminal Division and determined come, and offered her continued assistance sponses that I get from the U.S. Attorney’s that the individual assigned to the referral whenever and however possible. office, and assured me that, if necessary, the ‘‘didn’t want to deal with it’’, so she sent the ‘‘higher-ups’’ at Justice would make sure referral and all pertinent info back to Donna To: L. Richard Iorio Investigations. something got done with these referrals, in- Henneman for further disposition. From: L. Jean Lewis Investigations. cluding the first one, which in her words Donna advised me that the Criminal Divi- Date: Tuesday, June 29, 1993. ‘‘should have been handled by now, one way sion (no one specifically identified) sent a I received a call this afternoon from a or the other.’’ memo to Doug Frazier, Associate Deputy At- highly reliable and confidential source, that I’ll keep you posted. torney General (in Deputy Atty General the Madison referral (C0004) has been re- Heyman’s office) advising him that there was turned to the U.S. Attorney’s office in Little To: L. Richard Iorio Investigations. ‘‘no identifiable basis for recusal of the U.S. Rock, Arkansas. My source has advised me From: L. Jean Lewis Investigations. Attorney in the Eastern District of Arkan- that the acting U.S. Attorney, Richard Date: Wednesday, September 29, 1993. sas’’; this was a direct quote from the memo, Pence, has stated he has no intention of act- I’ve just received a call from Donna as she read it. She then told me that she’d ing on this referral, and plans to let it sit Henneman, Ethics Program Manager, Execu- contacted Mr. Frazier who did not remember until such time as the new U.S. Attorney tive Office for U.S. Attorney’s, Washington, receiving the memo, and suggested that she designee Paula Casey, takes office on either D.C. She advised that she had spoken to her get the memo and the referral to him for re- an interim or permanent basis. It was stated supervisor, Deb Westbrook, and Ms. view and a final decision. that there was displeasure at the fact that Westbrooks supervisor, Doug Frazier, regard- She has subsequently sent him both the re- the referral had been returned to the Little ing whether or not the Executive Office ferral and the memo, and said she’ll keep me Rock office, and that the reason cited for its’ wanted copies of the madison referrals slated posted. I then advised her that during the in- return was that the Executive Office for U.S. for submission this week. Ms. Westbrook and tervening period, additional information has Attorney’s found no basis for recusal, and no Mr. Frazier have determined that the Execu- surfaced that would further support the alle- conflict of interest emanating from the U.S. tive office should receive copies of the refer- gations contained in the referral, so I would Attorney’s office in the Eastern District. rals and exhibits. Upon receipt, they will re- be most curious as to their decision. I then However, the acting U.S. Attorney is of the view them and determine whether to in- concluded the conversation by telling her opinion that if the (strong) case against struct the U.S. Attorney’s office to act on ‘‘whatever the decision is, I need something James McDougal is taken to trial, it will ap- them accordingly, or if they should be for- in writing so that I can close out the file pear to the ‘‘sour grapes’’ due to his acquit- warded to the Public Integrity Section of with a declination, or offer support for an tal during his first bank fraud trial. DOJ for further review. In inquired as to the ongoing case.’’ She agreed and said she’d I was further advised that there is no defi- nature of the Public Integrity Section and stay in touch. nite date yet as to when Ms. Casey’s con- was advised that it is the section of DOJ re- I’ll keep you posted. firmation will occur, and that is likely that sponsible for the prosecution of public offi- she will assume her responsibilities on an in- cials. Ms. Henneman also advised that they To: L. Richard Iorio Investigations. terim basis. My source has advised that I have made the decision to get the Deputy From: J. Jean Lewis Investigations. will get a ‘‘head’s up’’ call when Ms. Casey Attorney General’s office involved in this Date: Wednesday, June 23, 1993. assumes her new responsibilities, but that situation, and bring them up to speed. At approximately 3:00 this afternoon, I such appointments have been delayed in the I asked her to submit this request in writ- spoke with Donna Henneman in the Execu- past, and may take a while. ing, in order to document the Investigations tive Office for U.S. Attorneys, regarding the I’ll keep you advised should I hear any- file and she responded that she would do so, status of the Madison referral #C0004. She thing further. faxing me a letter this afternoon. I’ve pro- advised that she had sent the ‘‘package’’ to vided her with the fax number and will copy Associate Deputy Attorney General Doug To: L. Richard Iorio Investigations. you upon receipt of her letter. Frazier on June 8, as we had previously dis- From: L. Jean Lewis Investigations. To briefly summarize the situation to date, cussed, but that she had received the entire Date: Thursday, September 23, 1993. I contacted the Executive Office for U.S. At- package back on her desk today with no fur- I’ve just had a conversation with Donna torney’s on May 13, 1993, at the written sug- ther answers, as Mr. Frazier was now the Henneman, Ethics Program Manager, Execu- gestion of U.S. Attorney Richard Pence, pur- new U.S. Attorney in one of the Florida dis- tive Office for U.S. Attorneys. I called Donna suant to his letter of May 10, 1993 regarding

382 1994 HOUSE OF REPRESENTATIVES T30.7

my written inquiry as to the final disposi- then explained to him that the OCC seemed related matters in the event that my office tion of Madison referral #C0004, submitted on to be having some difficulty in locating their and the FBI are given access to records or in- 9/1/92. Mr. Pence advised that the referral records, and advised him that I was informed formation indicating that prosecutable cases had been forwarded to the Executive Office by OCC that prior to 1991, UNB was actually can be made. by former U.S. Attorney Charles A. Banks First National Bank of Jacksonville. Well, it Sincerely, due to what he deemed was a ‘‘conflict of in- turns out that Broderick Nichols is from Lit- PAULA J. CASEY, terest’’. This information was relayed to Ms. tle Rock. What a small world! And he evi- United States Attorney. Henneman during my first conversation with dently grew up knowing where Union Na- her. During subsequent calls I received from tional Plaza is and that Union National RESOLUTION TRUST CORPORATION, Ms. Henneman, she advised me as to her Bank was, and still is, the largest bank in Kansas City, MO, November 1, 1993. progress in tracking the whereabouts of re- Little Rock. He was somewhat concerned Re #7236 Madison Guaranty Savings & Loan ferral #C0004, which she finally located and about the fact that OCC couldn’t find their Criminal Referral Number C0004 had forwarded back to her office on June 8, exams, and has offered his expeditious assist- Hon. PAULA J. CASEY, 1993. At that time, Ms. Henneman advised me ance in locating any concurrent exams done U.S. Attorney, Eastern District of Arkansas, that the decision had been made by person- by FDIC. He’s also offered to aid me in locat- Little Rock, AR. nel in the Criminal Division of DOJ that ing other potential leads and sources within DEAR MS. CASEY: I have received your Oc- there was ‘‘no identifiable basis for recusal OCC that might be able to rediscover the tober 27, 1993 letter regarding the above cap- of the U.S. Attorney in the Eastern District whereabouts of the UNB exams. He couldn’t tioned thrift and referral. On the basis of of Arkansas’’, and that the referral would be quite understand how the OCC could lose a comments contained within your letter, I am forwarded back to the U.S. Attorney’s office $500 million bank. Does this sound familiar? interpreting that correspondence as a formal in Little Rock. Since that time, Ms. I’ll keep you posted. declination to prosecute referral #C0004. You Henneman has contacted me to follow up on stipulated in your letter that this matter the final disposition of the referral. I have To: L. Richard Iorio. was concluded prior to the beginning of your advised her that this office has not yet re- From: L. Jean Lewis. tenure as the United States Attorney for the ceived notification of an opened case, or a Subject: #7236 Madison Guaranty. Eastern District of Arkansas. Prior to the letter declining prosecution. During these Date: Wednesday, October 27, 1993. receipt of your letter, RTC Investigations aforementioned conversations, the issue was Just got a call from Donna Henneman, was not advised that the matter had been raised as to further referrals, and whether Ethics Program Manager, Executive Office formally concluded. the Executive Office should be copied on any for U.S. Attorneys. She asked if I’d received Between September 1, 1992 and today’s further referrals to avoid a recurrence of cir- a declination letter on the first referral date, this office has received a total of three cumstances. I received notification of that (C0004) from the U.S. Attorney in Little letters with regard to the aforementioned re- decision today when Ms. Henneman con- Rock. I told her that we had not received a ferral, including your letter of declination. tacted me, as previously outlined. declination to date. She then advised that The other two letters were from FBI/SAC Please let me know if you have any ques- her supervisor, Deb Westbrook, had evi- Don Pettus, 12/15/92, acknowledging receipt tions. dently had a conversation with U.S. Attor- of the referral, and from Acting United ney Paula Casey, and that Ms. Casey stated States Attorney Richard Pence, 5/10/93, ad- To: L. Richard Iorio Investigations. that she would be sending a declination let- vising this office that he was unaware of the From: L. Jean Lewis Investigations. ter to the RTC on that particular referral. referral status as it had been forwarded to Date: Wednesday, September 29, 1993. No date was given, and Donna did not ref- the Executive Office for United States Attor- I’ve received a follow-up call from Donna erence the date of the conversation between ney’s by former United States Attorney Henneman with the Executive Office for U.S. Ms. Westbrook and Ms. Casey. I asked Donna Chuck Banks. Attorneys. She spoke with her supervisor, if she knew the basis for the declination, and If there were other documents produced Deb Westbrook, regarding my request for a she responded that she did not, and hadn’t that are relative to the conclusion of this written follow-up to her verbal request that seen a copy of the letter either. She then matter, I would appreciate receiving the ap- the Executive Office be copied on all the suggested that if I do not receive the letter propriate copies. Madison referrals and exhibits. Ms. of declination within a fairly short time The RTC Kansas City Office of Investiga- Westbrook has withdrawn her initial request frame, to please let her know. tions will continue it’s policy of cooperation for copies, and stated that they will go Donna also noted that Ms. Westbrook ad- with both the United States Attorney’s of- through the U.S. Attorney’s office to obtain vised her that USA Casey had stated she fice and the FBI on all referral related and copies rather than having us copy their of- would ‘‘deal’’ with the other referrals as investigate matters, making all pertinent fice directly. Ms. Henneman indicated that well. records accessible as requested. this route would not make the U.S. Attor- I’ll keep you posted as to any further calls Should you have any further questions, or ney’s office feel as though the Executive Of- from Ms. Henneman. if this office may be of further assistance, fice was ‘‘going behind their back’’ in re- please do not hesitate to contact me at (816) questing copies of the referrals. UNITED STATES ATTORNEY, 968–7237, or if I am unavailable, Supervisory She then reiterated that she would like to EASTERN DISTRICT OF ARKANSAS, Investigator Lee Ausen at (816) 968–7243 or be copied on the transmittal letters that will Little Rock, AR, October 27, 1993. Field Investigations Officer Richard Iorio at be sent with the referrals to the U.S. Attor- Ms. L. JEAN LEWIS, (816) 968–7212. neys and the FBI, with a brief summary Criminal Investigator, Very truly yours, paragraph outlining the suspects and con- Resolution Trust Corporation, L. JEAN LEWIS, tent of each referral. I agreed to her request, Kansas City, MO. Senior Criminal Investigator. and will make arrangements to provide the Re #7236 Madison Guaranty Savings and requested summary on the transmittal let- Loan Criminal Referral Number C0004 To: Jane M. Dankowski. ters. DEAR MS. LEWIS: I am writing at the re- From: L. Jean Lewis. I’ll let you know if I hear from her again. quest of the Office of Legal Counsel, Execu- Subject: Madison Guaranty. tive Office for U.S. Attorneys of the U.S. De- Date: Wednesday, November 10, 1993. To: Lee O. Ausen. partment of Justice to let you know the sta- From: L. Jean Lewis. tus of this referral. Hey you! Just a heads up to let you know Subject: #7236 Madison Guaranty. As you know, this referral was reviewed by that Mike Caron, Senior Criminal Investiga- Date: Tuesday, October 26, 1993. the Criminal Division of the U.S. Depart- tor, is now the lead investigator on Madison Just FYI... ment of Justice at the request of the pre- . . . so anymore faxes you send should come Based on our conversation this afternoon vious United States Attorney for the Eastern to Mike’s attention, and any further commu- regarding the OCC’s inability to locate their District of Arkansas. The matter was con- nication about Madison should go to him, past exams for UNB/Little Rock, I took a cluded before I began working in this office, too. The Powers That Be have decided that shot at a hunch, and made another call to and I was unaware that you had not been I’m better off out of the line of fire (and I Cristina Flechas, the attorney for the FDIC told until I was contacted by the Office of ain’t arguing), but please let me assure you, in Memphis who had previously advised me Legal Counsel. After receiving the call from that we are leaving you in very capable (in response to my written request of 6/23) Legal Counsel I reviewed the referral, and I hands! Got any questions beyond that, ask that OCC would have been the regulatory concur with the opinion of the Department Lee or Richard. agency for UNB during 1986. attorneys that there is insufficient informa- Cristina, so I have learned, is no longer tion in the referral to sustain many of the To: James R. Dudine. with the FDIC in Memphis. However, I spoke allegations made by the investigators or to From: L. Richard Iorio to her successor, Broderick Nichols, and out- warrant the initiation of a criminal inves- Subject: Madison Guaranty. lined the previous request with him, asking tigation. Date: Monday, November 15, 1993. him if he would do some additional followup Although I am declining to take further On Thursday, November 11, 1993, there was just on the off chance that the FDIC might substantive action on this referral, my deci- an article that appeared in the Washington have done a concurrent exam on UNB with sion does not foreclose future prosecutions Post concerning declination of prosecution OCC at some point between 1983 and 1987. I about the matters covered by the referral or on the first Madison referral that was trans-

383 T30.7 JOURNAL OF THE MARCH 24 mitted to the Department of Justice (DOJ) incoming to Investigations, and provided in- pared and supportable cases, then there is on August 31, 1992. formation as to the progress being made very little doubt that he will dispense with Contained in the article was information with regard to locating and determining the this situation in very short order. that the referral had been reviewed by DOJ status of the referral. Regardless of stated agenda, and regardless and that a decision had been made early on The June 23, 1993 conversation between In- of whether or not I’m in attendance, he’s to decline on this referral and that when vestigations and OLC indicated that the de- going to try and make an objective assess- Paula Casey US Attorney, Little Rock, Ar- cision had been made to return the referral ment based on what is presented to him dur- kansas, in fact issued the declination in Oc- to the U.S. Attorney in Little Rock as there ing the meeting. If that’s the way the meet- tober 1993, she was simply bringing this mat- was ‘‘no basis for recusal of the U.S. Attor- ing starts out, then you better pull out all ter to a close. ney’’ and apparent ‘‘lack of conflict of inter- the stops to support the work we’ve done, or The document attached clearly refutes this est.’’ During a conversation on September 23, that’s the last we’ll hear of the Madison in- train of thought. In fact, it appears that no the OLC inquired as to the ‘‘final disposi- vestigation. That’s my instinct talking, and thorough review of the document had been tion’’ of referral #C0004. They were advised so far, it’s been pretty much on target. conducted as late as June 23, 1993, some ten by Investigations that no formal notification Michael is extremely knowledgable about months after the referral had been initially had been received of either a declination or Madison, and very capable of handling the transmitted. It was not until September 29, intent to prosecute, Investigations then ad- situation. I would not do him the injustice of 1993 that this office was advised that the re- vised OLC that there were additional refer- thinking otherwise. But internal political ferral would be reviewed. rals pending; OLC then requested that Inves- crap notwithstanding, if this meeting is This whole issue might not be important, tigations remain in contact with the OLC re- going to turn into a turkey shoot, then you however, for purposes of credibility with re- garding further communication from the are going to need every loaded gun you’ve gard to the RTC’s efforts in this area, this U.S. Attorney in Little Rock. got to assist you in convincing this special memo and attachment are submitted for fac- On September 29, 1993, the OLC contacted prosecutor that the case is as good as it tual clarity. Investigations and advised that 1) the Dep- looks on the surface. And yes, we have uty Attorney General’s office had been ad- strong documentation to support the allega- RTC Criminal Referral #C0004 on Madison vised of the situation and 2) that the pending tions. But what’s beneath the surface, in- Guaranty Savings was completed on August and prior referrals would be reviewed and a cluding where we looked and why, who’s tied 31, 1992, signed by RTC Kansas City Inves- decision made as to whether or not they be to who, who’s in business with who, who got tigations management on September 1, 1992, forwarded to the Public Integrity Section of paid for what and where all the internal and and sent via certified mail on September 2, Justice and reviewed for potential prosecu- external ties are, isn’t in writing. It’s in my 1992, to Charles A. Banks U.S. Attorney, tion. A verbal request was then made by OLC head. Eastern District of Arkansas, and SSA Steve that they be copied on the transmittal let- I’ve had my say. The decision is up to you Irons, FBI, Little Rock. ters to the U.S. Attorney accompanying the By early November 1992, no standard writ- and Richard. new referrals, and that they be further pro- ten response of prosecution or declination vided with a summary of each referral. RESOLUTION TRUST CORPORATION, had been forthcoming from the U.S. Attor- The nine new referrals were submitted to ney’s office. In mid-November 1992, the lead Kansas City, MO, December 21, 1993. the U.S. Attorney and FBI in Little Rock on Mr. BILL C. HOUSTON, criminal investigator made the first of a October 8, 1993. On October 13, 1993, the Office number of verbal requests to both the U.S. Regional Director, Division of Supervision, Fed- of Legal Counsel was provided with copies of eral Deposit Insurance Corporation, 5100 Attorney and FBI in Little Rock for some the transmittal letters, and the requested form of written acknowledgement that the Poplar Avenue, Suite 1900, Memphis, TN. summaries on each referral. DEAR MR. HOUSTON: The Resolution Trust referral had been received and reviewed. A On October 27, 1993, Investigations received written acknowledgement dated December Corporation’s (‘‘RTC’’) Kansas City Office of a call from OLC inquiring as to whether or Investigations is currently conducting an in- 15, 1992, from FBI SAC Don K. Pettus, was re- not Investigations had received a declination ceived by the lead criminal investigator on vestigation into matters relating to an insol- letter on referral #C0004; the response was vent Little Rock, Arkansas savings & loan. January 4, 1993. This acknowledgement stat- ‘‘no.’’ Investigations was advised that U.S. ed that the referral had been received, and Significant evidence points to the possibili- Attorney Paula Casey had advised the OLC ties of loan ‘‘parking’’, loan ‘‘swapping’’, in- that further questions should be directed to that she would be sending a letter of declina- AUSA Floyd Mac Dodson, who had also re- sider abuse and collaboration between spe- tion to RTC Investigations. cific borrowers and the principals of the ceived the referral and exhibits. On January On November 1, 1993, Investigations re- Bank * * * financial institutions in * * * and 7, 1993, the lead investigator had a conversa- ceived a letter dated October 27, 1993, from Little Rock, Arkansas including the afore- tion with AUSA Mac Dodson in which he ad- U.S. Attorney Paula Casey stating that the mentioned insolvent thrift. In order to expe- vised that he wasn’t sure the referral was disposition of referral #C0004 had been con- dite this investigation, I would appreciate still in the U.S. Attorney’s office in Little cluded prior to her taking office, and that your assistance in providing this office with Rock, and that if prosecution occurred, it she ‘‘concurred with the opinion of the De- copies of the Reports of Examination would probably be through a special attor- partment attorneys that there is insufficient (‘‘ROE’’) from 1983 through the most recent ney sent to Little Rock to handle the situa- information . . . in the referral to warrant tion. exam for the above captioned institutions. the initiation of a criminal investigation.’’ This written request is made pursuant to For four months, there was no further On November 11, 1993, RTC Investigations the terms of the Agreement Regarding Con- communication or correspondence received learned through an article in the Washington fidential Information between the FDIC and by Investigations on this matter. In a May 3, Post, that Paula Casey had recused herself RTC, as signed by FDIC General Counsel Al- 1993, conversation between Investigations and her staff from any further dealing with fred J. Byrne and RTC General Counsel Ger- and the U.S. Attorney’s office, it was indi- the Madison referrals. cated that referral #C0004 had been ‘‘sent to ald L. Jacobs, effective January 1, 1992. Should you have any questions or require Justice in Washington almost as soon as it To: Lee O. Ausen. additional information, please do not hesi- was received last September’’. On May 4, 1993 From: L. Jean Lewis. tate to contact me at (816) 968–7191. Your ex- Investigations sent a written inquiry to Act- Date: Monday, November 15, 1993. ing U.S. Attorney, Richard M. Pence, re- A few comments with regard to our con- pedited attention to this matter is appre- questing the status of the referral. On May versation this afternoon about the pending ciated. 12, 1993, Investigations received a letter from meeting with Donald Mackay and his staff Very truly yours, Mr. Pence (dated May 10, 1993) stating that on 11/22. MICHAEL E. CARON, former U.S. Attorney Charles Banks had de- You know, Richard knows, Donohue Senior Criminal Investigator, termined that his office had a conflict of in- knows, Mike knows, and I know that Office of Investigations. terest with conducting an investigation or Mackay is not coming here to look at prosecuting criminal charges relating to re- records. Cut to the bottom line. He is coming To: Jane M. Jankowski, L. Richard Iorio, ferral #C0004, and had sent the referral and here because he wants to be convinced that Lee O. Ausen, Michael X. Caron. exhibits to the Office of Legal Counsel there either IS or IS NOT a very good case From: L. Jean Lewis. (‘‘OLC’’), Executive Office for U.S. Attor- behind those referrals. He isn’t coming spe- Date: Thursday, January 6, 1994. ney’s, U.S. Justice Department, Washington cifically to discuss subpoena compliance, be- This is just to advise that earlier this D.C. He stated that any further inquiries as cause he hasn’t opened any cases yet. He’s evening, I received a call from * * * who to the status of the referral should be di- coming here to evaluate us, our work, and to started out her call with I’ve been lied to by rected to that office, providing a phone num- try and decide just how good this case is, and the Justice Department’’. I advised her that ber in Washington D.C. how he can best deal with a very sensitive I could not offer any comment, but that I As suggested by Mr. Pence, the lead inves- political situation. What would be easiest for would listen to what she had to say. tigator called the OLC on May 13, 1993. This him is to decide that, after meeting with She stated that her sources from DOJ, who initiated a series of 15 phone calls between RTC Investigations, he can conclude that were there during the end of the Bush Ad- the OLC and Investigations; 10 taking place there is no merit, and has accordingly ad- ministration, had advised her that the origi- between May 13 and June 29, 1993, and five vised Investigations that the matter will be nal RTC referral was taken much more seri- transpiring between September 23 and Octo- dropped. If we don’t convince him that those ously than the public has been led to believe, ber 27, 1993. The majority of these calls were referrals are exceptionally solid, well pre- and that while they believed that the Clin-

384 1994 HOUSE OF REPRESENTATIVES T30.7

tons definitely stood to benefit from the al- the Clinton’s were named as witnesses on the I concurred that in the future, I would sim- leged check kiting activities, they may not referral; I told her no comment. ply send the reporters to Public Affairs. have had serious criminal culpability. They She said that her former Justice sources However, I am very much inclined to believe also advised her that the referral was left in advised her that Banks had never recused that, on the basis of my personal, and docu- Little Rock to prosecute by former USA himself, and that CID/DOJ DC left the refer- mented, knowledge of what transpired dur- Chuck Banks, because for Washington to be ral in Little Rock and told Banks to pros- ing the conversations I had with Donna involved would look ‘‘too political.’’ She said ecute, because 1) there was no conflict of in- Henneman of DOJ/Office of Legal Counsel/ that they (her four DOJ sources) all told her terest, 2) there was no basis for recusal, and Ethics section, that * * * is not far from the that there was no basis for recusal, and no 3) that for Washington to get involved would truth: it’s beginning to sound like somebody, conflict of interest in Little Rock. ‘‘look too political’’ since it was right before or multiple ‘‘somebodies’’ are trying to care- She then advised that Justice sources and after the ’92 election. Her sources also fully control the outcome of any investiga- today informed her that it was line staff at- indicated that DOJ now seems to be delib- tion surrounding the RTC referrals, and that torneys in the Criminal section of DOJ/DC erately making it look like the referral was the beginnings of a cover-up may have al- that decided the referral warranted no fur- ‘‘vague’’ and ‘‘ambiguous’’, and not to be ready started months ago. ther investigation, and instructed Paula taken seriously. Casey to decline. She stated that her sources told her that it RESOLUTION TRUST CORPORATION, She also noted that her previous DOJ appeared that the RTC folks were legiti- Washington, DC, January 14, 1994. sources had said that after the Clinton ad- mately trying to do their job, and had legiti- MEMORANDUM ministration came into Washington, there mate concerns relating to the allegations were roadblocks put up around this referral, contained in the referral, but that when the To: Vice Presidents, Assistant Vice Presi- and that it had been their opinion that the Clinton administration came in, somebody dents. RTC staff was attempting to do a legitimate started putting up roadblocks on the refer- From: Jack Ryan, Deputy CEO. job, but was being stymied by personnel at ral, and her sources didn’t know where it was Re: Madison Guaranty Savings and Loan As- Justice for some reason. She asked me if it coming from. sociation. was true that the Clintons were named as Her current Justice sources state that it The RTC has received numerous requests witnesses on the referral; I declined com- was the line staff attorneys in CID/DOJ DC for information on Madison Guaranty Sav- ment. She asked me if it was true that the that made the decision several months ago ings and Loan Association and related mat- RTC had not been notified for months after that the referral warranted no further inves- ters. Interim CEO Roger Altman is commit- the referral was allegedly declined by the tigation, and instructed Paula Casey to de- ted to responding to these requests as staff attorneys in DC; I declined comment. cline accordingly; however, the RTC wasn’t promptly and thoroughly as possible. I told her that she would have to call you notified for months, which should have been In order to assure that the RTC’s response (Jane) in Public Affairs for any additional corrected. to requests on these matters is thorough, ac- information, and she advised me that she’d * * * went on to ask several questions, all curate, and timely, I have established a already talked to you, and got no informa- of which I replied I could not answer, and re- working group to coordinate the collection tion. She stated that she understood that I ferred her Public Affairs and Jane and distribution of all information and mate- was in a difficult position, for which I Jankowski. She stated that she’d already rial responsive to the requests. The working thanked her, and the conversation ended. talked to Jane, and that it had gotten her group is comprised of James Dudine, William I found what she had to say very interest- nowhere. She asked if I knew anyone else Collishaw, and Peter Knight. ing. In the future, I’ll comply with Richard that she could talk to, or if anyone that had I am sure that I can count on the full co- and Lee’s wishes that I not even listen to left the RTC would have any information. I operation of you and your staff with the what a reporter has to say, and just offer a stated that there were no names that I could working group. Please see that this memo- no comment. However, when someone starts give her other than Jane Jankowski in Pub- randum is distributed to the appropriate out with ‘‘I’ve been lied to by the Justice De- lic Affairs. She then asked me if it was true staff. partment’’, it’s human nature to wonder that the RTC had not been notified of the re- whether or not it is true. ferral declination for several months after it To: L. Richard Iorio and Dennis M. Cavinaw. Thus endeth the lesson. had been allegedly declined, and I told her no From: James R. Dudine. This document is a recap of a phone call comment. Date: Tuesday, January 25, 1994. that I just received from * * * , She said that she understood that I was in At the request of General Counsel Kulka reporter * * * whose opening comment was a difficult position, and but that she needed and Deputy CEO Ryan, PLS and The Wash- ‘‘I’ve just been lied to by the Justice Depart- all the help she could get. I thanked her for ington Office of Investigations have estab- ment.’’ My comment was that I would not be understanding the difficultly of my position, lished a team to ascertain if any liability able to respond to any of her questions, but advised her that I understood that she was claims remain viable as a result of the re- that I was fascinated by the fact that she only trying to do her job as a professional, cent legislation extending the statute of lim- thought she’d been lied to, so I would listen but that I could not professionally or ethi- itations from two to five years. In this case to what she had to say. cally make any comment about the inves- the resurrected statute expires at the end of She outlined her credentials, stating that tigation. She offered her phone numbers, February 1994. she’d written a book on drug trafficking, and which I did not write down. She thanked me Gary Watts of my staff, assisted by Tom had covered the ‘‘peanut loans’’, Bert Lance, for my time, and hung up. Billy Carter, Jimmy Carter and the major My overall impression of this conversation Murray will be visiting your office this week governmental agencies during the Carter ad- was that she is very close to the heart of this and next. Please give them access to all ministration. story, and that she is almost on top of the records and workpapers, and to knowledge- She’d been advised that I was the inves- ‘‘white paper’’ chronology outlining the se- able members of your staff, including records tigator on the case, and wanted to know quence of events and communication be- and documents that are covered by a Federal which of the stories she’d been told by her tween DOJ and RTC on C0004. Grand Jury Subpoena. sources at Justice were correct. Evidently, Lee Ausen was present for the entire con- Gary and Tom will be working with a team she had four former Justice sources who versation that I had with * * *, and sug- of PLS attorneys headed by Sr. Counsel were there during the Bush administration, gested to me shortly before the conversation Mark Gabrellian and including Terry Arbit, and that had been there when Chuck Banks ended that I terminate the call with a ‘‘time Jim Igo, April Breslaw, Carl Gamble and Su- sent the referral to Washington. The story out’’ gesture. He and Richard Iorio both ad- zanne Rigby. The objective is to complete they told her was as follows: vised that if she included anything in her the review of claims potential by next week. The referral was originally sent to DC as story regarding that fact that I’d even lis- In addition the team will assist in compiling an ‘‘urgent report’’ for the Attorney Gen- tened to what she had to say, it would look a detailed history of events, including the eral’s review, due in part to the political sen- bad for the RTC, and recommended that in criminal referral and document control sitivity of some of the identified names, stat- the future, I not even listen to what a re- issues, to assist RTC management in com- ing that Banks felt his office had a conflict porter has to say. municating in a factual and unified way to of interest. (This coincides with what my let- I advised them both that I felt that listen- Treasury and Justice officials, the special ter from Richard Pence states, and what ing to what * * * had to say provided valu- counsel and to appropriate committees and Donna Henneman told me during our many able information, and that there was no members of Congress. conversations on the whereabouts of the re- point in being rude to the press, anymore ferral). There are conflicting stories about than there was any point in being rude to To: L. Richard Iorio, Lee O. Ausen, Michael why Keeney wrote the memo referenced in Justice or the FBI. ‘‘No comment’’ does not X. Caron. the Schmidt/Isikoff story of 1/5; her sources have to be offensive. I further stated that I From: L. Jean Lewis. stated that when the RTC referral was re- would never do anything to undermine that Date: Monday, February 7, 1994. viewed at Justice, it was taken much more efforts that the RTC has made, or take any This is to advise you that I’ve had a con- seriously than the public has been led to be- action that would question our credibility or versation this morning with AUSA Fletcher lieve, and that they believed that the Clin- integrity, let alone do anything to com- Jackson of the U.S. Attorney’s office in Lit- ton’s stood to benefit from the check kite al- promise the investigation on which I have tle Rock. I called Mr. Jackson last week to though they may not have had serious crimi- spent the past two years as the lead inves- make an inquiry regarding Independence nal culpability. She asked if it was true that tigator. Federal Savings in Batesville, Arkansas, out

385 T30.7 JOURNAL OF THE MARCH 24 of which he had prosecuted a case regarding tations the Rose Firm had made to state reg- For the consumer position from the 4th Duane Kepford sent me a memo quite some ulators to convince the regulators that Congressional District, I recommend Dr. time ago about another; I recalled in having Madison should remain open. I replied that Jerry Kendall of Camden. Dr. Kendall is a done a preliminary review of Independence, PLS only investigates issues dealing with popular figure at Camden. His wife, Nancy that Edney was given immunity for cooper- professional malpractice and that such in- from Magnolia, is widely and favorably ating. I called Mr. Jackson last week to ver- quiries would be made only in the context of know. Their complete support of your ad- ify that fact, which he in turn did verify conflict of interests issues involving outside ministration is a certainty. when he called back. counsel. I then explained that this case was Bill, we are down to only about 15 state Mr. Jackson called Friday afternoon, and not regionalized and that April had served as chartered savings and loan institutions and I as I was out of the office, I intended to call the PLS attorney on this case. Second, they am about the only one around who has any him back this morning. Before I had the op- asked who was the FDIC ‘‘conflicts contact’’ interest in this board. portunity to call him, he called me. on this case. Third, they asked what infor- We discussed, and he then changed the mation we had concerning the audit report DECEMBER 12, 1994. topic by asking me if Steve Irons had told the Rose Firm had used to convince regu- Mr. RON PROCTOR, me last fall not to talk to Fletcher. I told lators that Madison should remain open and Citizens Bank, him that I preferred not to answer the ques- then later relied upon in a malpractice claim Flippin, AR. tion. He then stated that he ‘‘didn’t have against Frost & Co. Again, I told them that DEAR RON: I have been unsuccessful in try- much use for ether Steve Irons or Gretchen I had no information concerning these ing to meet with Bill and Hillary to sign the Hall’’, and wanted to know what I’d been issues. note renewal. I have forwarded to them by told. I advised him that Steve Irons had told Our discussion lasted no more than 10 min- messenger this morning the note and an en- me last fall that he thought it was a good utes. Russ and I then called Richard Iorio velope with which to forward it to you. idea if we (being Steve and myself) didn’t and discussed with him the substance of our Each month we will deposit into our ac- talk to each other for a while about Madison. conversation with OCOS. count at Flippin an amount sufficient to I further added that if had been suggested to cover the monthly payment. me by my management here that any ques- ROSE LAW FIRM, Thank you very much for your patience tions directed to me by the U.S. Attorney’s Little Rock, AR, October 10, 1983 and tolerance in this matter. office should probably come through Steve Mr. JAMES B. MCDOUGAL, Sincerely, Irons or another FBI agent, and that since Chairman of the Board, Bank of Kingston, JAMES B. MCDOUGAL, the FBI was my most appropriate contact, I Kingston, AR. Whitewater Development Co. should funnel responses to any questions DEAR JIM: Pursuant to your discussion through them. Mr. Jackson made a comment with Hillary Rodham Clinton, I am enclosing [Memorandum] that he, and he was just looking for some herewith a copy of our firm statement, dated April 18, 1985. input from me. He didn’t get any. December 23, 1981, covering services rendered To: John Latham He then added that he’d spoken to Jeff in connection with the matter of the First From: Jim McDougal. Gerrish recently, and that Gerrish was ‘‘ab- National Bank of Huntsville v. Madison I want this preferred stock matter cleared solutely astounded’’ that nothing more was Bank and Trust. up immediately as I need to go to Washing- ever done criminally with Madison, beyond Very truly yours, ton to sell stock. the Castle Grande transaction. He asked me C.J. GIROIR, Jr. if I knew who Gerrish was; I advised him Enclosures. [Memorandum] that year, I knew Jeff Gerrish, and no, I was ROSE LAW FIRM, February 19, 1985 not aware of Mr. Gerrish’s opinions regard- Little Rock, AR, December 23, 1981. To: John Latham ing the prosecution of criminal actions out Mr. JAMES B. MCDOUGAL, From: Jim McDougal of Madison, and that I’d formed by own con- Chairman of the Board, Bank of Kingston, Subject: Harvey Bell Cars. clusions on that point, and that’s where they Kingston, AR. He wants us to do a leasing arrangement would stay—my own. I then advised Mr. For legal services and profes- on his funeral cars. Please assign someone to Jackson that I did not wish to discuss Madi- sional advice rendered by Vin- discuss this with him. His number is 376–1600. son Guaranty, and we could change the sub- cent Foster, Jr., Carol Arnold Proceed with your idea on the subordi- ject, or hang up. He persisted, and I ex- and Mary Ellen Russell subse- nated notes. We need to make a decision on plained to him that I’d developed a respect quent to our billing dated De- Madison Bank & Trust. for him during the past 21⁄2 years, and that cember 23, 1981, through May 15, I need to close on my house loan and com- out of respect for the working relationship 1982 in connection with the mercial loan pronto. we’ve previously had, I wasn’t going to talk matter of First National Bank about Madison. We then hung up after a of Huntsville v. Madison Bank [Memo] coridal goodbye. and Trust; Madison Chancery E–81–112 ...... $5,000.00 January 7, 1985 To: Thomas L. Hindes, James R. Dudine, L. Costs advanced subsequent to our To: John Richard Iorio, Glen A. Penrose, April A. billing dated December 23, From: Jim. Breslaw, David G. Eisenstein, Russell F. 1981, through July 31, 1982: 1. See me about Steve Smith and Rolls Kaufman, Philip J. Adams. Long distance telephone ...... $91.17 Royce. From: Julie F. Yanda. Xerox charges ...... 21.40 2. You, Greg, and I need to discuss Securi- Date: Wednesday, January 5, 1994. Extraordinary postage ...... 1.56 ties License. First South has one on by its Package delivery expenses ...... 6.70 Service Corporation. Today at 1:30 p.m., Russ Kaufman and I re- Supreme Court Clerk ...... 100.00 3. Ask Greg how we get a market survey ceived word that OCOS wanted to talk to us Computer Research ...... 92.70 for shopping center. about the Madison Guaranty ‘‘investiga- Trevathan Printing Company ... 580.10 4. We need to talk about how to handle tion’’. We met with representatives of both first payment on the 90-day plan. WDC and KCO OCOS: Leonard Newmark Total costs ...... 893.63 ——— ———. (WDC), Michael Kohn (KCO) and a third indi- ——— ———. vidual whose name I cannot now remember. Total fees and costs ...... $5,893.63 ——— ———. When Russ asked who had sent them to talk to us, Mr. Newmark replied that it had been [Memorandum] [Memo] his supervisor who had sent them and who had instructed them to be ‘‘proactive’’ in FEBRUARY 7, 1985. JULY 11, 1985. dealing with the issues this case would raise. To: Governor Bill Clinton. To: John Latham Mr. Newmark indicated that they were not From: Jim McDougal. From: Jim McDougal. conducting an investigation, but rather an Kathy called yesterday to ask for my rec- 1. This is probably a good time to take in ‘‘inquiry’’. ommendations for two people to fill the va- some 5-year money cheap. Let’s discuss The first question they asked was who had cancies on the State Savings and Loan rates. made the criminal referral on Madison Guar- Board. 2. I need to know everything you have anty. Russ indicated that the referrals were For the industry position from the 2nd pending before the Securities Commission as made in accordance with RTC policy and Congressional District, I recommend John I intend to get with Hillary Clinton within committed to providing Mr. Kohn with a Latham, who is chairman of the board of the next few days. copy of the RTC policy. There was no further Madison Guaranty Savings and Loan Asso- discussion of the referrals. ciation. Mr. Latham is a CPA and a licensed INDEX TO TABS The second series of questions they asked attorney. He is a major contributor to your Tab A—December 9, 1993 letters from Con- dealt with what they characterized as ‘‘fit- campaign. His board of directors is 50% gressman Leach to the Federal banking ness and integrity’’ issues concerning the Black, giving his institution the largest mi- agencies requesting all documents related to Rose Law Firm. First, they asked what in- nority representation of any financial insti- Madison Guaranty Savings and Loan and its vestigation PLS had done into the represen- tution in the state. subsidiaries.

386 1994 HOUSE OF REPRESENTATIVES T30.7

Tab B—March 8, 1994 letters from Con- HOUSE OF REPRESENTATIVES, COM- federal regulators in March of 1989 and re- gressman Leach to the Office of Thrift Su- MITTEE ON BANKING, FINANCE AND solved by the Resolution Trust Corporation pervision (OTS) and the Resolution Trust URBAN AFFAIRS, (RTC) in November, 1990. Corporation (RTC) requesting access to all Washington, DC, December 9, 1993. To assist in this investigation, I request documents related to Madison Guaranty Mr. JOE MADDEN, that the Office of Thrift Supervision (OTS) Savings and Loan and its subsidiaries, to Commissioner, Arkansas Securities Department, provide access to all documents related to prepare for the RTC Oversight Hearings. Little Rock, AR. Madison and its subsidiaries. Such docu- Tab C—March 10, 1994 letters from Chair- DEAR MR. MADDEN: I am writing in ref- ments would include, but not be limited to, man Gonzalez to the OTS and the RTC re- erence to the House Banking Committee Mi- administrative files, examination reports, questing that the agencies deny Congress- nority investigation of the failure of Madi- interoffice memorandum, notes and minutes man Leach’s document request. son Guaranty Savings and Loan (Madison). and meetings (including telephonic meet- Tab D—March 14, 1994 letters from Chair- As you know, Madison was taken over by ings), correspondence, electronic mail. In ad- man Gonzalez to the Federal banking agen- federal regulators in March 1989 and resolved dition to documents in possession at OTS- cies and the RTC stating that the agencies by the Resolution Trust Corporation (RTC) Washington, I request access to all docu- need not answer questions Madison at sched- in November, 1990. ments related to Madison held at OTS field uled RTC Oversight Hearings. To assist in this investigation, I request offices. Tab E—March 1, 1994 letter copied to Con- that the Arkansas Securities Department Furthermore, please provide the names and gressman William Clinger. provide access to all documents related to titles of all OTS employess involved with the Tab F—Charts and other supporting docu- Madison and its subsidiaries. Such docu- examination and supervision of Madison as mentation concerning Whitewater’s losses to ments would include, but not be limited to well as those who were assigned to work with Madison. administrative files, examination reports, the RTC when the institution was closed in A. CHARTS interoffice memorandum, notes and minutes 1989. of meetings (including telephonic meetings), Please have your staff contact Mike Total Arkansas State Chartered S&Ls correspondence, electronic mail, and super- McGarry at 202-225-2258 to discuss arrange- from 1979 to 1992 visory actions. Furthermore, please provide ments to review the aforementioned docu- Madison Guaranty Rate of Growth the names and titles of all State Securities Asset Growth of Madison Guaranty ments as soon as possible. Department employees involved with the ex- Payment of Clinton Loan by Madison Re- I appreciate your assistance and look for- amination and supervision of Madison. lated Entity ward to your cooperation. Please have your staff contact Mike Funds from Madison Financial Corporation Sincerely, McGarry at 202–225–2258 to discuss arrange- to Whitewater JAMES A. LEACH, ments to review these documents as soon as Funds Transferred from Madison Related Ranking Member. possible. Entities to the Whitewater Development I appreciate your assistance and look for- Corporation HOUSE OF REPRESENTATIVES, COM- ward to your cooperation. MITTEE ON BANKING, FINANCE AND B. OTHER DOCUMENTS Sincerely, URBAN AFFAIRS, April 17, 1985 Board of Directors Meeting JAMES A. LEACH, Washington, DC, December 9, 1993. Minutes Ranking Member. Hon. ROGER C. ALTMAN, July 1, 1986 Memorandum from Jim Interim Chief Executive Officer, Resolution McDougal to John Latham concerning status HOUSE OF REPRESENTATIVES, COM- Trust Corporation, Washington, DC. of Madison Marketing MITTEE ON BANKING, FINANCE AND DEAR MR. ALTMAN: I am writing in ref- February 3, 1994 letter from Congressman URBAN AFFAIRS, erence to the House Banking Committee Mi- Leach to Roger Altman with attached staff Washington, DC, December 9, 1993. nority investigation of the failure of Madi- memorandum on links between Madison and Mr. ERSKINE BOWLES, son Guaranty Savings and Loan (Madison). Whitewater Administrator, Small Business Administration, As you know, Madison was taken over by [Tab A] Washington, DC. federal regulators in March of 1989 and re- DEAR MR. BOWLES: I am writing in ref- solved by the Resolution Trust Corporation HOUSE OF REPRESENTATIVES, COM- erence to the House Banking Committee Mi- MITTEE ON BANKING, FINANCE AND (RTC) in November 1990. nority investigation of the failure of Madi- To assist in this investigation, I request URBAN AFFAIRS, son Guaranty Savings and Loan (Madison). Washington, DC, December 9, 1993. that the RTC provide access to all docu- As you know, Madison was taken over by ments related to Madison and its subsidi- Mr. ANDREW C. HOVE, federal regulators in March of 1989 and re- aries. Such documents would include, but Acting Director, Federal Deposit Insurance Cor- solved by the Resolution Trust Corporation poration, Washington, DC. not be limited to, administrative files, exam- (RTC) in November, 1990. ination reports, interoffice memorandum, DEAR MR. HOVE: I am writing in reference To assist in this investigation, I request to the House Banking Committee Minority notes and minutes of meetings (including that the Small Business Administration telephonic meetings), correspondence, elec- investigation of the failure of Madison Guar- (SBA) provide access to all documents relat- anty Savings and Loan (Madison). As you tronic mail, and agreements the RTC entered ed to Madison and its subsidiaries, the into with private sector contractors during know, Madison was taken over by federal Whitewater Development Corporation, and regulators in March 1989 and resolved by the the resolution of Madison. In addition to Capital Management Services, Inc. Such doc- documents in possession at RTC-Washington, Resolution Trust Corporation (RTC) in No- uments would include, but not be limited to, vember, 1990. I request access to all documents related to administrative files, interoffice memoran- Madison held at RTC field offices. Further- To assist in this investigation, I request dum, notes and minutes and meetings (in- that the Federal Deposit Insurance Corpora- more, please provide the names and titles of cluding telephonic meetings), correspond- all RTC employees involved with the disposi- tion (FDIC) provide access to all documents ence, electronic mail, and loan applications related to Madison and its subsidiaries. Such tion of Madison. and approvals. Furthermore, please provide Please have your staff contact Mike documents would include, but not be limited the names and titles of all SBA employees to, administrative files, examination re- McGarry at 202–225–2258 to discuss arrange- involved with these entities. ments to review the aforementioned docu- ports, interoffice memorandum, notes and Please have your staff contact Mike minutes of meetings (including telephonic ments as soon as possible. McGarry at 202-225-2258 to discuss arrange- I appreciate your assistance and look for- meetings), correspondence, electronic mail, ments to review these documents as soon as ward to your cooperation. and agreements the FDIC entered into with possible. Sincerely, private sector firms to perform legal and I appreciate your assistance and look for- JAMES A. LEACH, other services related to Madison. In addi- ward to your cooperation. Ranking Member. tion to documents in possession at FDIC- Sincerely, Washington, I request access to all docu- JAMES A. LEACH, [Tab B] ments related to Madison held at FDIC field Ranking Member. HOUSE OF REPRESENTATIVES, offices. Furthermore, please provide the COMMITTEE ON BANKING, FINANCE names and titles of all FDIC employees in- HOUSE OF REPRESENTATIVES, COM- AND URBAN AFFAIRS, volved with the examination and supervision MITTEE ON BANKING, FINANCE AND Washington, DC, March 8, 1994. of Madison. URBAN AFFAIRS, Mr. JONATHAN FIECHTER, Please have your staff contact Mike Washington, DC, December 9, 1993. Acting Director, Office of Thrift Supervision, McGarry at 202–225–2258 to discuss arrange- Mr. JONATHAN FIECHTER, Washington, DC. ments to review the aforementioned docu- Acting Director, Office of Thrift Supervision, DEAR MR. FIECHTER: I am writing in ref- ments as soon as possible. Washington, DC. erence to the House Banking Committee’s I appreciate your assistance and look for- DEAR MR. FIECHTER: I am writing in ref- statutorily mandated, semiannual RTC Over- ward to your cooperation. erence to the House Banking Committee Mi- sight Hearings which are scheduled for the Sincerely, nority investigation of the failure of Madi- end of March. As you know, a major area of JAMES A. LEACH, son Guaranty Savings and Loan (Madison). oversight at these hearings will be the fail- Ranking Member. As you know, Madison was taken over by ure and resolution of Madison Guaranty Sav-

387 T30.7 JOURNAL OF THE MARCH 24

ings and Loan, Little Rock, Arkansas. Madi- RTC employees involved with the disposition hearings pursuant to section 21A(k)(6) of the son was taken over by federal regulators in of Madison. FHLB Act and will make it available to March of 1989 and resolved by the Resolution Please have your staff contact Joe Seidel members of the Committee, as appropriate. Trust Corporation (RTC) in November, 1990. at (202)226–3241 or Mike McGarry at (202)225– I trust that you will give Congressman As ranking Member of the House Banking 2258 to discuss arrangements to review the Leach’s requests the consideration they Committee, I request that the OTS provide aforementioned documents as soon as pos- merit and extend to him the same courtesies the Committee with access to all documents sible. As you are aware, I have previously re- you would extend to any member of Con- related to Madison and its subsidiaries. quested access to these documents for use in gress. Members of the Committee will need access performing other Committee functions. My Sincerely, to this material to prepare for the upcoming final letter concerning that request, was for- HENRY B. GONZALEZ, hearings and to perform their ongoing over- warded yesterday, March 7, 1994. If the agen- Chairman. sight responsibilities. (As I am sure you are cy decisions to comply with the request, we aware, documents provided to the Ranking will, of course, consider this request satisfied [Tab D] Member are available to the Committee as a as well. HOUSE OF REPRESENTATIVES, whole under the Committee rules.) The docu- I appreciate you assistance and look for- Washington, DC, March 14, 1994. ments requested would include, but not be ward to your cooperation Mr. ANDREW C. HOVE, Jr., limited to, administrative files, examination Sincerely, Acting Chairman, Federal Deposit Insurance reports, interoffice memorandum, notes and JAMES A LEACH, Corporation, Member, Thrift Depositor Pro- minutes of meetings (including telephonic Ranking Member. tection Oversight Board, Washington, DC. meetings), correspondence, electronic mail, [Tab C] DEAR MR. HOVE: You have previously been and agreements the RTC entered into with COMMITTEE ON BANKING, FINANCE invited by letter dated March 3, 1994 to ap- private sector contractors during the resolu- AND URBAN AFFAIRS, pear before the Committee on Banking, Fi- tion of Madison. In addition to documents in Washington, DC, March 10, 1994. nance and Urban Affairs for the purpose of possession at OTS–Washington, I request ac- Mr. JONATHAN FIECHTER, the semiannual appearance of the Thrift De- cess to all documents related to Madison Acting Director, Office of Thrift Supervision, positor Protection Oversight Board. I expect held at OTS field offices. Furthermore, Washington, DC. that Republican members of the Committee please provide the names and titles of all DEAR MR. FIECHTER: You have recently re- may use the opportunity of the Oversight OTS employees involved with the super- ceived letters from Congressman Jim Leach Board hearing to pursue extraneous matters, vision of Madison. requesting access to all documents you pos- including Madison Guaranty Savings and Please have your staff contact Joe Seidel sess concerning Madison Guaranty Savings Loan. Any questions regarding Madison at (202)226–3241 or Mike McGarry at (202)225– and Loan and its subsidiaries. The March 8, Guaranty Savings and Loans, matters that 2258 to discuss arrangements to review the 1994 letter states that, ‘‘Members of the are the subject of pending investigations by aforementioned documents as soon as pos- Committee will need access to this material Special Counsel Fiske or other law enforce- sible. As you are aware, I have previously re- to prepare for the upcoming [RTC oversight] ment authorities, or other extraneous mat- quested access to these documents for use in hearings and to perform their ongoing over- ters not specifically set forth in section performing other Committee functions. My sight responsibilities.’’ 21A(k)(6) of the Federal Home Loan Bank final letter concerning that request, was for- This letter is to inform you that the Bank- Act or the March 3, 1994 invitation letter will warded yesterday, March 7, 1994. If the agen- ing Committee is not conducting an inves- not be considered pertinent at the hearing cy decides to comply with that request, we tigation of Madison Guaranty Savings and and need not be answered by you. will, of course, consider this request satisfied Loan or related matters at this time. Mr. I was the primary sponsor of the provision as well. Leach’s requests do not constitute a Rule X to require the Oversight Board to appear on I appreciate your assistance and look for- or Rule XI investigation under the House a semiannual basis so that the Committee ward to your cooperation. Rules. A hearing does not provide the basis could oversee its activities. The recent ap- Sincerely, for a member of Congress to obtain docu- propriation of funds to the RTC, the manage- JAMES A. LEACH, ments to which he or she is not otherwise en- ment reforms, and FDIC–RTC transition Ranking Member. titled. I will request any information needed measures required under Public Law 103–24 by the Committee in order to prepare for any clearly require the complete and full atten- HOUSE OF REPRESENTATIVES COM- Thrift Depositor Protection Board Oversight tion of the Committee in order to have a suc- MITTEE ON BANKING, FINANCE AND hearings pursuant to section 21A(k)(6) of the cessful Oversight Board hearing. I intend to URBAN AFFAIRS, FHLB Act and will make it available to keep the hearing so focused. Washington, DC, March 8, 1994. members of the Committee, as appropriate. I look forward to your March 4, 1994 ap- JOHN E. RYAN, I trust that you will give Congressman pearance. Deputy Chief Executive Officer, Resolution Leach’s requests the consideration they Sincerely, Trust Corporation, Washington, DC. merit and extend to him the same courtesies HENERY B. GONZALEZ, DEAR MR. RYAN: I am writing in reference you would extend to any member of Con- Chairman. to the House Banking Committee’s statu- gress. torily mandated, semi-annual RTC Oversight Sincerely, Washington, DC, March 14, 1994. Hearings which are scheduled for the end of HENRY B. GONZALEZ, Hon. ALAN GREENSPAN, March. As you know, a major area of over- Chairman. Chairman, Board of Governors of the Federal sight at these hearings will be the failure Reserve System, Member, Thrift Depositor and resolution of Madison Guaranty Savings COMMITTEE ON BANKING, FINANCE Protection Oversight Board, Washington, and Loan, Little Rock, Arkansas. Madison AND URBAN AFFAIRS DC. was taken over by Federal regulators in Washington, DC, March 10, 19094. DEAR MR. GREENSPAN: You have previously March of 1989 and resolved by the Resolution Mr. JOHN E. RYAN, been invited by letter dated March 3, 1994 to Trust Corporation (RTC) in November, 1990. Deputy Chief Executive Officer, Resolution appear before the Committee on Banking, As ranking Member of the House Banking Trust Corporation, Washington, DC. Finance and Urban Affairs for the purpose of Committee, I request that the RTC provide DEAR MR. RYAN: You have recently re- the semiannual appearance of the Thrift De- the Committee with access to all documents ceived letters from Congressman Jim Leach positor Protection Oversight Board. I expect related to Madison and its subsidiaries. requesting access to all documents you pos- that Republican members of the Committee Members of the Committee will need access sess concerning Madison Guaranty Savings may use the opportunity of the Oversight to this material to prepare for the upcoming and Loan and its subsidiaries. The March 8, Board hearing to pursue extraneous matters, hearings and to perform their ongoing over- 1994 letter states that, ‘‘Members of the including Madison Guaranty Savings and sight responsibilities. (As I am sure you are Committee will need access to this material Loan. Any questions regarding Madison aware, documents provided to the Ranking to prepare for the upcoming [RTC oversight] Guaranty Savings and Loans, matters that Member are available to the Committee as a hearings and to perform their ongoing over- are the subject of pending investigations by whole under the Committee rules.) The docu- sight responsibilities.’’ Special Counsel Fiske or other law enforce- ments requested would include, but not be This letter is to inform you that the Bank- ment authorities, or other extraneous mat- limited to, administrative files, examination ing Committee is not conducting an inves- ters not specifically set forth in section reports, interoffice memorandum, notes and tigation of Madison Guaranty Savings and 21A(k)(6) of the Federal Home Loan Bank minutes of meetings (including telephonic Loan or related matters at this time. Mr. Act or the March 3, 1994 invitation letter will meeting), correspondence, electronic mail, Leach’s requests do not constitute a Rule X not be considered pertinent at the hearing and agreements the RTC entered into with or Rule XI investigation under the House and need not be answered by you. private sector contractors during the resolu- Rules. A hearing does not provide the basis I was the primary sponsor of the provision tion of Madison. In addition to documents in for a member of Congress to obtain docu- to require the Oversight Board to appear on possession at RTC-Washington, I request ac- ments to which he or she is not otherwise en- a semiannual basis so that the Committee cess to all documents related to Madison titled. I will request any information needed could oversee its activities. The recent ap- held at RTC field offices. Furthermore, by the Committee in order to prepare for any propriation of funds to the RTC, the manage- please provide the names and titles of all Thrift Depositor Protection Board Oversight ment reforms, and FDIC–RTC transition

388 1994 HOUSE OF REPRESENTATIVES T30.7

measures required under Public Law 103–24 measures required under Public Law 103–24 RONALD V. DELLUMS, clearly require the complete and full atten- clearly require the complete and fully atten- Chair, Committee on Armed Services. tion of the Committee in order to have a suc- tion of the Committee in order to have a suc- [Tab F] cessful Oversight Board hearing. I intend to cessful Oversight Board hearing. I intend to keep the hearing so focused. keep the hearing so focused. Charts not reproducible in the RECORD. I look forward to your March 4, 1994 ap- I look forward to your March 24, 1994 ap- MINUTES OF MEETING, BOARD OF DIRECTORS, pearance. pearance. MADISON FINANCIAL CORPORATION, APRIL 17, Sincerely, Sincerely, 1985 HENRY B. GONZALEZ, HENRY B. GONZALEZ, The Board of Directors of Madison Finan- Chairman. Chairman. cial Corporation met on April 17, 1985, at 1:00 p.m. at the offices of Madison Financial Cor- HOUSE OF REPRESENTATIVES, HOUSE OF REPRESENTATIVES, poration at 16th and Main Streets, Little Washington, DC, March 14, 1994. Washington, DC, March 14, 1994. Rock, Arkansas. All directors were present. Mr. JONATHAN FIECHTER, Hon. ROGER ALTMAN, The minutes of the previous meeting were Acting Director, Office of Thrift Supervision, Chief Executive Officer, Resolution Trust Cor- read and approved as recorded. Member, Thrift Depositor Protection Over- poration, Member, Thrift Depositor Protec- sight Board, Washington, DC. tion Oversight Board, Washington, DC. The first order of business, introduced by DEAR MR. FIECHTER: You have previously DEAR MR. ALTMAN: You have previously John Latham, was the matter of authorizing been invited by letter dated March 3, 1994 to been invited by letter dated March 3, 1994 to prepayment of Jim McDougal’s bonus. After appear before the Committee on Banking, appear before the Committee on Banking, a full discussion, the following resolution Finance and Urban Affairs for the purpose of Finance and Urban Affairs for the purpose of was unanimously adopted, with Jim the semiannual appearance of the Thrift De- the semiannual appearance of the Thrift De- McDougal abstaining from the voting: ‘‘RE- positor Protection Oversight Board. I expect positor Protection Oversight Board. I expect SOLVED, that the Corporation pre-pay to that Republican members of the Committee that Republican members of the Committee Jim McDougal $30,000.00 of his annual bonus may use the opportunity of the Oversight may use the opportunity of the Oversight in recognition of the profits of the prior Board hearing to pursue extraneous matters, Board hearing to pursue extraneous matters, year, and that said bonus is to be paid di- including Madison Guaranty Savings and including Madison Guaranty Savings and rectly to Whitewater Development.’’ Loan. Any questions regarding Madison Loan. Any questions regarding Madison There being no further business, the meet- Guaranty Savings and Loans, matters that Guaranty Savings and Loans, matters that ing was adjourned. are the subject of pending investigations by are the subject of pending investigations by JAMES B. MCDOUGAL, Special Counsel Fiske or other law enforce- Special Counsel Fiske or other law enforce- Chairman. ment authorities, or other extraneous mat- ment authorities, or other extraneous mat- ters not specifically set forth in section ters not specifically set forth in section MEMO 21A(k)(6) of the Federal Home Loan Bank 21A(k)(6) of the Federal Home Loan Bank To: John Latham. Act or the March 3, 1994 invitation letter will Act or the March 3, 1994 invitation letter will From: Jim McDougal. not be considered pertinent at the hearing not be considered pertinent at the hearing Date: July 1, 1986. and need not be answered by you. and need not be answered by you. I was the primary sponsor of the provision I was the primary sponsor of the provision Madison Marketing to require the Oversight Board to appear on to require the Oversight Board to appear on a semiannual basis so that the Committee When the service corporation undertook a semiannual basis so that the Committee its first land development project in the could oversee its activities. The recent ap- could oversee its activities. The recent ap- propriation of funds to the RTC, the manage- spring of 1983, it was determined to primarily propriation of funds to the RTC, the manage- advertise the home sites through the use of ment reforms, and FDIC–RTC transition ment reforms, and FDIC–RTC transition measures required under Public Law 103–24 television. The firm of Rothman and Lowery measures required under Public Law 103–24 was retained as Madison’s advertising agen- clearly require the complete and full atten- clearly require the complete and full atten- tion of the Committee in order to have a suc- cy. Because her education is in speech and tion of the Committee in order to have a suc- drama, Mrs. McDougal assisted in preparing cessful Oversight Board hearing. I intend to cessful Oversight Board hearing. I intend to keep the hearing so focused. of copy for the commercials, appeared in the keep the hearing so focused. commercials, and assisted in editing the I look forward to your March 24, 1994 ap- I look forward to your March 24, 1994 ap- commercials. She either wrote or rewrote all pearance. pearance. newspaper copy to advertise the subdivision. Sincerely, Sincerely, Until the summer of 1984, the corporation HENRY B. GONZALEZ, HENRY B. GONZALEZ, undertook the development of other subdivi- Chairman. Chairman. [Tab E] sions in addition to Maple Creek Farms. During this period the creative audio and HOUSE OF REPRESENTATIVES, HOUSE OF REPRESENTATIVES, visual quality of the production produced for Washington, DC, March 14, 1994. Washington, DC, March 1, 1994. the media by Rothman and Lowery progres- Hon. LLOYD BENTSEN, Hon. CAROL K. BROWNER, sively deteriorated. Additionally, the firm Secretary of the Treasury, Chairman, Thrift De- Administrator, U.S. Environmental Protection frequently made mistakes as to the place- positor Protection Oversight Board, Wash- Agency, Washington, DC. ment of advertising or omitted to place ad- ington, DC. DEAR MADAM ADMINISTRATOR: You have re- DEAR MR. SECRETARY: You have previously cently received a request from various mi- vertising when instructed to do so. been invited by letter dated March 3, 1994 to nority members of the Committees on Armed In late summer 1984, after advising the appear and testify before the Committee on Services, Energy and Commerce, Govern- board of directors of the savings and loan Banking, Finance and Urban Affairs for the ment Operations, and Natural Resources for and after seeking the legal opinion from purpose of the semiannual appearance of the information concerning the Waste Isolation counsel, Mrs. McDougal formed Madison Thrift Depositor Protection Oversight Board. Pilot Plant (WIPP) Test Phase. Their letter Marketing. She undertook, with hired assist- That letter specifies in detail the matters to requests answers to a number of questions ants, the writing of copy, taping of spots, which you should direct your testimony. I concerning WIPP as well as numerous docu- and placement of advertising for both the expect that Republican members of the Com- ments, and cites Rules X and XI of the House savings and loan and the service corporation. mittee may use the opportunity of the Over- of Representatives as the basis for the re- For the work she received exactly the same sight Board hearing to pursue their stated quest. fee which had been paid Rothman and Low- interest in extraneous matters, including This letter is to inform you that the above ery, with the exception of the fact that she Madison Guaranty Savings and Loan. Any mentioned committees have no ongoing in- did not charge for production of television questions regarding Madison Guaranty Sav- vestigations of the WIPP Test Phase at this spots or the writing of newspaper copy. ings and Loans, matters that are the subject time. Therefore, the minority members’ re- Additionally, she negotiated a much lower of pending investigations by Special Counsel quest does not constitute a Rule X or Rule rate structure with the television stations Fiske or other law enforcement authorities, XI investigation under the House Rules. than the company had been paying when the or other extraneous matters not specifically This is not intended in any way to direct ads were placed through Rothman and Low- set forth in section 21A(k)(6) of the Federal the nature of your response to that letter. ery. In late January, 1985, Mrs. McDougal Home Loan Bank Act or the March 3, 1994 in- Indeed, we expect that you would show the permitted Madison Marketing to become a vitation will not be considered pertinent at members the same courtesies as you would subsidiary of Madison Financial Corpora- the hearing and need not be answered by any member of Congress. tion. Because Madison Marketing was at this you. Sincerely, point a ‘‘recognized agency’’ by the elec- I was the primary sponsor of the provision JOHN CONYERS, Jr., tronic media, this resulted in Madison Fi- to require the Oversight Board to appear on Chair, Committee on Government Operations. nancial Corporation receiving the 15 percent a semiannual basis so that the Committee GEORGE MILLER, discount normally given advertising agen- could oversee its activities. The recent ap- Chair, Committee on Natural Resources. cies. Mrs. McDougal continues to perform all propriation of funds to the RTC, the manage- JOHN D. DINGELL, the aforementioned duties in connection ment reforms, and FDIC–RTC transition Chair, Committee on Energy and Commerce. with the company’s advertising at no fee.

389 T30.7 JOURNAL OF THE MARCH 24

Madison Real Estate termine immediate commercial use for sub- the eradication of this plant. This method When initial sales began at Maple Creek ject property. Their feasibility and market- was beautified to as to make the ocean visi- Farms in April of 1983, the listing broker was ing studies indicate the immediate need for ble, thus greatly enhancing the value of our Perryman Realty Company, Inc. Mr. a fast-food outlet to serve the several hun- entire property. Mr. Randolph left the trac- Perryman had, at this time, other interests dred industrial and service employees pres- tor he purchased at Campobello where it is including his own subdivisions. This prohib- ently employed within 1,500 feet of subject in use until this time. Personnel he trained ited his devoting the seven days a week nec- location. There is no such outlet within sev- in the proper method of beautification of our essary to the sales effort then under way at eral miles to serve the heavily populated property are continuing the process this year Maple Creek Farms and his listing was ter- suburban areas surrounding the property. with very beneficial effects. minated. Additional trade is anticipated from traffic Some of Mr. Perryman’s better salesmen generated by the freeway which services the COMMITTEE ON BANKING, FINANCE desired to remain at Maple Creek and con- location. AND URBAN AFFAIRS, tinue selling. However, Arkansas law re- For the same reasons outlined above, need Washington, DC, February 3, 1994. quires that real estate salesmen be under the is indicated for a convenience store and gaso- Mr. ROGER C. ALTMAN, direct supervision of a licensed real estate line outlet. As mentioned above a conven- Interim CEO, Resolution Trust Corporation, broker. Mrs. McDougal holds a valid broker’s ience store is essential to the successful sale Washington, DC. license. In 1983, her license was held under of residential lots. Roadrunner, Incorpora- DEAR MR. ALTMAN: I am in receipt of your the name ‘‘McDougal Real Estate’’ although tion, a highly successful Arkansas based con- February 1, 1994 response to the letter initi- she was not actively involved in the sale of venience store and gasoline outlet fran- ated by Senate Republican leadership con- real estate at this time. chiser, has conducted an extensive market cerning Madison Savings and Loan and I am Upon the termination of Mr. Perryman’s survey which has concluded that such a fa- pleased to learn that the RTC ‘‘will vigor- activities, Mrs. McDougal changed the name cility located on subject property would be ously pursue all appropriate remedies’’ with of her real estate company to ‘‘Madison Real successful. Two of the principals of Master regard to Madison’s failure. It seems self-ap- Estate Company’’. Madison Real Estate be- Developers have arranged for separate fi- parent that in order for the RTC to pursue came a wholly owned subsidiary of Madison nancing to erect such a facility. vigorously all remedies it must have all rel- Financial Corporation. From that time until Also, negotiations are far advanced for the evant information at its disposal. Accord- the present, Mrs. McDougal has performed sale of two acres of the property to a build- ingly, I urge the RTC to seek and review all the duty of supervision broker for the var- ing supply and insulation firm. Whitewater Development Corporation docu- ious salesmen working for Madison Real Es- The preliminary master development plan ments turned over by the White House to the tate. Although it is normal practice that the for the business park to be created is com- Justice Department. supervising broker receives at least thirty pleted and a copy is attached. In its investigation of Madison, the Minor- percent of commissions generated by the Island Construction ity has uncovered links between Madison and salesmen under their supervision, Mrs. The lots at Campobello which were under Whitewater, some of which may have con- McDougal charged no such fees. The only development last year, were so heavily over- tributed to the thrift’s failure. Not only did fees Mrs. McDougal has received from Madi- grown with spruce trees and other foliage, James and Susan McDougal hold significant son Real Estate are fees for sales she made that our sales people were finding it difficult ownership interest in both entities (approxi- personally. to walk the prospects from the road to the mately two thirds in Madison and one half in Sorenson Enterprises ocean therefore, greatly inhibiting the sale Whitewater), but the other joint owners of Sorenson Enterprises is a sole proprietor- of frontage lots. Whitewater (Bill and Hillary Clinton) appear ship owned by Erik Sorenson. Mr. Sorenson Additionally, the density of the foliage to have benefited directly and indirectly is a general contractor engaged in construc- prohibited a view of the ocean from the inte- from the application of Madison resources. tion and landscaping work. He built the sales rior lots lying immediately behind the ocean [See the attached memo.] office for the subdivision at Camden known fronts lots, thereby diminishing the value of If the White House choose to use the Jus- as Greentree Farms. He also built the sales those lots because of this lack of view of the tice Department to shield Whitewater docu- office at Fair Oaks. At several of our subdivi- water. ments not only from the public and Con- sions in southern Arkansas, he supervised Initially, unsuccessful attempts were made gress, but from other government agencies, the painting and erection of signs in to employ timber cutters with chain saws to such as the RTC, which have legitimate pub- entranceways. He employed in these subdivi- selectively clear the ocean front lots. This lic law enforcement responsibilities, it is sions a crew of men engaged in selective process proved too slow and too costly. When hard to believe a responsible resolution of clearing of trees, planting of grass, and the it was determined that lot preparation could the issues involved can be made by regu- general beautification of the subdivisions. not keep pace with sales using this method latory authorities. Concurrent with this activity, Mr. Sorenson and further determined that this process dis- I have high regard for your personal integ- was engaged in building houses for other per- tracted from the beauty of the lots because rity, but as you know, from the beginning, it sons unrelated to this company. it left them covered with stumps, another so- has been an awkward situation to have a Because of the observed quality of his lution was sought. presidentially appointed and confirmed offi- workmanship, he was placed under Mr. Mr. Randolph, who was thoroughly famil- cer of the Treasury Department also head an Dutton’s command at Little Rock, and given iar with the use of mechanical methods em- independent federal agency, the Resolution the responsibility of constructing or making ployed by the company to prepare lots for Trust Corporation (RTC). When this prospect additions to various houses at Maple Creek sale and who had had extensive experience was first suggested at the beginning of the Farms owned by the company. When the working in various subdivisions owned by Clinton Administration, it did not strike the company undertook the development of Cas- the company, was asked to come to Campo- Minority as overly unreasonable for a month tle Grande Estates, an arrangement was ne- bello to devise a method of overcoming this or two given the fact that no RTC head had gotiated with Mr. Sorenson whereby for a landscaping and marketing problem. Upon been selected. flat monthly fee he would supervise the as- his arrival he immediately leased the proper However, it has been over a year since the sembling of the modular houses and these bull dozer for such work and trained bull Administration has been in office and it can duties involved the preparation of footings dozer operators living on the island as to the only be described as structurally unseemly and foundations, the adding of brick trim, proper method of selectively clearing the for a political appointee of an Executive and supervision of correcting any defect in lots and removal of the resulting debris from branch department to make what are in ef- the workmanship of the house, and super- the lots. Direct correlation by the increasing fect, law enforcement decisions for an inde- vision of the installation of central air con- sales and his arrival is easily demonstrative. pendent federal agency as they may touch ditioning and utilities. For example, every lot he caused to be pre- upon the President. Accordingly, I would urge that you request Madison Properties pared in his first week of work was sold that weekend. His additional duties involved from the Department of Treasury’s General Madison Properties assets consists pri- building driveways which permitted access Counsel and Ethics Office advice as to marily of a very large masonry building lo- from the main thoroughfare through the lot whether you, as interim CEO of the RTC, are cated on several acres with two producing to the water’s edge. obligated to rescue yourself from any deci- gas wells in Madison County just south of The company owns a large tract of land sions concerning the resolution of Madison the county seat of Huntsville. Madison Prop- abutting the highway immediately at the en- Guaranty. Just as the special counsel law erties has no connection to Madison Guar- trance to the island. Our predecessor in title was designed to relieve the Attorney General anty Savings and Loan or Madison Financial had cut the timber from this tract some from an ethical dilemma of being both chief Corporation. years ago. When this sort of clear cutting oc- law enforcement officer for the nation and Master Developers curs on that island, a large bushy plant, chief legal advisor to the President in cir- Three stockholders are working in con- which is quite unattractive, grows to a great cumstances when the President or a high junction with the development of 59 acres lo- height and has an especially virulent root level Administration officer is the subject of cated on 145th Street. Two stockholders have system which inhibits its removal effectively investigation, so it would appear ethically extensive experience in real estate develop- even by a bull dozer. Mr. Randolph purchased questionable for a political appointee of the ment and sales. These individuals have en- a new 70 horsepower tractor than attached a Department of Treasury to make decisions gaged in exhaustive market research to de- device known as a ‘‘tree eater’’ to be used in for an independent federal agency when the

390 1994 HOUSE OF REPRESENTATIVES T30.7

President may be implicated in enforcement as a conduit of funds from Madison Guaranty it could be argued that the McDougals’ con- and civil actions. to Whitewater and Governor Clinton. If this trolling interest in Madison Guaranty and In this regard, it should be clear that the is correct, it would appear that insured funds their substantial ownership interest in issue is not whether a presidentially ap- from the failed Madison Guaranty were di- Whitewater could qualify Whitewater as an pointed official can oversee an investigation verted and directly benefitted the Governor ‘‘affiliate’’ of Madison Guaranty. Even if involving the President. Rather the issue is and his investment in Whitewater, a claim Whitewater is not considered a subsidiary, that officials with this responsibility should Clinton had denied. related interest, or affiliate of Madison be confirmed for the job with that particular DOCUMENTATION Guaranty, such an extension of funds to a accountability. As you will recall it was a The 1983, Bill Clinton obtained a loan from presumably ‘‘unaffiliated’’ entity would be political appointee confirmed by the Senate Security Bank of Paragould, Arkansas for very unusual and suspect. that issued a cease and desist order for en- approximately $20,800 (loan #975–585, Bill It has been publicly reported, with respect gaging in conflicts of interest against the Clinton). The money from this loan was used to this loan repayment, that both White- son of a former President. to pay off the remaining balance of a loan at water and the Clintons took a tax deduction As you know, despite your strong letter to Madison Bank and Trust of Kingston, Arkan- related to interest paid on the same loan— the Chairman of the House Banking Commit- sas that was provided for the purpose of con- which the Clintons later recognized as im- tee recommending against extension, Con- structing a modular home on lot #13 at proper double deduction after an article ran gress last year extended the statute of limi- Whitewater Estates. The loan at Madison in the New York Times. What remains un- tations for civil lawsuits brought against Bank was provided in 1980 to Hillary Clinton clear is the largest question of whether the S&L wrongdoers. As you pointed out in your in the amount of $30,000. funds provided by Madison to reduce the most recent letter, this extension ‘‘has af- On November 8, 1985, James McDougal sent Clinton’s liability were proper or properly forded the RTC an opportunity to inves- a letter accompanied by a check to Charles reported as income for income tax purposes. tigate further any civil claims which may be Campbell, Vice President of Security Bank As you know, we have received broad hints asserted against individuals or entities asso- of Paragould, for $7,322.42. The letter from from within the RTC that the agency has ciated with Madison Guaranty for fraud, in- McDougal states that the check is principal had under review money transfers from tentional misconduct resulting in unjust en- and interest payment on ‘‘Note #957–585, Bill Madison to Whitewater. We will not know richment, or international misconduct re- Clinton.’’ [Note: It appears that the loan whether this type of activity was more per- sulting in substantial loss to the institu- number is a typographical error with the vasive and part of a larger pattern unless, tion.’’ Given, however, the impending run- superimposing of numbers 5 and 7 in the first and until, the agency provides us the docu- ning of the statute of limitations for certain three digits.] ments we have requested. If Madison pro- kinds of actions, time is clearly of the es- The check McDougal enclosed with his let- vided any direct or indirect assistance to sence for the RTC to make judgments about ter to Mr. Campbell is a Whitewater Devel- Whitewater, presumably half the value of civil accountability in the failure of Madi- opment Corporation check dated November such would redound to the advantage of each son. 7, 1985. The loan number referenced on the Finally, I would like to reiterate my re- of the half owners. In any regard, the above memo portion of the check is ‘‘Note #95–585.’’ money transfer underscores that then Gov- quest, pursuant to Rules X and XI of the According to the check ledgers for the House Rules for all documents related to ernor Clinton had personal liabilities re- Whitewater Development Corporation duced by a payment from Madison. Such Madison Guaranty Savings and Loan, Little (WDC), the corporation’s checking account Rock, Arkansas. As you know, on December payment presumably carries ethical as well had the following balances: $189.50 on 10–10– as tax implications and is part and parcel of 9, 1993, I wrote the RTC requesting access to 85; and, $12.49 on 10–31–85. However, in order all documents related to Madison Guaranty the $47 to $60 million estimated taxpayer loss to cover the payment of $7,322.40 on the Clin- at Madison. and its subsidiaries. ton loan, a deposit is recorded on November Attachments. House and Committee Rules, House prac- 8, 1985 in the amount of $7,500.00. The deposit SEPTEMBER 30, 1983. tices, and judicial precedent support the is listed as coming from ‘‘Madison Market- Governor BILL CLINTON, proposition that the Ranking Minority Mem- ing.’’ Little Rock, AR. ber is the functional counterpart to the A 1986 Federal Home Loan Bank Board Chairman for Committee action. This being exam gives the impression that Madison DEAR GOVERNOR CLINTON: Enclosed is a the case, a request for documents made by Marketing was largely a sham corporation copy of our check #12677 in the amount of the Ranking Minority Member has parallel used to divert federally insured resources to $20,800.00 representing the proceeds of your standing with a request made by the Chair- insiders. The exam notes that ‘‘Until 1986, note. The original was mailed to: Madison man of the Committee. The Ranking Minor- Susan McDougal owned Madison Market- Bank & Trust, Kingston, Arkansas. ity Member clearly has a voice in the process ing.’’ The report also states the following: Sincerely, and is entitled to information that will en- ‘‘Madison Marketing is paid for doing all CHARLES D. CAMPBELL, able the Ranking Minority Member to carry the general advertising for Madison Guar- Vice President. out his constitutionally mandated oversight anty and most of the advertising for Madison responsibilities. Financial’s land development projects. All of JIM MCDOUGAL, Therefore, the courtesy of a definitive Madison Marketing’s business is derived Little Rock, AR, November 8, 1985. reply to this document request is requested from Madison Guaranty or its subsidiaries. Mr. CHARLES D. CAMPBELL, by 12 noon, Monday, February 7, 1994. On this Since 1983 these payments total $1,532,000. Vice President, Security Bank, matter, it is urged that you also consult ‘‘Given the evidence of Madison Market- Paragould, AR. with the Ethics Office as to the relevance of ing’s invoices, it is questionable how much of Re: Note #957–585, Bill Clinton. the previously discussed recusal issue. these advertising services are actually per- DEAR MR. CAMPBELL: Enclosed is a White Again, let me stress that to the degree a formed by the firm. The actual work * * * conflict situation may exist in this matter in Water Development Corporation check for appears to be performed by others. It would $7,322.42, representing principal payment of no way reflects on your personal integrity. It appear that Madison Guaranty could have an is simply an awkward circumstance in con- $5,000 and interest payment of $2,322.42, on employee perform similar work for much the above note. trast to a personal embarrassment. less money. Thank you for your attention to this mat- Sincerely, ‘‘Mr. Latham [an officer of Madison] stated ter. JAMES A. LEACH, that Madison Marketing made no payments Sincerely, Ranking Member. to any stockholders. This statement is false. JIM MCDOUGAL. Enclosure. As part of a test for such payments, the ex- MEMORANDUM aminers discovered two remittances from IN THE CIRCUIT COURT OF PULASKI COUNTY, To: Congressman Leach. Madison Marketing to Susan McDougal [a ARKANSAS, SECOND DIVISION From: Banking Minority Staff. large stockholder of Madison] which total MADISON GUARANTY SAVINGS AND Re: Madison Guaranty (‘‘Madison’’). $50,000. This was a test, and there may be ad- LOAN ASSOCIATION, a State Chartered In reviewing documents related to Madison ditional payments.’’ Savings and Loan; MADISON FINANCIAL in the possession of Minority Banking, we CONCLUSION CORPORATION, a Wholly Owned Subsidiary have come across material which may indi- Given the above circumstances, it would of Madison Guaranty Savings and Loan As- cate direct payment of a loan of Bill Clin- appear that federally insured deposits (i.e., sociation, Plaintiffs, versus ERNST & CO., ton’s by Madison through a subsidiary. funds from Madison Guaranty through Madi- an Arkansas Professional Association, and Since the Minority’s investigation is con- son Marketing), which, with the later failure its directors James Alford, Michael Robin- cerned with the possible misuse of federally of Madison became, in effect, taxpayer obli- son, Gary Grey, Gaines Morton, Tim Gibbon, insured funds to assist Whitewater and/or gations, were transferred for the direct per- Steve Humphries, Alan Duncan, Frank the former Governor, we thought we should sonal benefit of the former Governor. Butts, Marjorie Itskowitz, John Does A., B, share the following information with you. The above payment also raises the ques- C, D, Defendant. (No. 88–1193) SUMMARY tion of whether Whitewater was treated as Based on documentary evidence available an affiliate or related interest of Madison FIRST AMENDED COMPLAINT to the Minority, it appears that Madison Guaranty and therefore subject to conflict of COKES NOW, Plaintiffs, and for cause of Marketing served, in at least one instance, interest statutes. From a legal perspective, action states as follows:

391 T30.7 JOURNAL OF THE MARCH 24

I above prohibition, and referred to Part 505 of tified of this fact by the examiners. Also, PARTIES the General Regulations of the Federal Home Madison Real estate is not registered in 1. Plaintiff Madison Guaranty Savings and Loan Bank Board. county records as a name being used by Directors, in keeping with their respon- Loan Association (hereinafter, Madison Madison Financial or anyone else. sibilities, should review this report thor- Since the beginning of 1983, after the Guaranty) is a state savings & loan associa- oughly. This report should not be considered McDougals and Henley acquired Madison tion duly chartered under the laws of the an audit report. Guaranty, substantial commissions were State of Arkansas. Plaintiff Madison Finan- paid through Madison Real Estate to Wil- cial Corporation (hereinafter, Madison Fi- Comments liam Henley ($427,683) and Susan McDougal nancial) is a state chartered corporation and Information concerning the Institution’s ($137,500). In Henley’s case, a substantial por- wholly owned subsidiary of Madison Guar- policies, practices and condition, considered tion of these funds were advances against anty. to be of supervisory interest or concern, is commissions to be earned on future land 2. Defendant Frost & Company is a profes- shown below. sales. Other McDougal-Henley Group mem- sional association or partnership of public A. Objectionable Conflicts of Interest bers, who received substantial commissions, accountants with its principal place of busi- Conflicts of interest involving James are Pat Harris ($242,289) and James Henley ness in Little Rock, Arkansas, comprised of McDougal, Susan McDougal, and William ($154,690), who is the brother of Susan the following individual partners who are set Henley have been detrimental to the safety McDougal and William Henley. These pay- forth as Defendants in paragraph 3. and soundness of the Institution. These indi- ments represent most of the commissions * * * * * viduals are in control of the Institution (Madison Guaranty) through their stock paid by Madison Financial to Madison Real 7. John Latham at all relevant times was ownership. James McDougal owns 63.5% of Estate, which significantly derives all of its the President and Chief Executive Officer of the outstanding Madison shares. His wife, business from Madison Financial Madison Guaranty and a member of its Many of the sales, which generated these Susan McDougal, owns 12.6%, and her broth- Board of Directors; and a member of the commissions, were to McDougal-Henley er, William Henley owns 8.5%. In addition to Board of Directors and the Secretary of Group members who are acting as straw buy- his ownership control, Mr. McDougal, as MFC. ers. Madison Guaranty essentially retained President of the Institution’s subsidiary 8. Susan McDougal was at all relevant the risks of ownership on these transactions (Madison Financial), has complete control of times wife of James B. McDougal, member of because it fully financed these sales includ- the land development projects discussed in the Board of Directors of Madison Guaranty, ing the cash sales commissions. Thus, Madi- comment B. President of Madison Real Estate, a division son Guaranty’s position deteriorated because This control enabled Mr. McDougal to of MFC, and President of Madison Market- it retained the same ownership risks as be- structure the development and financing of ing, a service provider to Madison Guaranty fore, but paid cash fees to these individuals. the projects so that substantial cash pay- and MFC. In addition, fees paid through Madison Real ments could be diverted to himself, Susan 9. Madison Real Estate was a real estate Estate were used as down payments in some McDougal, William Henley and others. These brokerage operation owned and operated by of the straw land purchases in an apparent payments have directly benefited these indi- Madison Financial with its principal broker attempt to disguise 100% funding of the pur- viduals, but Madison Guaranty has received Susan McDougal. chase by Madison Guaranty and its subsidi- little or nothing in return. Though they have 10. Madison Marketing was an advertising aries. been structured to avoid specific Insurance agency through which Madison Financial Messrs. McDougal and Latham cited an Regulations, these payments are contrary to and Madison Guaranty purchased all of its April 24, 1985 letter from a Federal Home the general policy of the FHLBB concerning advertising for itself and KFC’s real estate Loan Bank of Dallas Supervisory Agent as conflicts of interest as stated in Insurance developments. permission to pay real estate sales commis- 11. Jim, David and Bill Kenley (‘‘Kenley Regulation 571.7 and FHLBB Memorandum sions to Madison Real Estate. However, this Brothers’’) were real estate agents and/or de- R–19a. letter in part, asks that the Board of Direc- Many of these payments have been fun- velopers for Madison Real Estate, who sold tors review Insurance Regulation 571.7 which neled through business entities which are property and received substantial commis- is cited above in this comment. owned or controlled by the McDougals, em- sions and/or development fees from Madison 2. Madison Marketing. ployees, relatives of employees, or close Financial. Madison Marketing is paid for doing all the 12. Frost & Company purported to serve as friends of the McDouglas and Henley. In the general advertising for Madison Guaranty independent auditor of Madison Guaranty report, reference will be made to these indi- and most of the advertising for Madison Fi- and its consolidated subsidiary Madison Fi- viduals as the McDougal-Henley Group. nancial’s land development projects. All of nancial for the years 1984 and 1985. Though the activities of these business enti- Madison Marketing’s business is derived 13. James D. Alford at all relevant times ties may be appropriate for a savings and from Madison Guaranty or its subsidiaries. was the audit and accounting partner of loan institution to perform, the advantages Since 1983 these payments total $1,532,000. Frost & Company in charge of the Madison associated with these activities accrue to the Until February 1986, Susan McDougal owned Guaranty audit. McDougals and Henley, rather than Madison Madison Marketing. During a portion of this 14. Federal Home Loan Bank Board Guaranty. As such, these arrangements are time, it was a corporation which was incor- (‘‘FHLBB’’) is the primary federal regulator contrary to the FHLBB’s policy concerning porated by Lisa Aunspaugh, reportedly a of Madison Guaranty. FHLBB has oversight appropriations of corporate opportunity as close friend of Susan McDougal. of the Federal Home Loan Bank of Dallas explained by Insurance Regulation 571.9. Mr. Latham stated that after February which has direct supervisory responsibility Mr. McDougal stated that there were no 1986, Madison Marketing became an entity for Madison Guaranty. violations of the conflict of interest regula- ‘‘d/b/a (doing business as)’’ for Madison Fi- tions. nancial and ceased to be a corporation. How- * * * * * There are several of these business enti- ever, it is not registered as a ‘‘d/b/a’’ in the FEDERAL HOME LOAN BANK BOARD OFFICE OF ties, none of which are disclosed on the Ex- County records. Also, its checking account EXAMINATIONS AND SUPERVISION amination Management Questionnaire. The has never been recorded on the books of Name and Address of Institution Madison investigation of these businesses remains in- Madison Financial. Guaranty Savings and Loan Association, 1501 complete. For example, the amount of Madi- Given the evidence of Madison Marketing’s Main Street, Little Rock, Arkansas 72203. son Guaranty loan proceeds going to many of invoices, it is questionable how much of District Number 9, Docket Number 7601. the entities is unknown. Formal investiga- these advertising services are actually per- Examination as of March 4, 1986. tive powers have been granted; in this case, formed by the firm. The actual work of ad- Service Corporations and Other Affiliates under Section 407(m)(2) of the National Hous- vertising, such as the design and production Examined: Madison Financial Corporation. ing Act. Current findings, with respect to of commercials and providing air time or three of the more important business enti- newspaper space, appears to be performed by REPORT OF EXAMINATION ties, are discussed below. others. Madison Marketing apparently just Prohibition of disclosure or release 1. Madison Real Estate pays the bills of other providers and adds a This document is the property of the Fed- Madison Financial pays commissions to 15% fee of its own. Examiners estimated this eral Home Loan Bank Board and is furnished Madison Real Estate for selling land from fee to be approximately $200,000 since 1983. It to the Institution for its confidential use. Madison Financial’s developments. These would appear that Madison Guaranty could Under no circumstances shall the Institu- commissions in turn are distributed to the have an employee perform similar work for tion, or any of its directors, officers, or em- sales personnel. Mr. Latham stated that much less money. ployees, disclose or make this document or Madison Real Estate was ‘‘a division’’ of Mr. Latham stated that Madison Market- any portion of it public in any manner. Madison Financial. Mr. McDougal stated ing made no payments to any stockholders. If a subpoena or other legal process is re- that Madison Real Estate was essentially This statement is false. As a part of a test ceived calling for production of this docu- formed in order to use Susan McDougal’s for such payments, the examiners discovered ment, the District Director—Examinations real estate sales license which, in turn, was two remittances from Madison Marketing to should be notified immediately. The attor- being used by Madison Financial to market Susan McDougal which total $50,000. This ney at whose instance the process was the projects. But Madison Real Estate’s was a text, and there may be additional pay- issued, and, if necessary, the court which checking account was not on Madison Finan- ments. issued the process, should be advised of the cial’s books until after management was no- 3. Designer’s Construction

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Designer’s Construction performs con- of encouraging or supporting homosexual as Boehner Hastert Poshard struction work on some of the land develop- a positive lifestyle alternative. Bonilla Hayes Pryce (OH) ment projects and on some of the property Brewster Hefley Quillen ‘‘(b) DEFINITION.—A program or activity, Browder Herger Quinn securing Madison Guaranty loans. In 1985 for purposes of this section, includes the dis- Bunning Hoekstra Rahall and to date in 1986, $247,000 was paid for work tribution of instructional materials, instruc- Burton Holden Ramstad performed for Madison Guaranty and its sub- tion, counseling, or other services on school Buyer Hunter Ravenel sidiaries. The amount of loan proceeds paid grounds, or referral of a pupil to an organiza- Callahan Hutchinson Regula to Designer’s Construction on work for third tion that affirms a homosexual lifestyle. Calvert Hutto Ridge party borrowers is unknown. Camp Hyde Roberts It was decided in the Yeas ...... 224 Canady Inglis Rogers affirmative ...... Nays ...... 194 T30.8 AMERICA’S SCHOOLS Castle Inhofe Ros-Lehtinen Chapman Istook Roth The SPEAKER pro tempore, Mr. T30.10 [Roll No. 91]! Clement Johnson, Sam Roukema LEWIS of Georgia, pursuant to House Clinger Kasich Rowland AYES—224 Coble Kim Royce Resolution 366 and rule XXIII, declared Abercrombie Hamilton Neal (MA) Collins (GA) King Sangmeister the House resolved into the Committee Ackerman Harman Neal (NC) Combest Kingston Santorum of the Whole House on the state of the Andrews (ME) Hastings Oberstar Cooper Klink Sarpalius Bacchus (FL) Hefner Obey Costello Knollenberg Saxton Union for the further consideration of Cox LaFalce Schaefer the bill (H.R. 6) to extend for six years Barca Hilliard Olver Barcia Hinchey Orton Cramer Lancaster Schiff the authorizations of appropriations Barrett (WI) Hoagland Owens Crane Laughlin Sensenbrenner for the programs under the Elementary Becerra Hobson Pallone Crapo Levy Shaw Cunningham Lewis (CA) Shuster and Secondary Education Act of 1965, Beilenson Hochbrueckner Pastor Bereuter Hoke Payne (NJ) Danner Lightfoot Sisisky and for certain other purposes. Bilbray Horn Pelosi Darden Linder Skeen The Acting Chairman, Mr. DARDEN, Bishop Houghton Penny Deal Lipinski Skelton assumed the Chair; and after some Blute Hoyer Peterson (FL) DeLay Livingston Smith (MI) Diaz-Balart Lloyd Smith (NJ) time spent therein, Boehlert Huffington Pomeroy Bonior Hughes Price (NC) Dickey Manzullo Smith (OR) Borski Inslee Rangel Doolittle McCollum Solomon T30.9 RECORDED VOTE Boucher Jacobs Reed Dornan McDade Spence A recorded vote by electronic device Brooks Jefferson Reynolds Dreier McHugh Spratt Brown (CA) Johnson (CT) Richardson Duncan McInnis Stearns was ordered in the Committee of the Brown (FL) Johnson (GA) Roemer Dunn McKeon Stenholm Whole on the following amendment Brown (OH) Johnson (SD) Rohrabacher Edwards (TX) McNulty Stump submitted by Mrs. UNSOELD to the Bryant Johnson, E. B. Romero-Barcelo Ehlers Meyers Sundquist Emerson Mica Talent amendment submitted by Mr. HAN- Byrne Johnston (PR) Cantwell Kanjorski Rose Everett Michel Tanner COCK: Carr Kaptur Rostenkowski Ewing Miller (FL) Tauzin Amendment submitted by Mrs. Clay Kennedy Roybal-Allard Fawell Molinari Taylor (MS) UNSOELD: Clayton Kennelly Rush Fields (TX) Montgomery Taylor (NC) Clyburn Kildee Sabo Fowler Moorhead Tejeda In subsection (a) of the first amendment Coleman Kleczka Sanders Franks (CT) Murphy Traficant made to page 762, after ‘‘agency’’ strike Collins (IL) Klein Sawyer Franks (NJ) Myers Upton ‘‘that received funds under this Act’’. Collins (MI) Klug Schenk Gekas Nussle Valentine After ‘‘shall’’ insert ‘‘use funds made avail- Condit Kolbe Schroeder Geren Ortiz Volkmer Gillmor Oxley Vucanovich able under this Act to’’. Conyers Kopetski Schumer Coppersmith Kreidler Scott Gingrich Packard Walker Add at the end of subsection (a) the follow- Goodlatte Parker Walsh ing: No local educational agency shall use Coyne Kyl Serrano de la Garza Lambert Sharp Goodling Paxon Whitten funds under this Act to distribute or to aid de Lugo (VI) Lantos Shays Gordon Payne (VA) Wilson in the distribution by any organization of DeFazio LaRocco Shepherd Goss Peterson (MN) Wolf obscene material to minors on school DeLauro Lazio Skaggs Grams Petri Young (AK) grounds. Dellums Leach Slattery Hall (OH) Pickett Young (FL) Hall (TX) Pombo Zeliff Add at the end of the first amendment Deutsch Lehman Slaughter Dicks Levin Smith (IA) Hancock Porter Zimmer made to page 762, after line 8, add the follow- Hansen Portman ing: Dingell Lewis (GA) Snowe Dixon Long Stark NOT VOTING—20 ‘‘(c) NO FEDERAL CONTROL OF CURRICU- Dooley Lowey Stokes LUM.—Nothing in this section shall be con- Durbin Machtley Strickland Andrews (NJ) Gallegly Norton (DC) strued— Edwards (CA) Maloney Studds Bentley Gallo Pickle ‘‘(1) to authorize an officer or employee of Engel Mann Stupak Berman Grandy Smith (TX) the Federal Government to mandate, direct, English Manton Swett Blackwell Greenwood Thomas (WY) or control a State, local educational agency, Eshoo Margolies- Swift Cardin Lewis (FL) Torricelli Derrick McMillan Weldon or schools’ instructional content, curricu- Evans Mezvinsky Synar Faleomavaega Markey Thomas (CA) Ford (TN) Natcher lum, and related activities; (AS) Martinez Thompson So the amendment to the amendment ‘‘(2) to limit the application of the General Farr Matsui Thornton Education Provisions Act; Fazio Mazzoli Thurman was agreed to. ‘‘(3) to require the distribution of scientif- Fields (LA) McCandless Torkildsen ically or medically false or inaccurate mate- Filner McCloskey Torres T30.11 RECORDED VOTE rials or to prohibit the distribution of sci- Fingerhut McCrery Towns A recorded vote by electronic device entifically or medically true or accurate ma- Fish McCurdy Tucker Flake McDermott Underwood (GU) was ordered in the Committee of the terials; Foglietta McHale Unsoeld ‘‘(4) to create any legally enforceable Whole on the foregoing amendment, as Ford (MI) McKinney Velazquez amended, submitted by Mr. HANCOCK. right. Frank (MA) Meehan Vento ‘‘(d) RULE OF CONSTRUCTION.—In carrying Frost Meek Visclosky It was decided in the Yeas ...... 301 out the provisions of this section, the Sec- Furse Menendez Washington affirmative ...... Nays ...... 120 retary shall not— Gejdenson Mfume Waters ‘‘(1) review any curricula or instructional Gephardt Miller (CA) Watt T30.12 [Roll No. 92]! materials; Gibbons Mineta Waxman Gilchrest Minge Wheat AYES—301 ‘‘(2) promulgate regulations; or Gilman Mink Williams Abercrombie Barlow Borski ‘‘(3) take any administrative or legal ac- Glickman Moakley Wise Ackerman Barrett (NE) Boucher tion against a State or local educational Gonzalez Mollohan Woolsey Allard Bartlett Brewster agency or school. Green Moran Wyden Andrews (NJ) Barton Brooks Gunderson Morella Wynn Andrews (TX) Bateman Browder Amendment submitted by Mr. HAN- Gutierrez Murtha Yates Applegate Bentley Brown (CA) COCK: Hamburg Nadler Archer Bevill Brown (FL) Page 762, after line 8, insert the following: Armey Bilbray Brown (OH) NOES—194 Bachus (AL) Bilirakis Bryant SEC. 9506. PROHIBITION AGAINST FUNDS FOR Baesler Bishop Burton HOMOSEXUAL SUPPORT. Allard Baesler Bartlett Andrews (TX) Baker (CA) Barton Baker (CA) Bliley Buyer ‘‘(A) PROHIBITION.—No local educational Applegate Baker (LA) Bateman Baker (LA) Blute Byrne agency that receives funds under this Act Archer Ballenger Bevill Ballenger Boehlert Callahan shall implement or carry out a program or Armey Barlow Bilirakis Barca Boehner Calvert activity that has either the purpose or effect Bachus (AL) Barrett (NE) Bliley Barcia Bonilla Camp

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