The Whitewater Scandal: What You Should Know

The Whitewater scandal was a real estate controversy that came to public attention in the 1990s. It involved former President Bill Clinton and his wife Hillary along with their associates. Whitewater was a land development venture that turned into a failed investment.

After a series of lengthy investigations into the matter—famously led by Independent Counsel Kenneth Starr—the Clintons were never formally charged with a crime, although several of their Whitewater associates fared quite differently.

Whitewater Development Corporation

When Bill Clinton was elected as governor of Arkansas in 1978, he and Hillary (who was an associate at a law firm) began looking for ways to boost their income. James McDougal approached the Clintons to join the venture with him and his wife, Susan, and they agreed. The Clintons were already acquainted with the McDougals, Bill having met James as an intern at the office of Senator J. William Fulbright. Both couples agreed to purchase 230 acres of land in the Ozark Mountains of Arkansas that would become the Whitewater Development Corporation.

Under the deal, they would create individual lots to sell as vacation homes, attracting people who were interested in fishing and other outdoor activities. But there were several problems that devastated their plans. The land wasn't very accessible and there was a lasting impact from flooding in the area.

There were also the pressures of the economic cycle with interest rates on the rise. This meant potential investors and those interested in a second home could no longer afford to purchase a property. The real estate venture eventually failed, costing the Clintons a reported $46,000 in losses. Bill Clinton was elected governor a short time later in 1978. James McDougal subsequently entered the banking industry in 1980, forming Madison Guaranty Savings and Loan two years later. 

But it wasn't actually the investment venture between the Clintons and the McDougals that caused the controversy. In fact, it was a series of events that happened later that triggered the investigation.

The Whitewater Investigation

In 1986, federal regulators investigated another real estate investment. This was a construction project called Castle Grande, which was backed by James McDougal. The investigation led to McDougal's resignation from Madison Guaranty and the eventual collapse of the bank. Its failure cost the government $73 million as it was insured by the Federal Deposit Insurance Corporation (FDIC).

Questions surrounding the Clintons' involvement in the Whitewater deal grew during President Clinton's first term in office, and an investigation into the legality of the Whitewater transactions was launched.

Allegations surfaced during the investigation, which was led by special prosecutor Robert B. Fiske, that Clinton pressured David Hale (former president of a small business investment firm) into making a loan for the Whitewater deal. Other allegations came out, implying Clinton's gubernatorial campaign debts were paid off by Madison through McDougal. Fiske issued a grand jury subpoena to President Clinton and his wife for documents related to Madison Guaranty. The Clintons initially reported the records as missing. The documents were eventually found and cleared the Clintons of any wrongdoing.

The investigation continued, however, with Kenneth Starr at the helm and businessman David Hale as the star witness. Starr alleged that Bill Clinton, during his term as governor of Arkansas, pressured Hale to make an illegal $300,000 federally-backed loan to Susan McDougal. The allegation lost much of its credibility after Hale was convicted of numerous felonies.

Outcome

All three inquiries into the Whitewater land deal yielded insufficient evidence to charge the Clintons with criminal conduct. However, several of their associates were convicted as a result of the investigations including James McDougal, who was convicted of fraud and conspiracy charges in 1997 relating to loans made with Madison.

The Starr investigation went beyond the Whitewater scandal to include several other controversies involving the Clintons, as well as the Lewinsky sex scandal, which led to his impeachment and charges of perjury and obstruction of justice following the 1996 presidential election. Clinton was later acquitted by the Senate of both charges.