Big Times In Little Rock

THE WILD SIDE OF THE '80s reached its zenith in different ways, and at different times, across America. In Arkansas, the place was Little Rock and the year was 1985. It was Bill and Hillary Clinton's town--and the scene of events at the heart of what has come to be known as Whitewater. A new-money crowd, flush with profits from municipal-bond sales and small-town banking empires, was blackballed by the staid Little Rock Club, but they gathered for champagne dinners at Jacques and Suzanne's, their own French restaurant on the top floor of a downtown bank building. Meanwhile, the workaday bond salesmen who manned the boilerroom phone banks--the infamous "bond daddies"--whiled away their spare time at a fern bar called Busters, where they paid with $100 bills. One waiter was so impressed that he asked for work and was making "cold calls" the next day.

In 1985 the Whitewater characters had the run of the city. James McDougal, the S&L cowboy and the Clintons' business partner, was luring the establishment into a Gatsbyesque deal: condo lots on Campohello Island, Franklin Roosevelt's retreat off the Canadian coast. McDougal's wife, Susan, wore skintight pants and rode a white horse in a TV ad for a McDougal-owned housing development. The McDougals drove a Bentley. Dan Lasater, king of the bond daddies (page 27), had a Rolls. He built two wings onto his palatial home on Little Rock's fanciest street and threw parties in his apartment at the Quapaw Tower, where the women were abundant, the cocaine was plentiful and the governor's brother, Roger Clinton, was often around.

The Clintons were close to them all in 1985--and that proximity is behind some of the Whitewater questions now to be examined by a Justice Department special counsel. But the Clintons may be in trouble for nothing more--or less--than embracing the Little Rock that surrounded them that year. In fact, they worked for years to control the clubby world they found.

As scandal junkies know, the Clintons had been partners with McDougal since 1978 in the Whitewater Development Corp. He was a key backer of Clinton campaigns, and in 1985 held a fund-raiser, an event investigators now are examining to see if money was illegally funneled from Madison S&L, owned by McDougal. That year, Hillary, a partner at the prestigious Rose Law firm, represented McDougal's bank before state regulators--another transaction now under investigation.

Little Rock was susceptible to the seamy side of the decade. it is the capital of a poor state, but with a large number of wealthy people. They all know each other, and most went to school together at the University of Arkansas. Many fortunes were built on politically influenced deals at the intersection of private markets and government: regulated utilities, municipal bonds, state banks. In Little Rock, as elsewhere, those businesses got out of hand. Out of the way, with a small population--and essentially controlled by one party, the Democrats, since the Civil War--Arkansas produced an elite that generally dealt only with itself and that viewed conflicts of interest as business as usual. It's a state in which the chairman of the Senate agriculture committee is on the payroll of the powerful Arkansas Poultry Federation, and nobody seems to mind.

Over the years the Clintons flourished in this environment: Bill as governor, Hillary as a leading corporate lawyer. In Arkansas, government is a crucial source of jobs: directly, on the state payroll, or in the form of state-backed investments in private projects. It is patronage that Clinton, in his 12 years as governor, expanded and consolidated. Along the way, he invented new ways for business to make money, and perhaps unavoidably for well-connected law firms--including Hillary's--to prosper.

The signature business of Little Rock, bond sales, was founded by the late Witt Stephens. He was a patron of the Clintons and most every other politician in Arkansas. The eldest son in a poor farm family, he sold Bibles and belt buckles as a boy. In 1933 he set out on the back roads carrying a leather satchel of nearly worthless Arkansas highway bonds. The paper. he told small-town bankers, would be valuable someday: Roosevelt would bring the country out of the Depression. Meanwhile, the face value of the bonds (10 times what Stephens was asking) would look like an impressive asset. He sold them all-and became the original Arkansas bond daddy.

Stephens, and his brother Jack, later moved from selling bonds to underwriting the issuance of new ones, first by local governments in Arkansas, then in other states. To win the underwriting contracts, the Stephenses needed political contacts, and they acquired them by funding campaigns. Moving into corporate underwriting, the Stephenses joined Wall Street by helping to take public Arkansas companies such as Wal-Mart, Tyson Foods and TCBYogurt. In 1985 the Stephenses acquired a major interest in what is now the state's largest bank, Worthen Bank & Trust.

SIXTY YEARS AFTER WITT STEPHENS hit the road, the company, still privately held, occupies a marble-clad, 25-story building in downtown Little Rock. The walls of the executive suites are paneled in Honduran mahogany and festooned with American art worth millions of dollars. The Stephens family has provided the Clintons with crucial help, both private and public. They became the Clintons' financial advisers and portfolio managers in 1976; a Stephens executive, William Smith, handled their account at the firm until 1984. During four of those Years, Clinton was governor, and the state awarded Stephens millions of dollars in bond-underwriting contracts. In 1990 the Stephens family gave financial assurances that helped Clinton secure a $50,000 bank loan in the last days of his closely contested gubernatorial campaign. And in March 1992, in the dicey days before the Super Tuesday primaries, Worthen Bank extended a $3.5 million line of credit to Clinton's campaign. The Federal Reserve is examining whether that act violated a federal law prohibiting securities firms from controlling bank operations.

The rise of the Stephenses meant new business for Little Rock's sleepy law firms. Foremost among them was Rose, where Hillary worked from 1976 through 1992, and where she did business deals and legal work that now put her at the center of the Whitewater probe. With her help, her three closest friends in the firm obtained key jobs in the administration: Webster Hubbell, now associate attorney general; William Kennedy III, who was a Rose managing partner and who is now associate White House counsel, and the late Vincent Foster, the former White House deputy counsel, whose suicide last July is also under investigation.

The Rose firm is the oldest pillar in the Little Rock establishment. Rose partners had their eyes on Bill before they'd heard of Hillary. Two senior partners, Gaston Williamson and William Nash, had been Rhodes scholars. They interviewed Bill in 1968 and gave him enthusiastic reviews that helped him win his own Rhodes. Six years later, when Clinton was teaching law at the University of Arkansas in Fayetteville. and mounting his first campaign--for the First District congressional seat--he was a guest at a Rose reception. Though be was only a 28-year-old novice, his campaign was almost as well funded as that of his veteran Republican opponent. The Little Rock crowd furnished its share.

When Clinton was elected attorney general in 1976, his wife joined Rose, the first woman ever hired. At the time, Rose was being transformed under the leadership of an aggressive new partner, Joseph Giroir. Once content to handle estates and the Stephens and Worthen money, Rose was aggressively pursuing the new deals of the go-go years: bank and S&L and bond business. Giroir was later forced out by the firm for using its connections and lawyers to enhance the banking business he was running on the side.

Hillary quickly became a key member of a team that was pursuing new public-private deals. She worked on bond issues and securities deals for Stephens. At one time or another she did legal work for most of the major corporations in the state, including Worthen, Arkla gas (run, from 1985 to 1992, by Thomas (Mack) McLarty now White House chief of staff) and Wal-Mart. She eventually served on the boards of two big Arkansas companies, Wal-Mart and TCBYogurt. One particularly loyal client was Don Tyson, the northern Arkansas chicken magnate whose multibillion-dollar company was a major employer--and major polluter--in the state. While Bill flew for free in Tyson's jets-explaining that he was saving taxpayers' money by not purchasing a state plane--Hillary flew commercial on Tyson business.

LIKE ANY GOOD LAW FIRM, ROSE WAS able to play both sides of a business phenomenon. When S&L and bank ,acquisitions were hot, the firm helped make them--and Hillary, who was made a partner in 1980, had her share of that work. Then, when Arkansas S&Ls started to fail, Rose developed a new specialty, representing the federal government in efforts to clean up the S&L mess. Foster was an expert in the cleanup, and Hillary, too, worked on several of those projects. At least some of the banks and S&Ls were state chartered, and thus regulated primarily by officials appointed by Governor Clinton. At one point, Rose was hired to sue the accounting firm that had given a rosy review of the balance sheet of McDougal's Madison Guaranty S&L. Foster, who solicited the business from Federal Deposit Insurance Corp., neglected to mention that another partner in the firm, Hillary, had been paid a $2,000-a-month retainer by the same S&L. Rose got the job, but settled the case for only one twentieth of what the FDIC thought it could win. The FDIC recently launched an investigation.

While Hillary was building her law practice, Bill was devising new investment Programs to boost the state's economy. They did much good for the state, but also provided him with a new source of patronage. In the cousinly world of Arkansas, where one good ole boy helps another, some of the money found its way into the friendliest of hands. One major development grant reportedly went to a warehouse owned by the father of one of Hillary's closest Rose partners, Kennedy. Another went to International Paper, which later sold a parcel of land--at what critics say was an unusually cheap price--to Whitewater Development.

Clinton's main vehicle for development--and patronage--were bond issues, first issued through the highway authority and then through a new entity called the Arkansas Development Finance Authority. ADFA bundled local bond issues to make them more attractive to buyers. Doing the complex legal work and sending them to market was a bonanza for law firms and underwriters--including Rose. Because of Jack Stephens's increasingly aggressive support for Republicans--and because he wanted to reward his new friends--Clinton made sure that none of the state-bond business went to Stephens Inc. when he reassumed the governorship in 1983. Most of the legal work was shared by Rose and Wright, Lindsey & Jennings, where Clinton worked when he lost the governorship.

Despite Clinton's public-investment efforts, most of the economic growth has occurred in the private sector in the northwest part of the state. Tyson, Wal-Mart and the J.B. Hunt trucking company (which ships for both) are rapidly expanding there and creating thousands of jobs. The old university town of Fayetteville--where almost all of the elite of the state attended either college or law school or both--has become a new business hub.

The new mecca is the Bud Walton Arena, a shiny new $32 million basketball palace devoted to the greater glory of the University of Arkansas Razorbacks. The fanciest skybox belongs to Don Tyson. Carved into the solid-mahogany walls are two chickens dribbling a basketball.

When the Clintons were on vacation in Arkansas last month, they hit Fayetteville in time for a Razorbacks game. The president worked the crowd, on the floor and in the skyboxes. The Clintons looked at ease, glad to be back home. But if Whitewater has shown anything so far, it's the danger inherent in all of this coziness. For years, it's now clear, the Clintons were too comfortable to consider how their behavior might look later in another, less intimate place--Washington, D.C.

Big Times In Little Rock | News