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. Last Updated: 07/27/2016

Whitewater Prosecutors Open Trial

LITTLE ROCK, Arkansas -- Independent counsel Kenneth Starr's prosecutors opened their fraud and conspiracy case against three Whitewater defendants saying they will present evidence that President Bill Clinton during the mid-1980s helped obtain a fraudulent government-backed loan for his partner in the Whitewater land venture.

But defense lawyers argued that Starr's office is using their clients -- Governor Jim Guy Tucker, James McDougal and his former wife Susan McDougal -- to embarrass the president, who could be a key witness in the long-awaited trial that may last two months or more. The case is Starr's first major prosecution in the Whitewater probe and could be an important credibility test for Clinton's chief accuser -- the former municipal judge who has said he was pressured by Clinton to make a fraudulent loan to Susan McDougal.

"Folks, this is a prosecution machine on a mission. Why is this prosecution so important? Because Bill Clinton is the sitting president of the United States,'' said Sam Heuer, the lawyer for James McDougal, Clinton's partner in the Whitewater real estate venture.

Prosecutor Ray Jahn told the jury that Tucker and the McDougals siphoned $3 million out of McDougal's now-defunct savings and loan, Madison Guaranty, and a government-backed loan company with the idea that "the money was going to be snuck back in'' when they made a bundle on a real estate venture south of Little Rock known as Castle Grande.

"This was nearly the perfect crime,'' even after Castle Grande and Madison went bust in the late 1980s, Jahn said. Most of the loan money was never repaid, he said, but the defendants' actions were not discovered until after the 1993 indictment of lending company owner and former judge David Hale.

Hale, who has pleaded guilty to defrauding the federal Small Business Administration, will be called to testify about his allegations that Clinton and others pressured him in early 1986 to make the $300,000 loan to a shell company owned by Susan McDougal. Jahn said the prosecution will show that money went to the McDougals' personal use and to pay off other loans.

The president, who has been subpoenaed to testify by the McDougals, is in the awkward position of being forced to defend a one-time friend who has become an embarrassing nemesis. McDougal is the source, quite literally, of the Whitewater story that has dogged Clinton since the 1992 presidential campaign.

The three defendants also are charged with looting Hale's company, Capital Management Services Inc., which received federal funds to provide business help to women and minorities.

In court papers made available Monday, Starr asked that the judge preside over Clinton's testimony in person or by satellite hookup and that Clinton testify from a federal courtroom.