Madison Guaranty

A SAVINGS AND LOAN bank, Madison Guaranty was part of President Bill Clinton's Whitewater scandal. In June 1978, Clinton and his wife Hillary joined their longtime friends, Jim and Susan McDougal, in the purchase of 230 acres near Flippin along north Arkansas' White River. Their Whitewater Development Corporation was formed to build and sell homes on lots on this land. The couples borrowed about $200,000 of the money to purchase the land from Citizens' Bank; the $10,000 down payment was borrowed from another bank but the investors did not inform Citizens. The Clintons were equal partners in the endeavor even though they did not invest as much as the McDougals.

In January 1982, Jim McDougal, who had been Arkansas Attorney General Bill Clinton's economic aide from 1978 to 1980, bought the Woodruff Savings and Loan in Augusta, Arkansas. He changed the named to Madison Guaranty and moved it to Little Rock. In the mid-1980s, the bank was making unwise loans, and in 1984, the Federal Home Loan Bank Board issued a “highly critical exam of Madison Guaranty,” The Public Broadcasting System reported.

Madison entered into a supervisory agreement to correct its lending errors. The same year the McDougals borrowed $100,000 from the Madison Guaranty savings and loan (S&L) in order to pay down the Whitewater mortgage.

In April 1985, Jim McDougal held a fundraiser for Clinton, now governor after his tenure as attorney general) at the Madison Guaranty offices. An estimated $35,000 was raised, but later there were questions whether some of the funds were provided by depositors, or were given by the bank in the names of depositors without their knowledge.

McDougal and his friend Seth Ward (who was also a Madison Guaranty subsidy executive and father-in-law of Hillary Clinton's law partner Webb Hubbell) purchased the 1,050-acre Castle Grande property for $1.75 million in October 1985. Madison Financial, Madison Guaranty's real estate subsidy, provided $600,000, its legal limit, and Ward borrowed $1.15 million for his share from Madison Guaranty in a non-recourse loan.

By the end of 1985, Madison was in trouble. Attorney Hillary Clinton represented the S&L bank and helped persuade state officials to let Madison raise funds by selling preferred stock. This unusual course was approved by Beverly Bassett, Arkansas commissioner of securities and a Clinton appointee, but was never carried out.

In February 1986, developer Dean Paul borrowed $825,000 from Madison Guaranty to buy three properties from lender David Hale, whom [Page 506]Clinton had appointed municipal judge. Hale loaned $150,000 to Jim Guy Tucker (later governor of Arkansas) and R.D. Randolph, who borrowed another $1.05 million from Madison Guaranty. Senator William Fulbright borrowed $700,000 from the S&L, then with Tucker and Randolph bought the majority of the Castle Grande property. Hale's company also loaned $300,000 to Susan McDougal's Master Marketing company; Hale said he was pressured by the governor and McDougal into approving the loan.

Jim and Susan McDougal were forced to resign from Madison Guaranty in July 1986 by the Federal Home Loan Bank Board. In 1989, Madison was taken over by the Resolution Trust Corp. (RTC), the federal agency managing the savings and loan crisis. Jim McDougal was indicted on bank fraud charges in late 1989 but acquitted by jury in 1990. The McDougals separated. Susan McDougal moved to California where she was later convicted of embezzlement. Hale was indicted on charges of defrauding the federal government with his Small Business Administration-backed loans in 1993. The S&L failure cost American taxpayers more than $60 million.

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