ON THE ROAD TO SCANDAL

By JAMES B. STEWART

IN JULY 1993, DEPUTY WHITE HOUSE counsel Vincent Foster wrote an anguished lament: "I was not meant for the job or the spotlight of public life in Washington. Here ruining people is considered sport." Nine days later, Foster was dead. Shock at the apparent suicide of one of President Clinton's top aides turned to mystery, then suspicion, as the White House became entangled in an ever widening net of questions. Among the confidential matters Foster was working on when he died was the Clintons' investment in Whitewater, an Arkansas land development launched in 1978 with the Clintons' partners, Jim and Susan McDougal.

Conspiracy theories circulated almost immediately, alleging that Foster was murdered because he knew too much. And the Whitewater affair, a minor footnote to the 1992 presidential campaign, was suddenly resurrected in the national media. To a degree that seemed to leave them stunned and at times depressed, the President and First Lady have been buffeted by allegations of scandal, conspiracy and cover-up.

Whitewater now seems destined to dog the Clintons throughout this election year. In Little Rock last week, Jim and Susan McDougal, along with Arkansas Governor Jim Guy Tucker, began to stand trial on felony charges brought by independent counsel Kenneth Starr; they are accused of fraud, conspiracy and making or causing to be made false statements to a financial institution. When Hillary Clinton testified before a grand jury last January, she made history: never before had a First Lady been summoned to do that. A memo that had been subpoenaed two years ago by independent counsel Robert Fiske was discovered in the files of a White House aide suggesting that contrary to her lawyers' statements, it was the First Lady who had ordered the firing of White House travel-office employees. Subpoenaed billing records from the Rose Law Firm, long described as missing, were suddenly found in the family quarters of the White House. They revealed that the First Lady was far more involved in work for a failed Arkansas savings and loan than she had admitted.

The Senate committee investigating Whitewater has suspended hearings while Democrats and Republicans bicker over funding, but the testimony by witnesses has already led South Carolina Republican Lauch Faircloth to label the First Lady a liar. Not all the news is bad for the Clintons: two weeks ago, the Federal Deposit Insurance Corp. (which took over for the now defunct Resolution Trust Corp.) concluded that neither Hillary Clinton nor the Rose Law Firm should be sued for any losses incurred by the failed S&L Madison Guaranty.

Blood Sport is as much about how political combat is waged in America today as it is about the Clintons and their misjudgments. The main excerpt, which is from Part 1 of the book, "The Road to Scandal," traces the deal that spawned the Clintons' current problems. The excerpt about Vincent Foster is from Part 2, "A Death in the White House." The third part of the book, "Shrouding the Truth," concentrates on subsequent events inside the White House, especially how the Clintons handled--and mishandled--mounting revelations about their lives in Arkansas.

Much of what follows is being told for the first time: how the Clintons got into the investment, how the McDougals tried--and failed--to get them out of it, how Hillary all but single-handedly managed the investment after 1986, how she dealt with the banks that lent them money, including negotiating a loan renewal with a bank whose parent company was trying to get her husband to sign legislation it wanted. Much of what appears here will seem at odds with statements made by the President and First Lady, some of them under oath. At various times, they or their spokespeople have alleged that the Clintons had virtually nothing to do with Whitewater and were simply "passive" investors; that the McDougals didn't really absorb significantly more losses than the Clintons; that Hillary wasn't responsible for Madison Guaranty's becoming a client of the Rose firm; that she wasn't familiar with a real estate development called Castle Grande and didn't work on it.

Many of the events described in this excerpt are being investigated by independent counsel Starr. The bankers in Flippin, Arkansas, involved in the Whitewater loan, for example, have testified before the grand jury and have been instructed by Starr's staff not to speak about what they know. The Clintons' and McDougals' activities in Whitewater, involving federally regulated banks, savings and loans, federal taxes, favors bestowed and accepted, are areas covered by a network of criminal and civil laws. Under federal law Title 18, section 1344, for example, it may be a crime to submit a false financial-disclosure statement. Perjury and obstruction of justice are also crimes under investigation. Factual issues of knowledge and intent loom large in whether any laws were broken. Ultimately a grand jury and the independent counsel will consider that issue and decide whether any further charges should be filed, against either the President or First Lady, or others.

As the legal process unfolds, the question of whether specific laws were broken should not obscure the broader issues that make Whitewater an important story. How Bill and Hillary Clinton handled what was their single largest investment says much about their character and their integrity. It shows how they reacted to power, both in their quest for it and in their wielding of it. It shows their willingness to hold themselves to the same standards everyone else must--whether in meeting a bank's conditions for a loan, taking responsibility for their savings, investments and taxes, or cooperating with federal investigators. Perhaps most important, it shows whether they have spoken the truth on subjects of legitimate concern to the American public.

It now seems ironic that it was the Clintons themselves who set this book in motion. On March 25, 1994, Susan Thomases, the Manhattan lawyer who is a close friend and adviser to the Clintons, came to my office about a matter she had said she couldn't discuss over the phone. After some pleasantries, Thomases described a White House besieged by allegations ranging from the murder of Vincent Foster to irregularities in Whitewater to obstruction of justice. The President and First Lady had concluded that the best way to clear their names was to open themselves to a reputable journalist. Thomases never said explicitly that I was being considered for this project, but when I asked if this were the case, she seemed delighted that I might consider undertaking it.

On April 13 I met with the First Lady in the White House. There were a few flashes of anger as she described her and her husband's treatment by the media. She seemed especially upset by coverage of Paula Jones' sexual-harassment suit, mentioning that people had no idea how painful it was for her to endure public reports of her husband's alleged infidelity. She railed against the tactics of the right-wing media and think tanks, wondering how they were being financed. A recurring theme was that she couldn't understand why reporters would publish allegations by people of questionable integrity in the face of denials by her and her husband.

The First Lady freely conceded that mistakes had been made and that she, in particular, had put too much emphasis on privacy, leading to perceptions that the White House had something to hide. This was not true, she insisted.

The conversation lasted about an hour and a half. In the ensuing weeks I had extensive discussions with the First Lady's chief of staff, Maggie Williams, and met her press secretary, Lisa Caputo, and White House adviser George Stephanopoulos. By late June, having received no definitive answer from the White House, I broached the possibility that I didn't feel comfortable with the notion that I needed the Clintons' permission to undertake this work, and might well begin it on my own. As I had told Mrs. Clinton, I was drawn to the story as much for what it would say about our culture, values and political processes as for what it would reveal about the President and his wife.

Maggie Williams called me on July 6. She said the First Lady had concluded that she would cooperate with me, as would people in her entourage and people she was in a position to influence. She could not speak for the President, but she said she thought he would cooperate once the project was under way. With that, I began work on Blood Sport.

As time passed and vague promises of meetings never led to anything, I realized that the Clintons were most likely not going to cooperate. Soon I was relegated to dealing with the Clintons' lawyer, David Kendall, and the White House spokesman for Whitewater, Mark Fabiani. I don't know why the Clintons did not cooperate with me. During much of the time I was working on this book, Whitewater had receded from public controversy, and perhaps the Clintons felt no urgent need for candor. By the time Whitewater erupted into the headlines again in January with the discovery of memos and billing records in the White House, it was too late. Whatever their reasons, in the final analysis the Clintons themselves proved no different from their recent predecessors in the White House, deeply enmeshed in a Washington culture so accustomed to partisan distortion and "spin" that truth is the most frightening prospect of all.

Stewart, a Pulitizer-prizewinning journalist, has written three books, including the best seller Den of Thieves.