Complex story behind Hubbell plea

MARY HARGROVE
ARKANSAS DEMOCRAT-GAZETTE

The plea agreement forged between Webb Hubbell and independent counsel Kenneth Starr seemed simple.
Hubbell admitted Wednesday that he had concealed information from federal regulators about the Rose Law Firm's work with Madison Guaranty Savings and Loan Association in 1985-86.
The underlying story, however, involved several complex issues including what the government has termed "sham land transactions" and "conflicts of interest" involving Hubbell, his father-in-law, first lady Hillary Rodham Clinton and a failed subdivision called Castle Grande.
The tale began in October 1985 when Madison Financial Corp. paid $1.75 million to buy 1,100 acres in southern Pulaski County from the Industrial Development Co.
Madison Financial was a subsidiary of Madison Guaranty, both owned by James McDougal. He named the land Castle Grande and made plans to develop the area, which would include a mobile home park.
The savings and loan had previously been warned by regulators that it was top-heavy in real estate holdings and those investments threatened the solvency of the lending institution. McDougal knew he could not keep the new debt on the books. Knowing regulators would return soon for a follow-up exam, he came up with a plan.
Seth Ward, Hubbell's father-in-law, agreed to purchase the Castle Grande property north of 145th Street, and a sewer and water system for $1.15 million from Madison Financial.
The deal would be financed by Madison Guaranty with a nonrecourse note. That meant that if the payments were not made, the land reverted to Madison Guaranty. Ward would not be liable for any losses.
Ward also was not required to make any payments. In fact, as parcels from Ward's land were sold, the loan money was used to reduce his $1.15 million debt and Ward was to be paid a 10 percent commission, even though he did not sell the land himself.
Portions of the legal work involved in this deal were handled by Hubbell and Hillary Clinton, both of the Rose Law Firm. According to the indictment:
"From August 1985 to December 1986, defendant Webster L. Hubbell and other Rose attorneys, performed legal work for, provided legal advice to, and represented Seth Ward, Madison Guaranty, and Madison Financial in a series of real estate and financial transactions ..." related to Castle Grande.
Federal examiners arrived in February 1986 and uncovered millions of dollars in questionable loans. They began closely monitoring Madison Guaranty. In July 1986 McDougal was barred from the savings and loan. In 1988, Madison Guaranty sued its accounting firm, Frost & Company and several individuals for $10 million alleging accounting malpractice in connection with Frost's audits.
The suit contended that the accountants were "negligent and/or reckless" in their review of Madison's financial statements for 1984 and 1985.
On Feb. 28, 1989, Madison Guaranty was closed by federal regulators. The receivership was handled by the Resolution Trust Corp. (RTC) and later taken over by the Federal Deposit Insurance Corporation (FDIC).
In March 1989, the FDIC retained Hubbell and the Rose Law Firm to handle the malpractice civil lawsuit on behalf of Madison Guaranty.
According to the Starr indictment, "Seth Ward's Madison Guaranty loans were at issue as potential damages in the Frost case.
"It was a part of the scheme that Hubbell concealed from the FDIC and the RTC the fact that Hubbell and Rose had actual and potential conflicts of interest with the FDIC and the RTC in regard to the Frost case."
The Rose firm submitted Frost's audits of Madison Guaranty to the Arkansas Securities Department in 1985. Madison was seeking state regulatory approval for a plan to raise new capital.
Years later, while representing the FDIC, the Rose lawyers blamed the same Frost audits for causing millions of dollars in losses to Madison Guaranty. Hubbell was the lead attorney on the Frost lawsuit.
Hubbell did not tell regulators about work he and the Rose firm performed for Ward and his companies from 1975 through 1993, the indictment stated.
Conflict of interest rules generally bar lawyers from representing the government in savings and loan cases if they have previously done significant work for that same savings and loan.
Although 15 counts stemmed from those transactions, Hubbell pled guilty to only one of them Wednesday.
Hubbell admitted that he "concealed by scheme, material facts about the true nature of his, the Rose Law Firm's and Hillary Rodham Clinton's relationship with Seth Ward, Madison Guaranty Savings & Loan, Madison Financial Corp. and the Castle Grande transaction."
Under a plea agreement, he received a term of one year probation.

This article was published on Thursday, July 1, 1999

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