Michael Haddigan

In return for these favors, according to a previously confidential investigative report authored by Simpson, Hale received a kickback from the now defunct SCS each and every time the firm handled a hot check case for Hale’s court. The kickbacks were paid by SCS to a “judge’s retirement fund” whose sole beneficiary was Judge David Hale. Judge Hale did not wait until his retirement to take his benefits. SCS also regularly made other payments to a second, mysterious “rehabilitative program” fund, which Hale was also said to control, Simpson’s investigation determined

The kickbacks to Hale from SCS, as described in Simpson’s 1991 investigative report, are also detailed in the financial records of Hale’s court, which were provided to Salon by former courthouse personnel. Three former court workers also described in interviews with Salon the kickbacks made to Hale, based on their firsthand knowledge of them.

At the time of his 1991 investigation, Simpson and other county officials were compiling information with an eye to turning it over to the police and the state prosecutor’s office. If Simpson had followed through and turned over his findings to the authorities, Hale might have then been removed from the bench or even criminally charged at that time. But events were to suddenly take a decidedly unexpected turn.

The FBI, which was then investigating Hale’s federally subsidized lending company, asked county officials to back off, Simpson alleged in an interview with Salon. He speculated that Hale might have already begun trying to cut a deal to avoid prosecution. “Usually, when you hear that jail-house door closing behind you, you start figuring out who you can talk about to keep from having to go,” Simpson said.

Federal law enforcement sources tell a different story: They say that they were never told of the 1991 investigation of Hale’s court by county officials. They further assert they were unaware of the illicit activities taking place at Hale’s court. They suggest that county officials did nothing about the allegations because they wanted to protect Hale due to his family’s political connections.

Three years later, however, in early 1994, a confidential informant provided the FBI essentially the same outline of potentially illegal activities taking place in Hale’s court as were detailed by Simpson. Federal law enforcement authorities took no action at that time either.

Not very long after that, Hale emerged as the central witness to the investigation of the Whitewater independent counsel. During the course of the independent counsel’s inquiry, two former employees of Hale’s told federal Whitewater investigators about the illegal activity at Hale’s court, according to law enforcement records. But for reasons that are unclear, the Whitewater investigators did not pursue the allegations.

Indeed, in interviews with FBI agents and prosecutors working for the Whitewater independent counsel, not only did Hale conceal from them the illicit operation at his court, he had the audacity to boast that he had streamlined the court’s operations and improved its administration.

“Hale recalled that the county was losing money on hot check collections,” said a confidential FBI report detailing a debriefing of Hale. “Hale approached the county judge about this problem and told him that his court could possibly collect some of this money and enforce some of the laws. The county judge agreed to this, and Hale began to enforce and collect on hot checks in Pulaski County.”

In responding to critics that he has too zealously pursued the president, and in that pursuit exceeded the authority ordinarily granted to other independent counsels by probing the president’s personal life, Starr has insisted he was duty-bound to do so. Starr told reporters last April that he could not allow anyone to “defile the temple of justice … What matters from the criminal law’s perspective is, were crimes committed?”

But FBI reports obtained by Salon in a joint investigation with the Arkansas Times show that while Starr’s Whitewater investigators aggressively investigated Clinton, they apparently did nothing at all to pursue evidence that star witness Hale turned his own temple of justice — the Pulaski County Municipal Court — into a personal ATM in the early 1990s.

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David Hale’s days as a respected businessman and member of the
judiciary came to an end on Sept. 23, 1993, when he was indicted by
a federal grand jury in Little Rock on four felony counts that he
had stolen $3.4 million from the federal Small Business
Administration (SBA).

Even before Hale had been formally charged in that case, his attorney approached the U.S. attorney in Little Rock and attempted to obtain a favorable plea-bargain for his client by claiming that Hale had valuable information he could provide investigators about the “lending practices of the political elite of Arkansas.” In exchange for his information, Hale had hoped that he would only have to plead guilty to a misdemeanor and that he would also be able to remain on the bench. But federal prosecutors insisted that he plead guilty to at least one felony.

It was then that Hale first made his fateful allegations of illegal activity by President Clinton and demanded that the Justice
Department — which would not give him the plea-bargain he desired –
turn the case over to an independent counsel. Hale claimed that because he was accusing the man who was now the president of wrongdoing, the Justice Department had a conflict of interest in investigating him.

Hale alleged that in 1986, then-Gov. Clinton had pressured him to make a fraudulent and illegal $300,000 loan to Susan McDougal, one of the Clintons’ partners in the failed Whitewater land deal. Hale claimed that Clinton had told him to make the loan because the McDougals were part of his “political family.”

At the time, Hale ran Capital Management Services (CMS), a private lending company that was licensed, and in part funded, by the SBA. CMS had received millions of dollars in federal funds from the SBA on the condition that it was only to make loans to businesses owned by minorities and the disadvantaged.

But Hale instead diverted millions of dollars from the federal loan program to provide fraudulent loans to himself and powerful Arkansas political figures, such as Jim Guy Tucker and the McDougals.

In large part due to Hale’s charges, Attorney General Janet Reno appointed the first Whitewater independent counsel, Robert Fiske, in January 1994. In exchange for information that Hale agreed to provide
investigators about Tucker, the McDougals and Clinton, Hale was rewarded with a substantially reduced sentence. Facing a prison stretch of more than 10 years, he was sentenced in federal court to serve only 28 months.

Later, Fiske’s successor as Whitewater independent counsel, Kenneth Starr, asked a federal judge to further reduce Hale’s sentence, citing the important cooperation that Hale had provided his office. As a result of Starr’s recommendation for leniency, Hale ultimately served only 20 months in prison.

Hale’s information and testimony won convictions for Starr against then-Gov. Tucker and both Jim and Susan McDougal. Other information that Hale provided Whitewater investigators led to guilty pleas by at least four other individuals, according to papers filed in federal court by Starr’s office.

Hale’s cooperation with Starr paid off for him as well. In addition to his reduced sentence, Hale was paid more than $60,000 by the government and provided with room, board and security during the time he was a cooperating witness in the Whitewater probe. Starr’s office even intervened in an unsuccessful attempt to have Arkansas state prosecutors drop criminal charges against Hale for looting an insurance company that he owned.

Some federal law enforcement officials who have worked on the Whitewater investigation have told Salon that they have come to believe that Starr and some of his senior deputies were not sufficiently skeptical of Hale’s allegations. They also questioned whether some of the favors provided by the independent counsel for his star witness were appropriate.

“With someone like Hale, you can never let down your guard. You should never get to a point where you begin to trust him,” said one of the law enforcement officials. Another investigator asserted, “Any investigation of this sort has to be a search for the truth. You proceed cautiously and
investigate meticulously. You not only look for evidence that corroborates your witness, you look for contradictions as well. That wasn’t done in this case.”

Two investigators point to a court appearance Starr made in March 1996, when he asked a federal judge for an additional sentence reduction for Hale, as one example of his poor judgment.

“I have seen, I have witnessed his [Hale's] contrition,” Starr told the federal judge overseeing the sentence reduction hearing. “I believe, your honor, that he is genuinely remorseful of his criminal past. I have been impressed with his humble spirit.” During the same proceedings, Starr also went out of his way to refer to Hale as “Judge Hale” as a sign of deference and respect. Those comments particularly distressed some of Starr’s own staff, according to federal law enforcement sources.

It is not clear whether Starr personally knew at the time that Hale had used his position as a judge to illegally enrich himself and had later attempted to conceal that information from Whitewater investigators. Charles G. Bakaly III, a spokesman for Starr, declined to answer questions for this article.

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Viewed in retrospect, Hale’s municipal court operation offers a study of the man, the method and monkey business at the heart of the Whitewater story. Despite his claimed connections with Clinton’s “political family,” it was Hale’s own family ties — and his brother’s connections with Pulaski County Democrats — that launched his political career in Little Rock.

His older brother Milas H. Hale has been for decades an influential lawyer and municipal judge in Sherwood, just outside Little Rock. The elder Hale is a political ally of a former state senator, Max Howell, who was also the powerful longtime chair of the Senate’s judiciary committee. Howell, who is now retired, supported some of then-Gov. Clinton’s legislative initiatives and bitterly fought others.

After graduation from law school in 1966, David Hale worked in his brother’s law firm and later became a Pulaski County deputy prosecutor. In 1975 Hale was briefly mentioned as a possible candidate for secretary of state, lieutenant governor and attorney general. But that was pretty much the beginning and the end of any major role for him in statewide Democratic politics. David Hale found another path to power.

In 1979, the Legislature passed a bill, sponsored by Howell, establishing a new Pulaski County Municipal Court in Little Rock. Howell said he proposed the bill with Hale in mind. “The bill didn’t have David’s name on it, but we all knew David would probably be the judge,” Howell said in a 1994 interview. Hale later got another helping hand from Howell after a constitutional challenge indirectly limited Hale to one term. Howell sponsored a bill that allowed Hale to run for reelection. Pulaski County’s new court was supposed to handle small claims cases. But within months of its establishment, the small claims court morphed into an all service court.

Without public notice, Hale began hearing child support, traffic, bad check and other misdemeanor cases, thereby sapping revenues that would have otherwise gone to other Little Rock-area municipalities.

In the first year, revenues to the county from Hale’s court jumped from a little over $1,000 a month to approximately $60,000 a month, according to an account that appeared at the time in the Arkansas Gazette. By 1990, Hale had begun to think of new ways to collect even more revenue. He asked the county board of supervisors, known in Arkansas as the Quorum
Court, to let him go after millions in uncollected fines. Hale told the officials that he wanted to use a private collection firm to gather the fines.

Members of the Quorum Court unanimously approved the plan. But after only a few months of operation in early 1991, Hale fired the original collection company. A confidential informant would tell FBI Special Agent David F. Reign in January 1994 that Hale fired the company “because they would not ‘kick-back’ any money to the judge.”

Without informing county officials, Hale then allowed a new company, Special Court Services, to open up shop inside his court. Ron Oliver, who now heads the Pulaski County Democratic Committee, and another local businessman, Roger Richmond, were listed as the company’s officers.

But Simpson and others suspected that Hale himself had an interest in SCS. Oliver, the former SCS president, told Salon that he was primarily involved in marketing and promoting the firm’s various services and knew little about it’s day-to-day operations. Oliver said he was never entirely certain who owned SCS. Richmond, who several individuals say has moved away from Arkansas, could not be located for comment.

The FBI informant, a former municipal court clerk who also spoke with Salon on the condition that she not be identified, said she told the FBI in February 1994 that she thought Hale had a piece of the action: “Everyone knew at the time that Hale was actually running the company,” she recalled.

A confidential FBI report, obtained by Salon, confirms the former clerk’s account and recounts what she then told the FBI: “Judge Hale became very upset when court employees talked about SCS inside the courtroom,” said the FBI report. “SCS collected a fee for each ‘hot check’ collection they made. Source advised that sometimes the fee they collected would be more than the actual amount of the ‘hot check’ recovered by their company.”

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Tales about unusual procedures in Hale’s court began to surface early in the summer of 1991, and Simpson, the county administrator, began looking into them. “We developed enough information to convince me that there absolutely was something going on out there in that court,” Simpson recalled. The serpentine financial procedures he found while investigating Hale’s court stunned Simpson.

Among the findings of his investigation:

Free rent: Simpson said that with Hale’s authorization the county was paying the private company’s overhead. He found out about the unusual arrangement when Hale boldly requested that the county build additional office space for SCS at the municipal court building. “We were paying the telephone bill. We were paying the utilities. They had free room and board while they were working there,” Simpson said. “And now they were asking me to build a new room.” The rent alone would have cost SCS at least $9,000 a year if they had to pay it, Simpson recalled.

Hot checks: Under normal circumstances, a merchant stiffed by a hot check writer would fill out an affidavit. The information would be entered into the court records computer, and the court would issue an arrest warrant for the check writer. But that’s not what happened in Hale’s court, former court employees said. Instead, SCS workers took the affidavit and ran an apparently illegal check on the National and
Arkansas Crime Information Center computers to see if the check writer was wanted for other crimes. By law, the databases are to be used only by police and authorized court personnel. Simpson recalled that the SCS employees were never authorized to use the database. “Then they would call the people and tell them, ‘We have a hot check here,’” recalled a former court employee, “‘If you will come in by 5 o’clock today, bring cash to cover the check, the service charge from the bank, a $159 fee and turn yourself in at the Sheriff’s Department, a warrant will not be issued for your arrest.’”

When the check writer arrived at the sheriff’s office, deputies would call an SCS employee, who would then escort the check writer to municipal court. Court employees then would collect the money to cover the hot check, record it on the computer and print out a receipt. But the collection of the $159 was never documented in the computer. “We would have to handwrite the receipt for that $159 so that it would never go on county records anywhere,” one of the former court workers told Salon. “These people didn’t owe that $159. It was for ‘warrant recall,’ and a warrant had never been issued.”

At the end of the day, a SCS employee would collect the money and copies of the receipts and take them to the company’s bookkeeper. That way no one from the county would ever discover the payment scheme. The former court worker’s account matches much of what Simpson later found out during the course of his own investigation. Simpson says the scam left everyone involved happy at the end of the day: “If you’re the business person, you’re happy because you got your money back. If I’m the hot check writer, I’m happy because I didn’t have to go to jail. And where the money went, those guys are happy too.”

Out of the $159 paid by each defendant, Simpson’s investigation determined:

• The county got $56.
• SCS got a $100 fee. Simpson said Oliver told him in 1991 that the company had agreed to set aside $20 of the $100 SCS fee for “a rehabilitation program selected by the judge.”
• Hale got $3 for his personal “retirement fund.”

Neither the rehabilitation fund nor the retirement fund were ever authorized by the county. There is no record of how much money went to those funds or what happened to it, Simpson said.

Traffic: Special Court Services also had a scheme worked out
for the court’s traffic division. Traffic violators who wanted to
pay traffic fines over time would be placed on a payment plan.
A Special Court Services employee, who had a desk inside the
municipal court traffic division, would give the violators a form
instructing them to bring $3 in cash or money order to pay off
their fines over time. The company’s bookkeeper would collect the money at the end of the day, and send the traffic payment to the county. The $3,
however, remained with the company, Simpson said. Although no ordinance authorized the company to collect the fee, Hale himself gave SCS the go ahead for it, Simpson said.

Bail bonds: With Hale’s approval, SCS also ran a lucrative — and
legally suspect — bail bond service. Suspects arrested by sheriff’s deputies were able to secure their release by paying to SCS a bond fee of 8 percent, Simpson said. The county kept no record of the bond, and if defendants failed to show up for trial, Simpson said, the court issued a bench warrant for the suspect’s arrest — just as it would for suspects
released on their own recognizance. SCS simply collected the suspect’s money, Simpson said. “They just got their 8 percent for coming down there. They never had to do anything,” he said.

The Quorum Court knew nothing about the scheme and had passed no ordinance authorizing it, Simpson said. Simpson’s investigation also found that SCS’s operation apparently violated state law because bondsmen are required by statute to charge 10 percent, no more and no less.

Simpson said he had trouble getting straight answers from Hale and the SCS owners while conducting his investigation. “Each one blamed the other one,” Simpson recalled. One day in the spring of 1991, Simpson was checking documents on SCS ownership at the state Capitol. While he was there, he recalled, he ran into an FBI agent he knew from his days as
a Little Rock policeman. The agent, whom Simpson refuses to name, was also looking up documents related to Hale. The agent told him about the federal investigation of Capital Management Services, Simpson said.

“I later received a phone call from that office (the FBI) confirming there was such a thing going on and asking us to hold off on any charges,” Simpson recalled. “That wasn’t uncommon, and it certainly was acceptable to us.”

Federal law enforcement officials dispute this account. They say that they were never made aware of the county’s inquiry, and had they been, they might have investigated the goings-on at Hale’s court.

In any case, the county’s first priority, Simpson said, was to terminate the illegal collections in Hale’s court. And it did. After Simpson confronted the SCS owners, the company stopped using the law enforcement databases. The SCS proprietors signed agreements with the county governing the way the company did business and began following proper county financial reporting procedures.

All of the improper collections ended, Simpson said, and SCS today is no longer in business. Hale resigned from the bench when he was indicted by the federal grand jury in September 1993.

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In view of the way Hale ran his court and loan company, several former employees say they were surprised that Starr, while investigating President Clinton, depended almost solely on Hale’s word in the Whitewater case. But the court workers said they weren’t surprised Hale used his accusations against Clinton to get out of trouble he created for himself.

“Hale impresses me as the type of individual that if he were on a sinking ship, he would have no compunction about hitting some old lady over the head to steal her life jacket,” said M. Steele Holt, who worked in the municipal court’s traffic section. Former court employees also contend that the case of Catherine Butler, a clerk they say Hale tried to frame, foreshadowed Hale’s allegations against President Clinton when Hale faced a federal indictment and jail time.

In 1991, Hale had Butler arrested on records tampering charges — the day before she was to testify against him before the state’s judicial discipline commission. According to Hale’s version of events, the records tampering case started in April 1991 with a tip that he alone heard.
“I received a call, at home, one night. Someone had told me that a clerk, or clerks, in my office, were fixing tickets,” Hale said at a pre-trial hearing for the accused clerk, Butler. Hale said he then called the sheriff’s office and the state police.

Butler never testified against Hale in the judicial discipline hearing. Commissioners dismissed the complaint on a technicality, saying Hale had not been notified within 90 days of the time it was filed.

Butler’s own legal troubles evaporated when a judge threw out the case at a pre-trial hearing, saying no crime had been committed.

Butler declined to comment on her case. But of Hale’s testimony in the Tucker-McDougal trial, she said, “I would not call him a credible witness. That’s about the nicest thing I could say about him.”

The Butler case left other court workers wondering whether one of them might be next. Afraid that Hale might accuse her of something, one of Butler’s co-workers quietly went to federal officials for protection, according to Jeff Rosenzweig, a Little Rock defense attorney who represented the clerk.

The same employee had earlier quietly alerted county officials about the Special Court Services operation. Rosenzweig spoke to Salon on the condition that his client not be identified.

“I represented a court employee who had specific knowledge that the Catherine Butler situation was a frame-up and who feared that [she] might be similarly framed,” Rosenzweig said. Rosenzweig took the client to the U.S. attorney’s office.

“We gave them copies of relevant documents so that if anything
happened to my client, the U.S. attorney would know what was going
on,” Rosenzweig said. For Rosenzweig, who had once practiced as a public defender in Hale’s municipal court, the Butler case and the fallout for his client were part of a long history with Hale.

“Hale and I just didn’t get along,” the defense attorney said. Rosenzweig was among the lawyers who earlier filed motions challenging the constitutionality of Hale’s court. Hale never forgave him for that action, Rosenzweig said.

The municipal judge routinely moved Rosenzweig’s cases to the
bottom of the docket, the lawyer said. At times Rosenzweig had to
bring his own lawyer into court as a witness. “On two occasions, Hale tried to find me in contempt without a court reporter present,” Rosenzweig said. “Both times, I had a lawyer there with me and when they stood up, Hale backed down.” One of those times, Hale ordered the bailiff to arrest Rosenzweig.

In light of Hale’s Whitewater role, Rosenzweig said, one
incident in the municipal court stands out. During the hearing of a hot check case, Rosenzweig was unable to find the checks in question among other documents entered into evidence. Hale earlier had the documents at the bench. “Hale starts yelling at me in court about how I had stolen the
evidence and how he was going to get me for destruction of evidence,” Rosenzweig said. Flustered, the lawyer went to the bench and began shuffling through other exhibits. “I’m lifting things up, and I pulled open a drawer on the bench and the checks were there,” Rosenzweig said. “He had taken them off and put them in the drawer himself. He just literally
tried to frame me.

“Hale will say whatever he needs to say or do whatever he needs to do if it will help David Hale,” continued Rosenzweig. “He framed Catherine Butler. He tried to frame me.” And, Rosenzweig says, even though he admits that he has no evidence to substantiate his suspicions, he will always believe that David Hale also tried to frame the president of the United States.

But the more Simpson looked into the complaints of several of David Hale’s own courthouse employees, the more he became convinced that a judge who was sworn to uphold the laws of the state of Arkansas was routinely violating them with impunity. “Some of the things that they were doing were absolutely illegal,” recalled Simpson, who is also a retired Little Rock police chief.

After conducting a lengthy inquiry, Simpson concluded that Hale had allowed a private collection company, Special Court Services (SCS), to operate rent-free out of his court and to use restricted law enforcement crime databases. Simpson also discovered that Hale had allowed the same company to collect off-the-books “warrant withdrawal” fees from defendants even though no warrants had been issued in the first place.

In return for these favors, according to a previously confidential investigative report authored by Simpson, Hale received a kickback from the now defunct SCS each and every time the firm handled a hot check case for Hale’s court. The kickbacks were paid by SCS to a “judge’s retirement fund” whose sole beneficiary was Judge David Hale. Judge Hale did not wait until his retirement to take his benefits. SCS also regularly made other payments to a second, mysterious “rehabilitative program” fund, which Hale was also said to control, Simpson’s investigation determined

The kickbacks to Hale from SCS, as described in Simpson’s 1991 investigative report, are also detailed in the financial records of Hale’s court, which were provided to Salon by former courthouse personnel. Three former court workers also described in interviews with Salon the kickbacks made to Hale, based on their firsthand knowledge of them.

At the time of his 1991 investigation, Simpson and other county officials were compiling information with an eye to turning it over to the police and the state prosecutor’s office. If Simpson had followed through and turned over his findings to the authorities, Hale might have then been removed from the bench or even criminally charged at that time. But events were to suddenly take a decidedly unexpected turn.

The FBI, which was then investigating Hale’s federally subsidized lending company, asked county officials to back off, Simpson alleged in an interview with Salon. He speculated that Hale might have already begun trying to cut a deal to avoid prosecution. “Usually, when you hear that jail-house door closing behind you, you start figuring out who you can talk about to keep from having to go,” Simpson said.

Federal law enforcement sources tell a different story: They say that they were never told of the 1991 investigation of Hale’s court by county officials. They further assert they were unaware of the illicit activities taking place at Hale’s court. They suggest that county officials did nothing about the allegations because they wanted to protect Hale due to his family’s political connections.

Three years later, however, in early 1994, a confidential informant provided the FBI essentially the same outline of potentially illegal activities taking place in Hale’s court as were detailed by Simpson. Federal law enforcement authorities took no action at that time either.

Not very long after that, Hale emerged as the central witness to the investigation of the Whitewater independent counsel. During the course of the independent counsel’s inquiry, two former employees of Hale’s told federal Whitewater investigators about the illegal activity at Hale’s court, according to law enforcement records. But for reasons that are unclear, the Whitewater investigators did not pursue the allegations.

Indeed, in interviews with FBI agents and prosecutors working for the Whitewater independent counsel, not only did Hale conceal from them the illicit operation at his court, he had the audacity to boast that he had streamlined the court’s operations and improved its administration.

“Hale recalled that the county was losing money on hot check collections,” said a confidential FBI report detailing a debriefing of Hale. “Hale approached the county judge about this problem and told him that his court could possibly collect some of this money and enforce some of the laws. The county judge agreed to this, and Hale began to enforce and collect on hot checks in Pulaski County.”

In responding to critics that he has too zealously pursued the president, and in that pursuit exceeded the authority ordinarily granted to other independent counsels by probing the president’s personal life, Starr has insisted he was duty-bound to do so. Starr told reporters last April that he could not allow anyone to “defile the temple of justice … What matters from the criminal law’s perspective is, were crimes committed?”

But FBI reports obtained by Salon in a joint investigation with the Arkansas Times show that while Starr’s Whitewater investigators aggressively investigated Clinton, they apparently did nothing at all to pursue evidence that star witness Hale turned his own temple of justice — the Pulaski County Municipal Court — into a personal ATM in the early 1990s.

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David Hale’s days as a respected businessman and member of the
judiciary came to an end on Sept. 23, 1993, when he was indicted by
a federal grand jury in Little Rock on four felony counts that he
had stolen $3.4 million from the federal Small Business
Administration (SBA).

Even before Hale had been formally charged in that case, his attorney approached the U.S. attorney in Little Rock and attempted to obtain a favorable plea-bargain for his client by claiming that Hale had valuable information he could provide investigators about the “lending practices of the political elite of Arkansas.” In exchange for his information, Hale had hoped that he would only have to plead guilty to a misdemeanor and that he would also be able to remain on the bench. But federal prosecutors insisted that he plead guilty to at least one felony.

It was then that Hale first made his fateful allegations of illegal activity by President Clinton and demanded that the Justice
Department — which would not give him the plea-bargain he desired –
turn the case over to an independent counsel. Hale claimed that because he was accusing the man who was now the president of wrongdoing, the Justice Department had a conflict of interest in investigating him.

Hale alleged that in 1986, then-Gov. Clinton had pressured him to make a fraudulent and illegal $300,000 loan to Susan McDougal, one of the Clintons’ partners in the failed Whitewater land deal. Hale claimed that Clinton had told him to make the loan because the McDougals were part of his “political family.”

At the time, Hale ran Capital Management Services (CMS), a private lending company that was licensed, and in part funded, by the SBA. CMS had received millions of dollars in federal funds from the SBA on the condition that it was only to make loans to businesses owned by minorities and the disadvantaged.

But Hale instead diverted millions of dollars from the federal loan program to provide fraudulent loans to himself and powerful Arkansas political figures, such as Jim Guy Tucker and the McDougals.

In large part due to Hale’s charges, Attorney General Janet Reno appointed the first Whitewater independent counsel, Robert Fiske, in January 1994. In exchange for information that Hale agreed to provide
investigators about Tucker, the McDougals and Clinton, Hale was rewarded with a substantially reduced sentence. Facing a prison stretch of more than 10 years, he was sentenced in federal court to serve only 28 months.

Later, Fiske’s successor as Whitewater independent counsel, Kenneth Starr, asked a federal judge to further reduce Hale’s sentence, citing the important cooperation that Hale had provided his office. As a result of Starr’s recommendation for leniency, Hale ultimately served only 20 months in prison.

Hale’s information and testimony won convictions for Starr against then-Gov. Tucker and both Jim and Susan McDougal. Other information that Hale provided Whitewater investigators led to guilty pleas by at least four other individuals, according to papers filed in federal court by Starr’s office.

Hale’s cooperation with Starr paid off for him as well. In addition to his reduced sentence, Hale was paid more than $60,000 by the government and provided with room, board and security during the time he was a cooperating witness in the Whitewater probe. Starr’s office even intervened in an unsuccessful attempt to have Arkansas state prosecutors drop criminal charges against Hale for looting an insurance company that he owned.

Some federal law enforcement officials who have worked on the Whitewater investigation have told Salon that they have come to believe that Starr and some of his senior deputies were not sufficiently skeptical of Hale’s allegations. They also questioned whether some of the favors provided by the independent counsel for his star witness were appropriate.

“With someone like Hale, you can never let down your guard. You should never get to a point where you begin to trust him,” said one of the law enforcement officials. Another investigator asserted, “Any investigation of this sort has to be a search for the truth. You proceed cautiously and
investigate meticulously. You not only look for evidence that corroborates your witness, you look for contradictions as well. That wasn’t done in this case.”

Two investigators point to a court appearance Starr made in March 1996, when he asked a federal judge for an additional sentence reduction for Hale, as one example of his poor judgment.

“I have seen, I have witnessed his [Hale's] contrition,” Starr told the federal judge overseeing the sentence reduction hearing. “I believe, your honor, that he is genuinely remorseful of his criminal past. I have been impressed with his humble spirit.” During the same proceedings, Starr also went out of his way to refer to Hale as “Judge Hale” as a sign of deference and respect. Those comments particularly distressed some of Starr’s own staff, according to federal law enforcement sources.

It is not clear whether Starr personally knew at the time that Hale had used his position as a judge to illegally enrich himself and had later attempted to conceal that information from Whitewater investigators. Charles G. Bakaly III, a spokesman for Starr, declined to answer questions for this article.

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Viewed in retrospect, Hale’s municipal court operation offers a study of the man, the method and monkey business at the heart of the Whitewater story. Despite his claimed connections with Clinton’s “political family,” it was Hale’s own family ties — and his brother’s connections with Pulaski County Democrats — that launched his political career in Little Rock.

His older brother Milas H. Hale has been for decades an influential lawyer and municipal judge in Sherwood, just outside Little Rock. The elder Hale is a political ally of a former state senator, Max Howell, who was also the powerful longtime chair of the Senate’s judiciary committee. Howell, who is now retired, supported some of then-Gov. Clinton’s legislative initiatives and bitterly fought others.

After graduation from law school in 1966, David Hale worked in his brother’s law firm and later became a Pulaski County deputy prosecutor. In 1975 Hale was briefly mentioned as a possible candidate for secretary of state, lieutenant governor and attorney general. But that was pretty much the beginning and the end of any major role for him in statewide Democratic politics. David Hale found another path to power.

In 1979, the Legislature passed a bill, sponsored by Howell, establishing a new Pulaski County Municipal Court in Little Rock. Howell said he proposed the bill with Hale in mind. “The bill didn’t have David’s name on it, but we all knew David would probably be the judge,” Howell said in a 1994 interview. Hale later got another helping hand from Howell after a constitutional challenge indirectly limited Hale to one term. Howell sponsored a bill that allowed Hale to run for reelection. Pulaski County’s new court was supposed to handle small claims cases. But within months of its establishment, the small claims court morphed into an all service court.

Without public notice, Hale began hearing child support, traffic, bad check and other misdemeanor cases, thereby sapping revenues that would have otherwise gone to other Little Rock-area municipalities.

In the first year, revenues to the county from Hale’s court jumped from a little over $1,000 a month to approximately $60,000 a month, according to an account that appeared at the time in the Arkansas Gazette. By 1990, Hale had begun to think of new ways to collect even more revenue. He asked the county board of supervisors, known in Arkansas as the Quorum
Court, to let him go after millions in uncollected fines. Hale told the officials that he wanted to use a private collection firm to gather the fines.

Members of the Quorum Court unanimously approved the plan. But after only a few months of operation in early 1991, Hale fired the original collection company. A confidential informant would tell FBI Special Agent David F. Reign in January 1994 that Hale fired the company “because they would not ‘kick-back’ any money to the judge.”

Without informing county officials, Hale then allowed a new company, Special Court Services, to open up shop inside his court. Ron Oliver, who now heads the Pulaski County Democratic Committee, and another local businessman, Roger Richmond, were listed as the company’s officers.

But Simpson and others suspected that Hale himself had an interest in SCS. Oliver, the former SCS president, told Salon that he was primarily involved in marketing and promoting the firm’s various services and knew little about it’s day-to-day operations. Oliver said he was never entirely certain who owned SCS. Richmond, who several individuals say has moved away from Arkansas, could not be located for comment.

The FBI informant, a former municipal court clerk who also spoke with Salon on the condition that she not be identified, said she told the FBI in February 1994 that she thought Hale had a piece of the action: “Everyone knew at the time that Hale was actually running the company,” she recalled.

A confidential FBI report, obtained by Salon, confirms the former clerk’s account and recounts what she then told the FBI: “Judge Hale became very upset when court employees talked about SCS inside the courtroom,” said the FBI report. “SCS collected a fee for each ‘hot check’ collection they made. Source advised that sometimes the fee they collected would be more than the actual amount of the ‘hot check’ recovered by their company.”

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Tales about unusual procedures in Hale’s court began to surface early in the summer of 1991, and Simpson, the county administrator, began looking into them. “We developed enough information to convince me that there absolutely was something going on out there in that court,” Simpson recalled. The serpentine financial procedures he found while investigating Hale’s court stunned Simpson.

Among the findings of his investigation:

Free rent: Simpson said that with Hale’s authorization the county was paying the private company’s overhead. He found out about the unusual arrangement when Hale boldly requested that the county build additional office space for SCS at the municipal court building. “We were paying the telephone bill. We were paying the utilities. They had free room and board while they were working there,” Simpson said. “And now they were asking me to build a new room.” The rent alone would have cost SCS at least $9,000 a year if they had to pay it, Simpson recalled.

Hot checks: Under normal circumstances, a merchant stiffed by a hot check writer would fill out an affidavit. The information would be entered into the court records computer, and the court would issue an arrest warrant for the check writer. But that’s not what happened in Hale’s court, former court employees said. Instead, SCS workers took the affidavit and ran an apparently illegal check on the National and
Arkansas Crime Information Center computers to see if the check writer was wanted for other crimes. By law, the databases are to be used only by police and authorized court personnel. Simpson recalled that the SCS employees were never authorized to use the database. “Then they would call the people and tell them, ‘We have a hot check here,’” recalled a former court employee, “‘If you will come in by 5 o’clock today, bring cash to cover the check, the service charge from the bank, a $159 fee and turn yourself in at the Sheriff’s Department, a warrant will not be issued for your arrest.’”

When the check writer arrived at the sheriff’s office, deputies would call an SCS employee, who would then escort the check writer to municipal court. Court employees then would collect the money to cover the hot check, record it on the computer and print out a receipt. But the collection of the $159 was never documented in the computer. “We would have to handwrite the receipt for that $159 so that it would never go on county records anywhere,” one of the former court workers told Salon. “These people didn’t owe that $159. It was for ‘warrant recall,’ and a warrant had never been issued.”

At the end of the day, a SCS employee would collect the money and copies of the receipts and take them to the company’s bookkeeper. That way no one from the county would ever discover the payment scheme. The former court worker’s account matches much of what Simpson later found out during the course of his own investigation. Simpson says the scam left everyone involved happy at the end of the day: “If you’re the business person, you’re happy because you got your money back. If I’m the hot check writer, I’m happy because I didn’t have to go to jail. And where the money went, those guys are happy too.”

Out of the $159 paid by each defendant, Simpson’s investigation determined:

• The county got $56.
• SCS got a $100 fee. Simpson said Oliver told him in 1991 that the company had agreed to set aside $20 of the $100 SCS fee for “a rehabilitation program selected by the judge.”
• Hale got $3 for his personal “retirement fund.”

Neither the rehabilitation fund nor the retirement fund were ever authorized by the county. There is no record of how much money went to those funds or what happened to it, Simpson said.

Traffic: Special Court Services also had a scheme worked out
for the court’s traffic division. Traffic violators who wanted to
pay traffic fines over time would be placed on a payment plan.
A Special Court Services employee, who had a desk inside the
municipal court traffic division, would give the violators a form
instructing them to bring $3 in cash or money order to pay off
their fines over time. The company’s bookkeeper would collect the money at the end of the day, and send the traffic payment to the county. The $3,
however, remained with the company, Simpson said. Although no ordinance authorized the company to collect the fee, Hale himself gave SCS the go ahead for it, Simpson said.

Bail bonds: With Hale’s approval, SCS also ran a lucrative — and
legally suspect — bail bond service. Suspects arrested by sheriff’s deputies were able to secure their release by paying to SCS a bond fee of 8 percent, Simpson said. The county kept no record of the bond, and if defendants failed to show up for trial, Simpson said, the court issued a bench warrant for the suspect’s arrest — just as it would for suspects
released on their own recognizance. SCS simply collected the suspect’s money, Simpson said. “They just got their 8 percent for coming down there. They never had to do anything,” he said.

The Quorum Court knew nothing about the scheme and had passed no ordinance authorizing it, Simpson said. Simpson’s investigation also found that SCS’s operation apparently violated state law because bondsmen are required by statute to charge 10 percent, no more and no less.

Simpson said he had trouble getting straight answers from Hale and the SCS owners while conducting his investigation. “Each one blamed the other one,” Simpson recalled. One day in the spring of 1991, Simpson was checking documents on SCS ownership at the state Capitol. While he was there, he recalled, he ran into an FBI agent he knew from his days as
a Little Rock policeman. The agent, whom Simpson refuses to name, was also looking up documents related to Hale. The agent told him about the federal investigation of Capital Management Services, Simpson said.

“I later received a phone call from that office (the FBI) confirming there was such a thing going on and asking us to hold off on any charges,” Simpson recalled. “That wasn’t uncommon, and it certainly was acceptable to us.”

Federal law enforcement officials dispute this account. They say that they were never made aware of the county’s inquiry, and had they been, they might have investigated the goings-on at Hale’s court.

In any case, the county’s first priority, Simpson said, was to terminate the illegal collections in Hale’s court. And it did. After Simpson confronted the SCS owners, the company stopped using the law enforcement databases. The SCS proprietors signed agreements with the county governing the way the company did business and began following proper county financial reporting procedures.

All of the improper collections ended, Simpson said, and SCS today is no longer in business. Hale resigned from the bench when he was indicted by the federal grand jury in September 1993.

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In view of the way Hale ran his court and loan company, several former employees say they were surprised that Starr, while investigating President Clinton, depended almost solely on Hale’s word in the Whitewater case. But the court workers said they weren’t surprised Hale used his accusations against Clinton to get out of trouble he created for himself.

“Hale impresses me as the type of individual that if he were on a sinking ship, he would have no compunction about hitting some old lady over the head to steal her life jacket,” said M. Steele Holt, who worked in the municipal court’s traffic section. Former court employees also contend that the case of Catherine Butler, a clerk they say Hale tried to frame, foreshadowed Hale’s allegations against President Clinton when Hale faced a federal indictment and jail time.

In 1991, Hale had Butler arrested on records tampering charges — the day before she was to testify against him before the state’s judicial discipline commission. According to Hale’s version of events, the records tampering case started in April 1991 with a tip that he alone heard.
“I received a call, at home, one night. Someone had told me that a clerk, or clerks, in my office, were fixing tickets,” Hale said at a pre-trial hearing for the accused clerk, Butler. Hale said he then called the sheriff’s office and the state police.

Butler never testified against Hale in the judicial discipline hearing. Commissioners dismissed the complaint on a technicality, saying Hale had not been notified within 90 days of the time it was filed.

Butler’s own legal troubles evaporated when a judge threw out the case at a pre-trial hearing, saying no crime had been committed.

Butler declined to comment on her case. But of Hale’s testimony in the Tucker-McDougal trial, she said, “I would not call him a credible witness. That’s about the nicest thing I could say about him.”

The Butler case left other court workers wondering whether one of them might be next. Afraid that Hale might accuse her of something, one of Butler’s co-workers quietly went to federal officials for protection, according to Jeff Rosenzweig, a Little Rock defense attorney who represented the clerk.

The same employee had earlier quietly alerted county officials about the Special Court Services operation. Rosenzweig spoke to Salon on the condition that his client not be identified.

“I represented a court employee who had specific knowledge that the Catherine Butler situation was a frame-up and who feared that [she] might be similarly framed,” Rosenzweig said. Rosenzweig took the client to the U.S. attorney’s office.

“We gave them copies of relevant documents so that if anything
happened to my client, the U.S. attorney would know what was going
on,” Rosenzweig said. For Rosenzweig, who had once practiced as a public defender in Hale’s municipal court, the Butler case and the fallout for his client were part of a long history with Hale.

“Hale and I just didn’t get along,” the defense attorney said. Rosenzweig was among the lawyers who earlier filed motions challenging the constitutionality of Hale’s court. Hale never forgave him for that action, Rosenzweig said.

The municipal judge routinely moved Rosenzweig’s cases to the
bottom of the docket, the lawyer said. At times Rosenzweig had to
bring his own lawyer into court as a witness. “On two occasions, Hale tried to find me in contempt without a court reporter present,” Rosenzweig said. “Both times, I had a lawyer there with me and when they stood up, Hale backed down.” One of those times, Hale ordered the bailiff to arrest Rosenzweig.

In light of Hale’s Whitewater role, Rosenzweig said, one
incident in the municipal court stands out. During the hearing of a hot check case, Rosenzweig was unable to find the checks in question among other documents entered into evidence. Hale earlier had the documents at the bench. “Hale starts yelling at me in court about how I had stolen the
evidence and how he was going to get me for destruction of evidence,” Rosenzweig said. Flustered, the lawyer went to the bench and began shuffling through other exhibits. “I’m lifting things up, and I pulled open a drawer on the bench and the checks were there,” Rosenzweig said. “He had taken them off and put them in the drawer himself. He just literally
tried to frame me.

“Hale will say whatever he needs to say or do whatever he needs to do if it will help David Hale,” continued Rosenzweig. “He framed Catherine Butler. He tried to frame me.” And, Rosenzweig says, even though he admits that he has no evidence to substantiate his suspicions, he will always believe that David Hale also tried to frame the president of the United States.