The $50,000 lie

The Whitewater case wasn't the only time David Hale invoked Bill Clinton's name -- falsely -- to help himself.

Published August 14, 1998 8:05AM (EDT)

David Hale, the central witness in independent prosecutor Kenneth Starr's Whitewater investigation, received at least $50,000 in covert payments in 1990 from a health-care company in exchange for using his purported influence with then-Gov. Bill Clinton and other political figures to try and obtain an Arkansas state contract, Salon has learned.

The payments to Hale, then a Little Rock, Ark., municipal court judge, were made on behalf of Correctional Health Care Inc. (CHC), a Birmingham, Ala., company that at the time was seeking a three-year, $30 million contract to provide health-care services to the Arkansas Department of Corrections.

But Hale was unable to deliver the promised contract, leading officials of the now-defunct company and others involved in the effort to conclude that he was lying about how much influence he actually had with Clinton and other decision-makers.

Details of the payments were described to Salon by four sources with firsthand knowledge of them, including CHC's former president, Robert Berryman. Another source made available to Salon accounting and banking records -- including invoices and canceled checks -- that document a portion of the payments to Hale.

The previously unreported case casts new doubt on Hale's credibility as a witness against Clinton in the Whitewater investigation. Salon has also found that Hale's influence peddling was known to Starr's prosecutors while they were building their Whitewater case around him, raising questions about why the independent prosecutor chose to overlook this crucial information. Hale himself admitted receiving the payments from the Alabama health company during debriefings with FBI agents and federal prosecutors working for Starr. Hale's own account of receiving the payments is described in confidential FBI reports and other law enforcement records obtained by Salon.

Hale had assured CHC executives that they would obtain the multimillion-dollar contract with the Arkansas prison system if they made $50,000 in payments to him. Hale told the CHC officials they were virtually assured of being awarded the contract because of his close personal friendship and political influence with then-Gov. Clinton and other Arkansas state politicians, two sources said in interviews.

But the contract never materialized. CHC officials and two other individuals assisting the firm in the effort to obtain the contract told Salon they now believe Hale lied to them about his political influence with Clinton and other politicians.

"I was advised that $50,000 was to be paid to Hale in exchange for assurances of delivery of the contract," Berryman told Salon. "Needless to say, despite the promises that he made to us that he had the political influence to deliver the contract, it was not awarded to us."

Another source said that Hale not only "deceived CHC, he defrauded the company and its officers" by falsely claiming his political influence would lead to CHC obtaining the contract.

Berryman said he did not disagree with that assessment. "When you looked at his [Hale's] background, it was quite impressive," he recalled. "He was a sitting judge. I really thought he was a circuit judge or a federal judge or something like that. I didn't know until later that he was just some kind of community judge or justice of the peace, which he turned out to be. It never dawned on me to question his credentials.

"He was walking around that statehouse up there [in Little Rock] like he owned the place. Everyone seemed to know him, and he did get us in to see some of the right people."

The extent to which Hale invoked Clinton's name is a matter of some dispute among those involved in efforts to obtain the Arkansas contracts for CHC. "Judge Hale said he had contacts with state senators and the prison board," Berryman said. "But Clinton's name was not prominent in our discussions."

But another source involved in the effort to obtain the contract said Hale's purported relationship with Clinton was key: "He told Berryman that he could deliver the contract because he knew Clinton. Hale said that Clinton had some obligations due him. And Hale could call them in."

Another individual involved agreed: "Hale got the payments because he told [CHC] that he was very tight with the governor."

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In his own version of the story, Hale told the FBI that he had hoped to obtain the state contracts through his political influence with two Arkansas state senators. Hale stated that he paid $10,000 to his brother, Milas Hale, a prominent Little Rock political figure who was then also a municipal court judge. In exchange, Milas Hale was to pass on the money to the politicians through their law firms, in an attempt to influence the decision as to which company would receive the prison contract. According to a confidential FBI report, "Hale advised ... that this money would probably have to be used to pay off individuals around the contract process."

But Hale did not tell the FBI that he had cited his influence with Clinton as a reason that he would be able to deliver the contract. Indeed, Hale told the FBI that he was not able to obtain the deal for CHC because Clinton had favored another firm.

Federal Whitewater investigators did nothing to pursue the allegations about the payoffs to the Arkansas politicians. Salon was unable to substantiate the charges. But according to one source involved in CHC's effort to obtain the Arkansas contract, Berryman told him that Hale had reported that some of the $50,000 was paid to a state senator. Berryman said he could not recall the conversation.

According to two federal Whitewater investigators, Starr's office apparently did not provide any of this information to the other federal or state law enforcement authorities that could have opened a potential criminal inquiry into the matter. The information about the alleged payments to the state politicians might have been particularly relevant to other federal law enforcement authorities because one legislator named by Hale, Arkansas State Sen. Nick Wilson, is currently the target of a joint state-federal bribery and influence-peddling investigation.

A senior advisor to Starr declined to specifically comment on whether Starr's office had informed other law enforcement authorities about the allegations against Wilson, but commented in general, "When we find evidence of crimes outside our court-mandated jurisdiction, as a matter of course, we refer those to the appropriate law enforcement agencies."

In a telephone interview, Wilson denied David Hale's charges: "I have never received a check or cash from Milas Hale. I've never been in business with him." Wilson suggested that David Hale had fabricated the allegations: "David would do anything to save himself or cast some kind of blame on somebody else, and has done that here for the past several years. Everyone in Arkansas knows that."

These new disclosures by Salon about the payments to David Hale are significant because they indicate that Hale had a history of falsely invoking Clinton's name as well as those of other politicians for his own profit and advancement. Kenneth Starr's Whitewater case against Clinton is largely built on Hale's allegations that in 1986 then-Gov. Clinton pressured Hale to make a fraudulent and illegal loan of $300,000, guaranteed by the Small Business Administration (SBA), to Susan McDougal. James and Susan McDougal were then partners with Bill and Hillary Clinton in the failed Whitewater land deal.

At the time, Hale ran Capital Management Services, a company that was licensed, and in part funded, by the SBA. Hale's firm received federal funds 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 and business figures, such as former Arkansas Gov. Jim Guy Tucker and the McDougals. Hale eventually pled guilty to defrauding the SBA of more than $3.4 million.

Facing federal criminal charges in the summer of 1993, Hale for the first time publicly charged that Clinton had pressured him to make one of the fraudulent and illegal loans to Susan McDougal. Hale's charge of criminal conduct by Clinton was instrumental in leading to the appointment of the Whitewater independent counsel.

In a plea bargain with Whitewater prosecutors, Hale pled guilty to two felonies, and agreed to provide evidence against Tucker, the McDougals and President Clinton. The evidence Hale provided to prosecutors led, in part, to the conviction and removal from office of Tucker as well as the conviction of the McDougals. Other information Hale gave Starr's office led to guilty pleas from at least four other individuals.

During the criminal trial of Tucker and the McDougals, Clinton denied Hale's allegations under oath, and testified that he had absolutely no knowledge of, or involvement with, Hale's fraudulent loan to Susan McDougal. That testimony only further raised the stakes for both Clinton and Starr: If Hale's allegations could be proven, it would mean that the president had committed perjury.

But in the intervening years, Starr and his prosecutors have been able to find scant evidence to corroborate Hale's story. A self-admitted thief and twice-convicted felon, Hale was not a credible enough witness to make a case on his testimony alone that would stand against the president.

Indeed, some federal law enforcement officials have privately raised doubts about Hale's versions of events surrounding the $300,000 loan to Susan McDougal. At the time, Hale was pressing two friends to make a fraudulent real estate appraisal on property he owned. Hale needed that appraisal to obtain an illegal bank loan. The law enforcement officials say there is some evidence that Hale might have used Clinton's name to motivate his friends to do the fraudulent appraisal, which they were otherwise reluctant to do at the time.

A majority of the senior law enforcement officials working for Starr say, however, that they still believe Hale's story: that Clinton pressured Hale to make the loan to McDougal.

Hale's credibility is certain to be damaged further by the new disclosures about his work for the Alabama health company. Before retaining Hale, CHC had been unsuccessful in bidding on several Arkansas state contracts, according to previously confidential state government files obtained by Salon. In 1989, when CHC bid on a contract to provide medical services to some of the state's correctional facilities, the Alabama company wasn't even among the three finalists. An internal memo written by the medical director of the Arkansas prison system stated that CHC lacked "the corporate experience in correctional endeavors or the financial resources" of its competitors.

Former CHC President Berryman told Salon that he and other CHC executives perceived that the reason they were not awarded the 1989 contract was because they lacked the Arkansas political connections enjoyed by their competitors. "We had plenty of experience," Berryman asserted. "That contract was politically awarded over there. We were qualified and we were reputable and we had a contract to provide similar services for the state of Alabama before that."

The next time around, Berryman said, CHC vowed it would not proceed without seeking political influence of its own.

Berryman said he is uncertain about how CHC and Hale first came together. He also asserted that CHC never paid Hale. Rather, Berryman said, Hale was paid at least $50,000 by Southern Medical Health Systems [SMHS] Inc., a Mobile, Ala., company that had provided capital to CHC and also at one time served as CHC's holding company. Berryman said that the payments were arranged by Randy Suchere, who simultaneously served as an executive vice president of SMHS and as a director of CHC.

"The money came from SMHS, not from us," said Berryman.

Suchere said he was aware of the $50,000 in payments to Hale. But he said the payments were "consulting fees."

"With David Hale, we were looking to someone who knew the local political landscape," said Suchere. "We were looking to someone who knew how things were done in that part of the country and who knew the local players. All we wanted was a chance to be able to compete, to have our bid considered." Suchere further said he was unaware of any boasts by Hale of influence with then-Gov. Clinton or of plans to pass money to Arkansas state senators who might have influence with the state prison board.

Banking records made available to Salon show that contrary to Berryman's claims, CHC made at least $25,000 in payments to a Little Rock, Ark., consulting firm, of which Hale was a principal partner. According to the records, on Nov. 20, 1990, CHC deposited $25,000 in the Pulaski National Bank account of the consulting firm, Combined Business Services.

Six days later, on Nov. 26, the records indicate, the consulting firm made out a $15,000 check to the National Savings Corporation, an insurance company then controlled by Hale. National Savings Corporation then made the funds available to Hale, according to the records.

The day after Combined Business Services funneled that payment to Hale, it also provided another $5,000 to J.R. Hodges, a Little Rock developer and businessman and longtime associate of Hale's. It was Hodges who had introduced Hale to CHC executives, according to Hale's FBI statement and a second source with firsthand knowledge of the events. Hodges did not return calls seeking comment for this story.

Another $4,000 of the funds, according to the records, went to Donald Manes, a land developer and urban planner who was then Hale's partner in the consulting firm. A small remainder of the money was used on expenses for the consulting firm.

Manes, now an Arkansas state official, declined to comment. But two others involved in CHC's efforts say that Manes was among those taken in by Hale. "Donald thought that this was a straight transaction," said one source. "He was reading the state regulations. He was going to the meetings with prison board officials. He was doing the technical work. He was deceived like the rest of us. Hale brought him in to lend legitimacy to the endeavor."

In interviews with FBI agents and prosecutors working for independent counsel Starr, Hale said that he and his associates were paid $50,000 for trying to obtain state contracts for CHC. But Hale asserted during the interviews that he could not even remember the name of the company that paid the money, except that the company was located in Mobile, Ala.

Hale said he solicited the $50,000 in order to engage in political influence peddling. Hale said "he would need $50,000 for political help," according to the account he provided federal Whitewater investigators.

Hale's account of where the money went differs sharply from the banking records. Hale told Whitewater investigators that the "Mobile firm" deposited $50,000 in the bank account of his consulting firm. Of that amount, Hale said he paid himself $20,000 from the account. A $10,000 check went to Manes. And a second $10,000 check went to J.R. Hodges.

Finally, Hale claimed, a third check for $10,000 was written to Hale's brother, Milas Hale. David Hale told the investigators he believed that the funds given to his brother were "probably then given to" two Arkansas state senators "through their law firms." Hale said the two senators "were then involved in the decision-making process on this contract."

In a brief telephone conversation, Milas Hale said, "I know you have been out there talking to everyone who seems to have known my brother. But I am not going to be one of them." He declined to comment on his brother's allegations that he passed on funds to the two state senators.

David Hale did not return a message left at a Little Rock home where he sometimes resides. His attorney, David Bowden, told Salon, "Once again, your publication is making serious and untrue charges regarding my client that are based on unnamed sources and no documentation."

When CHC first began making the payments to Hale, the health-care company was tottering near bankruptcy. The company saw the potential contract with the Arkansas Department of Corrections as a lifesaver, and Hale was perceived to be, as one company executive recalled, "a knight in shining armor."

Berryman recalls, "There was a potential for a cash flow of more than $1 million a month over the course of the contract, if we had gotten it. It seemed to be too good to be true, and perhaps it was."

The day before the Arkansas Department of Corrections was to select the winning bidder, Berryman said, Hale called to assure him that the contract was theirs. "I saw him the morning before the hearing and he said everything was fine," Berryman recalled. "He was very sure that we were going to get the contract."

But at the hearing before the Arkansas prison board the next day, CHC received only one vote in its favor, and the contract went to another firm. Hale unexpectedly did not show up for the vote. A short time later, CHC went bankrupt.

"I never saw (Hale) again," recalled Berryman. "I never heard from him again. I tried to call him, but he never returned a single telephone call." He then added, "I doubt that I am going to hear from David Hale anytime soon."

By Murray Waas

Murray Waas is a frequent contributor to Salon.

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