April and Webb and Jean and Jack
Adams, James Ring
James Ring Adams April and Webb and Jean and Jack The muzzling of the Kansas City Three is turning into the smoking gun of the Whitewater scandal. T 4 4 he RTC has been a political...
...As they talked, Breslaw did not know that a tape recorder was running...
...Her first assignment was to investigate failed thrifts in Arkansas...
...The ten months of available bills—about a year's worth appear to be still missing—show 283.25 hours charged to Hubbell for a total of $37,392.82...
...The indirect nudge raised Lewis's hackles...
...Lewis further lulled her, said Breslaw, by offering her a seat on the sofa...
...It discussed the impending expiration of the statute of limitations on S&L cases...
...An FDIC spokesman confirmed that the billing fell in the purview of an ongoing inspector general's investigation of Rose that was originally due to conclude in May...
...You don't turn a blind eye to your business investments, and if you're not putting money in, you have to wonder where the money is coming from that's making the real estate payments...
...official that his appearance was "unnecessary...
...Breslaw told the Senate banking committee that she recused herself from matters involving the Rose firm or Seth Ward on January 27, 1994, very late in the game, but just before the release of the internal RTC report on the conflict allegations...
...showing that Madison was in good shape, but this detail seemed forgotten in 1989 when a federal regulator hired Rose to pursue Madison's accounting malpractice suit against Frost...
...attorney in Little Rock and former law student of Bill Clinton, Lewis was taken off the Madison case in November 1993...
...Paul Kanjorski (D-Penn...
...In 1985, he joined the Miami law firm of Stephen Arky, who had his fingers in too many dubious affairs to recount here...
...After listening to a long discourse on check kites, Breslaw said, "I don't believe at all and I don't want to suggest at all that they want us to reach a certain conclusion...
...Breslaw's response was that Hubbell did not represent Ward and would shortly send a letter saying so...
...Houston-born Lewis, daughter of a professional soldier who rose through the ranks to brigadier general, grew up on a series of Army bases...
...In an angry letter, her lawyer explained that she drew revenue from a slogan she had marketed for T-shirts and coffee mugs, featuring a megillah-style arrangement of the phrase "Boys, I'm Taking Charge Here...
...But the RTC made no pretense of evenhandedness...
...As one of the senators paraphrased Roelle's deposition, "[Altman] said he didn't want to read it in the paper...
...They provoked further charges from Iorio, Lewis's immediate supervisor...
...prepared a background sheet of derogatory personal information and released the rough draft of a retention agreement between Lewis and her lawyer.1 Responding to this "character assassination," Lewis's lawyer, Michael Forshey of Dallas, charged that the letter, "a personal, confidential and privileged communication," had been sent to the committee by John Ryan, Roger Altman's successor as acting RTC head...
...He also "prodded" her to talk to Lewis...
...Regulators in the past had bent to congressional pressure, but they had never before thrown one of their own to the wolves at a public hearing...
...In 1988, federal rescuers merged Western with seven other hard-case thrifts, and Lewis rose through the wreckage from secretary to assistant vice-president...
...April," she said, "I think I understand what you're saying there, and I'll tell you what my perspective is on it...
...Hubbell may or may not have mentioned something about the firm's previous work for Madison—which would have disqualified Rose from this lucrative account...
...At the Federal Reserve in the early eighties, he was the supervisor in charge of approving Clark Clifford's takeover of the banking corporation that became the BCCI-controlled First American Bankshares...
...Another career bureaucrat, RTC corporate communications director Stephen Katsanos, told Senate investigators that Clinton's friends had consistently undermined the regulators' independence, supposedly guaranteed by statute, to suit their own agenda...
...Top officials at the RTC called her by her first name...
...In the field, she said she was acting on behalf of Ryan and Kulka...
...Such a statement about the apparent misuse of taxpayer money would call for an investigation that might target the bureaucrat who signed the questionable bills and then let them disappear...
...When the FDIC took over the savings and loan crisis in February 1989, it put career attorney April Breslaw in charge of the Madison Guaranty case...
...This failure bears out the charge by ranking Republican Leach that the cover-up by the House Banking Committee majority has turned Whitewater into a constitutional crisis...
...Breslaw, the Washingtonian with the law degree, had risen rapidly through turmoil at the Professional Liability Section...
...The pliant regulators and pushy politicians who gave us the last thrift debacle have returned with a vengeance...
...Congress mandated another PLS reorganization, and when acting RTC chief John Ryan carried it out in April 1994, he made several interesting changes...
...T 4 4 he RTC has been a political football since day one almost," said career bureaucrat William Roelle during the recent congressional Whitewater hearings...
...As we shall see, the disciplining of The American Spectator October 1994 41 the Kansas City Three is perhaps the most ominous result of Whitewater to date...
...But judging from the Whitewater hearings, Altman (and his bosses) showed deliberate intent to control the RTC...
...As Whitewater burgeoned in the press, the Frost suit was under investigation in another part of the RTC, ominously entitled the Office of Contractor Oversight and Surveillance...
...When the firm that had filed the suit was disqualified on conflict grounds, Breslaw called Webster Hubbell...
...Both letters named Hillary Rodham Clinton as a contact person...
...She resigned from the Madison civil case only on March 25, 1994, after Altman himself announced he would quit his post at RTC...
...The American Spectator October 1994 45 at that time...
...t might have been unusual to carry this debate into a congressional forum, but Lewis was in for much worse...
...Regulators in the past had bent to congressional pressure, but they had never before thrown one of their own to the wolves at a public hearing...
...The contradiction led the Rose Firm to investigate Hubbell's billing, and he resigned as third man at Justice, he said, to defend himself against its complaint of fee padding...
...Rose took on the case in April...
...Federal law charges the House Banking Committee with holding oversight hearings on the RTC every six months, and there's a lot at that agency that needs looking into...
...The problems that forced the resignation of Altman began, his defenders say, when he was given the impossible joint appointment of number two Treasury official and acting head of the RTC...
...In February 1986, she took a secretarial job at Western Savings Association in Dallas, one of the most crooked thrifts in Texas...
...It's a sad irony that Banking chairman Henry Gonzalez, the gadfly hero of the S&L crisis, is now leading the House back into the worst habits of its very recent past...
...Breslaw signed the approvals for the bills and sometimes sent cover letters to the managing agent for Madison urging payment "as promptly as possible...
...The bureaucrats resisted specific accusations, but they powerfully conveyed the picture of a demoralized, 42 The American Spectator October 1994 poorly managed agency, severely hampered in the effort to recover S&L plunder for the taxpayer...
...Much as Rep...
...The S&L collapsed eight months later, but Lewis stayed on to help the FBI and IRS sort through its millions of pages of files...
...The Treasury Department press secretary, and even a White House political consultant, tried to give instructions to the RTC spokesman...
...Iorio said that, unlike Lewis, he had asked to testify at the House Whitewater hearing but was told by a senior RTC his present position to undersecretary of the Treasury Frank Newman, who as a former senior officer of the Bank of America had been impressed by his past dealings with Ryan...
...Contrary to Breslaw's assertion about Hubbell's indirect role, the fee bills, said the report, showed that he "performed a significant amount of work...
...Yet, worse was to follow...
...Breslaw prevailed at thetime, and an RTC report earlier this year exonerated Rose of a conflict of interest...
...The FDIC Legal Division report that supposedly cleared the Rose Law Firm of conflict in the Madison case also noted the discrepancy between Breslaw's downplaying of Hubbell's role and the large number of hours that he billed...
...I really don't get that feeling but they'd be happier about it because it would get them off the hook about Whitewater...
...The RTC under Ryan has shown that the only people with anything to fear are the bureaucrats who show too much zeal...
...On these facts, I am not inclined to take a $10,000,000 case away from counsel that has obtained fine results for me on other matters...
...I don't know the insolvent thing," she said...
...No one else was ordered to leave, Katsanos said, raising an interesting question about Hubbell's legal fees...
...One of these "high-profile" figures turned out to be Clinton's Navy secretary John Dalton, who had sailed through his confirmation without a public whisper about his nefarious role in a failed Texas thrift and his expectation of a James Ring Adams is The American Spectator's special investigator on Whitewater...
...He warned that the Ward suit would raise questions about Madison's day-to-day operations...
...By the end of the case, Rose submitted bills for $400,879.55 and obtained a settlement with Frost for $1,025,000...
...Both Lewis and Breslaw have refused to talk to the press, but the Whitewater hearings produced a wealth of new detail about the chat, including a more or less verbatim transcript...
...Newman has been nominated to take the number two post in Treasury being vacated by Roger Altman...
...Upset by the news, he wrote to Breslaw in Washington that Hubbell's father-in-law, Seth Ward, had recently won a judgment for nearly half a million dollars in fees he said he was owed by Madison Guaranty...
...This stab in the back exceeded any previously recorded betrayal of field staff by their Washington chiefs...
...To believe that none of this information will make it back to his family is naive...
...was part of the path...
...RTC spokesman Katsanos did not deny the charge, but he failed to explain coherently why the head of an agency would choose to relay intercepted copies of an employee's private correspondence to a congressional committee...
...In her testimony, Breslaw dismissed the talk as "Ms...
...Iorio to alarm the Kansas staff by using the letter to emphasize the growing tension between the RTC and Congress...
...Regulators had been hoping to recover some of the S&L's losses by suing its accounting firm, Frost & Co...
...She added that neither was he the primary attorney on Frost...
...During lunch, Iorio offended her further by offering her an alcoholic drink...
...On January 12, she singled out what she thought was the source of her torment, the investigations staff of the Kansas City office...
...This list apparently excludes cover letters for the bills, which Hubbell signed and addressed "Dear April...
...But others were calling for an IG investigation of the entire episode, an investigation, Lewis's lawyer said, that could "open a whole can of worms...
...This argument horrified Breslaw, who had spent two years working on the Madison accounting malpractice case...
...Although Ryan has won praise as a regulator, there are jarring coincidences in his career, as the Wall Street Journal has noted...
...The encounter brought together two distinctly different kinds of bureaucrats...
...He says he signed on to help with an ambitious program of bank mergers and acquisitions that fell apart when the firm became engulfed in a spectacular series of financial scandals...
...The Resolution Trust Corporation, set up in 1989 to clean up the wreck of the savings and loan industry, is now the pawn of the political mindset that produced the disaster...
...It was hard to give any hard numbers for Whitewater's impact, said Lewis, "because you're trying to isolate one microbe out of an amoeba...
...I will produce whatever answers are available and file them up to whoever needs them...
...Ryan told the Senate Banking Committee that he owedbrazenness has become crystal clear in the return of Tony Coelho, the former House majority whip who raised millions of campaign dollars from crooked S&L owners and other special interests...
...Reconstructed from FDIC files this January (because the RTC's file for "Madison Legal Bills" was found to be empty), they show more frequent contacts between Breslaw and Hubbell than she seemed willing to acknowledge...
...At the end of the day, she sat down for a chat with Laura Jean Lewis, who until the previous November had conducted the Kansas City office's criminal investigation of Madison...
...Furthermore, no one but Lewis's lawyer raised public questions about the conflict between Breslaw's congressional testimony and her statements in Kansas City...
...Almost as soon as the hearing ended, Katsanos drew the distasteful duty of explaining why his superiors had decided to investigate not the senior lawyer accused of trying to manipulate the Madison investigation, but the career regulators in Kansas City who had kept the case alive...
...Breslaw did say, he noted, that her superiors wanted "honest" answers...
...Lewis was trying to give The Rose firm's legal bills also tell a story about federal regulation...
...The trail of overdrawn checking accounts and loans led in and out of at least twelve of James McDougal's entities, and Whitewater Development Co...
...She started to argue that McDougal's business partners, including Bill and Hillary Clinton, must have known that his S&L was in trouble...
...With these words, Roelle revealed one of the most dangerous implications of the Whitewater affair...
...The idea came to her, he said, when the opposing lawyer at a deposition had called her a "bitch...
...I thought it was inappropriate," she said, "for Mr...
...Lewis freely expressing her views and ideas about the criminal matters on which she had worked...
...Another Rose partner says yes, Hubbell did raise the earlier work...
...They have more sense than that...
...Coincidentally or not, the RTC went through a series of disruptive and badly managed reorganizations...
...A letter from his lawyer to Jack Ryan stated that "as early as" February 18, after Breslaw's visit, he received warnings that "certain key RTC managers would take a 'dim view' of his office's investigation of Madison Guaranty...
...The suspensions of the Kansas City Three may yet backfire...
...In 1991, encouraged by agents who had worked with her, she joined the RTC...
...In that case, why did Breslaw say what she did, and who sent her...
...Neither plan took effect, because Madison couldn't meet the Securities Department precondition that it raise more capital...
...Then this February, she fell into a controversy more intense than the Rose case, in an incident that takes on added interest in light of her apparently friendly professional relations with Hubbell...
...During the morning, she complained to the committee, she saw him showing his staff a letter written to some congressmen the day before by Roger Altman, then acting chief of the RTC...
...Nor did anyone think to ask whether Breslaw had kept up her contact with Hubbell, then still at Justice, and whether he had a hand in her Kansas City trip...
...Street-smart and notoriously tough, she learned about the savings and loan industry the hard way...
...In his words, blunt by bureaucratic standards, "The RTC was certainly much more political and there were activities undertaken that were of much more concern to the career staff than there had ever been before...
...Her immediate supervisor, Mark Gabriellian, was not called as a witness...
...It didn't start with Whitewater at all, Lewis said, but with the discovery of a check-kiting scheme through several other land developments...
...In both these cases, Breslaw too might reasonably have been placed on administrative leave...
...Her now famous meeting with Breslaw was almost an afterthought, but it has produced such repercussions that it may mark a turning point in the integrity of thrift regulation...
...Congress is supposed to act as a check on potential abuses by the executive, but a good half of that body has defaulted on its duty...
...What Is Jack Ryan...
...But she denied it to Congress, and said she had never even met them 1Kanjorski and others pointed to a mention of royalties as proof that Lewis was looking for a book deal...
...Roelle would later confirm that his boss Roger Altman, at the time both acting head of the RTC and deputy treasury secretary, had laid down guidelines for cases when "there were high-profile individuals affiliated with failed S&Ls...
...Hubbell himself said that at the time he didn't know about the securities work himself...
...On both sides then," she wrote, "Hubble [sic] is involved only in an indirect way...
...Much as he denied this charge, the only people he has disciplined in the affair have been those responsible for keeping the Madison case alive...
...By the time Breslaw told the tale to Congress, she portrayed these attentions as a plot to induce her to talk freely...
...It's true Altman took the role as an interim post...
...Her host was Richard Iorio, the field investigator for the Madison case...
...But the last such hearing took place in February 1993, a year and a half ago...
...When Altman wasn't free for the RTC weekly staff meeting, his place was taken by Newman...
...Two months later, an FDIC attorney in Little Rock learned that the files had been delivered to Webb Hubbell...
...We are making this information available, in detail, to Mr...
...According to one report, two supervisors were evicted from their office by security guards...
...But the report contained devastating revelations...
...Just before the presidential election, an all-Democratic panel of the Senate Banking Committee held a day-long hearing on the turmoil, trying to elicit charges that the Bush administration was trying to protect its political cronies...
...The White House and Treasury witnesses at the Whitewater hearings seemed completely oblivious to the problem...
...The dual role was a built-in conflict of interest and directly contradicted congressional intent for the RTC to be politically independent...
...Leach, the ranking Republican on the House Banking Committee, praised the courage of the Kansas City investigator, congressional defenders of Clinton prepared to turn its August 5 Whitewater hearinginto a determined assault on her credibility...
...RTC spokesman Katsanos said the review of the three had produced enough material to warrant a referral to the RTC inspector general...
...Lewis, Iorio, and Lee 0. Ausen, supervisor of the Kansas City investigators, were ordered to leave their offices for about two weeks, Katsanos confirmed, while an ad hoc team from Washington looked into "certain issues" raised about their conduct...
...After some pointed exchanges with Paula Casey, the U.S...
...A separate Office of Investigations assisted PLS lawyers, but tensions between the two units reached such a point in some regions that they barely spoke...
...Its mission was to go after the "deep pockets"— the lawyers, accountants, and outside directors who profited from the failing S&Ls and still had the resources to make restitution—a mission that targeted many "high-profile individuals...
...It was fully in character that Lewis, already famous for her assertiveness, was tenacious in tracking the disappeared criminal referrals on Madison and in making new ones...
...But Lewis pressed her theory of collective responsibility...
...They are attorneys...
...The Bank of America, along with the Sheikh of Abu Dhabi, was a founding shareholder of BCCI and kept close ties with the bank even after divesting its stock in the late seventies...
...Bill Clinton has succeeded in reducing a crucial part of the federal civil service to the standards of corrupt one-party Arkansas...
...The third, the lady who kept Washington from burying the criminal referrals on Madison Guaranty Savings and Loan, checked into the hospital with a stress-related ailment...
...Coelho resigned from the House in 1989 after the disgrace of Speaker Jim Wright rather than face scrutiny of his S&L favors...
...The American Spectator October 1994 43 the barely interested Breslaw an overview of her investigation...
...At the end of the two weeks, the three returned to work, but the pressure continued...
...The Rose presentation relied on an audit by the accountants Frost & Co...
...This talk has become the Smoking Gun of Whitewater, evidence of Washington pressure on field investigators to reach a comfortable conclusion about Madison...
...In mid-August, the RTC placed the three main Madison investigators on career-chilling administrative leave...
...One such involvement dates to April 30, 1985, when the Rose Law Firm wrote the Arkansas Securities Department in support of Madison's plan to issue preferred stock...
...Reconstructed from FDIC files this January (because the RTC's file for "Madison Legal Bills" was found to be empty), they show more frequent contacts between April Breslaw and Webster Hubbell than Breslaw seemed willing to acknowledge...
...The early morning of February 2, she boarded a flight to Kansas City, her first and only visit to the RTC office at the Country Club Plaza...
...In her later congressional testimony, she singled out these "implausible suspicions about the Clintons" as damaging Lewis's credibility: If the outside auditors said Madison was profitable, how could Clinton have known otherwise...
...That's why I think we keep getting asked these same things...
...As Lewis plunged in, the tone took a sharp turn for the worse...
...This move came just two weeks after Rep...
...Its Acting RTC head Jack Ryan stands accused of trying to chill the Whitewater investigation...
...Both accounts miss the point...
...Iorio may have left her alone in Lewis's office, she speculated, because "he was aware that one or more of his employees' offices were 'bugged,' but did not want his own voice recorded...
...reslaw told Congress B she had no intention of meeting Lewis on her trip...
...Ryan downplays the job...
...He has been advising the White House since the inauguration and was just invited to serve as unpaid chief strategist and spokesman for the Democratic National Committee...
...750,000 "finder's fee" for setting up a meeting with regulators...
...Going to Kansas City The Rose Law Firm was very much on Breslaw's mind last January...
...Noting that the FDIC already had the case under review, she said, "I suggest that Investigations discontinue its inquiry into this matter...
...When Breslaw rejected her fellow attorney's concern, another FDIC agent appealed to his superior...
...He centralized the PLS field staff under a senior officer in Washington and gave PLS control of the Investigations staff as well...
...In mid-August, a day before angry senators forced the resignation of deputy secretary Altman, the RTC placed Lewis and her two supervisors on administrative leave...
...Ominous, because it involves not the coddling of political cronies but the intimidation of the civil service to protect none other than Bill and Hillary from investigations into the looting of the Madison S&L...
...Ryan and Kulka denied having anything to do with the Kansas City trip...
...Her role in reviving the Madison case has been previously reported (see TAS, April-May 1994...
...These bills were all addressed to the Professional Liability Section (PLS) of the FDIC, Breslaw's permanent employer...
...The "Cutler Standard" today holds it ethical to give the president a "heads up" on anything the press could conceivably ask about...
...Hubbell's brother-in-law, Seth Ward II, was also pressing a claim on Madison...
...I can't accept it...
...CI 46 The American Spectator October 1994...
...Jim Leach (R-Iowa) first made the charge that Washington was trying to curb the RTC Kansas City office in its investigation of Whitewater...
...Much as he denied this charge at the Whitewater hearings, the only people he has disciplined in the affair have been those responsible for keeping the Madison case alive...
...Here we're dealing with people like [now–Arkansas Gov.] Jim Guy Tucker and Hillary Clinton," she said...
...Hubbell was present at the trial of the Seth Ward matter," wrote the attorney, "and appears to have been an interested (indirectly) participant in the Ward proceedings...
...On July 10, it submitted arguments for Madison's effort to buy a brokerage house as a financial subsidiary...
...But the record bears him out...
...This stab in the back exceeded any previously recorded betrayal of field staff by their Washington chiefs...
...Since the Bush White House had also drawn harsh and well-deserved attacks for its own interference, Katsanos was making a weighty statement...
...A Wall Street Journal reporter, apparently working from a sloppy transcription distributed by House Democrats, said the tape appeared "to undercut the notion" that Breslaw pressured Lewis...
...The Professional Liability Section, sitting in the third tier of the RTC's legal bureaucracy, took some of the heaviest political pressure in this highly politicized agency...
...But as far as a "politically correct response," she said, "I'm not going to do anything to facilitate that...
...He is the author of The Big Fix: Inside the S&L Scandal (Wiley) and co-author (with Douglas Frantz) of A Full Service Bank: How BCCI Stole Billions Around the World (Pocket Books...
...The Rise of April Breslaw The regulators involved in the muzzling of the Kansas City Three have a history going far back in the Whitewater affair...
...The treatment of the Kansas City Three marks a low point in the recent history of regulatory degradation...
...B ut one doesn't have to glean the Clinton administration's basic attitude toward financial regulation from its subtle bureaucratic shuffles...
...Fear and Loathing at the RTC Some bureaucratic background helps explain the outrage that followed...
...Breslaw quickly demurred...
...Breslaw says she was gathering documents on the civil investigation of Madison...
...Acting RTC head Jack Ryan stands accused of trying to chill the Whitewater/Madison Guaranty investigation...
...Hubbell," he said...
...Breslaw began writing e-mail memos defending herself and complaining about the inquiry...
...In eight years as a bank regulator, she received five promotions and now held the GS-15 classification, toward the top of the civil service scale...
...In August 1992, an impressive array of senior lawyers took their careers in their hands and complained to Congress that punitive transfers and petty harassment were driving experienced lawyers out of the PLS and seriously disrupting its lawsuits...
...When the RTC started its own PLS program in 1991, Breslaw transferred to the thrift agency, intending to return to the FDIC when the RTC expired in 1995...
...The Rose legal bills also tell a story about federal regulation...
...His notations show nine conference calls and six letters to Breslaw, identified toward the end as "April...
...This wasn't the analysis that Breslaw apparently wanted, and twice she made the point, "If they could say it honestly, the head people, Jack Ryan and Ellen Kulka, would like to be able to say Whitewater did not cause a loss to Madison...
Vol. 27 • October 1994 • No. 10
