Hale Storm Rising

By Richard Lacayo

In the part of Kenneth Starr's Whitewater investigation that actually deals with Whitewater, the key witness is David Hale. Hale says that in 1986, when he headed a small lending operation, Bill Clinton pressured him to make an illegal loan to Susan McDougal, a partner of the Clintons in Whitewater. Testimony by Hale helped convict McDougal, her ex-husband James and former Arkansas Governor Jim Guy Tucker, Starr's biggest prizes to date. All the same, Hale is not the ideal keystone for a case against the President. Not when Hale has pleaded guilty to fraud. And not when he started implicating Clinton only after federal investigators were closing in on him for fraudulent loan schemes. In February, after serving 20 months in prison, Hale got a reduction in sentence--for cooperation with Starr.

What Starr needs now is not just more cooperation. If he plans to aim Hale straight at the President, Starr needs Hale to be a straight arrow. But Hale's credibility is under attack once again. Tipped off by reports in the online magazine Salon and elsewhere, FBI officials have been interviewing an Arkansas woman who says that after Hale became a Whitewater witness, he began receiving cash payments from men who were connected with Richard Mellon Scaife, the rabidly anti-Clinton billionaire, and with the American Spectator, the gleefully anti-Clinton magazine that Scaife has supported. Last week Attorney General Janet Reno said the charges about payments to Hale "must be pursued."

Scaife is to Clinton haters what the Medicis were to Michelangelo: the ultimate patron. Until late last year he subsidized the so-called Arkansas Project, a multimillion-dollar campaign, run by the Spectator, to dig up and publish dirt about the Clintons and their friends. From 1993 to 1997, two Scaife foundations transferred $2.4 million to another foundation that owns the Spectator. The magazine turned over much of that money to Stephen Boynton, a Virginia attorney and conservative activist, who spread it around to hunt down stories about the President through various means, including private detectives. The possibility that the tax-exempt money was misused--which could jeopardize the tax-exempt status of the Spectator--was apparently troubling to the magazine's longtime publisher, Ronald E. Burr. Last year he demanded an audit by an outside accounting firm. In October, Burr was abruptly fired by Spectator editor in chief R. Emmett Tyrrell. Now the magazine is finishing up an "internal investigation" of the funds. It's headed by Theodore Olson, a Spectator board member, Starr's former law partner and Hale's onetime attorney.

The story that attracted the attention of the FBI is being told by Caryn Mann. She was once the live-in girlfriend of Parker Dozhier, a friend of Hale's who operates a bait-and-tackle shop at a Hot Springs, Ark., fishing compound, where Hale was an occasional guest in Dozhier's cabin. Both Mann and her son Joshua Rand, 17, say Dozhier regularly received money from Boynton and David Henderson, a Scaife associate and Spectator vice president. She says Dozhier gave some of the money to Hale. Dozhier and Spectator editor Tyrrell admit that Dozhier got $1,000 a month from the magazine, mostly to clip newspapers, they say. Both of them deny that Dozhier passed serious money to Hale. "If I ever gave David Hale five dollars," Dozhier told TIME, "it was for lunch money.

Last week it emerged that another conservative moneyman was present at the creation of Clinton's other legal headache, the Paula Jones case. Jones brought suit after she recognized herself as the woman named "Paula" in the 1994 Spectator story about Clinton's alleged caperings while Arkansas Governor. Last week the Chicago Sun-Times reported that two of the troopers who were sources for that article, Larry Patterson and Roger Perry, were paid by Peter W. Smith, a Chicago investment banker and large G.O.P. contributor, who spent about $80,000 over 18 months to get tales about Clinton's personal life into print. Former Spectator writer David Brock, who says he accepted $5,000 from Smith for an earlier abortive book project, claims that while he was working on the article he sought to ensure that Smith would not pay the troopers because it would taint their credibility. Smith now admits that three months after the story ran, he paid each of them $6,700, which he says was for income they lost when they came forward.

As for the alleged payments to Hale, Reno wants to examine those, but she still hasn't decided how. She could refer the matter to Starr. But that means he would be investigating both his chief witness, Hale, and his own likely future benefactor, Scaife, who is partially funding two Pepperdine University deanships that Starr is supposed to settle into after Whitewater. If Justice handles the investigation, Reno could appear to be trying to undercut Starr's probe of her boss, the President. She may opt instead to ask a federal judge to direct a probe into the crucial question: If Hale is the key to Whitewater, has somebody been turning him?

--Reported by Jay Branegan and Viveca Novak/Washington and Adam Cohen/Little Rock

With reporting by Jay Branegan and Viveca Novak/Washington and Adam Cohen/Little Rock