Saturday, Sep 6, 2008
Kenneth Starr's key Whitewater witness turned his government-funded loan company into an ATM machine for his politically connected friends. When the feds caught on, he tried to blame President Clinton.
Mar 3, 2000 | To Little Rock judge and con man David Hale, suddenly facing a federal indictment, the right-wing obsession with ruining the Clinton presidency offered an excellent opportunity to evade the consequences of his own crimes. His embezzlement of $2 million from the U.S. government didn't trouble the Clinton-hating arch-segregationist "Justice Jim" Johnson or the gonzo conservative activists at Citizens United, who eagerly promoted Hale's uncorroborated charge: that the president had pressured Hale to OK a fraudulent loan to Susan McDougal, the Clintons' Whitewater partner.
But however zealous, those fringe advocates on the right couldn't do much for Hale by themselves. The crooked judge's gambit couldn't succeed without attention from the national media -- including a few timely phone calls from a certain well-connected reporter for the New York Times.
When a squad of FBI agents burst into the offices of Capital Management Services (CMS) in downtown Little Rock on July 21, 1993, and started carrying out boxes of files, their arrival ended several weeks of suspense for the company's proprietor, David Hale. While sitting as a judge in the city's municipal court, Hale had continued to operate several enterprises, the most lucrative being Capital Management Services, a private small business investment company (SBIC) that made loans backed by the U.S. Small Business Administration. With SBA funding and a license obtained in 1979, Capital Management Services was originally chartered to lend to businesses owned by minorities and other "disadvantaged" entrepreneurs. Under the Reagan administration, however, those federal requirements had been loosened to the point where virtually anybody qualified for an SBA loan-a loophole Hale exploited to the fullest advantage.
Hale's angle was a federally subsidized variation on the classic "bust-out" scheme. In collaboration with prominent political figures and others, he had loaned millions of federal dollars to more than a dozen dummy companies he secretly owned. Having no cash flow and no assets, his companies had then defaulted on the loans after Hale siphoned off all the money. The ultimate accounting would show that he had walked away with as much as $3.4 million.
This kind of crude fraud could hardly continue undetected forever. (A rather obvious clue was that the dummy companies all listed the same address as Hale's office.) By the end of 1992, Capital Management had drawn the scrutiny of SBA officials. Attempting to qualify for increased federal matching funds, Hale had confided to an administrator at the agency's Washington headquarters that millions in noncash assets had been "donated" to the firm thanks to his political influence. When the SBA proposed an audit, Hale attempted to withdraw his application, which aroused immediate suspicions. As soon as SBA investigators started poring over Hale's records, they found fraudulent entries everywhere they looked. Of fifty-seven outstanding loans on Capital Management Services' books, thirteen had gone to dummy corporations controlled by Hale. Altogether, he'd advanced the phony companies about $2.04 million.
Perhaps the most cynical aspect of Hale's scam was his exploitation of SBA matching funds. For every dollar of operating capital CMS came up with, the taxpayers kicked in three. Hale would finance a loan to one of his dummy companies, default on it, and then use the embezzled funds to generate more operating capital on a three-to-one basis. He repeated this pyramid scheme many times. Hale also ran various real estate and insurance frauds to raise more operating capital. One of the SBA investigators later told Senate staffers that Hale's embezzlement scheme was the most brazen he'd encountered in his twenty-five years with the agency. The SBA's inspector general swiftly referred the case to the FBI. No later than May 1993, Hale knew that federal officials were taking a hard look at his operation.
The FBI's seizure of his records concluded a long and remarkable dual career for David Hale. Publicly, he was a pillar of the community; privately, he was an inveterate con artist. Though his record as a judge was undistinguished, Hale came from an old hill-country clan with a long history in state politics, and he had established himself in Little Rock at an early age. Friendly and personable, a backslapper and glad-hander, he had pledged the right fraternity at the University of Arkansas; as a young businessman he had joined the Junior Chamber of Commerce, and he was elected national president of the Jaycees in 1974.
Regardless of his family's strong Democratic background, Hale never allowed partisan loyalties to obstruct his personal interests. He carefully cultivated the powerful, Republicans and Democrats alike. Hale was a longtime associate of Sheffield Nelson, the president's bitterest GOP rival. Many news reports would identify him as a Clinton appointee, but in fact Hale's judicial robes were bestowed upon him in 1981 by Governor Frank White, the Republican who had defeated Clinton's first bid for reelection the previous year. White signed a bill creating the judgeship for Hale, including an unusual provision that permitted him to run for election to the bench after his appointed term expired, a circumstance normally prohibited by the state constitution.
The entire scope of Hale's crimes, extending well beyond Capital Management, would not be revealed for years after the FBI raid. A few Arkansans had gotten a glimpse of Hale's true character prior to his well-publicized disgrace. Though he professed to be a devout and happily married Baptist, Hale conducted a long-running illicit affair with his secretary. While romancing her, he managed to swindle her grandparents into signing over their family farm to him. They later sued the judge and won a $486,000 judgment. Years before Hale was caught, at least one business associate later accused of complicity in his crimes had made a trip to Washington at his own expense to warn SBA officials that Hale was corrupt. Unfortunately, those warnings were ignored. Also known as something of an eccentric, Hale was the only judge in Little Rock-his court handled misdemeanors and traffic cases-to have a bulletproof shield installed in front of the bench. Visitors were required to pass through not one but two metal detectors to enter his courtroom.
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