Another S&L Conflict For Hillary Clinton?

Hillary Rodham Clinton represented the government in an Illinois savings-and-loan case involving a family friend and political supporter, settling the lawsuit against him for less than a dime on the dollar, court and government records show.

As in the Whitewater investigation, the case raises conflict-of-interest issues over the work of the Rose Law Firm, where Hillary Clinton and Associate Attorney General Webster Hubbell were partners.

The government now is trying to determine whether Hillary Clinton provided regulators the required notification of a potential conflict of interest, and if so, how she got the contract anyway.

The problem stems from the Clintons' friendship with Dan Lasater, a convicted felon whose bond-trading firm played a hand in the troubles of several savings and loans, including First American Savings and Loan Association of Illinois.

It all started in 1979 in an unlikely venue: the Oaklawn Park racetrack in Hot Springs, Ark. President Clinton's mother, Virginia Kelley, who died recently, had a passion for thoroughbred horseracing, and her box at the track was next to Lasater's.

Family, financial ties

Lasater, an Arkansas native who grew up in poverty in Kokomo, Ind., started a hamburger chain when he was 19 and was wealthy by the time he met Virginia Kelley and Clinton's half-brother, Roger Clinton, at the racetrack. In just over two decades, Lasater had sold his first hamburger chain; moved to Arkansas; founded the Ponderosa Steakhouse, a nationwide chain of 650 family restaurants; and started a bond-trading firm.

The racetrack friendship soon turned into an introduction to Bill Clinton. By early 1983, Lasater had given Roger Clinton a job at his Florida horse farm; Bill Clinton had reclaimed the governor's mansion; and Lasater's bond firm had been added to a list of firms eligible to underwrite state bond issues.

Over the next two years, the ties between Lasater and the Clintons grew stronger. According to published reports, Lasater:

-- Contributed money to the governor's campaign.

-- Lent Roger Clinton $8,000 to pay off a drug debt.

-- Sponsored fund-raising parties at his offices.

-- Made his private plane available to Gov. Clinton for campaign jaunts.

-- Encouraged his staff to donate to the governor's campaign, promising higher commissions to compensate for the donations.

In the summer of 1985, Bill Clinton successfully lobbied the Arkansas Legislature to approve $30.2 million in bonds for the new state police radio system. The approval did not mention Lasater's firm, but the company did win part of the contract, netting $750,000, according to The Los Angeles Times.

Meanwhile, Lasater spread his financial wings beyond Arkansas, signing deals to trade Treasury bond futures with several savings and loans, including First American.

In late 1985, though, First American found it had lost at least $361,572 in trades made by Lasater's firm. It eventually hired the Rose firm to sue Lasater's bond company for fraud.

But First American was seized by federal regulators in 1986, before the lawsuit went to court, and the head of the S & L, former Illinois Gov. Dan Walker, was himself convicted of fraud. Around the same time, Lasater was convicted of cocaine trafficking.

Federal regulators decided to pursue First American's lawsuit, and they stuck with the Rose firm. Months earlier, Rose had won government legal work on failed savings and loans in Arkansas.

The Lasater connection caused no end of problems for Bill Clinton. During his re-election campaign in 1986, Clinton came under attack from his GOP opponent, who claimed he had steered state contracts to Lasater while Lasater was under investigation for drug trafficking.

Bill Clinton acknowledged being friends with Lasater but denied knowing about Lasater's drug activities. Clinton was re-elected.

In 1987, Lasater went off to prison after giving Patsy Thomasson, another key Clinton supporter, legal authority to manage his assets, court records show. $3.3 million reduced to $200,000

Most of the Rose firm's S & L legal work was handled by Webster Hubbell, now the No. 3 official at the U.S. Justice Department. But the firm assigned the government's suit against Lasater to Hillary Clinton and Vincent Foster, the former deputy White House counsel who committed suicide last July.

In late 1987, court records show, Hillary Clinton and Foster negotiated a confidential settlement. The Chicago Tribune obtained a February 1989 letter from Foster to the Federal Deposit Insurance Corporation, showing that Lasater paid the government $200,000 in return for the dismissal of its $3.3 million suit against him.

Whether Lasater got off cheaply at taxpayer expense depends upon his assets at the time and the strength of the evidence against him, legal experts say.

Still, Thomas Scorza, a former assistant U.S. attorney who teaches legal ethics at the University of Chicago, said Hillary Clinton's decision to represent the government in a lawsuit against Lasater raises serious questions about her conduct.

"A lawyer is required to represent the interest of their client zealously," he said. "There is a substantial question about whether an attorney was representing a client zealously if the opponent of the client is someone with whom the attorney had a political, financial and personal relationship."

"In looking at the settlement, were they (the Rose Law Firm) looking after Lasater's interests or the interests of the FDIC?" Scorza asked.

Hillary Clinton's office declined to respond to specific questions about the case but issued a general statement defending her legal ethics. "Our view is that Mrs. Clinton, when a lawyer at the Rose Law Firm, acted with the utmost integrity and professionalism," said her press secretary, Lisa Caputo.

To avoid even the appearance of a conflict of interest, Scorza said, Hillary Clinton should not have worked on the Illinois S & L case - especially because the final settlement was confidential.

There's no evidence in the court case that the Rose Law Firm or Hillary Clinton ever disclosed to their client, the FDIC, the ties between the Clintons and Lasater or Thomasson, who was representing Lasater's interests at the time of the settlement. Thomasson, who later became executive secretary of the Arkansas Democratic Party, is now director of the White House Office of Administration.

David Barr, an FDIC spokesman, said FDIC attorneys are trying to locate records on First American to see if the Rose Law Firm notified the FDIC about any potential conflict of interest.

Officials at the Rose firm did not return a call yesterday.

In another development, it was reported that Hubbell was paid by the government in 1989 to settle litigation against an accounting firm accused of negligence in the failure of Madison Guaranty Savings and Loan in Little Rock.

The firm, including Hillary Clinton, had done legal work for the S & L before its failure. FDIC officials have launched a formal investigation into whether Rose failed to properly inform regulators of that potential conflict.