Paula Jones' Lawyers Say They Haven't Been Paid -- Legal-Fund Gifts From Public Feed Private Account

WASHINGTON - Money raised from the public to defray legal expenses of Paula Jones' sexual-harassment suit against President Clinton is going to a private account under her control and to a direct-mail firm with ties to conservative causes - but not to her lawyers.

Jones has received about $100,000 from a fund-raising campaign purportedly launched on behalf of her attorneys, sources involved in the arrangement said, and a contract Jones signed in November guarantees her at least $200,000 more.

Letters signed by Jones and sent to thousands of Americans asked for donations to defray her legal expenses.

It is not clear how much money has been collected. But the lawyers leading Jones' lawsuit against the president say they have received none of the money raised through the Paula Jones Legal Fund direct-mail campaign and have been unable to determine how much cash came in and where it was spent.

"We're not getting any of the money," said John Whitehead, president of the Rutherford Institute, the conservative legal foundation that took over Jones' lawsuit this fall. Jones' previous lawyers, who are reportedly owed $800,000, also said they had not received any money since leaving the case in September.

The fund-raising records offer a more ambiguous portrait of Jones than that found in her fund-raising letters, which depict her as a small-town evangelist's daughter driven by a search for justice.

Jones filed suit in 1994, claiming that Clinton asked her to perform a sex act in a Little Rock, Ark., hotel three years earlier when he was governor of Arkansas. Clinton has denied the allegations.

The trial is scheduled for May 27, though Clinton is seeking to have the suit dismissed.

Seeking to enrich herself?

Regardless of what happened nearly seven years ago, Jones' fund-raising campaign might create problems for her lawsuit, attorneys said, bolstering a defense claim that she is seeking to enrich herself. The dispute also threatens to create rifts between Jones and her attorneys.

Under an order from U.S. District Court Judge Susan Webber Wright, Jones' attorneys have turned over fund records to Clinton's lawyer, Robert Bennett.

Among those documents is the fund-raising contract she signed in November.

Interviews and records obtained by the Tribune show the donations are being divided between Jones and the marketing firms that crafted the massive mailing effort.

In addition to the direct-mail campaign, Jones' fund solicits through an Internet site that invites credit cardholders to transfer cash with a few keystrokes.

The site promises that contributions will be used for "litigation expenses . . . depositions, investigations and court appearances."

A mass mailing of Jones' eight-page appeal began in the fall.

"Dear Friend: It's an ugly story," her letter begins.

The letter tells of Jones' alleged encounter with Clinton and assures potential donors that their contributions were "not for me. It's all going to help my legal case."

The assertion that the money would go to assist her legal case raised questions among Jones' attorneys, because part of the donations are being used to pay for the fund-raising effort and the rest goes to an account controlled by Jones.

Path of the money

Under the contract, the money solicited in the letters is sent to an escrow agent, then dispersed to the fund raiser and Jones.

The contract calls for Jones to be paid a $100,000 "advance" and later to collect her portion of the donated funds, at least an additional $200,000, for a total guaranteed minimum of $300,000.

Sources with knowledge of the arrangement said Jones has been paid about $100,000 out of net proceeds of the donations gathered so far. The method of payment was unclear. t Last November, Jones signed the contract that guarantees her the minimum net income of $300,000 with Bruce W. Eberle & Associates of McLean, Va.

The contract has a space for the signature of an officer of the Paula Jones Legal Fund, but the words "legal fund" were scratched out and Jones signed it, a copy of the contract obtained by the Tribune shows.

Dallas lawyer Brent Clark Perry, one of the fund's attorneys, would not comment on the contract yesterday or on whether Jones had received payment.

Eberle also declined to comment.

Under the contract, Eberle's company is paid about 8 cents for every solicitation package processed.

Postal expenses are to be borrowed at 24 percent annual interest from another company that is headquartered in Eberle's office and run by one of Eberle's business partners. The collection and escrowing of donations are handled for a fee by an unrelated company.

After negotiations among Jones' attorneys and advisers, a new version of the fund-raising letter was mailed out.

While the first version said, "All I want is my good name back," the new version added, "(and) my expenses covered."

In the earlier version, Jones asserted: "I don't want Clinton's money." The new version deletes that line.

Rutherford Institute attorneys are still troubled by the fund-raising campaign, fearing it could create legal and financial entanglements for Jones.

The institute has launched its own separate campaign to pay for depositions, investigations and court appearances.

One source estimated the institute has raised about $150,000, but that figure could not be confirmed. Whitehead has said the institute has raised about $100,000.

How legal-defense fund works

Legal-defense funds are typically registered as charities, non-profit companies or trusts, and donations to them are withdrawn directly by lawyers or trustees rather than the legal client.

The Paula Jones Legal Fund, created in June 1994, is not a registered charity or trust and is not required to disclose its revenues or spending.

For tax purposes, it is classified as a sole proprietorship, a business owned entirely by Jones, and donations to the fund are reported on her personal tax returns as if they were earnings from a second job.

By declaring the fund a solely owned business, Jones can treat the donations to it as personal income, and she can claim tax deductions on legitimate business expenses, such as automobiles and attorneys.

But tax officials and some of Jones' attorneys have begun to question whether the fund can properly be called a business, because it does not produce or sell anything nor provide any service.

Even before Jones signed the contract with Eberle's company, questions were raised about the fund.

Between the time the fund was created in 1994 and mid-1997, nearly $300,000 was collected, according to lawyers for Jones and the fund.

Audit called `harassment'

When the Internal Revenue Service notified Jones and her husband in September that it was auditing their personal tax returns, Jones' spokeswoman, Susan Carpenter-McMillan, called the audit "harassment."

Now, attorneys for Jones and the fund concede there may have been problems with the way the fund was handled.

They said it appears possible that Jones paid too little taxes on the $300,000 the fund collected between 1994 and mid-1997.

Tax agents also are examining whether donations to the fund were used for legitimate legal expenses, attorneys familiar with the audit said.

The bulk of the early donations between 1994 and mid-1997 were spent on legal fees for Jones' previous lawyers, according to one of them, Gilbert Davis.

But court filings show Jones spent more than $2,000 from the fund on clothing and hairstyling during one week in June 1994, including unspecified expenses at a spa.

The fund also spent $2,800 on a computer installed in Jones' home.

Fund attorney Braden Sparks of Dallas said in court papers filed in November that those expenditures did not amount to personal enrichment by Jones.

The IRS has not accused Jones or anyone associated with her fund of wrongdoing.

Internet site questioned

In addition to the direct-mail campaign, questions have been raised about the fund's Internet site, which invites browsers to: "Do your part to help the truth conquer power. . . . Click here to contribute!"

Bernard Werner, the Pittsburgh-area real-estate investor and conservative political donor who set up the Internet site, said he does not know how much the site has raised or who controls the money.

Internet donations can be sent via an electronic credit-card collection service that takes a small fee or regular mail to one of two post office boxes in Pasadena, Calif.

Postal records show one of the boxes is listed to an advocacy group run by Carpenter-McMillan. The other box was opened in November by a Carpenter-McMillan aide.

Carpenter-McMillan said she did not know how much money had been raised by the fund.

On Feb. 3, a senior investigator from the Virginia Division of Consumer Affairs wrote to the Paula Jones Legal Fund, care of the escrow agent collecting money from the Eberle mailings, and notified fund officials that they must register in Virginia if they are going to solicit donations there.

Failure to do so is punishable by fines, the letter said.

The fund has not responded, state consumer-protection records show.

Information from The Associated Press and Reuters is included in this report.