Clinton appointee removed from S&L probe



WASHINGTON (AP)—The Justice Department will take over a probe into a failed Arkansas thrift with ties to the first family after a prosecutor appointed by the president asked to be removed from the case.

In place of Clinton appointee Paula Casey, the Justice Department said Tuesday, Donald B. Mackay, a veteran of the Justice Department’s fraud division, has been dispatched to Little Rock to handle the matter along with two associates, the department announced Tuesday.

In a statement, the Justice Department said Casey, the U.S. Attorney for Little Rock, Ark., informed her superiors last week that she and her aides wanted to recuse themselves from the matter ‘‘because of their familiarity with some of the parties and the need to ensure that there be no misperceptions about the impartiality of the investigation.’‘

Meanwhile, the Justice Department’s No. 3 official, Webb Hubbell, a former law partner of Hillary Clinton, has recused himself from the matter, along with his staff.

Casey was a volunteer on Clinton’s presidential campaign and a student of Clinton’s when Clinton taught at the University of Arkansas law school. In addition, Casey’s husband once was appointed to a state agency job by then-Gov. Clinton.

Both the White House and sources close to the case say that neither Clinton nor his wife are subjects or targets in the probe.

Meanwhile, Republicans in the House said the Banking Committee should probe the failed thrift, Madison Guaranty Savings and Loan.

Federal investigators are looking into the 1989 failure of Madison and its dealings with Whitewater Development Corp., a real estate development company in which President and Mrs. Clinton had invested. Mrs. Clinton also did legal work on behalf of Madison for the Rose Law Firm in the mid-1980s.

Thrift regulators referred a case involving Clinton associate James McDougal’s Madison Guaranty for possible criminal prosecution to Casey’s office after an investigation into a variety of civil matters, according to federal officials familiar with the matter.

Among other things, investigators want to learn whether funds that were overdrawn from Madison’s ledgers helped retire Clinton’s 1984 gubernatorial campaign debt. While some $12,000 drawn on Madison accounts found their way into the campaign’s coffers, Clinton aides have said that they have had no way of knowing where the money came from.

In addition, Clinton’s wife Hillary was paid $2,000 per month through her law firm to do work for Madison. Neither thrift officials nor the Clintons have ever explained the scope of Mrs. Clinton’s duties, although she did help the ailing thrift win a last-gasp capital reinvestment bid with state banking regulators in 1985.

Another name connected to the case is that of Hubbell, Mrs. Clinton’s law partner who is now the No. 3 official at the Justice Department. The Associated Press reported last week that when Hubbell helped federal regulators sue the accounting firm that handled Madison’s affairs, he failed to disclose that the Rose firm had previously advised the thrift.

Justice Department spokeswoman Gina Talamona said Tuesday night that Hubbell, the associate attorney general, and his staff recused themselves from the matter late last week.

Thrift regulation rules require that attorneys and accountants who are seeking government thrift cleanup work reveal all prior relationships with thrifts and other financial institutions.

The probe also focuses on how funds from a Small Business Administration-backed grant to McDougal’s wife Susan ended up in the accounts of a real estate venture in which the McDougals and the Clintons were co-investors.

Clinton appointed Casey to her post at the U.S. Attorney’s office earlier this year; her first day on the job was Aug. 16.

On Capitol Hill, Rep. Jim Leach, R-Iowa, said in a letter to banking committee chairman Henry B. Gonzalez, D-Texas, that the panel should ‘‘not refuse to address issues that may embarrass the current administrations in Washington and Little Rock.’‘

The president has told reporters, ‘‘We did nothing improper.’‘ But Leach wants the banking panel to invite federal regulators to testify and subpoena state regulators, Madison’s top officers and representatives of Mrs. Clinton’s former law firm.

In a reply, Gonzalez said the committee had a legitimate interest in looking at Madison but said it ‘‘must tread carefully around ongoing criminal referrals and professional liability cases.’‘ He said he would direct his staff to begin collecting information on the S&L.

Last week, Rep. John J. LaFalce, D-N.Y., chairman of the House Small Business Committee, asked the inspector general of the Small Business Administration to look into a loan, intended for disadvantaged businesses, that instead was used to indirectly finance a Whitewater Development Corp. land transaction.