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What Was the Whitewater Scandal?

Michael Pollick
Updated May 17, 2024
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The political scandal which became known as Whitewater reached a boiling point during the first term of former president Bill Clinton. In the end, several business associates and personal friends of the Clintons were indicted on various counts of fraud and other financial misdealing, but neither President Clinton or First Lady Hillary Clinton ever faced formal charges for their involvement in what was essentially a failed business venture in Arkansas.

The Whitewater controversy is a very broad subject to cover, so this article will only present a general outline of the chain of events and the people involved in the scandal. There are a number of excellent resources both online and in libraries which can provide more specific details if desired.

During the late 1970s, Bill Clinton was the young governor of Arkansas and Hillary Rodham Clinton was an entry-level legal aid in a small but locally prominent law firm. Neither position offered a substantial salary commensurate with the title and responsibility they inferred. Governor Clinton wanted to supplement his $35,000 US Dollars annual salary through legitimate investment opportunities, such as the purchase of real estate for future resale and profit.

Clinton knew of a friend from his college days who might be in a financial position to assist with such an investment in Arkansas real estate. That college friend was a man named James McDougal. McDougal and his wife Susan were also looking for investment opportunities, so the idea of pooling all of their financial resources into a single real estate seemed logical for the McDougals and the Clintons. The property that caught their eye was several hundred acres of undeveloped land located on the banks of the White River in Arkansas.

The four investors decided to form a legal business partnership called the Whitewater Development Corporation, inspired by the name of the river bordering the property. The hope was to develop the land by building hunting lodges and vacation homes which would attract outdoor sportsmen and others to Arkansas. The Whitewater investment would eventually pay off handsomely for the four original investors, or so they had hoped.

Instead of realizing a substantial profit on the Whitewater investment, however, a downturn in the general economy and a seeming lack of interest from potential lot buyers turned the entire project into a major loss. The Clintons decided to cut their financial losses and became little more than passive partners in the Whitewater Development Corporation. Their names would still be associated with the business on paper, but they would no longer be involved in any future business ventures.

By the time Bill Clinton was elected in 1992, Whitewater Development Corporation and their friends the McDougals were ostensibly more of a remnant of the Clinton's past life in Arkansas than a part of their current political or social lives. Their direct associations with the failed Whitewater project were little more than names on legal papers dating back to the 1970s. However, the Clintons failed to realize how far certain political rivals and journalists would delve into their past business and personal histories once they became national public figures.

James McDougal remained actively involved in the Whitewater Development Corporation even after the Clintons pulled out, and he began to look for more complex but rewarding ways to increase his profits from a number of dubious investments and financial schemes. Eventually he found himself under investigation for committing financial fraud and violating other banking and investment rules. During the forensic accounting portion of the investigation against McDougal, the names Bill and Hillary Clinton appeared on a number of Whitewater-related documents.

Even though the Clintons had effectively distanced themselves from the Whitewater Development Corporation years before James McDougal's alleged criminal actions, the discovery of these documents triggered the investigation later called the Whitewater scandal by the press. It was unclear to investigators if the Clintons were aware of McDougal's illegal activities, or even worse, if they actively participated in or profited from the illicit financial dealings.

Eventually the Clintons were exonerated, since investigators could not prove any active participation in the Whitewater Corporation during the years McDougal was under suspicion. The lieutenant governor of Arkansas at the time was indicted, however, along with James and Susan McDougal. In a controversial move, President Bill Clinton officially pardoned Susan McDougal for her peripheral involvement in her husband's financial dealings.

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Michael Pollick
By Michael Pollick
As a frequent contributor to America Explained, Michael Pollick uses his passion for research and writing to cover a wide range of topics. His curiosity drives him to study subjects in-depth, resulting in informative and engaging articles. Prior to becoming a professional writer, Michael honed his skills as an English tutor, poet, voice-over artist, and DJ.
Discussion Comments
By anon990478 — On Apr 23, 2015

Whitewater property was sold to people with the idea of investments, but the moment an investor missed a loan payment, the property was forfeited and resold over and over and over again under the same constraints.

A complete and utter scam. The Clintons knew this. The McDougals knew this. Kenneth Starr knew this.

By discographer — On May 19, 2014

I don't think that Bill and Hillary Clinton were as innocent in this matter as they appeared. It was discovered later that some of the documents subpoenaed by the court in regards to this case was hidden by Hillary Clinton in the White House. If they had nothing to hide, why did they do that?

By bear78 — On May 19, 2014

It's true that Bill Clinton granted a pardon for Susan McDougal but this was after she served 18 months in prison. So it's not like she was never prosecuted.

I personally think that Bill Clinton's name was pulled into these investigations because the others were looking for a scapegoat. But the Clintons had not nothing to do with the fraud that McDougals and others were involved in. I also think that if there was involvement, the court would have prosecuted them as well. But they were not prosecuted because there was not sufficient evidence against them. I think some people still feel that the Clintons were guilty but I think that justice was served.

By stoneMason — On May 19, 2014

If investigations did not find that the Clintons participated in the illegal activities involved with the Whitewater corporation, then I believe them. I just don't understand why the Clintons had not pulled out of the corporation completely and legally if they were no longer interested in it. It certainly would have saved them a lot of trouble later on.

Michael Pollick
Michael Pollick
As a frequent contributor to America Explained, Michael Pollick uses his passion for research and writing to cover a...
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