The Whitewater scandal was a real estate controversy that came to public attention in the 1990s. It involved former President Bill Clinton and his wife Hillary along with their associates. It was a failed investment into a land development venture known as Whitewater.

After a series of lengthy investigations into the matter—led most famously by Independent Counsel Kenneth Starr—the Clintons were never formally charged with a crime. Although, several of their Whitewater associates fared quite differently.

Read on to find out more about the controversy and the outcome of the investigations that ensued.

The investigations cleared the Clintons of any wrongdoing.

Whitewater Development Corporation

In 1978, when Bill Clinton was elected as governor of Arkansas, he and Hillary—who was an associate at a law firm—began looking for ways to boost their income. James McDougal approached the Clintons to join the venture with him and his wife, Susan, and they agreed. The Clintons knew the McDougals before, having invested in another deal with the couple previously. The two couples, now partnered, agreed to purchase 230 acres of land in the Ozark Mountains of Arkansas that would become the Whitewater Development Corporation.

Under the deal, they would create individual lots to sell as vacation homes, attracting people who were interested in fishing and other outdoor activities. But there were several problems that devastated their plans. The land was not very accessible, and there was a lasting impact from flooding in the area.

There was also the added pressure of the economic cycle, with interest rates on the rise. This meant potential investors and those interested in a second home could no longer afford to purchase property. The real estate venture eventually failed, costing the Clintons a reported $40,000 in losses. Bill Clinton was elected governor a short time later in November of 1978. James McDougal subsequently entered the banking industry, forming Madison Guaranty Savings and Loan. 

But the investment venture between the Clintons and the McDougals is not what caused the controversy.

The Whitewater Investigation

In 1986, federal regulators investigated another real estate investment—a construction project called Castle Grande—backed by James McDougal. The investigation led to McDougal's resignation from Madison Guaranty and the eventual collapse of the bank. Its failure cost the government between $65 and $75 million, as it was federally-insured.

Questions surrounding the Clintons' involvement in the Whitewater deal grew during President Clinton's first term in office, and an investigation into the legality of the Whitewater transactions was launched.

Allegations surfaced during the investigation, which was led by special prosecutor Robert B. Fiske, that Clinton pressured David Hale—former president of a small business investment firm—into making a loan for the Whitewater deal. Other allegations came out, implying Clinton's gubernatorial campaign debts were paid off by Madison through McDougal. Fiske issued a grand jury subpoena to President Clinton and his wife for documents related to Madison Guaranty. While the Clintons initially reported the records as missing, the documents were eventually found, clearing the Clintons of any wrongdoing.

Key Takeaways

  • The Whitewater scandal was a real estate controversy involving Bill and Hillary Clinton that came to public attention in the 1990s.
  • The Clintons and two associates, James and Susan McDougal, partnered together to purchase 230 acres of land to build and sell vacation homes.
  • In 1986, federal regulators investigated McDougal's other dealings, which opened up questions about the Clintons' involvement in the Whitewater deal.
  • The Clintons were cleared of any wrongdoing, but several of their associates faced felony convictions.

The investigation continued, however, with Kenneth Starr at the helm and businessman David Hale as the star witness. Starr alleged that Bill Clinton, during his term as governor of Arkansas, pressured Hale to make an illegal $300,000 federally-backed loan to Susan McDougal. The allegation lost much of its credibility after Hale was convicted of numerous felonies.

All three inquiries into the Whitewater land deal yielded insufficient evidence to charge the Clintons with criminal conduct. However, several of their associates were convicted as a result of the investigations including James McDougal, who was convicted of fraud and conspiracy charges in 1997 relating to loans made with Madison.

The Starr investigation went beyond the Whitewater scandal to include several other controversies involving the Clintons, as well as the Lewinsky sex scandal, which led to his impeachment and charges of perjury and obstruction of justice following the 1998 presidential election. Clinton was later acquitted by the Senate of both charges.