Into the Line of Fire

By GEORGE J. CHURCH AND MICHAEL KRAMER

"We certainly know that no one in the White House, at least to the best of my knowledge, has tried to use any information to in any way improperly influence the RTC or any federal agency." So said President Clinton last week in his televised news conference -- but his words do not quite jibe with a story that special counsel Robert Fiske and a Whitewater grand jury were hearing almost simultaneously. Fiske's probers, TIME has learned, are weighing charges that White House aides tried -- though unsuccessfully -- to force the firing of the lawyer heading a civil investigation for the government's Resolution Trust Corporation that is closely related to the Whitewater affair.

If those charges can be proved, they could harm the President far more than the ones he tried to turn aside in his news conference -- rated even by Republican foes as an impressively smooth performance -- or the accusations leveled by G.O.P. Congressman Jim Leach in a speech hours earlier on the House floor. The new charges involve not what obscure Arkansas wheeler-dealers did 15 years ago but what was said as recently as late February by George Stephanopoulos, the President's most trusted political adviser after his wife and the Vice President. And the story brings up the dread words obstruction of justice -- even in the minds of Administration officials. Says one: "Based on the facts we believe Fiske has developed during his grand jury sessions, it's possible that at least one and perhaps several Section 1505 indictments could issue." Section 1505 of Title 18 of the U.S. Code brands any attempt to "influence, obstruct or impede the due and proper administration of the law" a crime punishable by imprisonment as long as five years.

More important still will be inquiries into what events inside the White House propelled the angry calls to the Treasury officials. Did President Clinton ask that his aide make the calls, or was Stephanopoulos acting purely on his own initiative? Asked by TIME on Saturday whether Clinton had requested him to initiate the discussions about Jay Stephens, the lawyer in question, Stephanopoulos replied with a quick and emphatic "No."

Earlier, White House chief of staff Mack McLarty told TIME that Stephanopoulos had spoken to the President on Friday and that "to the best of my knowledge," it was the first time they had discussed the calls relating to Stephens. McLarty added that though he had complete confidence in Stephanopoulos, he was asking newly appointed White House counsel Lloyd Cutler to launch a detailed review of the whole affair. The chief of staff put out a formal statement to the daily press asserting that Stephanopoulos and White House deputy chief of staff Harold Ickes "have no recollection of asking anyone" to fire Stephens and pointing out that Stephens "is continuing to conduct his inquiry for the RTC." But, the Associated Press reported Saturday, top RTC officials were informed about the White House calls and briefly considered removing the lawyer.

Stephens is in fact still investigating the collapse of Madison Guaranty Savings and Loan for the RTC, the government body that cleans up the affairs of failed S&Ls, in part to look for evidence of fraud that would enable the RTC to file civil claims to recover some of the $47 million that Madison's failure cost taxpayers. That probe would almost inevitably delve into the alleged flow of money between Madison and Whitewater Development Co., in which the Clintons were partners with James McDougal, Madison's former owner. Thus the participants in the vain attempt to get Stephens could try to invoke the basketball rule: no harm, no foul. Or they could claim that when White House aides made remarks merely to express dislike and suspicion of Stephens (the aides make no secret they consider him a "right-wing zealot" out to get the President), those statements were misinterpreted as a demand that Stephens be fired. Still, as a Clinton aide admits, while "the actual words used before the grand jury regarding how we felt about the RTC iring Stephens were 'surprise and shock,' among ourselves the words we use when we discuss it are what they call 'expletives deleted.' "

Stephanopoulos tells TIME he remembers only one conversation about Stephens, with Joshua Steiner, a friend and political colleague who is now Treasury Department chief of staff. In that talk, says Stephanopoulos, he merely "asked how Jay Stephens had come to be retained by the RTC. I was puzzled and blew off steam over the unfairness of that decision because Jay Stephens had accused the President of acting improperly" on another occasion.

The reference is to February 1993 when Clinton fired all 93 U.S. Attorneys who had been appointed by George Bush. One of them was Stephens, who was then U.S. Attorney for the District of Columbia and developing a case against House Ways and Means Committee chairman Dan Rostenkowski -- a pivotal Clinton ally in the battle for health-care reform -- for diverting taxpayers' money to personal and campaign funds. Stephens charged that the mass firing was a way of derailing the Rostenkowski investigation. The RTC, however, chose Stephens precisely because he could be trusted to carry out an investigation that would not back away from information potentially embarrassing to Clinton. Stephanopoulos adds: "Once I got the facts from Josh ((Steiner)), that ended the matter, as far as I was concerned."

But that is not the story Fiske and the grand jury have been hearing from some others. As pieced together by TIME from a review of documents and interviews with many sources -- Administration officials, lawyers for some of the 12 Clinton aides subpoenaed by Fiske and sources involved with the special counsel's probe -- the tale goes like this:

The key date was Friday, Feb. 25. It was a busy day at the White House: Clinton held a press conference to talk about the massacre of Muslims in a Hebron mosque and the U.S. deportation of a senior Russian diplomat as a retaliatory move in the Aldrich Ames spy case. Nonetheless, Stephanopoulos and Ickes found time to call Deputy Treasury Secretary Roger Altman, who was also acting head of the RTC, using the speakerphone in Stephanopoulos' office. They had just learned that Altman had finally decided to disqualify himself from dealing with any matters related to Madison because of previous contacts with the White House staff about the RTC's investigation. The White House aides were furious about the recusal -- for weeks they had urged Altman not to do it -- and were even more put out that they had learned of it only after Altman had divulged his decision to the New York Times.

Stephanopoulos confirms that the conversation occurred but says he only "suggested as a courtesy that ((Altman)) write a letter to the President explaining his decision. I don't remember anything else about that conversation." Other sources familiar with the call offer more elaborate accounts. Says one: "As best we can figure it, it was an extremely heated conversation. It seems to have gone right from acknowledging the recusal to ignoring it, in that Altman was almost immediately asked to help think of a way to fire Stephens."

Altman's own version, as reported by sources close to Fiske, is that either Stephanopoulos or Ickes asked, "What about Jay Stephens? Can anything be done about it, or are we stuck with this?" Altman reportedly cut off the conversation "quite quickly," telling his callers he "absolutely would not" be a party to sacking Stephens. According to this version, Altman then reported the substance of the conversation to Steiner, adding, "These guys are nuts."

Stephanopoulos was also on the phone to Steiner. That was the conversation in which he says he "blew off steam" about Stephens. Again, others describe the conversation differently. They say Stephanopoulos began with the classic "this conversation never happened" line and proceeded to ask Steiner, "How can we get rid of Stephens?" After further contacts between Steiner and Stephanopoulos, the conclusion reportedly was that Stephens could not be removed easily, so the subject was finally dropped. Steiner will testify before Fiske's grand jury this week, and Fiske and his assistants will be able to question him on the basis of Steiner's own detailed notes. "The dumb son of a bitch kept a diary," says a senior Administration official. "A thorough, compulsive diary. Fiske's got it, and God knows what's in it -- as if it isn't enough that we tried to off Stephens." One source close to Fiske says, "It's not the Nixon tapes, but it ain't beanbag."

What may come of this inquiry is hard to predict. Stephanopoulos testified to the grand jury last week and said afterward that "it was very refreshing to be before the tribunal that cared about the facts" -- an unsubtle dig at ! the press. He may well be recalled, however, after Steiner testifies. Further down the road, says a White House official, "it depends on whether Fiske wants to indict some White House folks. Indictments he could get easily. Convictions are another matter." In any case, he says, the conversations are "the most damaging Whitewater-related stuff so far."

Certainly it will not help Clinton in the process he had begun -- but only just begun -- to turn public attention away from Whitewater and back to what he called "the fact that by common consensus we had the most productive first year of a presidency last year of anyone in a generation." True, Clinton is not yet directly involved -- and may never be. One source familiar with Fiske's work does speculate: "What really causes us to wonder is whether Stephanopoulos would have pursued the Stephens matter beyond Altman's firm 'No' if he wasn't following the President's orders." But proving any presidential involvement would be most difficult.

Long before Fiske is ready to make any legal moves, though, the Stephanopoulos-Ickes-Altman-Stephens story will make a mighty stick Republicans will use to whack the White House. And more questions will be asked during the (probably separate) Senate and House investigations that Senate Republican leader Bob Dole predicted might get under way around May 1. That the House will match the Senate in conducting such hearings became likely -- though not quite certain -- last week, in somewhat roundabout fashion. Henry Gonzalez, chairman of the House Banking Committee, abruptly canceled a hearing into RTC matters last Thursday at which Leach, the ranking minority member, had planned to unveil some results of inquiries by his staff into Whitewater and Madison. In a letter to House Speaker Thomas Foley, Gonzalez ranted about a Republican "malicious campaign of character assassination" -- and called for full hearings into all aspects of Whitewater to counter that G.O.P. effort. House Democratic leaders had not been at all eager to endorse such hearings, but after Gonzalez's explosion they had little choice.

Meanwhile, Leach, deprived by the autocratic Gonzalez of one forum, avidly seized another. In a speech on the House floor on Thursday afternoon, he pursued two lines of accusations, delivered in a theatrical combination of harsh language and calm tone. One line was to portray Whitewater as a kind of sweetheart deal -- one to which "the Governor-in-the-making provided his name" while "the S&L owner ((McDougal)) and affiliated entities provided virtually all, perhaps all, the money." The company "may have begun as a legitimate real estate venture," Leach intoned, "but it came to be used to skim, directly or indirectly, federally insured deposits from an S&L," meaning Madison, and some of the money was "used to pay off personal and campaign liabilities of the Governor." Conclusion: far from losing heavily, as the Clintons have always contended, "the family of the former Governor of Arkansas received value from Whitewater in excess of the resources invested." The documents Leach produced -- and has given to Fiske -- did not entirely support his claims, some of which are anything but novel, but they did raise new questions.

Coming closer to the present, Leach offered a detailed account of alleged attempts by RTC officials to shield the Clintons from embarrassment by interfering in its earlier investigations of Whitewater and Madison. From September 1992 to October 1993, Leach said, L. Jean Lewis, the lead RTC investigator in Kansas City, Missouri, and her colleagues could not find out what had happened to material they had forwarded to Washington; at one point the Justice Department told Lewis it "had no record of that referral; it is not in ((the Justice)) computer system." Then after Justice finally began to move -- and after Fiske had begun his investigation -- Lewis was visited on Feb. 2 by April Breslaw, a Washington-based senior RTC lawyer. According to Lewis' notes, Breslaw expressed hope that Lewis would say Whitewater had not drained any money out of Madison; that "would get them ((Washington higher- ups)) off the hook." Lewis insisted her investigation had indicated just the opposite: that improper shuttling of money between Whitewater and Madison had indeed hurt the S&L, and that McDougal's "business partners," including the Clintons, should have known it. When Breslaw angrily denied this account of the conversation, Leach blandly observed that he had not just Lewis' notes but also a tape of the Breslaw-Lewis conversation -- the first mention of a tape in any Whitewater proceeding.

Leach's presentation was overshadowed hours later, however, by Clinton's news conference -- only the second one he has held in prime time. Though the session had been planned for two weeks, it was finally scheduled rather quickly. The main reason was to try to counteract a sharp plunge in the polls and do so just before Congress's Easter recess, so that lawmakers would discover pro-Clinton sentiment on the rise back home.

The President replied to an early question by reducing his estimate of the losses he and Hillary had suffered in Whitewater from the original $68,900 to about $47,000. He had only recently remembered, he said, that the proceeds of one $20,700 repayment of a loan he had taken out in 1981 had not gone into Whitewater. Rather the proceeds of the loan had been used to buy land and a cabin for his mother. His poor memory seemed surprising, since a $20,700 repayment of a loan would have loomed very large then; the next year his salary as Governor was $33,750. In response to Leach's charges about the RTC investigation, Clinton remarked that "all the appointees of the RTC were hired under previous Republican Administrations." That was not entirely accurate; two of Breslaw's superiors were appointed last December by Altman, who is an old associate of the President's.

This, however, was a mistake that eluded even many Washington veterans; for those watching on home screens, the President put on a bravura show of candor and reasonableness. He seemed entirely affable, showing not a trace of the anger that Whitewater accusations have provoked in him at other times. Again and again he stressed eagerness to cooperate with Fiske's investigation or any other; he said specifically that "I expect that the special counsel will want to question me and will want to question the First Lady" and added that "I will cooperate with him in whatever way he decides is appropriate."

Even Leach judged Clinton's performance "charming." But will it really change anything? White House officials readily conceded that Clinton had a long way to go before putting Whitewater behind him -- and that was without full knowledge of the Stephanopoulos-Stephens controversy. Once that becomes more widely known and commented on, it could change the momentum drastically. The public may not care greatly about financial maneuvering in Arkansas in the 1970s and 1980s and may even resent being asked to read stories or watch TV news bits about it. But the public does understand and care about abuse of power in White House. What Fiske, his grand jury and congressional investigators conclude about that will be critical to the future of the Clinton presidency.

With reporting by Laurence I. Barrett, James Carney, Michael Duffy and Suneel Ratan/Washington