Rose Law Firm Linked to Failed Land Deal, RTC Says

WASHINGTON — The Rose Law Firm did the legal work on a 1985 land deal for Madison Guaranty Savings & Loan that involved “fictitious” transactions and led to losses large enough to bankrupt the S&L;, the inspector general of the Resolution Trust Corp. reported Friday.

The deal, which involved a number of prominent Arkansans, including the current governor, was criticized as early as 1986 by bank examiners who said Madison relied on a straw buyer to purchase the land. But the involvement of the Little Rock firm--in which First Lady Hillary Rodham Clinton was then a partner--in the legal issues surrounding the 1,100-acre trailer park development had not been previously disclosed.

Eleven Rose lawyers worked on the project known as Castle Grande but the exact nature of Mrs. Clinton’s work is not entirely clear from the RTC report.

According to RTC Inspector General Jack Adair, the Rose firm represented Madison in the purchase of the land in 1985 and in state regulatory issues involving a water and sewer system and a brewery that was to be built on the site. The report did not say whether Rose lawyers were aware of the phony nature of the land transactions.

However, Adair strongly criticized Rose for failing to disclose its involvement in the project as well as other work it did for Madison when the RTC hired the firm after the thrift failed to pursue and settle a legal case against Madison’s accountants.

The firm had many other undisclosed conflicts of interest in government work it did arising out of S&L; failures, the report said. Rose had conflicts of interest in six of 16 cases the government hired it to pursue between 1989 and 1994, as well as in two other cases involving the RTC in which Rose represented another party, the inspector general said.

The RTC report was the third time in less than two months the Rose Law Firm has been criticized for the way it handled its work for federal agencies involved in cleaning up the S&L; crisis. In June an RTC audit questioned $446,000 of Rose’s RTC bills, almost a third of what the firm was paid. On Monday, the Federal Deposit Insurance Corp. criticized the firm for numerous conflicts of interest in its government work.

The inspector general’s office forwarded the report and recommendations to agency head Jack Ryan on Friday. Officials in Adair’s office declined to say what action they recommended; the RTC has been weighing whether to bring a civil claim against the firm.

In addition, the inspector general’s findings have been turned over to Whitewater independent counsel Kenneth W. Starr, who is conducting a criminal investigation. Law firms that do work for the government are required to certify in writing whether they have any conflicting legal engagements. The deliberate failure to disclose that information is a crime.

Mrs. Clinton was the billing partner on work the firm did for Madison in the mid-1980s. After the S&L; failed, her onetime partner, Webster L. Hubbell, won the RTC’s business in pursuing Madison’s accountants. Hubbell has since pleaded guilty to defrauding the firm and his clients, including the RTC and FDIC, and reports to prison next week.