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WASHINGTON -- Conservative billionaire Richard Mellon Scaife testified to a federal grand jury earlier this month that he had terminated the funding of a four-year, $2.4 million effort to investigate and discredit President Clinton in late 1997, because of concerns about how his money was being spent, according to sources familiar with his testimony.
The grand jury in Fort Smith, Ark., has been investigating allegations since August that funds from that effort, known as the Arkansas Project, were provided to David Hale, the central anti-Clinton witness in the Whitewater investigation of independent counsel Kenneth Starr.
The alleged payments to Hale were made during the time that he was a cooperating witness with Starr's investigation of the president. The grand jury heard testimony in early August from two witnesses who have said that they had firsthand knowledge of the numerous cash payments to Hale by Parker Dozhier, a former Arkansas Project employee.
Funds for the Arkansas Project were funneled through the American Spectator magazine to two conservative political activists, Stephen S. Boynton and Dave Henderson, who directed the effort. Boynton, an attorney and lobbyist, and Henderson, a former vice president of the American Spectator Educational Foundation, have denied that the Arkansas Project made covert payments of money to Hale.
Meanwhile, however, federal investigators have uncovered evidence that individuals associated with the Arkansas Project paid at least $8,800 in legal fees to Jay Bequette, a Little Rock attorney who briefly represented Hale in a criminal case. Bequette did not return telephone calls seeking comment Wednesday.
Sources familiar with those payments say that Bequette received the funds in 1996 to defend Hale against state criminal charges that he had looted funds from his own insurance company and then made misrepresentations to state regulators to conceal the company's insolvency.
As Salon has previously reported, Boynton and Henderson also played an instrumental role in assisting Hale in finding legal counsel when the Senate Whitewater committee had demanded testimony from Hale that same year. As a result of their assistance, prominent Washington attorney and conservative political partisan Theodore B. Olson agreed to represent Hale free of charge in a successful effort to assist Hale in avoiding testifying to the Senate committee.
Olson, a former Reagan administration official, also provided legal advice to both the American Spectator and the Arkansas Project, and has served on the boards of four conservative political groups funded by Scaife. Olson, who is a longtime friend of Starr, did not return phone calls.
Scaife told the grand jury that he had terminated his funding of the Arkansas Project because he and his top advisors were not able to obtain a proper accounting of how the funds allocated for the endeavor were being spent, sources said. Scaife had said that a top aide, Richard Larry, had requested the accounting from American Spectator officials, but they were hesitant to provide it.
Scaife was also said to have told the grand jury that he knew nothing about any payments of money to Hale, and asserted that he had little knowledge of the day-to-day operations of the Arkansas Project. Yale Gutnick, an attorney for Scaife, declined to comment about his client's grand jury testimony.
(The account of Scaife's testimony to the federal grand jury was provided by individuals close to the reclusive scion of the Mellon family and philanthropist of conservative causes. This account could not be independently corroborated by law enforcement authorities. Often, private individuals disclose such testimony to a federal grand jury in order to present a more favorable impression of the witness who gave the testimony.)
Frank Dunham, a prominent white-collar criminal defense attorney representing Boynton, responded to Scaife's charges by saying: "The notion of why he [Scaife] says he stopped funding the Arkansas Project is wrong."
Dunham also said Boynton had maintained detailed records of how he administered the funds of the Arkansas Project: "Mr. Boynton can account for all except how $4.74 were spent ... There are receipts for everything."
And Dunham denied that his client was involved in any way with assisting Hale in obtaining legal counsel: "No Arkansas Project money went to Jay Bequette. No private money went from Steve Boynton to Jay Bequette," Dunham said.
The involvement of Dunham in the case only underscores the high stakes for Boynton and others currently under investigation. A former federal prosecutor from Alexandria, Va., Dunham has been involved in a number of high-profile cases in recent years, including that of an FBI employee accused of espionage by passing on government secrets to Russia.
In the 1980s, Dunham represented an FBI deputy director, W. Mark Felt, who had allegedly authorized illegal burglaries of criminal suspects. Felt was later pardoned by President Ronald Reagan.
David Henderson, the conservative activist who helped run the
Arkansas Project with Boynton, has also retained a prominent lawyer
for his dealings with federal prosecutors. Henderson's attorney is
Richard Leon, a former Reagan administration official and counsel to the
House Iran-contra committee. Currently a partner with the
Washington law firm of Baker & Hostetler, Leon had served
as chief counsel to the House Banking Committee during its
investigation of Whitewater.
Murray Waas is Salon's award-winning investigative reporter covering Whitewater.