Presidential candidate Bill Clinton has rewarded the financial elite of Arkansas with lucrative state business and low-interest loans while soliciting them--in one instance urgently and personally--for millions of dollars in political contributions and campaign loans, The Times has found.

He has done it through the Arkansas Development Finance Authority. As governor, Clinton established it to issue bonds, most of them tax free, which fund low-interest loans for projects from housing to business development. Its business loans have totaled more than $90 million. By granting them, Clinton created a pool of loan recipients and bankers, bond brokers and attorneys who benefited by handling these deals. They have given and loaned $2.7 million to his 1990 race for governor and his presidential campaign.

In his gubernatorial race alone, those who benefited from the finance authority gave $400,300, nearly a fifth of the total raised--while bankers, brokers and lawyers who got little or none of its business gave only $51,600. One finance authority loan of $8.6 million, for instance, went to Arkansas Freightways Corp., a trucking firm, in 1989--at three percentage points below the prime interest rate. Freightways’ largest outside stockholder is Stephens Inc., which benefited even more by brokering the tax-free bonds for this private enterprise. Stephens officers and relatives have donated $71,950 to Clinton’s gubernatorial race--and at least $83,330 to his presidential campaign.

Not all beneficiaries are donors. But Clinton has approached beneficiaries of the finance authority twice personally, as well as through top aides for campaign contributions and loans--and his power to disapprove any bond issue generates unspoken pressure. The same kind of pressure has come from James F. Stobaugh, his finance authority chairman, who has solicited campaign contributions in person. It also has come from Merle Peterson, a director Clinton appointed to the agency board, who has asked for campaign contributions from people who need Peterson’s vote.


In interviews, Stobaugh said he has done nothing inappropriate, and Peterson declared: “I don’t talk to reporters. I’m a private person.” Clinton conceded that “this business has politics in it, and every state in the country has maybe different politics.” But he added: “We did not (create the finance authority) to try to get more political influence.” He said he has increased participants in bond issues to as many as 42 firms to diffuse any political pressure; and he added that political adversaries got business anyway.

“To the best of my knowledge,” Clinton said, “no one has either gotten or lost business because they did or didn’t contribute to me. . . . I’ve gone out of my way never to make anybody feel pressured. . . . I have never had it come back to me, even indirectly, that anyone felt that way. If I had, I’d have given their money back.”

Clinton started the Arkansas Development Finance Authority in 1985 to spur economic growth and create jobs. In the seven years since, it has provided financing for 70 businesses and created 2,700 jobs. By contrast, the Arkansas Industrial Development Commission, established in 1955 by Gov. Orval Faubus, supported 600 new businesses over nine years and created 90,000 jobs. But Clinton says this is misleading because “the whole South was exploding in the mid-'50s to the mid-'60s, so you just had to get your fair share and your numbers looked good.”

Today, he said, when America’s job market is shrinking instead of exploding, “we’ve created manufacturing jobs at 10 times the national average.”


Each time Clinton’s finance authority sells bonds to generate money for business loans, three things happen. First, a law firm vouches for the tax-exempt status of the bonds and prepares documents required by the Internal Revenue Service and the Treasury Department. Second, a bond broker markets them. Third, a commercial bank acts as trustee, collecting from the borrowers and paying off the bondholders.

In this way, the finance authority provides not only financing but also a profitable business for bond brokers, lawyers and bankers. At the same time, the finance authority takes a commission for itself.

When it started, the finance authority was unique, according to Kevin McCarty of the Council for Industrial Development Bond Issuers, a Washington trade group representing state and municipal finance authorities. It combined housing and business programs into a single agency that had a “critical mass of competency and clout” to attract out-of-state capital, McCarty says.

Several states have used it as a model, McCarty says, including Wisconsin, Iowa and Georgia. However, McCarty says, he is not aware of any similar agency that is involved in raising campaign funds.


The fund raising works this way: Clinton appoints all 10 members of the finance authority board of directors. They, in turn, vote on who gets or does not get loan deals, including bank and brokerage commissions and lawyer fees. Clinton himself has the power to accept or reject his directors’ decision on every bond issue. “The governor has to approve and sign off,” says Wooten Epes, former president of the finance authority. If Clinton approves, he signs and dates a single-page document titled “Public Approval of Bonds.”

Clinton has “consolidated all the bonding so that he could control it,” says Michael R. Smith, senior vice president of Stephens Inc., based in Little Rock, one of the largest bond houses off Wall Street. “They funnel this (business) out to whomever he wants to give it to. . . . We have to go to them. There’s no other place to go. There is no choice. He (Clinton) has total control.”

Jon E. M. Jacoby, an executive vice president of Stephens Inc., says that Clinton set up the finance authority to be a “gatekeeper to politicize the bond selling process.” Jacoby calls it “influence peddling.”

Clinton responds flatly: “Well, they’re wrong.”


He declined “to get into a fight with them” but said nonetheless that participation in finance authority bond issues is “totally voluntarily” and that the authority was hardly “a gatekeeper.” At the same time, he conceded that the authority, by pooling bond issues, can offer borrowers very cheap loans--and give them “a good incentive” to do business there. This, in turn, makes the authority an important place for bond brokers, lawyers and banks to go for their business.

Such influence has enabled Clinton and some of his finance authority directors to solicit political contributions with documentable success. James Stobaugh, the finance authority chairman, for instance, says that he has raised between $5,000 and $6,000 for Clinton’s presidential campaign alone from bank officials, bank customers and community leaders.

In addition to his position with the finance authority, Stobaugh is chairman of one of Worthen Bank’s most important branches outside Little Rock: Worthen Bank of Northwest Arkansas in Fayetteville. Worthen Bank, in turn, is 38% owned by the Stephens family of Stephens Inc. Stobaugh says he has done the soliciting of his own volition.

Peterson, the other director of Clinton’s finance authority who solicits personally, has sought campaign contributions from bond brokers who need his vote for business. “Merle calls me off and on,” says Warren A. Stephens, the president of Stephens Inc. “He called prior to the last (Clinton) fund-raiser to make sure we’d have some people there.” The benefit for Clinton is considerable. Warren Stephens, for example, scion of one of the most powerful families in the state, has responded by raising more than $100,000 for Clinton’s presidential campaign.


To measure the total Clinton campaign contributions from those who do business with Clinton’s finance authority, The Times compiled a list of more than 1,300 executives, officers and relatives affiliated with the bond houses, law firms and banks that get most of the authority’s fees and commissions, and the businesses that get most of its loans. Their names were drawn from public documents. The names were compared to a list of major contributors--of $250 or more--to Clinton’s 1990 gubernatorial campaign and to a list of Arkansas givers to Clinton’s presidential campaign through February of this year.

Bond brokers were among the most sensitive to Clinton’s money needs. Warren Stephens tells this story: It was close to the eve of Clinton’s 1990 gubernatorial election, and Stephens says that Clinton’s campaign went into a “panic” about whether Republican challenger Sheffield Nelson might pull off an upset. Stephens says Clinton himself telephoned on the Friday before the Tuesday election day.

“He called me and several other people and said, ‘Could you raise $10,000 in a hurry?’ And I told him I thought I could, and the others apparently did too, because he took our word and went out and personally borrowed the money with our pledges as collateral. It wasn’t a firm commitment in writing, but apparently it was good enough for the bank, because he got the loan,” Stephens said. He said Clinton was able to borrow $50,000 to use for last-minute TV ads. According to Clinton, the amount was even higher. He puts the total in “six figures.”

Of bond brokers doing business with Clinton’s finance authority, Stephens Inc. has been a leader. It has been the senior manager or co-manager of 78% of the total volume of its housing and industrial bonds. That puts the Stephens share of the finance authority’s bond business at $1.5 billion, and it has received millions of dollars worth of commissions and fees. In two instances, Arkansas Freightways and a warehouse company headquartered in Pine Bluff, Stephens brokered bonds that generated $10 million in loans. They are firms in which Stephens executives were large investors or directors.


In Clinton’s 1990 gubernatorial race and so far in his presidential campaign, the officers, employees and relatives of Stephens Inc. and its affiliated firms contributed $155,280.

In addition, officers, employees and relatives at other bond houses, including PaineWebber Inc., Crews & Associates Inc. and the Llama Co., gave $53,100--for a total of $208,380.

Bankers doing business with Clinton’s finance authority have helped his campaign in large measure as well. Curtis F. Bradbury Jr., chief executive of the Stephens-affiliated Worthen Banking Corp., tells this story: Earlier this year, senior officials of the Clinton campaign approached him about a $2-million “bridge” loan to keep the campaign afloat until it received federal matching funds.

“Cash flow was a big issue,” Bradbury says. “They couldn’t wait four to six weeks to get the match.” Bradbury OKd the loan. He held the matching funds as collateral. He calls it “one of the best loans I’ve made this year” and says he is charging 8.5%--the maximum state law allows. Even earlier, Bradbury says, “Bill Clinton came to me . . . and asked for my help, and I was glad to do it.”


He says he wrote to the senior officers of Worthen banks around the state urging them to contribute. He says he reminded them of Worthen’s critical role in state finance. Officers and directors of Worthen banks and their relatives were the largest Clinton contributors among bankers doing business with the finance authority. They gave $146,834 to his 1990 gubernatorial race and so far in his presidential campaign.

In addition, officers, employees and relatives at other banks--including First Commercial Bank, Simmons First National Bank and Twin City Bank--gave $92,750, for a total of $239,584.

Clinton has reported paying part of his campaign loan from Worthen and borrowing still more. He says he owed the bank $1.9 million at the end of May. The reason he picked Worthen, he said, was because he needed a large bank for a large loan. The only other large bank in Little Rock, he said, is First Commercial, and his chief of staff was once its chairman. It might have appeared inappropriate, Clinton said, for him to approach that bank for money.

Lawyers give significantly too. They join the brokers and bankers in “fierce” competition to get finance authority business, says Wooten Epes, its former president, who left on Jan. 1, 1989. He went to work the same month for the law firm of Kutak Rock & Campbell, which then became the special tax counsel for underwriters in the finance authority’s housing bond program. Competition for a piece of every bond transaction is so stiff, Epes says, that people “fall all over themselves.” Although it cannot be proved, Epes says, “the implication here is that people without political connections” cannot prevail. Among law firms doing business with the finance authority, the two biggest contributors are Wright Lindsey & Jennings and Mitchell Williams Selig & Tucker. They gave $52,230 to his 1990 gubernatorial race and so far in his presidential campaign.


In addition, attorneys and relatives at other law firms--including the Rose Law Firm, Friday Eldredge & Clark and Williams & Anderson--gave $129,173, for a total of $181,403.

Not only does the finance authority provide a pool of Clinton campaign contributors, but it also entangles Clinton-appointed directors in potential conflicts of interest. Arkansas Freightways is a case study.

Counsel for the Arkansas Freightways loan was provided by the Rose firm, where Clinton’s wife, Hillary, is a partner, and by Mitchell Williams Selig & Tucker. Their fees were undisclosed. The trustee bank was Twin City, whose executive vice president, Margaret Eldridge, is on the finance authority board. Twin City’s fees over the 20 years of the bond issue will total $108,300. The bond underwriter was Stephens, the major outside stockholder in Arkansas Freightways.

Also on the finance authority board were James Stobaugh, chairman of the Fayetteville branch of Stephens-affiliated Worthen Bank, and Bobby Stephens, not a member of the Stephens family but a vice president of Beverly Enterprises, a nursing home company 10% owned by Stephens. The Stephens fee for underwriting was $173,400. The loan agreement was signed on behalf of the finance authority by Clinton fund-raiser Merle Peterson.


During the first of two required votes, Eldridge, Stobaugh and Stephens approved. During the second vote, Stobaugh was absent, but Eldridge and Stephens approved.

Two loans by the finance authority to the Pine Bluff Warehouse Co. also show potential conflicts of interest. The loans total $1.76 million. Legal counsel was provided by Rose. It collected $22,231. A trustee bank was the Stephens-affiliated National Bank of Commerce in Pine Bluff, whose vice president at the time was finance authority board member James Stobaugh. The bank’s chief executive officer, the late William H. Kennedy Jr., was a director and secretary of the warehouse company that got the loans. The bond underwriter was Stephens Inc., whose executives, Jon Jacoby and Michael R. Smith, also were directors of the warehouse company. Also on the finance authority board was Bobby Stephens, the vice president of the Stephens-affiliated nursing homes. Stephens Inc. collected $33,210.

Stobaugh voted for both loans. Stephens voted for one and was absent when the second was approved. Eldridge, recovering from injuries suffered in an auto accident, was unavailable for comment. Stobaugh denied any questionable conduct. Bobby Stephens was unavailable for comment. Smith, the Stephens executive, replied: “The conflict is that we have no choice. We have to do business with this agency. There’s nobody else to go to.”

Jacoby said any conflict was in the eye of the beholder. “You see a girl walking down the street,” he said. “You can say, ‘There goes a beautiful girl,’ or, ‘There goes a whore.’ What the hell’s the difference? They’ve both got legs.”


In response to questions about the matter, Clinton replied: “You’re the first person to ask me (about) this. I was unaware of it, and I don’t know how to comment on it.” He focused on one portion of the matter--trustee banks. “The trustee thing, that’s just a formality (and) not a big deal.”

In one instance, a finance authority loan became a scandal involving public but unproved allegations of bribery--and Clinton killed it. The loan was requested by Pride House Care Corp. of Amarillo, Tex., which wanted $81 million to finance a purchase of 32 Arkansas nursing homes from Beverly Enterprises, the Stephens-affiliated nursing home company. Stobaugh, with his ties to Stephens-affiliated Worthen Bank, was on the finance authority board--and Worthen’s chairman, Curtis Bradbury, was a Beverly director. Bobby Stephens, the Beverly Enterprises vice president, also was on the finance authority board. The loan was opposed by the Arkansas attorney general and by John Harkey, a circuit court judge who opposes tax-free bonds for private gain. Both Stobaugh and Bobby Stephens supported the loan.

“Have there been abuses?” Bradbury asks, rhetorically. “I wouldn’t be surprised. Are there potential conflicts involving Stobaugh? Sure. He’s a longtime buddy of Clinton’s, (and) he’s working for me.”

Goodman is a special correspondent and Broder is a staff writer. Also contributing to this story were Times staff writers William C. Rempel, Robert Jackson and Patrick McDonnell and researcher Tracy Shryer.