[Congressional Record Volume 140, Number 47 (Tuesday, April 26, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: April 26, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
     CORRESPONDENCE RELATING TO THE CLINTON'S PARTICIPATION IN THE 
                       VALUEPARTNERS I HEDGE FUND

                                 ______


                          HON. BOB LIVINGSTON

                              of louisiana

                    in the house of representatives

                        Tuesday, April 26, 1994

  Mr. LIVINGSTON. Mr. Speaker, lots of press attention has been given 
the exchange of correspondence relating to the Clinton's participation 
in the ValuePartners I hedge fund. Some of these reports have been 
inaccurate. So in order to clarify the record, Congressman George Gekas 
and Congressman Chris Cox join me to introduce into the Record 
correspondence between us and the Office of Government Ethics.


                                Congress of the United States,

                                   Washington, DC, March 17, 1994.
     Mr. Stephen D. Potts,
     Director, U.S. Office of Governmental Ethics, Washington, DC.
       Dear Mr. Potts: This letter is to bring to your attention 
     certain relevant disclosures made by William Smith, the 
     general partner of ValuePartners I, which have been published 
     since our March 9, 1994 letter to you.
       1. During a CNBC interview on March 11, 1994, Mr. Smith 
     stated that he advised Bill and Hillary Rodham Clinton to 
     form a blind trust during 1992. (As recounted in our previous 
     letter, this step was not taken until July 1993.)
       2. During the same broadcast, Mr. Smith acknowledged that 
     certain of the stock issues in which Ms. Rodham Clinton's 
     partnership took short positions were so-called ``penny 
     stocks''--those with share prices so low that short selling 
     can unduly affect market prices.
       3. Mr. Smith also stated in the CNBC interview that James 
     McDougal is not, and has not ever been, one of his clients. 
     The information to the contrary provided in a footnote to our 
     earlier letter was based upon a McDougal balance sheet, 
     obtained from the FDIC, that listed three investments as 
     ``Value Partnership.'' This was apparently mere coincidence 
     and should, therefore, be disregarded. Mr. Smith also stated 
     that he ceased reporting specific short positions to the 
     partners in May 1992. In fact, however, the Form 278 filed by 
     President Clinton on May 14, 1993, included a report from 
     Smith Capital listing specific short sales as of December 31, 
     1992.
       4. During the same CNBC broadcast, Mr. Smith expressed his 
     willingness to provide information. While we have responded 
     by making the enclosed request for documents of Mr. Smith, it 
     is far more appropriate for OGE to be conducting this aspect 
     of the investigation. We therefore renew our request that you 
     do so.
       An editorial in the March 21, 1994 Newsweek opined that 
     ``it's hard to imagine that Hillary knew one of her 
     investment funds was selling a few health care stocks short 
     before her attack on drug companies. Besides, the fund lost 
     more on health stocks it held.'' We note that both of these 
     alleged ``facts'' are not in evidence. To the contrary, the 
     content of the six quarterly reports provided by Mr. Smith to 
     Ms. Rodham Clinton, between July 1992 and July 1993, the 
     telephone conversations between Mr. Smith and Ms. Rodham 
     Clinton, and her staff, and similar evidence all will 
     establish whether she had knowledge of her financial interest 
     in these transactions for purposes of Section 208. This is 
     precisely why investigation is required. Likewise, it is 
     impossible to determine the extent of the partnership's gains 
     and losses from its apparently aggressive short selling 
     activities on only three days. Moreover, Section 208 of the 
     Ethics in Government Act concerns only whether one has a 
     financial interest.
       For these reasons, we look forward to your investigatory 
     action to help determine the several issues of fact and law 
     we have raised. Maintaining respect for the nation's ethics 
     laws requires their observance by our highest elected 
     officials. Based upon the best evidence at this date, it 
     appears the issue of Ms. Rodham Clinton's compliance with 
     Section 208 is in doubt.
       Once again, thank you for your prompt attention.
           Sincerely,
     Robert Livingston,
                                               Member of Congress.
     George Gekas,
                                               Member of Congress.
     Christopher Cox,
                                               Member of Congress.
                                  ____

                                    Congress of the United States,


                                     House of Representatives,

                                   Washington, DC, March 11, 1994.
     Mr. William Smith
     Smith Capital Management, Little Rock, AR.
       Dear Mr. Smith: On CNBC today, you stated you would have 
     been pleased to provide all relevant information concerning 
     ValuePartners I to ensure full disclosure of the facts and 
     circumstances surrounding Hillary Rodham Clinton's 
     partnership therein. We accept that as an offer of continuing 
     support, and ask that you provide the following:
       (a) The names and addresses of all owners of a beneficial 
     interest in ValuePartners I during the period beginning on 
     formation of the partnership and ending on the date hereof, 
     together with the proportionate partnership interests held by 
     such persons throughout the period.
       (b) Details of each short sale by ValuePartners I during 
     the period, including issuer, price, gain or loss, fees, and 
     commissions and other costs associated therewith.
       (c) Details of each other investment by ValuePartners I 
     during the period.
       (d) Copies of all reports provided to partners in 
     ValuePartners I during the period, together with all 
     documents and other evidence (including notes, phone logs, 
     diaries, and phone bills) of telephone calls or other 
     communications between you and either or both Hillary Rodham 
     Clinton and William J. Clinton, or their agents, during the 
     period.
       (e) Copies of all financial statements of ValuePartners I 
     (including unaudited statements for internal use, if any) 
     prepared during the period.
       (f) All correspondence and other documents between you and 
     either or both Hillary Rodham Clinton and William J. Clinton, 
     or their agents, during the period.
       (g) Details of all short sales during the period for the 
     beneficial interest of either or both Hillary Rodham Clinton 
     and William J. Clinton caused, obtained, or arranged for by 
     you, or of which you are aware, whether or not in connection 
     with ValuePartners I.
       (h) Details of all partnership distributions from 
     ValuePartners I in which either or both Hillary Rodham 
     Clinton and William J. Clinton had a beneficial interest 
     during the period.
       (i) Copies of all tax returns, and schedules and other 
     documents in connection therewith, filed or prepared by 
     ValuePartners I during the period, together with all tax 
     informational records and notices provided to partners in 
     ValuePartners I during the period.
       Definitions. For purposes of this request, the following 
     terms shall have the meanings set forth below:
       (a) ``You'' means you, Smith Capital Management, its 
     agents, officers, employees, predecessors, successors, and 
     affiliates.
       (b) ``Period'' means the period beginning on formation of 
     ValuePartners I and ending on the date hereof.
       (c) ``Documents'' means all papers, notes, books, records, 
     files, invoices, correspondence, computer data, memoranda, 
     diaries, telephone records, and physical information of any 
     kind.
       (d) ``Beneficial interest'' means direct or indirect 
     ownership or financial interest, and includes specifically 
     any interest in custodial accounts, investment accounts, 
     individual retirement accounts, brokerage accounts, 
     partnership interests, trusts, and any other form of savings, 
     investment, or retirement account, as well as any direct or 
     indirect interest in securities.
       Please respond no later than March 25, 1994. Thank you for 
     your cooperation.
           Sincerely,
     Robert Livingston,
                                               Member of Congress.
     Christopher Cox,
                                               Member of Congress.
     George Gekas,
                                               Member of Congress.
                                  ____

                                    Congress of the United States,


                                     House of Representatives,

                                    Washington, DC, March 9, 1994.
     Stephen D. Potts,
     Director, U.S. Office of Government Ethics, Washington, DC.
       Dear Mr. Potts: On January 26, 1994 Congressmen Livingston, 
     Gekas, and Cox wrote to you seeking information as to the 
     existence or status of any investigation into suggestions in 
     the press that a federal employee, Hillary Rodham Clinton, 
     had violated federal ethics laws and regulations. Your letter 
     of February 10, 1994 responded that your office had not 
     conducted and was not conducting an investigation because, 
     thus far, ``OGE is not aware of any information * * * that 
     would call for such an investigation.'' We have, therefore, 
     provided below specific facts and circumstances that 
     according to the standards set forth in your response merit 
     further Congressional inquiry as well as investigation by the 
     Office of Government Ethics.
       Your letter of February 10, 1994 states that if a person is 
     an officer or employee of the executive branch of the United 
     States government, that person's ethical conduct and 
     responsibilities are governed by the criminal ethics laws of 
     18 U.S.C. secs. 201-209. You also say that the ``Standards of 
     Ethical Conduct'' issued pursuant to the Ethics in Government 
     Act, Executive Order 12674, as modified, and 5 U.S.C. secs. 
     7351 and 7353, set forth applicable regulations governing 
     conflicting financial interests and misuse of position. You 
     note the Standards of Ethical Conduct also include general 
     principles of Executive Order 12674 which include, among 
     others, the requirement that employees avoid any actions 
     creating the appearance that they are violating ethics laws 
     and regulations.
       In 1986 Hillary Rodham Clinton first acquired an interest 
     in a non-public limited partnership called ValuePartners I. 
     Some time during 1992 her investment in this partnership 
     increased.
       William Rowland Smith is President of Smith Capital 
     Management, Inc. (``Smith Capital'') and is the general 
     partner of ValuePartners I. A registered investment advisor, 
     Smith Capital filed an amendment to its registration 
     statement with the United States Securities and Exchange 
     Commission, Form ADV, on March 16, 1993. The amended Form ADV 
     stated that the management of the assets of ValuePartners I 
     was entrusted to Smith Capital for a fee of three percent a 
     year. The Form ADV also discloses that Smith Capital provides 
     at least quarterly reports to investors concerning the 
     makeup, appraisal and performance of the investment portfolio 
     of ValuePartners I. Tax reports are also provided in January-
     February for planning and tax reporting purposes. Additional 
     reports are provided on request.
       The personal investments of President and Ms. Rodham 
     Clinton were not placed into a blind trust until July 4, 
     1993. Consequently, prior to that date Ms. Rodham Clinton 
     received regular reports from Smith Capital, including 
     specifically a minimum of six reports in 1992 and the first 
     half of 1993, detailing the short sale positions of 
     ValuePartners I.\1\ Ms. Rodham Clinton was, therefore, 
     actually and constructively in receipt of information showing 
     she had a direct and personal financial interest in short 
     sales of pharmaceutical and health care stocks. Indeed, a 
     list of these short sales prepared by Smith Capital was 
     attached to the Executive Branch Public Financial Disclosure 
     Reports, Forms 278, filed by candidate William J. Clinton on 
     November 7, 1991, and May 19, 1992, and by President Clinton 
     on May 14, 1993.\2\
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     \2\Footnotes At End of Article
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       The President's Task Force on National Health Care Reform 
     (``Task Force'') was created in early 1993 for the specific 
     purpose of developing a legislative proposal on health care. 
     Ms. Rodham Clinton was appointed by the President as the 
     Chairperson of the Task Force. This was a ``particular 
     matter'' concerning which Ms. Rodham Clinton had 
     responsibility for operation, management and decision 
     making. She was judicially determined to be a federal 
     employee for that purpose. Association of American 
     Physicians and Surgeons v. Clinton 997 F.2d 898 (D.C. Cir. 
     1994). She was patently participating ``personally and 
     substantially'' in the decision making of the Task Force.
       Ms. Rodham Clinton, in her federal employee capacity as 
     Chairperson of the Task Force, gave numerous speeches 
     attacking a discrete and identifiable class: pharmaceutical 
     firms. Her attacks targeted these firms for regulation and 
     price controls. These speeches had the effect of driving down 
     prices in stocks in these specific companies. We submit 
     herewith a detailed study produced at the University of 
     Michigan concluding that the public pronouncements of the 
     Clintons criticizing pharmaceutical firms depressed stock 
     prices of those firms by as much as twenty-seven percent. S. 
     Craig Pirrong, Political Rhetoric and Stock Price Volatility: 
     A Case Study. This concentrated effort by the President and 
     Ms. Rodham Clinton clearly had the ``direct and predictable 
     effect'' of driving down the stock prices of pharmaceutical 
     firms. United States v. Gorman, 807 F.2d 1299 (6th Cir. 
     1986).
       At the time that Ms. Rodham Clinton's actions caused the 
     drop in the prices of these stocks, her personal investment 
     in ValuePartners I, of which she had repeated notice, was 
     intentionally structured to profit from price declines in 
     pharmaceutical company stocks. The list of assets filed with 
     each of the three Clinton Forms 278 shows short sales in 
     twelve different pharmaceutical and health care companies, 
     including Merck & Co. Inc., Bristol-Myers Squibb, Inc. and 
     Bioplasty, Inc.
       The profit or loss from the individual short sales that Ms. 
     Rodham Clinton's partnership made cannot be calculated from 
     the inadequate and inconsistently reported information 
     provided with the Forms 278 filed by the President after 
     October 31, 1991. The net effect of the short selling by Ms. 
     Rodham Clinton's partnership can, however, be determined from 
     the filings. At the start of the Presidential campaign in 
     October, 1991 the short sale portfolio of ValuePartners I 
     included only one health care stock. A year later the short 
     sale portfolio of Ms. Rodham Clinton's partnership included 
     twelve pharmaceutical and health care companies. These short 
     sales netted an overall profit of approximately $275,000.
       On these facts, and given the law and regulations you have 
     cited as applicable in this case, the Office of Government 
     Ethics has a responsibility to investigate this matter. Ms. 
     Rodham Clinton had responsibility for a ``particular 
     matter.'' She participated ``personally and substantially.'' 
     Her official actions had a ``direct and predictable effect.'' 
     She personally profited as a result. She had actual and 
     constructive knowledge of her financial interest.
       At a minimum, this conduct violates the very regulations to 
     which your previous letter refers, inasmuch as it constitutes 
     the appearance of impropriety and conflict of interest. We 
     believe, however, that Ms. Rodham Clinton's actions not 
     only create the appearance of impropriety but may in fact 
     violate the prohibitions of 18 U.S.C. sec. 208.
       If the Office of Government Ethics chooses not to 
     immediately begin an investigation of this matter, and to 
     take whatever other actions are necessary to enforce the 
     federal ethics laws and regulations, we request that you 
     outline the specific reason you believe that Section 208 is 
     facially inapplicable. Please respond to this letter by the 
     close of business on Wednesday, March 16, 1994.
       Thank you for your consideration.
           Sincerely,
     Robert L. Livingston,
       Member of Congress.
     George W. Gekas,
       Member of Congress.
     Christopher Cox.
       Member of Congress.


                               footnotes

     \1\In addition, according to Mr. Smith, during 1992 Ms. 
     Rodham Clinton and he spoke by telephone, During 1993 Vincent 
     Foster, Deputy White House Counsel, and Mr. Smith spoke by 
     telephone, apparently concerning Ms. Rodham Clinton's 
     investment since Mr. Foster was not a participant in 
     ValuePartners I at the time. Other partners in ValuePartners 
     I were personal friends and acquaintances of Ms. Rodham 
     Clinton--including James B. McDougal. The non-public, closely 
     held nature of ValuePartners I, a partnership including 
     individuals who knew each other, provides additional evidence 
     that in addition to actual and constructive knowledge of 
     ValuePartners I investments, Ms. Rodham Clinton may have been 
     in a position to influence these investments.
     \2\We note that the filing by President Clinton is apparently 
     not in compliance with governing federal regulations. The 
     instructions to Schedule A of Form 278 require the listing of 
     assets owned within thirty-one days of the filing of Form 
     278. On May 14, 1993 President Clinton filed Form 278 which 
     included a ``Smith Capital Management Portfolio Appraisal, 
     ValuePartners I,'' dated ``12-31-92.'' It would appear that, 
     in order to comply with the thirty-one day requirement of 
     form 278, the assets of ValuePartners I should not have been 
     valued as of December, 1992. We would appreciate specific OGE 
     advice concerning this requirement, and compliance or non-
     compliance therewith by the report in question.
                                  ____

                                    Congress of the United States,


                                     House of Representatives,

                                 Washington, DC, January 26, 1994.
     Hon. Stephen D. Potts,
     Director, Office of Government Ethics, Washington, DC.
       Dear Mr. Potts: We are writing to you concerning reports 
     covering the investment activities of either or both 
     President William Clinton and First Lady Hillary Rodham 
     Clinton published in the Washington Times and in Money 
     magazine. The Washington Times reports, entitled ``Side 
     Benefits of Rx Rhetoric'' (November 18, 1993) and ``Standards 
     Shift for Hillary?'' (November 22, 1993), by nationally 
     syndicated columnist Tony Snow, concerned the Clintons' 
     investment in a partnership that sold pharmaceutical, health 
     care, and insurance company stocks short. The articles raise 
     the possibility that this short selling, combined with 
     statements made by the President and First Lady, may have 
     been in conflict with ethical regulations governing 
     Administration officials. Copies of these articles are 
     attached.
       According to press accounts, either or both the President 
     or Ms. Clinton have invested approximately one hundred 
     thousand dollars in a partnership named ``Valuepartners I.'' 
     This partnership is managed by William Smith in Little Rock, 
     Arkansas, a personal acquaintance of the Clintons. Press 
     reports indicate that Valuepartners I dramatically increased 
     its short selling of stocks in pharmaceutical, health care, 
     and insurance company stocks at a time when Ms. Clinton and 
     the President were making public statements critical of those 
     industries, she in her capacity as head of the 
     Administration's Health Care Task Force and he as President. 
     An article in Money magazine entitled ``How Blind is Your 
     Trust?'' (January, 1993) states that following the 
     recommendations of Ms. Clinton's Health Care Task Force, 
     prices of health care stocks dropped by as much as twenty and 
     thirty percent. A copy of this article is also attached.
       Press reports allege that Ms. Clinton was receiving regular 
     reports from her adviser, Mr. Smith, at this time. Only after 
     the increased short selling campaign of Valuepartners I had 
     begun, and only in July, 1993, months after Money magazine 
     called for the Clintons to place their investments in a blind 
     trust, was such a trust created.
       Both the President and Ms. Clinton would certainly be aware 
     of the impact on the market of their statements about the 
     Administration's health care proposals. The ability of the 
     President and Ms. Clinton to affect prices in the securities 
     markets is unique. The questions already raised publicly 
     concerning their investments, particularly the short sales, 
     must be addressed.
       To assist the Congress in making a determination of whether 
     an investigation is warranted, we request that the Office of 
     Government Ethics provide an analysis of the threshold 
     questions that these transactions raise under the Ethics in 
     Government Act. While we would appreciate any additional 
     factual or legal observations the Office of Government Ethics 
     and its staff can share with us concerning these matters, at 
     a minimum, your analysis should include answers to the 
     following questions:
       1. In so far as the maintenance of public confidence in 
     government clearly demands that an employee take no action 
     which would constitute the use of his official position to 
     advance his personal or private interests, would the 
     announcement of proposed Administration policy, at a time 
     when the officials responsible for the announcements owned 
     investments whose prices would reasonably be expected to be 
     impacted by these statements, constitute a violation of the 
     Ethics in Government Act by those officials?
       2. Is the Office of Government Ethics conducting an 
     investigation into possible violations of the Ethics in 
     Government Act by the President, Ms. Clinton, or Mr. Smith in 
     connection with their short selling or other investment 
     activities?
       We would appreciate at least a preliminary response to 
     these questions by the close of business on February 9, 1994. 
     If you need any additional information concerning this 
     inquiry, please feel free to contact our offices. Thank you 
     for your assistance in this matter.
           Sincerely,
     Robert L. Livingston,
       Member of Congress.
     George W. Gekas,
       Member of Congress.
     Christopher Cox,
       Member of Congress.

                          ____________________