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McDougal is indicted for refusing to talk

Susan McDougal, the former Whitewater business partner of the Clintons who has refused for nearly two years to testify before a grand jury about the president's financial dealings, was indicted Monday on felony charges of criminal contempt and obstruction of justice.

The indictment, handed up by the Little Rock Whitewater grand jury just days before it is set to expire, includes a new allegation: that McDougal obstructed justice by refusing to answer questions about a cryptic handwritten note she wrote on a $5,081 check in 1983 that said "Payoff Clinton." McDougal was also charged with two felony counts of contempt for twice refusing to testify _ in 1996 and last month _ despite a court-ordered grant of immunity.

The indictment could mean years more behind bars for the 43-year-old McDougal. She has already served 18 months for civil contempt for refusing to testify in independent counsel Kenneth Starr's investigation and is just starting a two-year term for a bank fraud conviction Starr won against her in 1996. She also faces a state trial in California on unrelated embezzlement charges.

Prosecutors, meanwhile, signaled they may be ending the Arkansas phase of their investigation by announcing they won't seek to impanel a new grand jury.

Whatever decisions remain will "now be moved up to Washington," where prosecutors are investigating the Monica Lewinsky matter and allegations of obstruction of justice, according to Charles Bakaly, a spokesman for Starr.

"One option certainly is that certain evidence gathered by this grand jury could be made available to another grand jury that would also have venue over potential crimes," Bakaly said.

Whitewater prosecutors are not expected to take any action against first lady Hillary Rodham Clinton before the grand jury expires Thursday, leaving such decisions to later in the investigation, sources familiar with the investigation said.

In grand jury transcripts included as part of the indictment, McDougal said she would not answer questions because she believes that Starr has numerous conflicts of interest. She told the grand jurors that she would answer questions only if Starr and his staff were removed.

"Resign and I'll answer all their questions," she said defiantly to three prosecutors trying to question her. "I am refusing to answer any questions that any of the three of you pose to me. I would love to answer the grand jury's questions, but they don't have anyone in here that will take this investigation where it should go."

If convicted of the latest charges, McDougal could be sentenced to more than 10 years in prison and fined $750,000.

Minutes after Monday's indictment, Starr's spokesman said outside the federal courthouse in Little Rock that President Clinton had "injected" himself into the feud between McDougal and prosecutors. "The office of independent counsel requested that the president urge his former business partner, Mrs. McDougal, to testify truthfully before the grand jury. That request was rejected," said Bakaly, adding that Starr wrote to the White House counsel's office five separate times after hearing Clinton refer in interviews to Starr's efforts to obtain McDougal's testimony.

But lawyers for Clinton quickly bristled at the suggestion that the president had implicitly encouraged McDougal to stay silent, with White House counsel Charles Ruff calling that idea "reckless and irresponsible."

Some legal experts called the indictment heavy handed, and McDougal attorney Mark Geragos said of Monday's action, "Not only is it unprecedented, it's shameful." Geragos argued that Starr "has got no business investigating anything to do with Whitewater," citing allegations that the independent counsel has a conflict of interest related to charges that cooperating witness David Hale was paid off by conservatives.

Monday's action follows by less than a week a new tax evasion indictment of Webster Hubbell, another Arkansas resident who has figured centrally in the long-running Whitewater investigation.

Starr's prosecutors have been frustrated in their efforts to gain the cooperation of both Hubbell and McDougal as they investigate real estate dealings involving the Clintons and legal work that Hillary Rodham Clinton did for the McDougals' now-defunct savings and loan, Madison Guaranty, owned by Susan McDougal and her late husband, James.

Prosecutors have tried to learn whether the Clintons told the truth about those dealings under oath, including President Clinton's videotaped testimony at the McDougals' 1996 bank fraud trial. Clinton said then he had no role in helping Susan McDougal obtain a fraudulent $300,000 loan, part of which went to benefit the Whitewater Development Corp., which was jointly owned by the Clintons and the McDougals. Clinton also testified he never had any loans or financial dealings with Madison Guaranty.

Included in the indictment is a partial transcript of McDougal's appearance before the grand jury two weeks ago, during which prosecutors questioned her about the $5,081 check, drawn on her then-husband's account and signed over to Madison Guaranty. The memo section of the check had the notation "Payoff Clinton."

Prosecutors told McDougal they were interested in the check because it relates to Clinton's videotaped trial testimony.

The indictment said McDougal refused to answer questions posed to her by several of the jurors, who tried to assure her that they, not Starr, would decide on the merits of her testimony.

Some criminal law experts said Monday it was permitted but very unusual to prosecute someone for criminal contempt after they have finished serving a civil sentence for the same refusal to testify.

Said St. John's University law professor John Q. Barrett, "I don't understand why he would want his office to get bogged down in a criminal prosecution of her. In terms of leverage to get her testimony, which is really what Starr's eye needs to stay on, I don't see anything having leverage with this person. She just seems dug in. Sometimes prosecutors do just run into that kind of thing and the thing to do is, with frustration, walk away."

Meanwhile, Starr's prosecutors sparred with the White House Monday over what role _ if any _ Clinton had in bolstering McDougal's resolve not to testify.

"Whether intentionally or not, the president has injected himself into this matter," Starr wrote in an Oct. 23, 1997, letter _ the most recent in a series of five he sent to the White House. "He has made public comments that could reasonably have had the effect of bolstering Ms. McDougal's obstinacy, thereby impeding this federal investigation."

White House counsel Ruff denied the suggestion that Clinton was subtly influencing McDougal to remain quiet. "The president has always urged everyone to tell the truth," said Ruff. "At the same time, he understands that it is not appropriate for him to intervene personally in this matter. Any suggestion by the Office of Independent Counsel that the president should do otherwise is reckless and irresponsible."

David Kendall, the president's private attorney, said he believed the check in question involved an effort by the McDougals to pay off a Whitewater-related business loan at another of their banks, and that the notation simply was an accounting reminder that it went for the real estate venture involving the Clintons.

_ Information from the Associated Press and New York Times was used in this report.