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On August 5, 1994, Kenneth Starr became Independent Counsel to prosecute McDougal and other Whitewater participants.[4] Her federal trial began in 1996, in which the government's star witness, Arkansas banker and former municipal judge David Hale, claimed that Governor Bill Clinton had discussed an illegal $300,000 loan with him and McDougal. Hale was himself under investigation for having defrauded the SBA out of $3.2 million. He also unsuccessfully sought to have his brother Milas Hale corroborate his testimony against Clinton.[5]
McDougal was convicted of her role in Whitewater on May 28, 1996, and was sentenced to spend time in prison for four counts of fraud and conspiracy relating to the Whitewater scandal, but her prison term did not begin until March 7, 1998, as there were other court proceedings. Following her ex-husband's James (Jim) B. McDougal's conviction but prior to his sentencing, he began to co-operate with the Office of Independent Counsel and tried to persuade her to do likewise to avoid a prison sentence.
Susan's defense lawyer, Mark Geragos, stated that her ex-husband told her that Deputy Independent Counsel W. Hickman Ewing Jr. would be able to "get Clinton with a sex charge" before the 1996 election if she agreed to lie and say she had had an affair with Clinton. She has always denied ever having had an affair with Clinton.[6]
Ewing denied to reporters, during a break in the proceedings, that he had ever heard of such a plan: "I never talked to Jim McDougal about that, and I wouldn't. I never heard any discussion along those lines in my office ever at the time frame she's talking about."
Rejecting her ex-husband's advice, McDougal's sentencing hearing began August 19, 1996. After the judge levied a sentence of two years in federal prison but before she left the courtroom, Starr had her served with a subpoena for another Whitewater grand jury, to begin two weeks later.[7]
Grand jury
During the grand jury, McDougal stated her full name "for the record" and then refused to answer any questions. In her book, she explained, "I feared being accused of perjury if I told the grand jury the truth. The OIC had accepted David Hale's lies as the truth. They were also now relying on Jim McDougal's lies, which they'd carefully helped him construct. If I came in and directly contradicted those two -- whose testimony had been used to convict me of four felonies -- I feared the OIC would next accuse me of perjury." She also writes that she feared the same fate as Julie Hiatt Steele,[8] who had contradicted the testimony of White House aide Kathleen Willey: "Simply telling the truth cost Steele everything she had, almost landed her in jail [for perjury], and jeopardized her custody of her adopted son."[9]
McDougal's grand jury testimony included her response: "Get another independent counsel and I'll answer every question."[10] She was publicly rebuked for refusing to answer "three questions"[11] about whether President Clinton had lied in his testimony during her Whitewater trial, particularly when he denied any knowledge of an illegal $300,000 loan. U.S. District Court Judge Susan Webber Wright sentenced her for civil contempt of court.
Prison
From September 9, 1996 to March 6, 1998, McDougal spent the maximum possible 18 months' imprisonment for civil contempt, including eight months in solitary confinement, and she was subjected to "diesel therapy," described by McDougal as "the practice of hauling defendants around the country and placing them in different jails along the way."[12][13]
McDougal was shuffled from Arkansas to "Los Angeles to the Oklahoma City transfer center, and then on to the Pulaski County Jail in Little Rock, Arkansas".[14]
Following her release on March 7, 1998 for civil contempt of court, McDougal began serving the two-year sentence for her 1996 conviction.[15]
Soon afterward, the Independent Counsel indicted McDougal on criminal charges of contempt of court and obstruction of justice. After serving four months on the Whitewater fraud conviction, she was released for medical reasons.[16]
After McDougal's release, her embezzlement trial in California began. In 1998, McDougal was acquitted on all 12 counts.[17]
A suit in 1999 against Nancy Mehta for malicious prosecution was settled out of court.[18]
McDougal's trial for criminal charges of contempt of court and obstruction of justice began in March 1999. The jury deadlocked 7–5 in her favor on the charge of contempt of court and found her not guilty on the charge of obstruction of justice.[19] In 2001, in the final hours of his presidency, President Clinton granted McDougal a full presidential pardon.[20]
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