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The Watchdog Who Barked At Hillary


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THE WATCHDOG WHO BARKED AT HILLARY

By all accounts, Dennis A. Klejna is a model government watchdog. For 12 years, he has been enforcement chief for the Commodity Futures Trading Commission. Among his plaudits: a Distinguished Presidential Rank Award for exemplary performance.

So how come Klejna is being eased out of his job? On Mar. 8, senior CFTC officials urged him to accept a transfer to the agency's New York regional office. The CFTC says the move is part of a planned reorganization. But more may be involved. CFTC officials repeatedly have changed their explanations of

Klejna's demotion. And BUSINESS WEEK has learned that the shift came after a Democratic CFTC commissioner with White House ties discovered that

Klejna had offered to help the Whitewater special prosecutor look into First Lady Hillary Rodham Clinton's controversial commodities trades.

Last spring, Klejna volunteered CFTC information to then Independent Counsel Robert B. Fiske Jr. Within days, he told Commissioner Barbara P. Holum, at the time the CFTC's acting head, about his offer. A prominent Democratic fund-raiser and longtime Clinton friend, Holum was furious and set out to oust Klejna as a "traitor," says a source close to internal CFTC discussions.

CONTRADICTIONS. Holum confirms that Klejna came to her last April. But she denies discussing the matter with the White House or trying to dump Klejna. "I never made an issue of this," she says. And BUSINESS WEEK has no evidence of White House meddling. But if Klejna's removal was an act of political retribution, it could be another blow to an Administration already deep in ethics woes.

Republicans are eager to paint the incident as political interference with an independent regulatory agency. On Mar. 15, Senator Lauch Faircloth (R-N.C.), a member of the Senate Banking Committee, met with CFTC Chairman Mary L. Schapiro and Klejna. Faircloth says he remains suspicious of political motives in Klejna's transfer and will seek a Senate investigation. "I fully intend to determine if the White House was involved in an attempt to remove Dennis Klejna," he says. An Administration spokesman strongly denies any White House involvement.

Klejna is reluctant to blame the affair on partisan politics. "Everyone around here says it's not true," he shrugs. "I don't want to disagree." He adds, though, that he may refuse the transfer.

For her part, Schapiro says her only aim is to bolster the agency. Four months ago, as a new chairman, she ordered a review of the CFTC's enforcement actions under Klejna, who presides over 145 CFTC enforcement cops nationwide. The study, Schapiro says, persuaded her to dispatch him to shake up the underperforming 80-person Manhattan office. "I've never had any contact with the White House or anyone else" on this, she adds. "The suggestion that this was politically motivated is ludicrous."

But a source close to the CFTC claims Holum and Schapiro openly discussed Holum's desire to force Klejna out of his Washington job. Holum contradicts Schapiro's denial that the two discussed the issue, saying they did so on Feb. 17.

Moreover, Schapiro has twice changed her account of the matter in responding to BUSINESS WEEK. On Mar. 1, for instance, she denied that Klejna was being relieved of his duties. But the next day, BUSINESS WEEK learned that Herbert F. Janick III, a former Securities & Exchange Commission enforcement attorney, was up for Klejna's job and was already house-hunting in Washington. Schapiro then conceded she had urged Janick and others to apply for Klejna's job "if it opened up." Janick, now deputy general counsel at PaineWebber Group Inc. in New York, confirms that Schapiro discussed the job with him weeks before.

"APOLITICAL PERSON." More puzzling is the CFTC's response to BUSINESS WEEK's questions about whether Klejna had called the Whitewater prosecutor. Initially, Schapiro denied any contact. But after receiving a Mar. 8 letter from Faircloth asking about Klejna's status, she said she had just learned from her enforcement chief that he had gone to Fiske. Klejna had offered technical advice on how to obtain crucial trade documents from Refco Inc., the Chicago brokerage that helped the First Lady turn a $1,000 stake into a $99,537 return between 1978 and 1980. Schapiro and Klejna now say they misunderstood BUSINESS WEEK's earlier questions and did not intend to mislead.

Schapiro, a political independent who was appointed by GOP Presidents Reagan and Bush to the SEC, counters the accusations of partisan interference by asserting: "I'm an apolitical person." But Faircloth maintains that a deeper probe is needed. For the White House, that's a position that's becoming distressingly familiar.

KLEJNA'S CHRONOLOGY

EARLY APRIL, 1994 Dennis Klejna approaches the Whitewater special counsel offering to help in the investigation of

Hillary Rodham Clinton's controversial commodities trading.

MID-APRIL, 1994 Klejna tells Barbara Holum, acting CFTC chair, of his action. A CFTC source says she reacts angrily.

MAR. 3, 1995 After denying two days earlier that Klejna is on his way out, new CFTC chair Mary Schapiro confirms that Klejna may be transferred to a new job.

MAR. 8, 1995 Klejna is offered a transfer to the agency's Manhattan regional office.By Michael Schroeder and Douglas Harbrecht in Washington


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