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ACKNOWLEDGMENTS

My Office was extremely fortunate in the number of exceptional people who 

served in this extraordinarily complex and lengthy investigation. These persons 

brought their considerable talents and skills to an assignment that was difficult and 

often thankless. 

As has been pointed out by other Independent Counsels, we start from 

ground zero. When an Independent Counsel begins, he or she has no office, no 

personnel, not even a pencil. It is like creating a law firm from nothing. 

Recruiting lawyers is the first and the most important task for any Independent 

Counsel. Identifying those lawyers who possess the special skills, talents and 

experience is only part of this task. Such lawyers must be willing to have their 

careers interrupted for an uncertain assignment. The sacrifices I asked people to 

make were substantial. In many cases, families were uprooted and often the 

financial sacrifice was considerable. Nevertheless, the people who did agree to 

sign on were some of the most talented in the country and have gone on to 

significant positions in the public or private sectors. 

I wish to acknowledge one of the most exceptional individuals I have ever 

met. Deputy Independent Counsel Mark V. Jackowski is an extraordinary 

combination of integrity, brilliance and dedication. His capacity for hard work and 

long hours set an example for everyone in this Office. This report and much of the 
work of this Office would not have been possible without him. I have never 

worked with a finer lawyer. 

The initial Deputy Independent Counsel was Lawrence F. Scalise, the former 

Attorney General of Iowa. His service helping to guide our efforts from the initial 

stages of the investigation to the plea by Secretary Cisneros, was exceptional. 

Additionally, he employed his skills in building this Office and organizing its 

efforts. He was the very first person I asked to serve in this endeavor. 

Marjorie Kicak, our Administrative Officer, became the second person hired. 

She came highly recommended by two former Independent Counsels in whose 

offices she held the same position. She fulfilled all our expectations and served 

with integrity, hard work, and a firm hand managing all business matters of this 

Office. Her efforts were outstanding in all aspects. 

I want to cite another individual, Judge Louis J. Freeh, a man of the highest 

integrity and personal character. His courage made him indispensable in his 

leadership of the Federal Bureau of Investigation at a very difficult time. I am 

deeply indebted to him professionally and personally for his support. 

This Office was extremely fortunate to have the services of several 

Associate Independent Counsels, who were given great responsibility for the 

conduct of this investigation. They performed their responsibilities with dedication 

and high professionalism. 
Assistant United States Attorney Ed Page took responsibility for the 

successful prosecution in Lubbock, Texas. His broad experience and ability made 

it possible to take charge of matters in Lubbock with my total confidence. 

Assistant United States Attorney Mathew Rosengart was responsible for 

drafting a wide range of pleadings. He prepared and argued an important appeal to 

the United States Court of Appeals for the District of Columbia. His efforts 

resulted in a unanimous decision of the Court upholding the position of my Office. 

Michael C. Conway served this Office with experience, professionalism and 

skill from the very beginning. He brought to this Office his experience both as a 

prosecutor and as one of the country’s most effective defense counsels. He made 

very substantial contributions to the preparation and content of this Final Report. 

I particularly point out Daniel F. Hall who began his service while still a law 

student. He later became a Senior Associate Independent Counsel and was a 

stalwart in the preparation of the Report of this Office and in many other 

assignments. His writing and analytical skills are notable. 

I also wish to recognize the special contribution Charles M. Kagay made to 

this Office. He served as Chief Appellate Counsel. He, along with his colleague 

Wayne M. Liao, brought their unsurpassed analytical and writing skills to bear on 

the drafting of the Final Report and many other critical matters. 

I highly commend the service of the following Associate Independent 
Counsels: Assistant United States Attorney John Dominguez, Tim Griffin, Bill 

Hurlock, John Irving, and Richard Stanton, all of whom served in the early stages 

of the investigation. Subsequently, a number of individuals also served as 

Associate Independent Counsels who I also wish to commend: Joseph Derbis, 

Paul Engh, Edward Eynon, James Fleissner, Asa Hutchinson, III, Pamela Mackey, 

Andy McCarthy, Alexia Pappas, and Philip Police. 

I am very proud of the following individuals who attended law school while 

working in my Office performing many tasks, including organizing the incredible 

amounts of paperwork that came into this Office: Carlton Curry, Devin Doolan, Jr., 

Lauren Gillen, and Amy Molloy, all whom have gone on to practice law. 

The investigative work of this Office was done by an extremely effective 

group of investigators, who pursued their responsibilities with the highest degree 

of professionalism and experience. The agents came principally from the Federal 

Bureau of Investigation and the Internal Revenue Service. 

I particularly wish to recognize the contributions made by the following 

Agents from the Federal Bureau of Investigation: Daniel Gallagher, Christopher 

Graham, Alan Holzgraf, Claude Martin, Craig Meyer, George Parks, T.J. Roberts, 

Dennis Terry and John Truhitt. They were led by Supervisory Special Agent 

Karen Spangenberg. 

From the Internal Revenue Service’s Criminal Investigation Division, I 
commend the contributions of Special Agents Dorman Barrows, Sheila Colbenson, 

Kesha Lange and John Filan. The late John Filan was a career employee of the 

Internal Revenue Service where he served for almost 30 years. He will be long 

remembered for his integrity and extraordinary courage in the most difficult of 

circumstances. The American people owe John Filan their most profound gratitude 

for his service in this investigation. 

From the Department of the Treasury’s then-Office of Inspector General, I 

commend the service of Special Agent Carl Hoecker. 

I would particularly like to note the contributions of two individuals who 

have established substantial reputations at two of this country’s finest law schools: 

David T. Link, who for over twenty-five years led the Law School at the 

University of Notre Dame as its Dean, and Richard Alan Gordon, the Assistant 

Dean of the Georgetown University Law Center for many years. Each gave 

valuable guidance to the Office of Independent Counsel. Dean Link was 

particularly helpful to me, because of his experience as an enforcement lawyer with 

the Internal Revenue Service before becoming a Professor at Notre Dame. It 

should be pointed out that both men served at their own expense and refused any 

compensation from this Office. 

I would like to thank The Honorable Charles Wilson, now a distinguished 

Judge on the United States Court of Appeals for the 11th Circuit who, while United 
States Attorney for the Middle District of Florida, permitted me to “borrow” three 

of his most experienced prosecutors, Mark V. Jackowski, Ed Page, and Mathew 

Rosengart. 

I also benefitted greatly from the contributions of a distinguished group of 

lawyers and investigators who served in my Office. My deepest gratitude and 

appreciation to: 

Joseph Barletta, Bradford Berenson, Bruce Conklin, Bruce E. Koenig, Jerris 

Leonard, John Mamoulides, Robert Mazur, Alfred Moran, James O’Neill, Paul S. 

Rosenzweig, Edmund W. Searby, and Anne Voegele. I wish to particularly note 

the contributions of Robert Mazur. He is an individual of unprecedented 

experience and skill, brought the highest levels of professionalism and intelligence 

to this Office. 

There is no way to fully thank the secretaries who worked in this Office. 

There were a number over the years and they served with great professionalism 


TABLE OF CONTENTS


I. INDEPENDENT COUNSEL’S INTRODUCTION ................. I-1


II. EXECUTIVE SUMMARY ................................. ... II-1


III. APPOINTMENT AND MANDATES .......................... III-1


IV. THE FALSE STATEMENTS INVESTIGATION ................. IV-1


A. Introduction ................................. ......... IV-1


B. Facts and Circumstances ................................ IV-2


1. Preface – Evidentiary Limitations ................... IV-2


2. Introduction ................................. ... IV-3


3. Background Facts ................................ IV-3


a. Cisneros Biography ......................... IV-3


b. Cisneros’s Relationship with Linda Medlar ...... IV-6


4. Cisneros’s False Statements to Government Officials ... IV-21


a. The Appointment Process ................... IV-21


b. The Clinton Transition Process ............... IV-23


c. Cisneros’s Vetting – The First Stage ........... IV-26


d. Cisneros’s Vetting – The Second Stage ......... IV-38


e. Cisneros as Designated Nominee .............. IV-78


f. The FBI Background Investigation ............ IV-87


i 
g.	 Transition Team Reaction to the FBI Report ... IV-114


h.	 The Senate Committee Evaluation ............ IV-122


5.	 Secretary Cisneros’s Continuing Relationship with Medlar


................................. ........... IV-135


a.	 Continuing Payments to Medlar ............. IV-135


b.	 Medlar’s Efforts to Exploit Cisneros’s Position . IV-146


c.	 Payments to Medlar from Cisneros’s Friend Jaffe


................................. ...... IV-161


d.	 Cisneros’s Senior Advisor’s Interaction with Medlar and


Jaffe ................................. .. IV-169


6.	 Disclosure of the False Statements ................. IV-173


a.	 Medlar Sues Cisneros ...................... IV-173


b.	 The Inside Edition Broadcast ................ IV-175


c.	 Medlar Alters the Tapes .................... IV-177


d.	 Resolution of Medlar’s Lawsuit .............. IV-179


7.	 Cisneros’s Resignation .......................... IV-180


C.	 The Lubbock, Texas Prosecutions ...................... IV-181


1.	 Medlar’s Failure to Cooperate .................... IV-181


2.	 The Indictment ................................ IV-185


3.	 Pretrial Proceedings ............................ IV-188


4.	 Plea Bargains ................................. IV-190


ii 
D. The Washington, D.C. Prosecutions ..................... IV-195


1. The Indictment ................................ IV-195


2. Pretrial Proceedings ............................ IV-198


3. Renewed Efforts to Obtain Medlar’s Cooperation .... IV-202


4. The Defense Motion to Exclude the Tapes .......... IV-205


5. The Cisneros Plea Bargain ....................... IV-210


6. Post-Plea Litigation ............................ IV-217


7. Disposition of Charges Against Other Defendants .... IV-218


8. The Pardons .................................. IV-218


V. The Obstruction Investigation ................................. V-1


A. Introduction ................................. .......... V-1


B.	 Limitations on Independent Counsel Jurisdiction over Tax Matters


................................. .................... V-2


1. The Initial Appointment ............................ V-2


2. The OIC’s 1997 Expansion and Referral Requests ....... V-3


3. The IRS’s Review of Cisneros’s Possible Tax Violations . V-8


C. The OIC Tax Investigation ............................... V-9


D. Basis of the Obstruction Investigation ..................... V-10


E. The OIC’s Preliminary Obstruction Investigation ............ V-13


F. The OIC’s Full-Scale Obstruction Investigation ............. V-14


iii 
1.	 The 1998 Grand Jury Inquiry ....................... V-14


2.	 Temporary Suspension of the Obstruction Investigation . V-15


3.	 Resumption of the Obstruction Investigation .......... V-16


a.	 Investigation of Possible IRS Obstruction ........ V-16


b.	 Investigation of Possible DOJ Obstruction ....... V-16


4.	 The Application for a Referral of Jurisdiction over the


Obstruction Allegations ........................... V-19


5.	 The Subpoena to DOJ ............................. V-21


6.	 The Show Cause Order ............................ V-23


7.	 The Decision to Terminate the Obstruction Investigation


................................. ............. V-25


G.	 The Results of the OIC’s Obstruction Investigation .......... V-26


1.	 Summary of Findings ............................. V-26


H.	 Findings Regarding the Initial Request for Appointment of an


Independent Counsel .................................. V-27


1.	 Preliminary Inquiries into the Cisneros Allegations ..... V-28


2.	 The Ninety-Day Preliminary Investigation ............ V-41


3.	 The Sixty-Day Extension of the Preliminary Investigation


................................. ............. V-55


4.	 Recommendations to the Attorney General ............ V-63


5.	 The Attorney General’s Application and the Appointment of the


Independent Counsel ............................. V-77


iv 
6.	 The OIC’s Initial Encounter with Public Integrity ...... V-78


I.	 Findings with Respect to the OIC’s Requests for Jurisdiction over Tax


Matters ................................. ............ V-79


1.	 IRS Criminal Investigation and Review .............. V-80


2.	 The Amendment of CCDM(31)440 .................. V-85


3.	 The IRS Investigation of the Cisneros Criminal Tax Case


................................. ............. V-88


4.	 The “Partnership” for Counsel Review of the Cisneros Tax Case


................................. ............. V-92


5.	 Dissolution of the Partnership ..................... V-101


6.	 ACC Reviews the SAR .......................... V-112


7.	 The OIC’s Requests for Expanded Tax Jurisdiction .... V-121


8.	 The IRS Debate over the Merits of the Cisneros Tax Case


................................. ............ V-122


9.	 The OIC and DOJ’s Initial Discussions Concerning the OIC’s


Jurisdictional Requests ........................... V-134


10.	 Allegations of Improper Disclosures to the OIC ....... V-139


11.	 The Cisneros Defense Conference .................. V-141


12.	 DOJ Consultation with the IRS Concerning the OIC’s


Jurisdictional Requests ........................... V-146


13.	 DOJ Consultation with Cisneros’s Attorneys Concerning the


OIC’s Jurisdictional Requests ..................... V-157


14.	 ACC Reaction to Revelations about [REDACTED PURSUANT


TO 11/4/05 SPECIAL DIVISION ORDER] ........ V-162


v 
15.	 The Limited Grant of Tax Jurisdiction to the OIC ...... V-167


16.	 ACC’s Decision Not to Refer the Cisneros Case for Prosecution


or Grand Jury Investigation ....................... V-171


17.	 The Supplemental Status Memorandum ............. V-177


18.	 The Declination Memorandum .................... V-185


19.	 Reactions to the Declination Memorandum ........... V-203


J.	 Conclusion ................................. ........ V-208


VI.	 CONCLUSION ................................. ........... VI-1


vi 
I. INDEPENDENT COUNSEL’S INTRODUCTION 

This Final Report sets out, in detail, what this Office learned as it investigated 

the subject matter within its jurisdiction, how it learned what it did, and what actions 

it took on the basis of that knowledge. At the outset, I set three overriding goals for 

our efforts – to bring to light any wrongdoing that occurred within the perimeter of 

my mandates, to redress such wrongdoing to the extent possible, and to exculpate any 

person or entity who, after a full and thorough investigation, proved not to have done 

anything meriting prosecution. This Report chronicles these efforts. 

The Report tells one story in two parts, each part essential to the other. The 

first part concerns the investigation of Henry Cisneros and Linda Medlar in 

connection with his appointment as Secretary of Housing and Urban Development. 

The second part, wholly unanticipated when we began our work, concerns the 

apparent efforts of certain high-ranking government officials to insulate Henry 

Cisneros from independent counsel investigation or prosecution. 

At the core of our investigation was the allegation that Cisneros lied to the 

Federal Bureau of Investigation on the road to his appointment as HUD Secretary, an 

accusation first leveled by his erstwhile mistress Linda Medlar. The story of Cisneros 

and Medlar on its face was a personal tragedy for the participants and their families, 

not in and of itself meriting public scrutiny. It became a problem of national concern 

when they and their associates decided that Cisneros’s appointment was more 

important than obeying the laws that are intended to ensure that important 

government decisions are grounded on full and honest information. This first part of 

our investigation was able, I believe, to uncover most of the essential facts behind 

these actions and to redress the serious criminal offenses involved appropriately, and 

therefore met the goals that I set. 

The second part of our investigation was directed at the serious and unsettling 

possibility that certain high-ranking officials of the Department of Justice and the 

Internal Revenue Service had improperly attempted to shield Cisneros from 

independent counsel scrutiny for tax offenses. This Office was not alone in 

perceiving these potential problems; numerous dedicated officials within those 

agencies raised alerts, largely unheeded, about possible failures to pursue meritorious 

claims involving Cisneros. If nothing else, this portion of the story emphasizes the 

need to guarantee both the appearance and the reality that everyone, regardless of 

their status, is treated the same by their government when it comes to matters of 

criminal conduct. There are no parts of our government that touch more closely the 

I-1

individual citizens than the Internal Revenue Service and the Department of Justice, 

and the integrity and the reputation for integrity of both are critical to the operation 

of our government. 

The story told in this Report about this latter phase of the investigation is 

incomplete. The Department of Justice and the individuals under scrutiny resisted 

our efforts to investigate, and the Independent Counsel Act lapsed under its sunset 

provisions, leaving our Office in operation but with an escalating need to complete 

its business. In the end, we saw that it was necessary to cease investigative 

operations before we had pursued the matter to its conclusion. In other words, we 

were only partially successful in pursuing the goals of the Office in this phase of our 

work. Although we are not able to say with certainty whether any criminal laws were 

broken, it is clear, I think, that there was questionable activity – as well as inactivity – 

by a number of government officials. 

The work of this Office took a long time to complete, even by the standards of 

an independent counsel investigation, which typically meets more resistance and 

resultant delay than a normal criminal investigation. One reason was that Medlar, 

who was a key witness in the investigation and prosecution of Cisneros, suffered from 

the misconception that commitments to federal law enforcement officials need not be 

treated seriously – an error in judgment that cost the Office much time, effort and 

expense, and ultimately cost her dearly as she was prosecuted and incarcerated for her 

actions. The other principal reason is that we had to take on the unanticipated line 

of inquiry involving possible obstruction of justice by government officials; the 

recalcitrance of the officials under scrutiny made for slow going. 

In the end, although our efforts fulfilled the goals that I set in full for only part 

of our investigation, and only in part for the remainder, I believe they can serve as an 

example of the need for independent scrutiny of official actions. Most of what is 

related in this Report would likely never have seen the light of day if an independent 

counsel had not been appointed. This Report is an opportunity to measure the value 

of such efforts. 

David M. Barrett 

Independent Counsel 

I-2 
II. EXECUTIVE SUMMARY 

In the latter half of 1994, accusations surfaced that then-Secretary of Housing 

and Urban Development Henry G. Cisneros had made false statements to the Federal 

Bureau of Investigation (“FBI”) in late 1992 and early 1993, when the agency was 

conducting a routine background investigation for his appointment and confirmation. 

The false statements concerned monetary payments he had made to Linda Medlar,1 

with whom he had had an extramarital affair in the late 1980s. Cisneros allegedly had 

seriously misstated the amount and frequency of the payments he had made to her. 

The controversy over Cisneros’s false statements came into the public eye in 

1994 when Medlar filed a lawsuit against Cisneros and soon afterward revealed that 

she had secretly taped many of their telephone conversations. In some of the tapes 

she had made, she and Cisneros had discussed Cisneros’s false statements to 

government officials and related actions. 

The false statement accusations prompted the Attorney General to initiate a 

preliminary investigation pursuant to the Independent Counsel Act, 28 U.S.C. § 591 

et seq., to determine whether to ask for the appointment of an independent counsel. 

Following an extended investigation, the Attorney General applied to the United 

States Court of Appeals for the District of Columbia Circuit, Division for the Purpose 

of Appointing Independent Counsels (“Special Division”) for the appointment of an 

independent counsel. She made this application against the recommendation of the 

Department of Justice’s (“DOJ”) Public Integrity Section (“Public Integrity”) and 

other senior DOJ staff. 

The Special Division appointed David M. Barrett as Independent Counsel on 

May 24, 1995. It gave him the power and duty to investigate fully and, if necessary, 

to prosecute offenses arising from any false statements that Cisneros had made to the 

FBI during the background investigation leading to his appointment as HUD 

Secretary. The appointment order also gave the Independent Counsel jurisdiction to 

investigate and prosecute any person or entity for conspiracy to make such false 

statements, any related offenses, and any criminal interference with the Independent 

Counsel’s (“OIC”) investigation. 

1

 Medlar changed her last name back to her maiden name, Jones, in June 1995. 

GJ 97-1 Ex. 308. However, for purposes of this Report, she will be referred to as 

Medlar. 

II-1 
The jurisdiction that the Special Division delineated did not include any tax 

offenses, because the Attorney General had determined that there were no grounds 

for requesting that an independent counsel be appointed to address tax matters. She 

made this determination even though DOJ had in its possession evidence suggesting 

that Cisneros had not paid taxes on income he diverted into the payments to Medlar. 

In January 1997, after the OIC’s investigation had uncovered further evidence 

that tax offenses might be related to the false statement offenses already under 

investigation, the Independent Counsel formally asked the Attorney General to 

expand his jurisdiction to include tax offenses in four different years. She granted the 

request for one year only, and the Independent Counsel’s jurisdiction was expanded 

accordingly. The Independent Counsel also asked the Special Division to refer 

certain tax offenses to him as related matters, but the court found itself legally 

precluded from doing so by the Attorney General’s determinations that appointment 

of an independent counsel for tax matters in other years was not warranted. 

Medlar was the key witness in the Cisneros investigation, but she proved to be 

both untruthful and uncooperative. In September 1997, the OIC obtained an 

indictment of Medlar for making false statements to the OIC and the FBI in their 

investigation of Cisneros’s false statements. The same indictment charged Medlar 

and her sister and brother-in-law with bank fraud and false statements made to a 

federally-insured financial institution. All defendants ultimately pleaded guilty. 

Three months later, in December 1997, the OIC obtained indictments of 

Cisneros, Medlar, and two of Cisneros’s employees for making false statements to 

federal officials in the 1992-93 investigation leading to Cisneros’s appointment and 

confirmation as HUD Secretary, and for conspiring to make these false statements. 

In March 1999, Medlar agreed to cooperate with the OIC in the prosecution, in 

exchange for dismissal of the charges pending against her and a reduction of the 

sentence she had received for her previous conviction pursuant to her guilty plea. In 

September 1999, following an evidentiary hearing at which the trial court ruled that 

almost all of Medlar’s tape recordings of her conversations with Cisneros would be 

admissible at trial, Cisneros and the OIC entered into a plea agreement. Cisneros 

pleaded guilty to a misdemeanor count of lying to the FBI. The charges against the 

remaining defendants were then dismissed at the OIC’s request. 

The Cisneros plea bargain concluded the OIC’s investigation of Cisneros’s 

false statements, the core subject of its jurisdiction. The OIC did not end its 

investigatory activities at that point, because it perceived serious unresolved 

II-2

questions concerning the Attorney General’s decision to grant the OIC almost no 

jurisdiction over tax offenses. By statute, the delineation of the OIC’s jurisdiction 

was committed to the Attorney General’s unreviewable discretion. However, the 

evidence available to the OIC strongly suggested that officials in both DOJ and the 

Internal Revenue Service (“IRS”) had undermined the Attorney General’s exercise 

of discretion by actively working to block any investigation or prosecution of 

Cisneros for tax offenses, regardless of the merits. At worst, these activities could 

have represented criminal obstruction of justice. Since part of the OIC’s charge was 

to investigate any interference with its own investigation, its work could not be 

complete until it had fully examined this possibility. 

Beginning in the Summer of 1997, the OIC developed, to the extent it could, 

evidence concerning efforts by officials of DOJ and the IRS to contain and limit the 

investigation of Cisneros’s actions. This inquiry into possible obstruction of justice 

continued past June 30, 1999, the sunset date of the Independent Counsel Act. In late 

2001, in the face of resistance from DOJ, the OIC attempted to resolve any doubts 

about its power to proceed on this issue by applying to the Special Division for a 

referral of the obstruction of justice question as a matter contained within its existing 

mandates. The Special Division declined to act, holding that its power to make such 

referrals had ended with the sunsetting of the Independent Counsel Act. 

Without a clear resolution of the jurisdiction question, the OIC continued to 

press its obstruction investigation by subpoenaing documents from DOJ in early 

2002. DOJ responded by filing a motion to quash the subpoena, which the District 

Court gave no sign of resolving at any early date. While the motion was pending, the 

Special Division issued an order indicating that it was looking for a prompt 

completion of the OIC’s investigative activities and the closing of its operations. 

With no imminent prospect of cooperation from DOJ, enforcement of the 

subpoena by the District Court, or support by the Special Division for the OIC’s 

exercise of jurisdiction, and with statutes of limitations on the relevant offenses 

looming or already passed, the OIC elected to end its investigation. Consequently, 

this Report is necessarily incomplete in its discussion of these obstruction of justice 

allegations, because the OIC was unable to resolve the issue with finality – either 

through prosecution or a determination that prosecution was not warranted. 

The following Report discusses all of the OIC’s investigative and prosecutorial 

activities and sets out in detail the facts uncovered relevant to the Independent 

Counsel’s mandate. The Report does not set forth in detail the OIC’s activities 

II-3

relating to areas of inquiry that it did not pursue at length – those that proved upon 

limited examination to be clearly without merit or to be clearly outside the 

Independent Counsel’s mandate. 

II-4

III. APPOINTMENT AND MANDATES 

In September 1994, Linda Medlar publicly accused Henry Cisneros, the 

Secretary of Housing and Urban Development, of having made false statements to the 

FBI in late 1992 and early 1993 while under investigation for his appointment.2 The 

false statements concerned payments he had made to her over the course of several 

years. She backed these accusations with audio recordings she had secretly made of 

numerous telephone conversations with Cisneros, and with bank records. 

At that time, 28 U.S.C. § 591(a), a provision of the Independent Counsel Act, 

directed the Attorney General to initiate a preliminary investigation whenever she 

“receive[d] information sufficient to constitute grounds to investigate whether [a 

member of the President’s Cabinet] may have violated any Federal criminal law other 

than a violation classified as a Class B or C misdemeanor or an infraction.” The Act 

gave the Attorney General 30 days from the receipt of such information to determine 

whether it was sufficiently specific and credible to warrant a preliminary 

investigation.3

 The preliminary investigation allowed the Attorney General to 

determine whether further investigation of the matter was warranted and, if so, to 

request, pursuant to 28 U.S.C. § 592, that an independent counsel be appointed. 

In September of 1994, the Attorney General began an inquiry to decide whether 

to commence a preliminary investigation of Medlar’s accusations that Cisneros had 

made false statements to the FBI. On October 14, 1994, the Attorney General opened 

a preliminary investigation into Cisneros’s alleged false statements. 

About five months later, on March 13, 1995, the Attorney General applied to 

the Special Division for the appointment of an independent counsel in the Cisneros 

matter.4

 In her application, the Attorney General stated: 

I conclude that “there are reasonable grounds to believe that further 

investigation is warranted” into whether Secretary Cisneros may have 

violated a federal criminal law other than a Class B or C misdemeanor 

2 Inside Edition Tr. 9/12/94 at 5. 

3

 28 U.S.C. § 591(d)(2). 

4

 GJ 00-001 Ex. 3 (Application for Appointment of an Independent Counsel 

3/13/95). 

III-1 
• • • 

• • • 

• • • 

or an infraction when he made false statements to the FBI during his 

background investigation. 

RESULTS OF THE PRELIMINARY INVESTIGATION 

A. Alleged False Statements to the FBI. Our investigation 

developed evidence that Secretary Cisneros made false statements to the 

FBI during an interview conducted as part of his background 

investigation. . . . He . . . told the FBI that he had been paying support 

to Medlar for some time; however, he also stated to the FBI that he had 

paid her no more than $2,500 at a time, and no more than $10,000 a 

year. 

Although not all false statements are material as a matter of law, 

the materiality of Secretary Cisneros’s false statements to the FBI is a 

close and difficult factual and legal issue that must be resolved by an 

Independent Counsel. An Independent Counsel must also evaluate 

whether there was an agreement between Medlar and Secretary Cisneros 

to conceal information concerning his payments to Medlar during the 

confirmation process, in violation of the conspiracy statute, 18 U.S.C. 

§ 371. 

B. Potential Tax Violations. Our investigation developed no 

evidence that Secretary Cisneros failed to pay any income or gift taxes 

due in connection with his payments to Medlar. . . . I conclude that no 

further investigation of this matter is warranted as a criminal tax matter. 

C. Potential Solicitation or Acceptance of Gratuities. Our 

investigation also disclosed that, after Secretary Cisneros had been in 

office for several months, he was seeking ways to provide for Medlar, 

without having to continue making regular payments himself. In one 

transcribed conversation, Secretary Cisneros told Medlar that he had 

asked a friend who was a businessman and past political supporter 

III-2

whether he could arrange for a job or other assistance for Medlar. 

Medlar later told Secretary Cisneros that the businessman had sent her 

$5,000. In addition, we obtained evidence that the businessman later 

arranged for the provision of approximately $11,000 more to Medlar. 

[W]e have found no evidence that the money provided by the 

businessman had any connection to “any official act” that had been or 

might have been taken in the future by Cisneros as Secretary of HUD. 

Indeed, a review of the public records concerning the businessman’s 

financial holdings has not disclosed even a hypothetical potential for 

Secretary Cisneros to take action as the head of HUD which would 

affect the businessman. Therefore, I conclude that no further 

investigation of this matter is warranted.5 

Attached to the Application was a proposed delineation of the Independent Counsel’s 

jurisdiction.6 

On May 24, 1995, the Special Division acted on this Application by appointing 

David M. Barrett to conduct an investigation of Henry G. Cisneros. The 

Appointment Order’s jurisdictional grant tracked the Attorney General’s proposal, 

giving to the Independent Counsel: 

[F]ull power, independent authority, and jurisdiction to investigate to the 

maximum extent authorized by the Independent Counsel 

Reauthorization Act of 1994 whether Henry G. Cisneros, Secretary of 

Housing and Urban Development, committed a violation of any federal 

criminal law . . . by making false statements with respect to his past 

payments to Linda Medlar to the Federal Bureau of Investigation during 

the course of his background investigation or conspiring with others to 

do so. 

[J]urisdiction and authority to investigate other related allegations or 

evidence of violation of federal criminal law . . . by any organization or 

individual as necessary to resolve the matter described above. 

5 Id. at 2-5. 

6 Id. at 2. 

III-3

• • • 

[J]urisdiction and authority to investigate any violation of 28 U.S.C. 

§ 1826, or any obstruction of the due administration of justice, or any 

material false statement or testimony in violation of federal criminal law, 

in connection with or arising out of the investigation of the matters 

described above. 

[J]urisdiction and authority to seek indictments and to prosecute any 

persons or entities involved in any of the matters described above, who 

are reasonably believed to have committed a violation of any federal 

criminal law, arising out of such matters, including person or entities 

who have engaged in unlawful conspiracy or who have aided or abetted 

any federal offense. 

[P]rosecutorial jurisdiction to fully investigate and prosecute the subject 

matter with respect to which the Attorney General requested 

appointment of independent counsel, as hereinbefore set forth, and all 

matters and individuals whose acts may be related to that subject matter, 

inclusive of authority to investigate and prosecute federal crimes . . . that 

may arise out of the above described matter, including perjury, 

obstruction of justice, destruction of evidence and intimidation of 

witnesses.7 

About a year and a half later, on January 29, 1997, the Independent Counsel 

formally requested the Attorney General pursuant to 28 U.S.C. § 593(c)(2) to expand 

the Independent Counsel’s jurisdiction to include the investigation and prosecution 

of federal income tax violations that Cisneros might have committed in tax years 

1989, 1991, 1992, and 1993, related to income used to make payments to Medlar.8 

Simultaneously, the Independent Counsel formally asked the Special Division 

pursuant to 28 U.S.C. § 594(e) to refer, as a related matter, jurisdiction to investigate 

and prosecute federal income tax violations that Cisneros might have committed in 

7

 GJ 00-001 Ex. 4 (5/24/95 Order Appointing Independent Counsel). 

8

 GJ 00-001 Ex. 51A (Office of Independent Counsel’s Request for an 

Expansion of Prosecutorial Jurisdiction Pursuant to 28 U.S.C. § 593(c)). 

III-4 
• • • 

• • • 

tax years 1989, 1991, 1992, and 1993, related to income not used to make payments 

to Medlar.9 

The Attorney General supported the proposed expansion for tax year 1992, but 

otherwise opposed any expansion or referral of jurisdiction.10 In her February 28, 

1997 filing to the Special Division, the Attorney General stated: 

[O]n January 29, 1997, I commenced a preliminary investigation 

pursuant to the request of Independent Counsel David M. Barrett for an 

expansion of his jurisdiction to investigate, and, if appropriate, to 

prosecute any violations of federal criminal law, other than a Class B or 

C misdemeanor or infraction, by former Secretary of Housing and Urban 

Development Henry G. Cisneros, with respect to certain of Mr. 

Cisneros’s income tax obligations for tax years 1989 and 1991 through 

1993. . . . I have concluded that an expansion of Mr. Barrett’s 

jurisdiction is appropriate for tax year 1992. I further have determined 

that there are no reasonable grounds to believe that further investigation 

is warranted for tax years 1989, 1991 and 1993. 

I have considered the facts underlying the referral request, as part 

of my examination of the Independent Counsel’s request for expansion 

of his jurisdiction as set out above, and herein have notified this Court 

of my conclusion that further investigation is not warranted. This Court 

therefore lacks jurisdiction to refer these matters to the Independent 

Counsel. 

Recommended Jurisdiction. Pursuant to 28 U.S.C. § 593(c)(1), 

I recommend and request that the Special Division of the Court expand 

the Independent Counsel’s jurisdiction to permit investigation of tax 

9

 GJ 00-001 Ex. 50 (Office of Independent Counsel’s Sealed Application for 

the Referral of Related Matters Pursuant to 28 U.S.C. § 594(e)). 

10 GJ 00-001 Ex. 87 (2/28/97 Notification to the Court re: Expansion of 

Jurisdiction). 

III-5 
• • • 

• • • 

• • • 

year 1992 and determine whether prosecution of tax violations arising 

from the income tax returns filed in that tax year is warranted.11 

The Attorney General’s filing included a proposed Expanded Statement of 

Jurisdiction. 

By Order entered March 18, 1997, the Special Division expanded the 

Independent Counsel’s jurisdiction essentially as the Attorney General had 

recommended, amending his jurisdiction to include tax offenses in 1992, as follows: 

[J]urisdiction and authority to investigate to the maximum extent 

authorized by the Independent Counsel Reauthorization Act of 1994 

whether Henry G. Cisneros, former Secretary of the United States 

Department of Housing and Urban Development, or any person or entity 

acting in concert with him, has committed a violation of any federal 

criminal law . . . arising from or relating to the filing or preparation of 

his federal income tax returns for tax year 1992 or conspiring with 

others to do so. 

[J]urisdiction and authority to investigate other allegations or evidence 

of violation of any federal criminal law by Henry G. Cisneros or any 

other person or entity . . . developed during the Independent Counsel’s 

investigation of the matters referred to above, and arising out of such 

investigation. 

[J]urisdiction and authority to investigate other allegations or evidence 

of violation of federal criminal law . . . by any individual or entity as 

necessary to resolve the matter described above. 

[J]urisdiction and authority to investigate any violation of 28 U.S.C. 

§ 1826, or any obstruction of the due administration of justice, or any 

11 Id. at 1, 16, 22. 

III-6 
• • • 

material false statement or testimony in violation of federal criminal law, 

that may arise out of the investigation of the matters described above. 

[J]urisdiction and authority to seek indictments and to prosecute any 

persons or entities involved in any of the matters described above, who 

are reasonably believed to have committed a violation of any federal 

criminal law, arising out of such matters, including person or entities 

who have engaged in an unlawful conspiracy or who have aided or 

abetted any federal offense .12 

On March 26, 1997, on its own motion, the Special Division amended the 

March 18, 1997 Order to specify that the Independent Counsel had: 

[P]rosecutorial jurisdiction to fully investigate and prosecute the subject 

matters with respect to which the Attorney General requested 

appointment of independent counsel, and the expansion of such 

independent counsel’s jurisdiction, as hereinbefore set forth, and all 

matters and persons and entities whose acts may be related to those 

subject matters, inclusive of authority to investigate and prosecute 

federal crimes . . . that may arise out of the above described matters, 

including perjury, obstruction of justice, destruction of evidence and 

intimidation of witnesses13 

The Special Division denied the OIC’s referral request by Order dated April 

10, 1997 because it found itself unable to make the requested referral as a result of 

the Attorney General’s prior determinations on the tax issue.14 

12 GJ 00-001 Ex. 91 (3/18/97 Order Amending Independent Counsel’s 

Jurisdiction). 

13 GJ 00-001 Ex. 92 (3/26/97 Order Further Amending Independent Counsel’s 

Jurisdiction). 

14 GJ 00-001 Ex. 105 (Order Denying Request for Referral of Related Matters 

4/10/97). 

III-7 
The Special Division did not modify or reinterpret the Independent Counsel’s 

jurisdiction after March of 1997. The jurisdictional grants quoted above governed 

the Independent Counsel’s activities for the remainder of his investigation. 

III-8

IV. THE FALSE STATEMENTS INVESTIGATION 

A. Introduction 

The Independent Counsel’s core jurisdiction gave him the power and duty to 

investigate whether Cisneros had made false statements to the FBI during his 

background investigation. This matter, together with certain closely related 

allegations that emerged in the course of the OIC’s investigation, was the focus of the 

OIC’s initial investigation and all of its prosecutions. 

There was never any serious doubt that Cisneros had lied to the FBI and to the 

President-elect’s Transition Team about his payments to Medlar, while he was under 

consideration for appointment as Secretary of the Department of Housing and Urban 

Development (“HUD”). Still, the OIC needed to pinpoint what lies Cisneros had told, 

to whom he had told them, and when. This required the OIC to scrutinize thoroughly 

the transition and appointment procedures to which Cisneros was subject, detailing 

the statements he had made and had not made throughout the process. It also required 

the OIC to establish the facts behind Cisneros’s payments to Medlar, for comparison 

with the representations he had made about them. Because the payments had been 

secret, the OIC examined Cisneros’s finances in their entirety to track them down. 

The OIC also investigated Cisneros’s efforts to conceal the payments and 

continue to keep Medlar quiet after he was confirmed as HUD Secretary, including 

large payments from Cisneros, efforts to get Medlar a job, and money given to Medlar 

by Cisneros’s friend and influential Texas businessman Morris Jaffe. Furthermore, 

the OIC investigated the possibility that Medlar and her relatives had sought and 

received favors from HUD in lieu of Cisneros’s payments to Medlar. 

The most important question on which the legality of Cisneros’s false 

statements turned was whether they had been material to the governmental 

decisionmakers for whom they were intended. False statements to government 

officials are illegal only if they are “material” to the officials’ duties.15 Consequently, 

an important part of the OIC’s investigation lay in gauging the materiality of the false 

statements. 

15 A false statement is material if it “‘has a natural tendency to influence, or [is] 

capable of influencing, the decision of the tribunal’ charged with making the 

decision.” United States v. Cisneros, 26 F. Supp. 2d 24, 40 (D.D.C. 1998) (quoting 

United States v. Diggs, 613 F.2d 988, 999 (D.C. Cir. 1979)). 

IV-1 
The OIC also followed substantial leads concerning closely related allegations. 

It discovered that some of Cisneros’s payments to Medlar were used for Medlar to 

buy a house, and that Medlar’s relatives committed criminal bank fraud to help her 

conceal the source of the funds. 

The OIC’s investigations resulted in two indictments, each of several persons. 

The first was brought in Lubbock, Texas, where the OIC indicted Medlar for false 

statements she had made in the course of the OIC’s investigation. In the same case, 

the OIC brought indictments against Medlar and some of her family members for 

bank fraud and conspiracy to commit bank fraud in a transaction made with funds 

supplied by Cisneros. All of the indictments resulted in guilty pleas. 

The second prosecution was conducted in Washington, D.C. The OIC brought 

an indictment against Cisneros, two of his employees, and Medlar for conspiring to 

impede the work of the Senate and the FBI in the course of Cisneros’s appointment 

and confirmation process. The indictment also charged Cisneros and one of his 

employees with making false statements in the course of Cisneros’s confirmation 

process. 

The linchpins of the Washington, D.C. prosecution were the admissibility of 

the audiotapes that Medlar had made of her conversations with Cisneros, and 

Medlar’s credibility as a witness against Cisneros. Following a pivotal evidentiary 

hearing, during which Cisneros’s defense counsel called Medlar’s credibility into 

serious question, the court ruled that most of the tapes would be admitted at trial. 

Subsequently, Cisneros and the OIC reached a plea agreement under which Cisneros 

pleaded guilty to a misdemeanor, and the charges against the other Washington, D.C. 

defendants were dismissed. 

B. Facts and Circumstances 

1. Preface – Evidentiary Limitations 

The following factual narrative presents the OIC’s best assessment of what the 

evidence shows concerning Cisneros’s false statements and related offenses. Because 

none of the matters the OIC investigated went to trial, there has been limited judicial 

determination of these facts. In some instances, the evidence is contradictory or 

incomplete. 

IV-2

One of the principal witnesses to many of these events described in this Report 

is Linda Medlar. Although she cooperated at times with the OIC’s investigation, and 

ultimately became a witness for the government, Medlar is known to have lied 

repeatedly to government agents and others, and to have lied under oath. Evidence 

derived from Medlar’s statements and testimony is therefore presented cautiously, 

and it should be regarded cautiously, in light of all available evidence. 

2. Introduction 

The Independent Counsel’s primary charge was to determine whether Henry 

Cisneros had broken the law by making false statements, or by conspiring with others 

to do so, during the background investigation conducted for his appointment and 

confirmation as HUD Secretary. The alleged false statements concerned payments 

that he had made and was making to his former mistress, Linda Medlar. The case was 

unusual in that Medlar had secretly tape-recorded many of her conversations with 

Cisneros while the events to be investigated took place. 

The OIC’s investigation revealed that Cisneros had knowingly made false 

statements to the FBI and others, and had actively worked with Medlar to conceal 

information about his payments to and relationship with her. The investigation 

showed that these false statements had had, at the least, the potential to undermine the 

process. And the investigation indicated that Cisneros’s efforts to continue making 

payments to Medlar after he was in office, and thus secure her continued silence, had 

entailed a number of questionable transactions. 

3. Background Facts 

a. Cisneros Biography 

Henry Cisneros was born and raised in San Antonio, Texas where he became 

a leading political figure. He obtained a bachelor’s degree in 1968, and a masters 

degree in urban and renewal planning in 1970, from Texas A&M University.16 In 

1971, he was selected as a White House Fellow and worked as an assistant to Elliot 

Richardson, the Secretary of Health, Education, and Welfare.17 He obtained a second 

masters degree, in public administration, from Harvard University’s Kennedy School 

16 GJ 00-001 Ex. 20 at 6. 

17 GJ 00-001 Ex. 20 at 6; GJ 97-1 Ex. 376 at 94. 

IV-3 
of Government in 1973, and a doctorate degree in public administration from George 

Washington University in 1976.18 From April 1975 to May 1981, he served as city 

councilmember for San Antonio, Texas, where he was involved in the planning and 

management of the city budget, asset, and pension plans, among other 

responsibilities.19 He was a professor at the University of Texas at San Antonio from 

1974 to 1985, teaching public administration and urban planning.20 After that, he 

taught urban planning at Trinity University in San Antonio from 1985 until January 

1987.21 

In May 1981, Cisneros, a Democrat, was elected Mayor of San Antonio, the 

nation’s tenth largest city, becoming the first Hispanic mayor of a major U.S. city.22 

As a four-term mayor of San Antonio from 1981 to 1989, Cisneros led efforts to 

rebuild the city’s economic base – recruiting convention business, attracting high tech 

industries, expanding housing opportunities, increasing tourism, and creating jobs in 

downtown San Antonio.23 In 1983, Cisneros was appointed to the National Bipartisan 

Commission on Central America.24 

As a rising political star, Cisneros achieved national recognition when Walter 

Mondale interviewed him as a potential candidate for Vice President in the 1984 

Presidential election.25 In 1986, he was named “Outstanding Mayor ‘All Pro’ City 

Financial Team” by City and State Magazine in recognition of his efforts relating to 

18 GJ 00-001 Ex. 20 at 6. 

19 GJ 00-001 Ex. 20 at 7-8. 

20 GJ 97-1 Ex. 376 at 84. 

21 GJ 97-1 Ex. 376 at 84. 

22 GJ 97-1 Ex. 376 at 93. 

23 GJ 97-1 Ex. 376 at 93. 

24 GJ 97-1 Ex. 376 at 93. 

25 GJ 00-001 Ex. 20 at 7. 

IV-4 
San Antonio’s economic development.26 During his time as Mayor, Cisneros was 

seen as a possible candidate for Governor of Texas or for the United States Senate.27 

From June 1989 until January 1993, following his tenure as mayor, Cisneros 

served on the board of directors for as many as 35 companies, including a savings and 

loan association.28 In 1991, Cisneros became a director of the Federal Reserve Bank 

of Dallas.29 He was later made deputy chairman of its board.30 He also was a board 

member of the Rockefeller Foundation, chairman of the National Civic League, and 

chairman of the Advisory Committee on the Construction of San Antonio’s 

Alamodome.31 

Cisneros started five private for-profit businesses after serving as Mayor. On 

June 1, 1989, he opened Cisneros Communications (“CISCOM”) as a vehicle for his 

private speechmaking.32 On June 2, 1989, Cisneros and two others started Cisneros 

Asset Management Company (“CAMCO”), a national fixed-income asset 

management firm for public pension plans.33 In 1990, he started Cisneros Benefit 

Group, Inc. (“CBG”) to broker various insurance policies and investment 

opportunities for individuals.34 He also was involved with Cisneros Metro Air 

26 GJ 97-1 Ex. 376 at 86. 

27 GJ 97-1 Ex. 376 at 97 (USA Today, “Cisneros has been on cities ‘battle 

lines’” 1/11/93). 

28 GJ 00-001 Ex. 20 at 10. 

29 GJ 00-001 Ex. 20 at 11. 

30 GJ 00-001 Ex. 20 at 11; see also GJ 97-1 Ex. 376 at 83. 

31 GJ 97-1 Ex. 376 at 82-83. 

32 GJ 00-001 Ex. 20 at 9. 

33 GJ 00-001 Ex. 20 at 9; see also GJ 97-1 Ex. 348 at 18a. 

34 GJ 00-001 Ex. 20 at 9; see also GJ 97-1 Ex. 348 at 18b. 

IV-5 
Service, Inc., a charter airplane service company,35 and Group CMK, which worked 

with companies in Mexico.36 

In spite of his several private sector ventures, Cisneros continued to harbor 

political aspirations, even though previous political campaigns had reportedly left him 

as much as $180,000 in debt.37 

b. Cisneros’s Relationship with Linda Medlar 

In 1986, while he was the Mayor of San Antonio, Cisneros hired Linda Medlar 

as a fundraiser.38 In the decade preceding her employment with Cisneros, Medlar had 

risen from secretary to high-powered political fundraiser.39 From about 1975 until the 

early 1980’s, she had worked as an administrative assistant in the Greater San 

Antonio Chamber of Commerce, where she took part in fundraising campaigns.40 In 

1986, she worked as finance director for U.S. Representative Lamar Smith’s 

successful campaign for Congress.41 She was married to jewelry store owner Stan 

Medlar42 and had one daughter, Kristan.43 

35 GJ 00-001 Ex. 20 at 10; see also GJ 97-1 Ex. 348 at 18c. 

36 GJ 00-001 Ex. 20 at 10. 

37 IRS Interview Report Medlar 11/21/94 at ¶ 4; see also San Antonio ExpressNews, “Linda Medlar tells her side” 4/22/90. 

38 Washington Post, “Regarding Henry” 10/12/94; San Antonio Express-News, 

“Medlar’s professionalism respected by associates” 10/16/88. 

39 San Antonio Express-News, “Medlar’s professionalism respected by 

associates” 10/16/88. 

40 San Antonio Express-News, “Medlar’s professionalism respected by 

associates” 10/16/88. 

41 Id. 

42 Washington Post, “Regarding Henry” 10/12/94. 

43 Medlar v. Cisneros, Medlar Depo. Tr. 9/27/94 at 148. 

IV-6 
In March 1987, Cisneros and Medlar traveled to New York City to attend a 

fundraising event.44 While there, they began an affair.45 At the time, Cisneros had 

two teenage daughters, and his wife Mary Alice Cisneros was pregnant with the 

couple’s third child.46 Cisneros and Medlar professed to have fallen in love with one 

another.47 It was widely known in the San Antonio area that Cisneros was having an 

extramarital affair; however, the press did not immediately report the fact.48 

In September 1988, Cisneros unexpectedly announced that he would not seek 

a fifth term as Mayor of San Antonio.49 Cisneros had already withdrawn from the 

1990 Texas gubernatorial race, in which he had been considered an early favorite.50 

Cisneros cited the poor health of his infant son John Paul, who had been born with 

a heart defect, and the need to make more money, as the reasons for his decisions.51 

44 Washington Post, “Regarding Henry” 10/12/94. 

45 Washington Post, “Regarding Henry” 10/12/94; see also Suppression 

Hearing Tr. Medlar 6/21/99 at 60. 

46 Washington Post, “Regarding Henry” 10/12/94. 

47 Washington Post, “Regarding Henry” 10/12/94. 

48 Washington Post, “Regarding Henry” 10/12/94 (stating “Unbeknown to 

Medlar, Cisneros began talking about the affair to San Antonio reporters, swearing 

them to secrecy . . . . These confessions bought the pair 19 months of public 

silence.”); Washington Post, “The tumult of Mayor Cisneros” 10/24/88 (discussing 

how reporters encountered rumors of the affair “[d]ay after day, month after month” 

at church, the grocery store, cocktail parties, etc.); San Antonio Express-News, “The 

facts vs. the rumors in the Cisneros-Medlar story” 10/15/88 (with the author stating 

“I had been privy for three months to the details of the relationship”). 

49 San Antonio Express-News, “Cisneros won’t run for Mayor” 9/13/88. 

50 New York Times, “Mayor’s admission of infidelity brings pain to San 

Antonio and questions on press” 10/16/88. 

51 San Antonio Express-News, “Cisneros won’t run for Mayor” 9/13/88. 

IV-7 
In the meantime, Medlar had opened her own political consulting and 

fundraising company, Linda Medlar and Associates.52 According to Medlar, her 

clients included United States Senator Lloyd Bentsen, Texas State Senator Frank 

Tejeda, and San Antonio City Councilman Jimmy Hasslocher.53 She also worked as 

a coordinator and fundraiser on the campaign to construct the Alamodome in San 

Antonio, Texas.54 

In October 1988, media reports about the affair between Cisneros and Medlar 

first appeared.55 According to Medlar, because of her affair with Cisneros, she almost 

immediately lost her job with Tejeda and one other client, who claimed to be too 

close to the Hispanic community to continue employing her.56 Medlar also claimed 

that the adverse publicity prompted Bentsen’s campaign to reassign her, giving her 

less responsibility.57 Medlar said she was told by a friend working in Texas politics 

that she was “the most hated woman in Texas.”58 

By late October 1988, Medlar was suffering from depression.59 She began to 

see a psychiatrist and was prescribed the sedative Ativan to help relieve her anxiety.60 

On October 31, 1988, after she had been drinking wine and taking Ativan, Medlar 

52 Suppression Hearing Tr. Medlar 6/21/99 at 60-61; San Antonio ExpressNews, “Medlar’s professionalism respected by associates” 10/16/88. 

53 San Antonio Express-News, “Linda Medlar tells her side” 4/22/90. 

54 Suppression Hearing Tr. Medlar 6/21/99 at 61; see also San Antonio 

Express-News, “Linda Medlar tells her side” 4/22/90. 

55 San Antonio Express-News, “Linda Medlar tells her side” 4/22/90; see also 

San Antonio Express-News, “Cisneros confesses deep love for Medlar” 10/14/88. 

56 OIC Interview Notes Medlar 3/30/99 at 5; see also Medlar v. Cisneros, 

Medlar Depo. Tr. 9/27/94 at 137-38. 

57 OIC Interview Notes Medlar 3/30/99 at 5. 

58 Medlar v. Cisneros, Medlar Depo. Tr. 9/27/94 at 136. 

59 Id. at 24-27. 

60 OIC Interview Notes Medlar 3/30/99 at 1. In 1999, Medlar admitted to the 

OIC that she had abused Ativan. Id. 

IV-8 
went to the Cisneros home.61 She stayed in her car but left when the police drove 

up.62 On her doctor’s recommendation, Medlar subsequently checked into a hospital 

for several days to receive psychiatric care.63 

In November 1988, Medlar’s husband filed for divorce.64 In about December 

1988, Cisneros moved in with Medlar.65 Cisneros and Medlar discussed marriage,66 

and Cisneros publicly represented that his marriage to Mary Alice Cisneros could no 

longer work.67 

In January 1989, an article entitled “The Mayor’s Torment” appeared in Vanity 

Fair magazine.68 Cisneros was interviewed for the article and was quoted as saying, 

among other things, that he had fallen in love with Medlar and that his marriage to 

Mary Alice had been “miserable.”69 Cisneros also hinted at a future run in politics, 

including trying to become the first Mexican-American Governor of Texas.70 

Also in January 1989, San Antonio’s Alamodome referendum passed, 

authorizing a half-cent sales tax increase to finance the facility publicly.71 Cisneros 

61 OIC Interview Notes Medlar 6/16/99 at 3; 3/30/99 at 11. 

62 OIC Interview Notes Medlar 6/16/99 at 3. 

63 Id.; OIC Interview Notes Medlar 3/30/99 at 11. 

64 Suppression Hearing Tr. Medlar 6/21/99 at 71. 

65 Id. at 67. 

66 Id. at 71. 

67 San Antonio Express-News, “Cisneros does a flip-flop goes national with 

story” 10/27/88. 

68 Vanity Fair, “The Mayor’s torment” January 1989. 

69 Id. at 47-48. 

70 Id. 

71 San Antonio Express-News, “Linda Medlar tells her side” 4/22/90; Texas 

Monthly, “About face: Everyone thought Henry Cisneros would replace Lloyd 

(continued...) 

IV-9 
had supported the project and campaigned for the passage of the referendum.72 

Medlar also worked on the campaign and helped to raise approximately $750,000 in 

support of the campaign.73 However, according to Medlar, Cisneros wanted to keep 

her involvement in the campaign a secret because it might lead to the public 

discovering that they were living together.74 He asked Medlar not to attend the party 

celebrating the passage of the referendum.75 

In or about April 1989, Medlar and her husband divorced.76 (This was their 

second divorce; they had divorced and remarried before the Cisneros affair.)77 

According to Medlar, Cisneros did not want to be named as a co-respondent in the 

divorce proceedings,78 fearing that his future political career could be affected.79 At 

the same time, Medlar claimed, Cisneros stated that he would leave his wife and 

marry her within the next year.80 For these reasons, Medlar did not contest the 

71(...continued) 

Bentsen in the Senate – including Henry Cisneros” 3/93. 

72 Suppression Hearing Tr. Medlar 6/21/99 at 61, 67. 

73 Id. at 68. 

74 Id. at 70-71.


75 OIC Interview Notes Medlar 6/16/99 at 4.


76 Divorce Decree; Medlar v. Cisneros, Medlar Depo. Tr. 9/27/94 at 62-63.


77 Medlar v. Cisneros, Medlar Depo. Tr. 9/27/94 at 92.


78 OIC Interview Notes Medlar 6/16/99 at 4.


79 OIC Interview Notes Medlar 6/16/99 at 4.


80 Id. at 4.


IV-10 
divorce or the settlement.81 As a result, Medlar did not receive any child support or 

alimony from her ex-husband.82 

In November 1989, Cisneros traveled to Houston to have surgery.83 Without 

telling Medlar, Cisneros left the hospital with his wife and moved back in with his 

family.84 Medlar learned that Cisneros had returned to his wife from a local news 

broadcast.85 

After Cisneros’s parting, Medlar went to Lubbock, Texas and did not return to 

San Antonio until around Christmas 1989.86 She was so upset that she refused to 

speak with Cisneros, who she said called her constantly and left Christmas presents 

for her and her daughter on their doorstep.87 

Medlar eventually agreed to speak with Cisneros in January 1990.88 She told 

Cisneros that she could not get a job89 and that she needed to support her daughter 

81 Medlar v. Cisneros, Cisneros Depo. Tr. 10/17/94 at 139-40 (Cisneros denied 

ever putting pressure on Medlar regarding the divorce settlement, stating “I did not 

attempt to influence the settlement of her divorce”); see also Washington Post, 

“Regarding Henry” 10/12/94; OIC Interview Notes Medlar 6/16/99 at 4. 

82 Suppression Hearing Tr. Medlar 6/21/99 at 72. 

83 Id. at 73-74. 

84 Id. at 74. 

85 Id.; OIC Interview Notes Medlar 6/16/99 at 4. 

86 Suppression Hearing Tr. Medlar 6/21/99 at 74-75; see also OIC Interview 

Notes Medlar 3/30/99 at 2. 

87 Suppression Hearing Tr. Medlar 6/21/99 at 74-75; see also Washington Post, 

“Regarding Henry” 10/12/94. Medlar claimed that Cisneros came to her house with 

a diamond ring. OIC Interview Notes Medlar 3/30/99 at 2. She claimed that she 

refused to see him and gave the ring away. Id. 

88 Suppression Hearing Tr. Medlar 6/21/99 at 75. 

89 Suppression Hearing Tr. Medlar 6/21/99 at 76; see also OIC Interview Notes 

(continued...) 

IV-11 
and maintain her lifestyle.90 Cisneros then, she claimed, agreed to pay her $3,000 per 

month to cover her expenses.91 

Medlar further asserted that, by the Spring of 1990, she and Cisneros had 

reached an understanding that Cisneros would pay her $4,000 per month until her 

daughter Kristan finished school.92 Medlar wanted the agreement in writing, but 

Cisneros refused.93 A friend of Medlar’s advised her to tape her phone conversations 

with Cisneros to document the true nature of their relationship and to prove the 

existence of the payment agreement.94 Furthermore, Medlar testified that she wanted 

to make tapes in the event she needed to counter what she considered to be 

inaccuracies in the press about her relationship with Cisneros.95 Medlar began to tape 

her calls with Cisneros in or about March 1990.96 

On April 22, 1990, the San Antonio Express-News published an article entitled 

“Linda Medlar Tells Her Side.”97 The article quoted Medlar to the effect that she 

89(...continued) 

Medlar 6/16/99 at 4. Medlar claimed that she managed to get a job working on a 

political campaign during this time period, but that Cisneros called the candidate and 

told him that Medlar had a young daughter and could not travel for the campaign. 

OIC Interview Notes Medlar 3/30/99 at 6. Medlar claimed that, as a result of this 

call, she lost the job. Id. 

90 OIC Interview Notes Medlar 6/16/99 at 4. 

91 Id.; OIC Interview Notes Medlar 3/30/99 at 3. 

92

 OIC Interview Notes Medlar 6/16/99 at 5; Medlar v. Cisneros, Plaintiff’s 

Original Petition 6/29/94 at 4; see also FBI-302 Medlar 9/28-29/94 at 1; Medlar v. 

Cisneros, Medlar Depo. Tr. 9/27/94 at 147-48. 

93 OIC Interview Notes Medlar 6/16/99 at 5. 

94 Id.; OIC Interview Notes Medlar 3/30/99 at 2. 

95 Suppression Hearing Tr. Medlar 6/21/99 at 88, 92-94. 

96 Suppression Hearing Tr. Medlar 6/22/99 at 127. 

97 San Antonio Express-News, “Linda Medlar tells her side” 4/22/90. 

IV-12 
loved Cisneros and believed that Cisneros still loved her.98 She also said that her 

career had been damaged and that she was talking to the press after 18 months of 

silence because she wanted to correct misinformation about herself and the affair that 

had appeared in prior reports.99 

Medlar claimed that she had told Cisneros that she was going to speak to the 

press before she did so, and that Cisneros had opposed the idea and tried to 

discourage her from going public.100 According to Medlar, Cisneros was not pleased 

when the article was published.101 

A few weeks later, in May 1990, Medlar met with an attorney, Pat Maloney, 

to discuss her rights in the event that Cisneros stopped making the payments.102 

Medlar chose Maloney because she had been told that Mary Alice Cisneros had 

previously consulted with him.103 According to Medlar, Henry Cisneros was “scared” 

of Maloney.104 

Medlar told the OIC that, when she informed Cisneros she had consulted 

Maloney, he responded that he would never stop paying her and that he intended to 

marry her.105 Medlar also related that Cisneros had told her a lawsuit would ruin him, 

98 Id. 

99 Id. 

100 OIC Interview Notes Medlar 6/16/99 at 5; OIC Interview Notes Medlar 

3/30/99 at 4. 

101 OIC Interview Notes Medlar 6/16/99 at 5. 

102 Id.; see also OIC Interview Notes Medlar 3/30/99 at 4. 

103 OIC Interview Notes Medlar 6/16/99 at 5; OIC Interview Notes Medlar 

3/30/99 at 4. 

104 OIC Interview Notes Medlar 3/18/99 at 2. 

105 OIC Interview Notes Medlar 3/30/99 at 4; OIC Interview Notes Medlar 

6/16/99 at 5. 

IV-13 
rendering him unable to continue the payments,106 and that he would stop paying her 

$4,000 a month if she filed suit against him.107 Medlar never consulted with Maloney 

again after this conversation.108 

Cisneros made the payments to Medlar in various ways. Sometimes he 

diverted the checks he received from his speechmaking and deposited them directly 

into Medlar’s bank account.109 At other times, he withdrew cash from his own 

account and deposited cash into Medlar’s account.110 He occasionally asked some of 

his employees, including Alfred Ramirez111 and Sylvia Arce-Garcia,112 to make the 

deposits to Medlar’s account. Cisneros also delivered cash directly to Medlar.113 

Cisneros made 13 payments to Medlar in 1990, for a total of $44,500.114 The 

following table catalogues those payments: 

Cisneros’s 1990 Payments To Medlar 

Payment Date Payment Amount 

January 2, 1990 $2,500 

106 OIC Interview Notes Medlar 6/16/99 at 5; OIC Interview Notes Medlar 

3/30/99 at 4. 

107 OIC Interview Notes Medlar 3/30/99 at 4. 

108 Id. at 5. 

109 See FBI-302 Arce-Garcia 2/16/95 at 4.


110 See OIC Charts of 1990-93 Payments to Medlar.


111 GJ 97-1 Tr. Ramirez 11/19/97 at 40-41; IRS Interview Report Ramirez


8/21/99 at 21, 22, 31; see FBI-302 Arce-Garcia 2/16/95 at 4 (Arce-Garcia stated that 

before she began making the deposits, the deposit slips were given to Ramirez). 

112 FBI-302 Arce-Garcia 2/16/95 at 4-5. 

113 Medlar v. Cisneros, Medlar Depo. Tr. 9/27/94 at 161-62. 

114 OIC Chart of 1990 Payments to Medlar. 

IV-14 
Payment Date Payment Amount 

February 1, 1990 $3,000 

March 5, 1990 $2,500 

April 10, 1990 $2,500 

May 3, 1990 $2,500 

May 31, 1990 $4,500 

June 29, 1990 $3,000 

September 13, 1990 $3,900 

October 5, 1990 $4,000 

October 12, 1990 $5,100 

November 1, 1990 $3,000 

December 4, 1990 $4,000 

December 8, 1990 $4,000 

TOTAL $44,500 

By April 1991, Cisneros had told Medlar that he had moved out of his house 

and was living in an apartment.115 When Medlar discovered that Cisneros actually 

had not fully moved out of his house, she went there to confront him.116 She arrived 

at approximately one o’clock in the morning and spoke with both Cisneros and his 

wife Mary Alice.117 Mary Alice told Cisneros that he had to make a decision,118 and, 

115 OIC Interview Notes Medlar 3/30/99 at 7; see also FBI-302 Mary Alice 

Cisneros 1/8/93 at 1 (stating that Cisneros lived both at home and in an apartment 

between April 1991 and October 1991). 

116 OIC Interview Notes Medlar 3/30/99 at 7. 

117 FBI-302 Mary Alice Cisneros 1/8/93 at 1; see also OIC Interview Notes 

Medlar 3/30/99 at 7. 

118 FBI-302 Mary Alice Cisneros 1/8/93 at 1; OIC Interview Notes Medlar 

(continued...) 

IV-15 
according to Medlar, he said that he loved Medlar.119 Medlar further claimed, 

however, that she decided she wanted the Cisneroses out of her life,120 and she asked 

Cisneros for $8,000 to help her move to Lubbock, Texas.121 

Medlar moved to Lubbock in May 1991, feeling that her employment prospects 

and social life in San Antonio had been destroyed.122 According to Mary Alice, 

Cisneros paid $8,000 for Medlar’s relocation.123 Medlar and Cisneros continued to 

see each other, although Medlar now lived in Lubbock. Medlar stated that Cisneros 

bought an airplane so he could visit her in Lubbock without anyone knowing. He 

started a company named Cisneros Metro Air Service, which his employees referred 

to as “Medlar Airlines” or the “Medlar Express.”124 

The relationship and the payments continued. In 1991, Cisneros made it 

publicly known that he might run for a statewide office in the late 1990s.125 On 

October 18, 1991, Mary Alice Cisneros filed for divorce, although she stated that she 

118(...continued) 

3/30/99 at 7. 

119 OIC Interview Notes Medlar 3/30/99 at 7. 

120 Id. 

121 FBI-302 Mary Alice Cisneros 1/8/93 at 1. 

122 OIC Interview Notes Medlar 6/16/99 at 6. 

123 FBI-302 Mary Alice Cisneros 1/8/93 at 1. 

124 IRS Interview Report Medlar 11/21/94 at ¶ 14; OIC Interview Notes Medlar 

4/23/99 at 7. 

125 San Antonio Express-News, “Marriage breakup likely to make little impact, 

political experts say” 10/22/91. 

IV-16 
was open to reconciliation.126 She dropped the divorce action on November 18, 

1991.127 

Throughout 1991, Cisneros made 20 payments to Medlar totaling 

$73,024.21.128 The following table summarizes those payments. 

Cisneros’s 1991 Payments to Medlar 

Payment Date Payment Amount 

January 9, 1991 $6,000.00 

February 2, 1991 $4,000.00 

February 7, 1991 $1,000.00 

February 26, 1991 $12,000.00 

April 17, 1991 $4,000.00 

April 18, 1991 $4,000.00 

May 1, 1991 $4,000.00 

May 31, 1991 $4,000.00 

July 3, 1991 $4,582.00 

July 18, 1991 $2,500.00 

August 2, 1991 $4,000.00 

August 29, 1991 $2,000.00 

126 Mary Alice Cisneros claimed also that Medlar’s continued threats to go on 

a television talk show to talk about her relationship with Cisneros was a factor in her 

filing for divorce. At the time, there were rumors that Medlar might appear on a 

nationally-syndicated television talk show. San Antonio Express-News, “Mary Alice 

Cisneros petitions for divorce” 10/22/91. 

127 San Antonio Express-News, “Mary Alice Cisneros drops divorce action” 

11/19/91. 

128 OIC Chart of 1991 Payments to Medlar. 

IV-17 
Payment Date Payment Amount 

September 5, 1991 $2,017.21 

October 2, 1991 $4,500.00 

November 5, 1991 $3,925.00 

November 20, 1991 $2,000.00 

December 2, 1991 $4,000.00 

December 7, 1991 $1,000.00 

December 13, 1991 $1,000.00 

December 31, 1991 $2,500.00 

TOTAL $73,024.21 

Cisneros’s payments to Medlar continued into 1992. However, in July 1992, 

William Jefferson Clinton became the Democratic nominee for President,129 and 

Cisneros resigned from the board of the Federal Reserve Bank of Dallas in August 

1992 to join the Clinton campaign.130 Medlar considered this action to be a sign that 

Cisneros was serious about getting back into politics and that their financial 

arrangement might thereby be jeopardized.131 

During September 1992, Cisneros began work on Clinton’s presidential 

campaign. He served as a member of the Clinton Transition Board.132 The Transition 

Board was responsible for preparing for the change in administration that would take 

place if Clinton won the November 1992 general election.133 

129 Washington Post, “Clinton vows to ‘Change America’ in accepting party’s 

nomination” 7/17/92. 

130 Dallas Morning News, “Cisneros: Move not a return to politics” 8/16/92. 

131 OIC Interview Notes Medlar 5/21/99 at 3-4. 

132 OIC Depo. Tr. Christopher 9/17/97 at 19. 

133 OIC Depo. Tr. Christopher 9/17/97 at 16. 

IV-18 
Cisneros traveled extensively on behalf of the Clinton campaign134 and, as a 

result, was forced to cut back on the paid speechmaking that had served as his 

principal source of income for several years.135 Cisneros already had a relatively 

serious cash flow problem in 1992, and his assets were steadily declining,136 but he 

continued to make regular payments to Medlar, further straining his finances.137 

Cisneros made another 23 payments to Medlar, totaling $43,150, from January 

1992 to the beginning of November 1992.138 From the earliest payment in January 

1990 to November 3, 1992, he paid her about $160,000.139 The following table 

summarizes Cisneros’s 1992 payments to Medlar through the beginning of 

November.140 

Cisneros’s January 1992 - November 3, 1992 Payments To Medlar 

Payment Date Payment Amount 

January 9, 1992 $1,200 

January 21, 1992 $1,000 

February 5, 1992 $1,700 

February 5, 1992 $700 

134 See, e.g., Cisneros’s 1992 calendar indicating Cisneros’s involvement in 

Clinton campaign activities across the country: 9/3/92 (press conference), 9/5/92 

(Santa Fe fundraiser), 9/8/92, 9/17/92 (Minneapolis rally), 9/18/92, 9/19/92 (Hartford 

rally), 9/25/92, 9/26/92 (El Paso luncheon & rally), 9/27/92 (Houston). 

135 GJ 00-001 Ex. 20 at 29, 54. 

136 Roberts Affidavit at 5. 

137 OIC Chart of 1992 Payments to Medlar. 

138 OIC Chart of 1992 Payments to Medlar. 

139 OIC Charts of 1990-92 Payments to Medlar. 

140 OIC Chart of 1992 Payments to Medlar. 

IV-19 
Payment Date Payment Amount 

February 11, 1992 $1,600 

March 2, 1992 $3,000 

March 10, 1992 $1,000 

April 3, 1992 $2,500 

April 10, 1992 $1,500 

April 15, 1992 $500 

May 5, 1992 $4,000 

June 1, 1992 $1,900 

June 2, 1992 $2,500 

July 6, 1992 $2,500 

July 14, 1992 $2,000 

August 3, 1992 $4,000 

August 24, 1992 $2,000 

September 2, 1992 $2,500 

October 2, 1992 $2,000 

October 7, 1992 $1,900 

October 15, 1992 $650 

October 19, 1992 $500 

November 3, 1992 $2,000 

TOTAL $43,150 

IV-20

4. Cisneros’s False Statements to Government Officials 

On November 3, 1992, William Jefferson Clinton was elected the forty-second 

President of the United States. Cisneros immediately became involved in the ensuing 

transition process, first as a member of the President’s Transition Team and then as 

a candidate for a Cabinet position. Cisneros eventually became President-elect 

Clinton’s choice to become HUD Secretary. As a result, aspects of his background, 

and particularly his relationship with Medlar, came under scrutiny. At numerous 

points in this process, he concealed facts about his payments to and relationship with 

Medlar and lied about these subjects. He enlisted the help of Medlar and others in 

maintaining these falsehoods. 

a. The Appointment Process 

Principal officers of the United States, including Cabinet heads such as the 

Secretary of Housing and Urban Development, must be nominated by the President 

and confirmed by the Senate.141 Both have before them the candidate’s qualifications 

and personal history for use in their reviews. 

Prospective Cabinet members, like most federal employees, are subject to some 

form of background check commensurate with their responsibilities to determine their 

suitability before hiring.142 A principal factor considered in a suitability review is an 

“[i]ntentional false statement or deception or fraud in examination or appointment.”143 

Positions allowing access to classified information also require a security 

determination,144 and sensitive positions that may involve national security, such as 

Cabinet-level appointments, require a full-field background investigation.145 This 

investigation is typically conducted by the FBI; it covers the individual’s entire adult 

141 U.S. Const., art. II, § 2. 

142 Federal Personnel Manual, Ch. 731, Subch. 2-1 (1991). 

143 Federal Personnel Manual, Ch. 731, Subch. 3-1b (1991). 

144 Executive Order 10450; see also Federal Personnel Manual, Ch. 732, Subch. 

1-1and 1-3a (1991). 

145 Executive Order 10450. 

IV-21 
life, focusing on character, associations, reputation, and loyalty.146 Largely on the 

basis of the resulting background investigation report, the appropriate authority 

determines whether to grant a security clearance to the individual in question.147 

For a new administration, the process of nominating federal officers begins 

before the President-elect is sworn into office.148 After the November general 

election, but before the January inauguration, the President-elect typically puts 

together a Transition Team. The Transition Team helps the President select and 

evaluate high-ranking nominees to ensure their suitability to serve in the incoming 

administration, and to formulate policies to be implemented during the new 

administration.149 

After the President has nominated a candidate to become a principal officer of 

the United States, the Senate confirmation process begins. This stage of the 

appointment process typically involves questionnaires, interviews, and a hearing 

before the Senate committee with jurisdiction over the prospective Cabinet officer’s 

department.150 

The Senate in its confirmation function relies in part on the FBI’s background 

investigation reports.151 Each Senate committee has its own rules governing access 

to background investigation reports.152 The committee chairman may review a 

summary of the report to determine whether it contains anything that would warrant 

the attention of the full committee.153 Some committees also allow the ranking 

146 GJ 97-1 Ex. 403 (Memorandum re Nomination and Confirmation at 2). 

147 United States v. Cisneros, 169 F.3d 763, 765 (D.C. Cir. 1999). 

148 United States v. Cisneros, 169 F.3d 763, 764-65 (D.C. Cir. 1999). 

149 GJ 97-1 Tr. Calamaro 9/9/97 at 22. 

150 Senate Confirmation Process: Overview; see also GJ 97-1 Ex. 403 

(Memorandum re Nomination and Confirmation at 7). 

151 Senate Confirmation Process: Overview at 2, 3. 

152 Senate Confirmation Process: Overview at 3. 

153 Id. at 3. 

IV-22 
minority member to see the report.154 Committee members and Senators who do not 

serve on the committee with jurisdiction over the nominee may also request access 

to the report.155 

After it conducts the appropriate hearings, the responsible Senate committee 

votes on the candidate.156 A simple majority is sufficient for the nomination to 

proceed from committee to the full Senate, where a simple majority is sufficient for 

confirmation.157 A single Senator can, however, indefinitely delay the entire process 

by filibustering or by putting a “hold” on the nomination.158 

As President-elect Clinton’s choice to serve as Secretary of Housing and Urban 

Development, Cisneros was subject to a review by the President-elect’s vetting team; 

a full-field background investigation by the FBI; a review by a component of the 

Department of Justice (“DOJ”) to determine his eligibility for a security clearance; 

and examination by the Senate for confirmation after nomination. 

b. The Clinton Transition Process 

Following his election, President-elect Clinton put together a Transition Team 

co-chaired by Warren Christopher and Vernon Jordan.159 This team was divided into 

approximately 18 vetting teams of four to six individuals, generally supervised by 

154 Id. at 3. 

155 Senate Confirmation Process: Overview at 3. 

156 Senate Confirmation Process: Overview. 

157 See Const., Art. II, Sect. 2, cl. 2. 

158 A “hold” describes a Senator’s request to the Senate Majority Leader that 

a nomination not be considered on the Senate floor. (Holds are not part of the 

Senate’s written rules or standing orders.) The Majority Leader need not honor the 

Senator’s request, but is put on notice that the Senator may filibuster any motion to 

consider the nomination. See U.S. Senate Website; Glossary Definition of “Hold” 

<http://www.senate.gov/reference/glossary_term/hold.htm>. 

159 OIC Depo. Tr. Christopher 9/17/97 at 15. 

IV-23 
• • • 

• • • 

Clinton’s friend, the Washington, D.C. attorney, James Hamilton.160 Each vetting 

team had a potential nominee to assess.161 Their role was to determine whether there 

were any reasons the individual in question should not be nominated for a position 

in the new administration.162 Every vetting team had a captain who reported the 

results of the vetting process to Hamilton.163 Hamilton, in turn, reported the results 

to Christopher,164 and Christopher reported to the President-elect.165 

In early November 1992, President-elect Clinton, Christopher, and thenAttorney General William Barr executed a Memorandum of Understanding (“MOU”) 

modeled after previous agreements between incoming and outgoing Presidents.166 It 

provided the following: 

The Federal Bureau of Investigation (FBI) will conduct file reviews or 

background investigations . . . at the request of the President-elect or his 

designated representative, of applicants, employees or other persons 

engaged by contract or otherwise to perform services for the Presidentelect. 

Requests for investigations by the FBI shall be made in writing 

from the President-elect or his designated representative to the Director 

of the FBI enclosing a completed Standard Form 86 (SF-86) 

questionnaire (Questionnaire for Sensitive Positions) and its 

accompanying Authority for Release of Information. 

160 GJ 97-1 Tr. Hamilton 11/6/97 at 23. 

161 GJ 97-1 Tr. Hamilton 11/6/97 at 24. 

162 FBI-302 Hamilton 11/10/94 at 4. 

163 GJ 97-1 Tr. Hamilton 11/6/97 at 26, 27. 

164 GJ 97-1 Tr. Hamilton 11/6/97 at 26-27. 

165 OIC Depo. Tr. Christopher 9/17/98 at 98-100. 

166 United States v. Cisneros, 169 F.3d 763, 765 (D.C. Cir. 1999). 

IV-24 
During the period in which the FBI is conducting its investigation, 

the FBI will inform the President-elect or his designated representative 

of any significant adverse information developed . . . . The FBI will also 

furnish summary memoranda or investigative reports and/or supporting 

materials . . . containing the results of its investigation to the Presidentelect or his designated representative and retain a record of the identity 

of the person to whom such reports are furnished.167 

Pursuant to the MOU, the DOJ Personnel Security Office (“DOJ-PSO”) was 

designated to determine whether Clinton’s Cabinet selections would be granted the 

requisite security clearances.168 

Thus, acting under the authority of President Bush, the Attorney General – 

and, by extension, the FBI and the DOJ-PSO – assisted President-elect Clinton in the 

transition process. Pursuant to the MOU, the FBI agents assigned to conduct 

background investigations of the applicants did not formally work under the 

supervision or control of the Transition Team.169 Instead, they took their instructions 

from the FBI Director who, in turn, acted pursuant to arrangements struck by the head 

of his Department, the Attorney General.170 In executing the MOU, the Attorney 

General acted under the direction of President Bush and pursuant to his own 

obligations as a government officer to promote the smooth transfer of executive 

power pursuant the Presidential Transition Act.171 

The selection process for nominees to positions in the new Clinton 

administration generally included the following steps. At the outset, each prospective 

nominee filled out four forms: 1) a Personal Data Questionnaire developed by the 

Transition Team; 2) a Questionnaire for Sensitive Positions (SF-86); 3) a Financial 

167 MOU 11/92 at 1-3. 

168 GJ 97-1 Tr. Rubino 7/30/97 at 5-6. 

169 Id. 

170 MOU 11/92 at 1. 

171 MOU 11/92. 

IV-25 
Disclosure Form (SF-278); and 4) a Senate Committee Questionnaire.172 Each 

individual also completed a Memorandum for Prospective Appointees, consenting to 

an FBI background investigation.173 The FBI then conducted a full-field background 

investigation and completed investigative reports for each prospective nominee.174 

The FBI provided the reports to designated transition officials during the transition 

period,175 and, where appropriate, to the DOJ-PSO, which determined whether to 

grant security clearances.176 Dominic Jerry Rubino, the head of DOJ-PSO, advised 

Hamilton and other Transition Team members to impress on Clinton’s Cabinet 

selections the importance of telling the truth during the process.177 

c. Cisneros’s Vetting – The First Stage 

In November 1992, Cisneros was named a member of the Clinton Transition 

Team.178 About the same time, he was put on the short list for a position in the 

Clinton Administration.179 Before he was nominated for a Cabinet post, the 

Transition Team assessed his fitness for office. On November 22, 1992, Cisneros 

signed an “Authorization For Release of Information,” allowing the Transition Team 

and the FBI access to information relating to his academic, residential, employment, 

and criminal history, among other things.180 By November 24, 1992, Clinton had 

172 Senate Confirmation Process: Overview at 2, 3. 

173 See Cisneros’s Memorandum for Prospective Appointees, signed and dated 

12/14/92. 

174 MOU 11/92 at 1. 

175 MOU 11/92 at 2. 

176 United States v. Cisneros, 169 F.3d 763, 765 (D.C. Cir. 1999). 

177 GJ 97-1 Tr. Rubino 7/30/97 at 23-24. 

178 OIC Depo. Tr. Christopher 9/17/97 at 18-19. 

179 OIC Depo. Tr. Christopher 9/17/97 at 40-41 (stating Cisneros was in the 

running for five to six different Cabinet positions “from the very first”). 

180 See Cisneros SF-86 - Authorization for Release of Information 11/22/99. 

Transition Team Director Warren Christopher described this portion of the vetting 

(continued...) 

IV-26 
indicated that Cisneros should be considered for a Cabinet position.181 Cisneros later 

told Medlar that Clinton wanted two Hispanics in the Cabinet.182 

Throughout the transition process, Cisneros continued to make payments to 

Medlar. On November 9, 1992, Cisneros made two separate $1,000 payments to 

Medlar.183 On November 13, 1992, he made a $2,000 payment to Medlar.184 

In late November 1992, Cisneros told Medlar that he had discussed with 

Clinton certain “considerations” that had the potential to preclude Cisneros from 

being a member of Clinton’s Cabinet. Medlar recorded the conversation.185 The 

discussion included the following:186 

180(...continued) 

process as the first stage. According to Christopher, the first stage included 

narrowing down a list of potential candidates for a position to five to ten people about 

whom a five to ten page memorandum was prepared with information drawn from 

public records. OIC Depo. Tr. Christopher 9/17/97 at 20-21. 

181 Christopher notes 11/24/92; see also OIC Depo. Tr. Christopher 9/17/97 at 

87. 

182 Medlar Tape Transcript Q-16 12/24/92 at 3. 

183 OIC Chart of 1992 Payments to Medlar. 

184 OIC Chart of 1992 Payments to Medlar. 

185 The OIC secured transcripts of all of the relevant conversations that Medlar 

had taped and retained. In preparation for a June 1999 hearing regarding the 

admissibility of Medlar’s tapes, the OIC had Medlar review the tape transcripts 

against the tapes and make the needed corrections to transcripts. The OIC offered the 

transcripts containing Medlar’s corrections during the hearing. This Report quotes 

exclusively from those transcripts. All portions of the transcripts quoted in this 

Report were ruled admissible at trial, United States v. Cisneros, 59 F. Supp. 2d 58 

(D.D.C. 1999), unless otherwise noted. The court also ruled that Medlar would be 

allowed to testify at trial about the portions of the transcripts held inadmissible. 

186 In the transcripts presented in this Report, the following abbreviations are 

used: HC – Henry Cisneros; LM – Linda Medlar; US – Unidentified sound; UI – 

(continued...) 

IV-27 
HC:	 . . . We talked about . . . what considerations there were that would prevent me 

from . . . serving. 

186(...continued) 

Unintelligible. 

The transcriptions of the recorded phone calls between Cisneros and Medlar 

are the product of analysis by the OIC and the FBI. The IRS obtained purportedly 

original tapes during an interview of Medlar. Suppression Hearing Tr. Medlar 

6/22/99 at 39. None of the tapes was an original; all were actually copies that Medlar 

made while editing the tapes to redact conversations she feared would implicate her 

or embarrass someone (other than Cisneros). Suppression Hearing Tr. Medlar 

6/23/99 at 11-14. 

Medlar made the redacted tapes with a boom box that had two tape decks. She 

played the original tape on one deck while using the second deck to create a redacted 

copy, using the second recorder’s pause or stop control to eliminate “problematic” 

portions of her calls with Cisneros. Medlar then destroyed the original tapes. 

Suppression Hearing Tr. Medlar 6/21/99 at 177-78; 6/22/99 at 8-9, 39; 6/23/99 at 11­

14. 

Expert audio engineering examination of Medlar’s tapes established them to 

be copies. See United States v. Cisneros, 59 F. Supp. 2d 58, 61 (D.D.C. 1999). The 

analyst found “events within the telephone conversations, where the tape recorder(s) 

was stopped and/or started while in the record mode.” Letter from BEK/TEK to OIC 

11/16/96 at 6. 

The OIC’s audio engineering expert reviewed the investigators’ transcriptions 

of Medlar’s tapes and suggested some changes. Letter from BEK/TEK to OIC 

12/8/97. The investigators who listened to the tapes and helped prepare the cited 

transcripts reported that sometimes Cisneros or Medlar spoke in lowered voices. 

There might be instances when the voice-activation feature of one of Medlar’s 

recorders truncated the recording or did not start the recorder in time to capture all of 

the speaker’s words. The transcripts’ notations of “US” or “UI” may indicate such 

instances. The expert also determined that the chronology of the conversations was 

unchanged and that passages were not moved about to achieve a different meaning 

or sequence of events. Suppression Hearing Tr. Koenig 6/30/99 at 71-72; United 

States v. Cisneros, 59 F. Supp. 2d 58, 62 (D.D.C. 1999). 

IV-28 
• • • 

LM:	 And what’d you tell him? 

HC:	 I told him, John Paul [Cisneros’s son, who had health problems] first. And, uh 

. . . the business issues, and uh . . . and - and - and then the concerns about the 

impact it would have for everyone with respect to the personal things. 

LM:	 What personal things? 

HC:	 Well, all the . . . issues that would . . . could conceivably . . . be raised. 

LM:	 And what’d he say? 

HC:	 Well he had . . . thoughts on it, on all. 

LM:	 I’m sure he did, since he’s . . . just been through something like that . . . 

HC:	 Exactly. 

LM:	 And so what was his thought? 

HC:	 Well, that, that the, he couldn’t, he really couldn’t really speak to the issue of 

John Paul. And as far as the business, it kind of depends on what you’re 

appointed to, whether you have to divest or just put it in a blind trust . . . . And 

as for the personal, he said he . . . didn’t think it would be there because . . . 

they had treated him that way as an elected person running for the highest 

office, but he didn’t think they would do that to people in, in, you know, in an 

appointed position . . . 

LM:	 Hmm. 

HC:	 An opponent might in a race. But, anyway. 

LM:	 And so what implications are there here? 

HC:	 Uh, for you? 

LM:	 Uhm-hmm. 

IV-29 
HC: I think probably none. 

LM: I don’t want to think probably, I have to know, Henry. 

HC: But there’s no way to know. 

LM: What, what are the scenarios here? 

HC:	 One scenario is there’s, uh, no implication at all. They just refer to my 

situation in generic terms. And another . . . is . . . that they actually mention 

your name in ss-some story somewhere. 

LM: So, you’ve already decided to take something, haven’t you? 

HC:	 No, I said I had not. You asked me to play out scenarios; scenarios means 

hypotheticals.187 

Cisneros went on to tell Medlar the importance to him of returning to politics: 

HC:	 Uhm, I . . . concluded, as you know, over these weeks, or rather months and 

years, that I needed to be there for John Paul. And . . . that’s what I’m doing, 

and that’s what I’ve done. And, if . . . it is possible to, you know, serve and be 

attentive to that obligation, as well as my obligations financially and to you, 

and so forth, then I’d like the opportunity to do that. But if it’s not possible, 

then it’s not possible. 

LM:	 And, Henry, what about all those times you, you just absolutely couldn’t do 

anything like that with Mary Alice? 

HC:	Well, it’s a problem. But . . . my alternative is to die on the vine. 188 

187 Medlar Tape Transcript Q-7 11/22/92 at 7-8. The OIC believes this 

conversation actually took place on November 24, 1992. See OIC Corroboration 

Chart for Q-7. 

188 Medlar Tape Transcript Q-7 11/22/92 at 15. 

IV-30 
Medlar disagreed with the assessment that a person under consideration for an 

appointment as a Cabinet officer would have to endure less public scrutiny than a 

candidate in an election: 

LM: . . . And I quite frankly don’t see why Clinton thinks that an appointed, 

someone who’s appointed, is gonna be any less . . . scrutinized, since they have 

been in the past. 

HC:	 Well, let me just tell you . . . on that, if I may speak to you frankly without your 

getting upset, I don’t think it’s, I don’t think . . . it’s gonna be an issue just 

because it’s something I addressed earlier, and so did you, and . . . and, uh. 

They will refer to the incident, but they’re not gonna get into it unless, you 

know, unless . . . one of us feels compelled to talk about it, and . . . so, it’s 

really in our own hands.189 

Medlar and Cisneros also discussed whether he should worry that past financial 

dealings with his friend, San Antonio businessman Morris Jaffe, undertaken when 

Cisneros was the Mayor of San Antonio, might be disclosed: 

LM:	 I mean, there is a disaster, and it’s not me, sitting there waiting to happen. And 

if you don’t know that . . . 

HC:	 (Sigh) Uhm-hmm. 

LM:	 . . . you know. I can’t believe that you don’t know that, that the scrutiny that 

you will come under, and you go ahead and do it, the scrutiny that you will 

come under will be about you, will be about your past, will be about your 

financial dealings, your dealings as a politician, say i.e., Morris Jaffe . . . 

HC:	First, there’s no problem there. 

LM:	There no problem there? 

HC:	 Uhm-hmm. 

LM:	 Henry, you took cash from him. 

189 Id. at 17-18. 

IV-31 
HC: Uhm-hmm.


LM: You did, too!


HC: Uhm-hmm.


LM: I’m sorry, Henry, but you did.


HC: I’m sorry.


LM: (Sighs) Henry, you gave me the cash.


HC: I don’t believe from my campaigns . . .


LM: You would . . .


HC: . . . it may have been for some cause or something . . .


LM: . . . no, for your campaigns.


HC: . . . bonds or something, I don’t know.


LM: You would go over there. You would have to, you would have to sit in his


office, and you would bring an envelope back with ten thousand dollars in it. 

HC: Mhm, hmm. 

LM: (Sigh) Now, you can try to . . . tell me that that’s not true, but I’m sorry. 

Henry, I was there. Now, I don’t know that anybody else knows about that 

except Shipley[190]

 . . . and whoever Shipley’s told. ‘Cause I never told 

anybody. Shipley told me when I was first working for you . . . that you 

accepted cash to pay off your . . . uh, credit card bills. 

190 George Shipley worked on some of Cisneros’s political campaigns as a 

consultant. OIC Interview Report Shipley 2/12/97 at 3. He also attended the 

December 1992 meeting between Cisneros and Governor Richards, discussed below, 

during which Cisneros discussed his affair with Medlar and the payments. Id. at 2. 

Shipley denied any knowledge of the $10,000 transaction mentioned by Medlar on 

the tape. Id. at 6. 

IV-32 
HC: 

LM: 

HC: 

LM: 

HC: 

LM: 

HC: 

Absolutely not.


That’s what Shipley said.


Well . . .


How many . . .


. . . it doesn’t make it true.


How many people has Shipley told?


I don’t have any idea, but there’s no truth to that. I never ever, ever, ever, have


used pr-, public money for private purposes. Ever.191


In the same conversation, Medlar threatened to fight if she again came under


public scrutiny:


LM: But I - I don’t . . . . Un- unless it gets, unless they come and start, and - and


this could happen too, Henry, if they start pulling me through the mud again. 

HC: Yeah, I know. 

LM: . . . then I’ll come out fighting. 

HC: I understand. 

LM: You know, and I’ll fight Mary Alice, and I’ll fight you, and I’ll fight everybody 

who’s concerned . . . 

HC: (Clears throat) 

LM: . . . because they’re not gonna drag me through the mud again. 

HC: Right. 

191 Medlar Tape Transcript Q-7 11/22/92 at 21-23. 

IV-33 
• • • 

LM:	 And that’s the other consideration . . .192 

Earlier in the same conversation, Cisneros assured Medlar that he was prepared 

to assist her financially in the purchase of a house in Lubbock, Texas: 

HC:	 All right. On the house . . . what do we need to talk about? 

LM:	 Well, basically, (laughs) you know, I’m supposed to close within thirty days 

of when I sign the contract. 

HC:	 . . . I’ll go to work on it. 

LM:	 You know (sigh), you say that you’re gonna take out a loan, right? 

HC:	 Correct. That’s the only thing, only thing I can do.193 

According to Medlar, she and Cisneros agreed that the Lubbock house would 

not be in Medlar’s name because Cisneros was going through the confirmation 

process.194 Medlar told the OIC that putting the house in her name might have stirred 

up negative publicity for Cisneros.195 ` 

Medlar enlisted her sister and brother-in-law, Patsy and Allen Wooten, to act 

as straw purchasers of the house in Lubbock; the Wootens bought the house in their 

names with money that Cisneros supplied to Medlar.196 On November 30, 1992, the 

192 Id. at 29-30. 

193 Id. at 4-5. On December 10, 1992, Cisneros applied for a $30,000 loan from 

First Interstate Bank. See First Interstate Banks Credit Authorization prepared 

12/10/92 for $30,000 unsecured note. 

194 Medlar v. Cisneros, Medlar Depo. Tr. 9/27-28/94 at 44. 

195 OIC Interview Report Medlar 4/27/96 at 1. 

196 OIC Interview Report Medlar 1/30-31/96 at 1-2. 

IV-34 
Wootens signed a document evidencing their intention to purchase the house.197 On 

the same day, they submitted a check for $1,000 to Stewart Title Company as a 

deposit on the house.198 

As the transition process got under way, Cisneros was also being considered 

for Lloyd Bentsen’s soon-to-be-vacated United States Senate seat,199 which Texas 

Governor Ann Richards would fill by appointment.200 Cisneros and Richards met on 

December 1, 1992, and they discussed, among other things, his affair with Medlar and 

the payments he had been making to her.201 Richards told Cisneros that there was no 

way that he could “make a race” for the Senate when he stood for election, because 

the public would disapprove of both the affair and payments.202 Richards also told 

Cisneros that everything in his life would come out in a political race, that the affair 

and the payments were like “a door slamming shut” on Cisneros’s Senate re-election 

aspirations, and that he would be foolish to run for the Senate in light of his payments 

to Medlar.203 

On the next day, December 2, 1992, Cisneros called Medlar and discussed his 

meeting with Richards: 

197 Residential Earnest Money Contract 11/30/92. 

198 Check #637 dated 11/30/92 for $1,000 drawn on Patsy Wooten’s Special 

Account at Southwest Lubbock National Bank (“SWLNB”). 

199 One of Texas’s Senate seats was opening up because of the pending 

nomination of Senator Lloyd Bentsen as Secretary of the Treasury. Roll Call, “The 

Bentsen buzz: stakes for Richards couldn’t be higher” 12/7/92. 

200 Roll Call, “The Bentsen buzz: stakes for Richards couldn’t be higher” 

12/7/92. 

201 FBI-302 Richards 1/2/95 at 1. 

202 FBI-302 Richards 1/2/95 at 1-2. 

203 Id. at 2. See Roll Call, “The Bentsen buzz: stakes for Richards couldn’t be 

higher” 12/7/92 (“Former San Antonio Mayor Henry Cisneros is frequently 

mentioned, but his highly publicized extramarital affair is widely thought to have 

made him potential mincemeat”). 

IV-35 
• • • 

HC:	 Mmm. And uh, uh, I don’t . . . think she can do this. . . . Uhm, there are 

several aspects of this that worry her deeply. 

LM:	 Like what? 

HC:	 One . . . she’s concerned about . . . the money . . . and convinced that that’s, 

that’s a killer. And . . . that it would eventually be known, because the press 

wouldn’t let it stop; I mean, they’d want to find out wha-what is your support 

. . . 

LM:	 How does she know? 

HC:	 That, about the money? 

LM:	 Uh-huh. 

HC:	 Because it’s . . . I mean, it, I mean, there she, I mean, you can put two and two 

together, you don’t have a job . . . and uhh . . . 

LM: Henry, my, ya know, my Mom could be supporting me. You had to have told 

somebody . . . 

HC:	No, I haven’t told any . . . it’s not in my interest to tell people. 

LM:	 I know that, but, I mean . . . 

HC:	 I mean, she asked me point blank, and I told her that I had helped. 

HC:	Yeah . . . Uhm, and she just figures, you know, they’ll shake enough trees . . . 

that that probably is . . . the veto. She’s really worried about that, because it 

sounds like . . . corruption or something, on my part. 

LM:	 Corruption? 

IV-36 
• • • 

HC:	 Well, people don’t normally have that kind of money. And where would I get 

it? And . . . so forth.204 

The conversation continued with Cisneros telling Medlar that, according to 

Richards, his payments to Medlar were bound to become publicly known: 

HC:	 Let me ask you something, she said we can’t keep the money quiet . . . 

LM:	 Uhm-hmm. 

HC:	 . . . because you, because somebody else knows . . . . Somebody is just bound 

to know.205 

In another call to Medlar on the same day, December 2, 1992, Cisneros 

indicated that an appointed position posed fewer problems than one for which he 

would eventually have to stand for election: 

HC:	Because, see what - what brings out the hatred is when you’re in a race. 

What - what has people working against you, and consultants going into 

your background, and, and - and runners going to the papers and leaving 

confidential packages on desks, and all that, is a race. They won’t do 

that, you know, if you’re just . . . an appointee. But what brings out the ­

the - the - the (US), you know, the intensity and the hate, and so forth, 

is . . . is a race.206 

Cisneros told Medlar that, because the Democrats controlled Congress, he 

knew that he would be confirmed to a Cabinet position: 

HC:	 (Laughing) But the difference there is the Democrats control Congress. . . .

204 Medlar Tape Transcript Q-8 12/2/92 at 2-3. 

205 Id. at 12. 

206 Medlar Tape Transcript Q-9 12/2/92 at 3. 

IV-37 
• • • 

HC:	 . . . the point is you’d be, you’d be confirmed anyway. I mean, I, people have 

told me that. They can do what they want; you’re gonna confirmed. The 

Democrats control the Congress, they’re not gonna turn back a President’s 

nominee. And I, and - and - and . . . and (clears throat), and Clinton’s not 

gonna put up with that crap. I mean, he’s not gonna let that blow somebody 

away. 

HC:	What I gotta do . . . is decide . . . and my life in this stuff is over, because this 

is as close as I’m ever gonna come . . . and, it can’t be done. 

LM:	 What do you mean, this is as close? You mean . . . 

HC:	 This brush with the Senate and the Cabinet. 

LM:	 Well, did, uh, uh . . . 

HC:	 . . . and if I can’t do it, then I can’t do it. I just need to get it out of my damn 

system and just . . . go on and do something else.207 

d. Cisneros’s Vetting – The Second Stage 

By December 3, 1992, Cisneros had entered the “second stage” of the vetting 

process,

208 which included interviews with members of the vetting team.209 On the 

same day, $4,000 from Cisneros was deposited into Medlar’s bank account.210 

Also on December 3, 1992, Cisneros and Medlar spoke by phone about 

Medlar’s potential impact on Cisneros’s nomination prospects. At first, Medlar 

attempted to reassure Cisneros that she did not intend to cause him problems: 

207 Id. at 4-5. 

208 Christopher notes 12/3/92. 

209 OIC Depo. Tr. Christopher 9/17/97 at 21. 

210 12/3/92 BNB Deposit Slip for $4,000 in currency; 12/21/92 BNB Account 

Statement showing $4,000 deposit on 12/3/92. 

IV-38 
• • • 

LM:	 I said, I, I’m, you, that you, you know, you’re mulling over your opportunities 

right now, and that’s fine. You know, I, there’s nothing I can do about any of 

the things that have happened or will happen in the future. And I don’t intend 

to be, you know, any kind of a problem to you, uhm . . . . And you know that, 

don’t you? 

HC:	. . . I’m not, I’m not concerned about it, am I? 211 

Cisneros discussed how he would still be able to pay Medlar if he went to 

Washington, D.C.: 

HC: Okay. Bottom line is, I am going to make sure that you’re financ-, it’s a very, 

very, very, very, very tough problem for me. But I work on it all the time. 

LM: Is that what you wanna do, come up with a lump sum? 

HC: I cannot do that. It doesn’t exist; it will not be that way. 

LM: Well, if that’s tr-, true, then when you divest yourself, and you’re only on a 

salary, how on earth do you think anything could work? 

HC: Well, the, when I divest, the company’s worth whatever it’s worth. They will 

give me ss-, a- a - a - a, like a stream of payments, ‘cause they don’t have the 

cash. And I’ll just have to direct that part of that stream of payments goes to 

you. 

LM: And if you’re in Washington for eight years? 

HC: Well, I don’t know, I mean, I don’t know how long you, uh, (UI) . . . I mean, 

uh, . . . I mean, we’ve never talked about long this is supposed to run, except 

that you’ve told me that . . . you wanted to get through Kristan, and have some 

money for her college, and then you were prepared to wo-, you know, look at 

your career options . . . . We can talk about that at some point about just, you 

know . . . 

211 Medlar Tape Transcript Q-10 12/3/92 at 4. 

IV-39 
LM: About what? 

HC: About, about the length of time that you think you need this particular stream 

of revenues in this, this level. 

LM: Well, all I know is that you’ll be going to . . . Washington, one way or the other 

. . . 

HC: . . . no, that’s not necessarily correct, but go ahead. 

LM : (Sigh) 

HC: It’s not, nothing is decided. 

LM: It is decided, Henry. 

HC: No, it isn’t. 

LM: One - one way or the other, it will be decided. I personally think probably the 

Senate and I think that that’s probably wise. I’m not telling you not to do it. 

HC: Now, Linda, if I can’t work this out, I can’t go! 

LM: If you can’t work what out? 

HC: The money! And that’s the truth.212 

Medlar told the OIC that she had excerpted a portion of the tape at this point, 

because it concerned threats she made to Cisneros. Medlar represented to the OIC 

that the following conversation, in substance, had been erased: 

HC talks about me threatening to go to the press & how it would ruin 

him & do me no good because if he is not able to make money, that 

212 Id. at 6-7. 

IV-40 
would hurt me. HC had not been able to talk to me because I got so 

angry.213 

During the same conversation, Medlar also told Cisneros that she had decided 

to remain out of the public eye while he was in Washington, D.C.: 

LM:	 I mean, whatever I feel has, is gonna have to come second . . . you know. And 

that’s, uh, when I made the decision that whatever you decided to do, I would 

support completely. And by support, I mean, I’m as underground as I can get, 

Henry. 

213 Medlar Redaction Log at 1. Medlar prepared this log at the OIC’s request 

after she began to cooperate with the OIC on March 18, 1998. Medlar listened to the 

tapes, identified the portions she had redacted, and reconstructed, where she could, 

the conversations that had been redacted. The relevant portion of her log is quoted 

here verbatim. In ruling on the admissibility of the Medlar tapes, the court noted 

Medlar’s log and indicated that she would be able to testify about the deleted 

conversations: 

Certain portions of these tapes contain noticeable breaks in the 

recording and flow of the conversation that indicate obvious alteration. 

As to these particular portions, the government has failed to demonstrate 

that the possibilities of misidentification and adulteration have been 

eliminated as a matter of reasonable probability. [Footnote 13: In ruling 

that the OIC has met its burden it is important to point out that the OIC 

did not create the tapes in question. The Independent Counsel had no 

opportunity, therefore, to ensure their absolute accuracy. Rather, the 

OIC took the evidence as it found it.] The portions of the tapes 

containing these breaks may not be introduced in the OIC’s case in 

chief. Medlar may, however, testify as to her recollection of the omitted 

conversation and the defendant may, of course, cross-examine her. 

United States v. Cisneros, 59 F. Supp. 2d 58, 65 (D.D.C. 1999) (quotation marks, 

ellipses, and some footnotes omitted). 

IV-41

HC: I know, I know, I know, I know.214 

During the same conversation, Cisneros acknowledged to Medlar that she had 

the ability to destroy him anytime she chose to do so, if he became a Cabinet officer: 

LM: I’m trying not to hold you down, Henry, at all. 

HC: Well, if you do, you do, I mean, you know . . . 

LM: . . . I’m not trying to. 

HC: . . . I mean, if you do, just do it! Just tell me, “Henry, I’m not gonna let you do 

this, I have the potential . . . to destroy you anytime I want.” 

LM: But I’m not going to. 

HC: But if you, if you, if you (UI) 

LM: . . . but I never have, so why would I do it now, Henry? 

HC: Because the - the - the - the destructive potential grows. Uh, when I’m a 

private citizen, nobody cares. If I’m a Cabinet officer, you got something. 

LM: Henry, I love you, I don’t . . . 

HC: . . . I know, but what I’m saying . . . 

LM: . . . I don’t . . . honestly . . . 

HC: I’m not saying you would, Darling; I’m not saying you would, I’m just saying, 

I’m just saying . . . you do have the power!215 

On December 4, 1992, Medlar’s sister and brother-in-law, Patsy and Allen 

Wooten, applied for financing on a house from the Plains National Bank in Lubbock, 

214 Medlar Tape Transcript Q-10 12/3/92 at 8. 

215 Id. at 11-12. 

IV-42 
Texas, a federally insured bank.216 The Wootens falsely claimed on their application 

that they intended “to occupy the property as their primary residence.”217 Patsy 

Wooten later admitted to the OIC that she and her husband falsified bank documents 

to conceal the fact that Medlar, using funds from Cisneros, was the true buyer of the 

house.218 Patsy Wooten told the OIC that she and her husband had agreed to the 

scheme because Medlar had assured them that she would be able to make all 

payments on the house with money she received from Cisneros.219 

On December 7, 1992, Cisneros completed and executed a “Questionnaire for 

Sensitive Positions (For National Security),” commonly referred to as a Standard 

Form-86 (“SF-86”).220 On its face, the SF-86 said that the purpose of an FBI 

background investigation was to ensure that candidates “are eligible for a required 

security clearance or for performing sensitive duties,” and that the information 

supplied on the SF-86 would be used “primarily” to determine the candidate’s 

qualifications for a national security position. 221 It also warned that “knowingly 

falsifying or concealing a material fact is a felony which may result in fines up to 

$10,000 or 5 years imprisonment, or both” and that “Federal agencies generally fire, 

do not grant a clearance, or disqualify individuals who have materially and 

deliberately falsified these forms.”222 

Cisneros was already familiar with the purpose and potential penalties 

associated with the process for applying for sensitive government positions.223 His 

216 Plains National Bank Customer Notice 12/4/92. 

217 Wooten’s Uniform Residential Loan application, signed and dated 1/18/93. 

218 OIC Interview Report Patsy Wooten 6/30/96 at 11. 

219 Id. 

220 SF-86 -Questionnaire for Sensitive Positions (for National Security), signed 

and dated 12/7/92. 

221 Cisneros SF-86 12/7/92. 

222 Id. 

223 Authority to Release Information, signed and dated 8/8/83; White House 

Letterhead Memo dated 8/16/83;White House Consent Letter for FBI Background 

(continued...) 

IV-43 
August 1983 appointment to the National Bipartisan Commission on Central America 

was preceded by an FBI background investigation.224 As part of the 1983 background 

investigation, Cisneros signed an “Authority to Release Information.”225 Pursuant to 

the release, Cisneros was informed of the following: 

Willfully making a false statement, or concealing a material fact, may 

constitute a violation of Section 1001, Title 18, of the U.S. Code. 

If you provide any information which indicates a violation of the 

law, whether civil, criminal or regulatory in nature, it will be referred to 

the appropriate Federal, state, local, or foreign agency.226 

Also on December 7, 1992, Cisneros completed a Transition Questionnaire 

entitled “Employment and Funding Disclosure Statement” required of members of the 

Transition Team.227 Among other things, the questionnaire asked “Have you ever had 

any association with any person, group or business venture that could be used, even 

unfairly, to impugn or attack your character and qualifications for a government 

position?”228 Cisneros answered, “No.”229 The questionnaire also asked, “Do you 

know anyone who might take any steps, overtly or covertly, to attack your 

appointment? If so, please identify and explain the basis for the potential attack.”230 

223(...continued) 

Investigation, signed and dated 8/22/83. 

224 Memorandum from Bourke to Hamilton 12/10/92. 

225 Authority to Release Information, signed and dated 8/8/83. 

226 White House Consent Letter for FBI Background Investigation, signed and 

dated 8/22/83. 

227 GJ 97-1 Ex. 323. 

228 GJ 97-1 Ex. 323 at 9 (Question 63). 

229 GJ 97-1 Ex. 323 (Cisneros’s Public Disclosure Report). 

230 GJ 97-1 Ex. 323 at 9 (Question 64). 

IV-44 
Cisneros again answered, “No.”231 Finally, the questionnaire asked Cisneros to 

“Please provide any other information that could be a possible source of 

embarrassment to you, your family or the President, if publicly known.”232 Here, 

Cisneros responded by referencing the October 1988 article in the San Antonio 

Express-News, regarding his affair with Medlar, as well as the fact that his wife had 

filed, then withdrawn, a divorce petition in 1991.233 

On the same day, December 7, 1992, as part of the vetting process, Hamilton 

requested that the FBI conduct a “name check” of Cisneros consisting of a search of 

the candidate’s name through the FBI records system.234 The next day, vetting team 

member Elizabeth Arky sent copies of Cisneros’s Transition Questionnaire, SF-86, 

financial statements, tax returns, and other documents relevant to the vetting process 

to Vetting Team Captain Raymond Calamaro and fellow vetter, Michael Veve.235 A 

day later, on December 9, 1992, Hamilton was orally advised that the FBI’s name 

check of Cisneros had revealed “no pertinent information” except that Cisneros had 

been subject to a prior background investigation in August 1983.236 

Also on December 9, 1992, several members of the vetting team, including 

Calamaro, Veve, and Arky, met with and interviewed Cisneros.237 Cisneros informed 

them that he had made payments to Medlar.238 Specifically, he said that he had paid 

231 GJ 97-1 Ex. 323 (Cisneros’s Public Disclosure Report). 

232 GJ 97-1 Ex. 323 at 9. 

233 GJ 97-1 Ex. 323 (Cisneros’s Public Disclosure Report). 

234 GJ 97-1 Ex. 404 (DOJ Guide for Conducting and Reporting Special Inquiry 

Investigations 10/1/91) at 3. 

235 Memorandum from Arky to Paper, Christian, and Veve 12/8/92. 

236 Memorandum from Bourke to Hamilton 12/10/92. 

237 Cisneros personal daily calendar for 12/9/92; Cisneros Event Chronology 

at 28. 

238 GJ 97-1 Tr. Arky 10/2/97 at 115; GJ 97-1 Ex. 331 at 2. 

IV-45 
Medlar $2,500 per month over a period of several years.239 Cisneros advised the 

vetting team that Medlar was unstable240 and expressed his desire to make a final 

“lump sum” payment to Medlar before taking office.241 Cisneros also discussed the 

fact that he might have had as many as ten extramarital affairs during his 20-year 

marriage,242 and he informed the vetting team that his wife was not aware of his 

affairs with women other than Medlar or the true extent of the payments to Medlar.243 

239 FBI-302 Calamaro 11/15/94 at 2 (noting that Calamaro stated that Cisneros 

estimated the Medlar payments as between $1,000-5,000 per month and that $2,500 

per month for five years “could be right”); FBI-302 Arky 12/20/94 at 2 (noting that 

Cisneros estimated the payments to Medlar were approximately $2,500 per month); 

GJ 97-1 Ex. 331 at 2, 3 (Calamaro notes with the entries: “31⁄2 yrs x 2500/mo ? * this 

on high side” and “2500/mo sev yrs”); Calamaro notes 9/8/97 (with entry “2.5 on 

high side per HC’s”); Arky notes (with entry: “$2,500 for 31⁄2 yrs -- high side”); FBI302 Hamilton 11/10/94 at 3 (noting Calamaro’s quote of $2,500 per month over five 

years); GJ 97-1 Ex. 332 (Hamilton notes with entry: “$2,500 a mo. - managed to 

handle”); FBI-302 Hubbell 2/8/95 at 2-3, 6 (discussing Transition Team’s knowledge 

of payments); Hubbell notes at 2, 4, 6 (with entries: “payments to woman affair 

Lubbock 2500 a month,” “$2500 a month over several years, but helped as needed,” 

and “31⁄2 × 2500”). 

240 FBI-302 Arky 12/20/94 at 2; FBI-302 Hubbell 2/8/95 at 2, 5, 7, 11 

(reporting description of Medlar as “unstable,” “erratic in her conduct,” and as having 

a “‘fatal attraction’”). 

241 FBI-302 Arky 12/20/94 at 2; GJ 97-1 Ex. 331 at 6 (Calamaro notes with 

entry: “How pay? Lump sum?”); GJ 97-1 Ex. 332 at 4 (with entry “lump sum”). 

242 GJ 97-1 Ex. 331 at 4, 11 (Calamaro notes (with entries: “[approximately] 

10,” “more on the affair,” and “other affairs”?); Arky notes (with the entries: “Others 

= less then ten,” and “She [Medlar] knows about others, but learned all from 

candidate.”); GJ 97-1 Ex. 332 (Hamilton notes with entries: “other affairs-10 others 

over 20 yr. marriage” and “Vanity Fair article-number around 10-from HC”); Hubbell 

notes at 3 (with entry: “personal side – 10 affairs – Natasha”) and 9 (with entry “other 

affairs – 10 range”). 

243 FBI-302 Hubbell 2/8/95 at 6 (relating Hubbell’s understanding that 

“Cisneros’ wife does not know about other women with whom Cisneros may have 

had affairs”); GJ 97-1 Ex. 332 at 5 (Hamilton notes with entry: “Wife didn’t know 

(continued...) 

IV-46 
Cisneros spoke with Medlar on the telephone numerous times on the days he was 

meeting with the vetters.244 

Calamaro relayed the results of the vetting team’s interviews of Cisneros to 

Transition Team Counsel James Hamilton.

245 Hamilton passed the interview 

information to Transition Team Co-Chairman Warren Christopher and Clinton 

advisor Webster Hubbell,246 who reported directly to the President-elect.247 

Hubbell was a friend to both Bill and Hillary Clinton. They became friends in 

1977, after Hillary Clinton took a position at the Rose Law Firm in Little Rock, 

Arkansas.248 Hubbell was a partner at the firm.249 Hubbell later advised Bill Clinton 

on his gubernatorial campaigns and played an unofficial role in Governor Clinton’s 

administration.250 When Clinton decided to run for President, Hubbell worked on the 

campaign and served as the spokesperson for the Rose Law Firm.251 He continued to 

serve as a Clinton advisor on a variety of matters during the presidential campaign, 

including vice presidential candidates.252 

243(...continued) 

amt of payments”). 

244 Cisneros Event Chronology at 27 (12/8/92 call from Cisneros to Medlar for 

76 minutes); Id. (12/8/92 call from Medlar to Cisneros for 46 minutes); Id. (12/8/92 

call from Medlar to Cisneros for 41 minutes); Id. (12/9/92 call from Medlar to 

Cisneros for 6 minutes); Id. at 28 (12/9/92 call from Medlar to Cisneros for 1 minute). 

245 FBI-302 Hamilton 11/10/97 at 2-3. 

246 FBI-302 Hamilton 11/10/97 at 1-4. 

247 OIC Depo. Tr. Christopher 9/17/98 at 98-100. 

248 GJ 97-1 Tr. Hubbell 10/13/97 at 12-13. 

249 Id. at 8. 

250 Id. at 14-15. 

251 Id. at 9. 

252 Id. at 22. 

IV-47 
On December 10, 1992, Hamilton requested that the FBI conduct a Level 1 

full-field background investigation of Cisneros.253 This investigation was critical to 

Cisneros’s obtaining the security clearance required for the position of HUD 

Secretary. That same day, the press reported that Cisneros had met with Clinton on 

December 9, 1992, that the Transition Team had recommended that Cisneros be 

nominated for HUD Secretary, and that Cisneros was likely to accept the 

nomination.254 

Like Governor Richards, the Transition Team had concerns over how 

Cisneros’s relationship with Medlar and the payments he had been making to her 

would affect a possible appointment. Christopher testified that the relationship issue, 

including the payments made to Medlar, was significant and posed a “difficult 

problem”255 potentially affected the vetting inquiry.256 Hamilton testified that he had 

considered the “relationship” with Medlar to be the most “troublesome” issue257 with 

respect to the nominee and considered the Cisneros nomination to be the one he “was 

most worried about . . . in terms of confirmation,”258 and he felt that the relationship 

had the potential to “disqualify” Cisneros from being nominated for a Cabinet 

position.259 According to Calamaro, the Medlar issue was “relevant . . . [and] of 

253 GJ 97-1 Tr. Hamilton 11/6/97 at 92; Guide for Conducting and Reporting 

Special Inquiry Investigations 10/1/91 at 4. 

254 Houston Chronicle, “Cisneros Likely to Take HUD Post, Sources Say” 

12/10/92. 

255 OIC Depo. Tr. Christopher 9/17/97 at 43-48, 61-64. 

256 Id. at 59. 

257 GJ 97-1 Tr. Hamilton 11/6/97 at 79. 

258 GJ 97-1 Tr. Hamilton 11/6/97 at 28; see also GJ 97-1 Tr. Hamilton 11/2/97 

at 133( stating “he was the one I was principally concerned with”); GJ 97-1 Tr. 

Hamilton 11/2/97 at 137 (stating “this was the one that concerned me the most”). 

259 GJ 97-1 Tr. Hamilton 11/12/97 at 55-56. 

IV-48 
potential significance,”260 and “raised questions and possible problems.”261 Calamaro 

further acknowledged that the amount of the payments potentially had a tendency or 

capability to affect the vetting inquiry.262 Calamaro also stated that the payments did 

affect the Cisneros vetting inquiry because it “became an issue that required attention 

. . . [and] slowed down the process.”263 

Hamilton and members of the Cisneros vetting team were particularly 

concerned that the payments to Medlar, which were not public knowledge during the 

vetting and confirmation process, could be construed as “hush money.”264 They 

feared that the press would discover the payments as a result of a leak or some action 

by a disgruntled Medlar.265 Hamilton was also “very nervous” that Medlar knew 

other information, besides the affair, which would be damaging to Cisneros. 

Hamilton regarded Cisneros’s affair as politically sensitive, particularly because 

parallels could be drawn to allegations of extramarital affairs that had been leveled 

against President-elect Clinton. 266 Other members of the vetting team were also 

concerned that the payments would become public knowledge and attempted to 

260 GJ 97-1 Tr. Calamaro 9/9/97 at 89. 

261 Id. at 69, 90-91. 

262 Id. at 89-90; GJ 97-1 Tr. Calamaro 9/25/97 at 22, 27. 

263 GJ 97-1 Tr. Calamaro 9/9/97 at 90. 

264 FBI-302 Calamaro 11/15/94 at 2; FBI-302 Arky 12/20/94 at 2; FBI-302 

Hamilton 11/20/94 at 3; FBI-302 Hubbell 2/3/95 at 1-2; GJ 97-1 Tr. Hamilton 

11/6/97 at 28; GJ 97-1 Tr. Hamilton 11/12/97 at 57-58, 67, 199-202; GJ 97-1 Tr. 

Arky10/2/97 at 137; GJ 97-1 Tr. Arky 10/16/97 at 3-4, 66; GJ 97-1 Tr. Calamaro 

9/9/97 at 110; GJ 97-1 Tr. Calamaro 9/25/97 at 11. 

265 GJ 97-1 Tr. Hamilton 11/12/97 at 160-61; GJ 97-1 Tr. Hamilton 11/6/97 at 

117. 

266 GJ 97-1 Tr. Hamilton 11/6/97 at 28; GJ 97-1 Tr. Hamilton 11/12/97 at 59, 

65-66, 68; FBI-302 Hubbell 2/8/95 at 4; Hubbell notes at 5 (with entries: “Jim 

Hamilton - Very Sticky, Field Day on this . . .”; “Reflection on Bill ”; and “Very 

Nervous”). 

IV-49 
obtain assurances from Cisneros that Medlar would not go to the press.267 Some 

members of the vetting team raised the tax implications of Cisneros’s payments, 

including whether Cisneros should have paid or would owe gift taxes.268 

As the Transition Team authorized the FBI background investigation of 

Cisneros, Cisneros was “checking signals” with Medlar. He started by telling Medlar 

that, because he was on a wireless phone, they had to be careful what they discussed: 

HC:	 . . . and uh, I want, I need to . . . 

LM:	(Sneeze) 

HC:	 . . . visit with you, you know, just to kinda check signals. I’m on the car phone 

right now, and it’s probably not the best idea for this kind of, you know . . . 

some of the other, some of the sensitive stuff that we’re talking about. Uhm, 

whoa, hang on just a second.269 

Cisneros then told Medlar that his payments to her were dampening his 

prospects for a Cabinet appointment: 

LM:	 And so . . . did you make the decision on the Cabinet? 

HC:	 (Sigh) Uhhh (laugh), I don’t think so (UI) . . . . Truthfully? 

LM:	 Yeah. 

267 GJ 97-1 Tr. Arky 10/2/97 at 37-38, 146; GJ 97-1 Tr. Calamaro 9/9/97 at 

109-10. 

268 FBI-302 Arky 12/20/94 at 3 (noting that the vetting team did research to 

determine if Cisneros had violated gift tax laws); GJ 97-1 Ex. 331 at 8 (Calamaro 

notes with entries: “10k need to file” and “Lifetime [gift tax] exemption of 600k”); 

GJ 97-1 Ex. 332 at 4 (Hamilton notes with entry: “Webb - gift tax - only 91-92 had 

he paid $10,000”). 

269 Medlar Tape Transcript Q-11 12/10/92 at 1. The OIC believes this 

conversation actually took place on December 11, 1992. See OIC Corroboration 

Chart for Q-11. 

IV-50 
HC: I think we may be talking about nothing.


LM: Ohhhh, you are not.


HC: No, I am. I swear I am.


LM: Why?


HC: Uh, that, that’s what I need to share with you. The . . . finances of the past,


doesn’t go down. And (US) they just . . . well, I don’t want to talk about it on 

this phone, ya know? 

LM:	 Yeah. . . . Why did they have to know about that? 

HC:	 Because they would. It’s pretty obvious when you, when you, when you, when 

you, you know, probe (US) . . . visible means of support and that kind of thing, 

ya know? 

LM:	(US) And what about the Senate? 

HC:	 Well, if it’s gonna be a problem in the Cong-, ya know, if it’d be a problem in 

one, it’s be a problem in the other, so . . . .270 

Cisneros then told Medlar that they needed to resume the conversation on a 

secure phone:


HC: All right. I’m rushing to Corpus. Uh, I do need to talk to you. Uh, it’s nothing


to worry about, it’s just, I need to . . . 

LM:	Are they going to call me? 

HC:	 No. No, no, no, nothing like that, nothing like that; I’ll call you (US) from a 

secure phone.271 

270 Medlar Tape Transcript Q-11 12/10/92 at 3-4. 

271 Medlar Tape Transcript Q-11 12/10/92 at 14. 

IV-51 
Before ending the call, Cisneros raised the possibility that the press might 

contact Medlar: 

LM:	 Is it bad? 

HC:	 No, it’s not bad. It’s . . . just . . . I kinda need to know where you really stand 

in order to . . . know (US) what to do, and I truly need your best judgment. I 

truly need your best, non-emotional . . . what you can truly think you can . . . 

stand (US) by me to do. And that really is what it comes down to, what you 

really think you could . . . take, and, uh . . . 

LM:	(US) What do you mean take? 

HC:	 Well, I mean, you know, what - what - what you really (UI). We’ll, we’ll, 

we’ll talk (UI), what you really . . . I’ll lay out, you know, sorta worst case, and 

you tell me . . .272 

As the vetting proceeded, Webster Hubbell conveyed the vetting team’s 

concerns to the President-elect.273 Hubbell and Clinton discussed the Medlar issue, 

including whether Cisneros had had other extramarital affairs, and the fact that there 

was still a lot that they did not know about Cisneros, Medlar, and the payments.274 

Hubbell testified that Clinton was concerned about Medlar’s purported instability,275 

and that, as a result, the Cisneros nomination was a “tough problem, a tough issue, 

a tough call,”276 that was “still up in the air.”277 

272 Id. at 14. 

273 GJ 97-1 Tr. Hubbell 10/23/97 at 57. 

274 Id. at 55-60; Hubbell notes at 3, 5-7, 9. 

275 GJ 97-1 Tr. Hubbell 10/23/97 at 72. 

276 Id. at 53. 

277 Id. at 65. 

IV-52 
Clinton personally dispatched Hubbell to San Antonio to speak with Cisneros 

on December 11, 1992.278 This was the only time during the vetting process that 

Hubbell was summoned to handle a problem with a potential Cabinet nominee.279 

The same day, December 11, 1992, Cisneros informed Medlar that he was 

going to be questioned further about the payments: 

HC:	 Uhm-hmm, but I wanted to call and just see . . . . I - I would like to call you 

a little later and just, you know, maybe have about a . . . twenty minute, halfhour (US) conversation or so . . . uh . . . before five because, uh, they’re 

sending a couple of lawyers from - from . . . from out of town . . . 

LM:	 Yeah. 

HC:	 . . . to sit down with . . . with me, you know, and kind of look at . . . uhm . . . at 

- at (US) both what has occurred and what needs to occur. You see what I’m 

saying? 

LM:	 Uh-huh.280 

Cisneros again told Medlar that he wanted to “check signals” before the 

questioning occurred: 

HC:	 And uh . . . uh, I’d like to, you know, just kinda check signals with ya, so (US) 

I have some confidence in talking to them. You see what I’m saying? 

LM:	 Yeah, I - I don’t know what what you mean by what needs to happen. What 

do you mean? 

HC:	 Well, I mean, ya know, what we’ve talked about for the future and so forth. 

LM:	 You told them about that? 

278 Hubbell AMEX records; FBI-302 Hubbell 2/3/95 at 1. 

279 GJ 97-1 Tr. Hubbell 10/23/97 at 80; see also OIC Depo. Tr. Christopher 

9/17/97 at 60. 

280 Medlar Tape Transcript Q-12 12/11/92 at 1-2. 

IV-53 
HC:	 We have to. 

LM:	 Why? 

HC:	Because, uh . . . It’s - it’s the ki- (US), well, I didn’t actually tell them about 

that per se, but, I mean, I got to think . . . anything that has or will occur . . . is 

likely to be addressed. You just can’t, ya know, . . . there’s just no way not 

to.281 

Cisneros then told Medlar that he needed to be sure that she would stick to an 

agreed-upon story about the payments because, according to the vetters, the payment 

issue was a potential reason not to proceed with his appointment: 

HC:	 There’s . . . ah . . . okay. Uh - uh - uh . . . let’s talk, ya see, because then I ca-, 

I know kinda what I’m dealing with, ya know what I’m saying? Because, uh, 

like the conversation we had the other day was, ya know, was sufficiently 

angry and so forth that I can’t speak with any confidence about would or 

wouldn’t happen. Ya see what I’m saying? 

LM:	 (US) And what are they saying? 

HC:	 Well, this a potential . . . reason not to go forward. 

LM:	 That’s what they’re telling you? 

HC:	 Yeah. 

LM:	 Wha-, are they gonna talk to me? 

HC:	 No. I don’t think so. I - I, ya know, that we, I have . . . the guy they’re sending 

is a, is a real good guy, and, uh, the guy they had me with in Washington is 

also a good guy and, uh, . . . I trust ‘em and I think they’re decent folks and 

they deal with a lot of human situations, and so forth, and so, it’s not like 

they’re judgmental people or anything like that. So, I would have no problem 

if you were willing to do that, but I don’t know that they wo-, would want to 

do that, you know. 

281 Id. at 2. 

IV-54 
LM: (Laughing) ‘Cause I’m the pariah right? 

HC:	 No, that’s not it, it’s not it. It’s that, it’s that - that, uh, . . . they might have 

problems then later if it’s under oath or something like that, you know.282 

During the same conversation, Medlar told Cisneros that the house she was 

buying with Cisneros’s money was in her sister’s name, not her own: 

LM: But, Henry, ya know, basically I’m doing everything so that noth-, I mean, 

even the . . . 

HC: Yeah. 

LM: . . . the house . . . 

HC: Yeah. 

LM: . . . is not in my name. 

HC: Yeah. 

LM: Do ya understand? 

HC: Yeah. 

LM: It’s in my sister. 

HC: Okay. Okay.283 

Hubbell and Cisneros met in San Antonio on December 11, 1992.284 Hubbell 

later testified to the OIC grand jury that he “wanted to make sure that every question 

282 Id. at 3-4. 

283 Id. at 2-3. 

284 Hubbell AMEX records; FBI-302 Hubbell 2/3/95 at 1. 

IV-55 
had been asked and that [the Transition Team] had good information.”285 Therefore, 

he advised Cisneros “to be candid”286 and to tell him everything.287 Cisneros assured 

Hubbell that the payments were made out of a sense of “moral obligation” to Medlar 

and were not hush money.288 He also told Hubbell that he had told his wife about the 

details of the affair and the payments.289 

Hubbell and Cisneros also discussed the amount of his payments to Medlar. 

Cisneros indicated that he had paid Medlar approximately $2,500 per month for three 

and a half years.290 Cisneros told Hubbell that on one occasion he had paid Medlar 

the sum of $15,000.291 Cisneros also admitted giving Medlar approximately $20,000 

to assist in her move to Lubbock, Texas.292 

Cisneros expressed to Hubbell his willingness to make a final lump sum 

payment to Medlar,293 whom he said he regarded as unstable.294 Hubbell testified that 

he had believed Cisneros’s representation that a lump sum payment would be enough 

to prevent an unstable Medlar from going to the press.295 

285 GJ 97-1 Tr. Hubbell 10/23/97 at 10. 

286 Id. at 118. 

287 Id. at 104, 118. 

288 FBI-302 Hubbell 2/3/95 at 2. 

289 FBI-302 Hubbell 12/15/94 at 2. 

290 FBI-302 Hubbell 12/15/94 at 2; FBI-302 Hubbell 2/3/95 at 2. 

291 FBI-302 Hubbell 2/8/95 at 9. 

292 Id.; FBI-302 Hubbell 12/15/94 at 2. 

293 FBI-302 Hubbell 2/3/95 at 2. 

294 FBI-302 Hubbell 2/8/95 at 2, 5, 7, 11. 

295 GJ 97-1 Tr. Hubbell 11/4/97 at 84-85. 

IV-56 
Hubbell advised Cisneros that, if he had paid Medlar more than $10,000 in any 

given year, there might be gift tax laws ramifications.296 According to Hubbell, 

Cisneros appeared to be totally surprised when Hubbell mentioned that there may be 

gift tax consequences to his payments.297 Before concluding the meeting, Hubbell 

told Cisneros not to make any public statements about Medlar until the Transition 

Team had worked out all the details.298 

Cisneros called Medlar after his meeting with Hubbell, and Medlar taped the 

conversation: 

LM: What were the obvious questions? 

HC: No, I mean, the obvious question for him is the subject matter was - was - was, 

was you obviously . . . . Uhm, the big problem’ll be . . . let me just be, just 

direct, the big problem is future payments. The big problem is, uh . . . 

LM: Why did you say anything to him? 

HC: No, I didn’t, I’m telling ya . . . I’m telling ya, you know, the question would be 

“Well, the problem is if,” an’ this is his words . . . “the problem, well, the 

problem would be, if you had to be supported at particular points,” and I did 

do that, I’ve changed it from, you know, I mean . . . I - I clearly gave the 

impression we’re not talking about an absolute monthly stipend at . . . 

LM: Yeah.299 

Cisneros and Medlar then discussed Hubbell’s concern about what would 

happen if Cisneros did not make payments to Medlar after he became a Cabinet 

official: 

296 FBI-302 Hubbell 2/8/95 at 9. 

297 FBI-302 Hubbell 2/8/95 at 9. 

298 Id. at 10-11. 

299 Medlar Tape Transcript Q-13 12/12/92 at 2. The OIC believes this 

conversation actually took place on December 11, 1992. See OIC Corroboration 

Chart for Q-13. 

IV-57 
• • • 

HC:	 Uh. So, the question becomes, “If you have helped periodically, then why 

won’t you be have to, having to help periodically in the future?” 

LM:	 Uhm-hmm. 

HC:	 And what would happen if you didn’t?300 

Medlar told the OIC that she had excerpted portions of the tape at this point 

because they contained threats she made to Cisneros. Medlar represented that the 

following conversations, in substance, had been erased: 

HC said the Clinton team wanted to know what kind of person I was and 

if I would go to the press. They thought that since he had helped me in 

the past, they assumed he would help me in the future if needed. HC 

told them he had never given me over $2,500 at any one time and never 

more than 10-15,000 in one year. He said that when I threatened him, 

he didn’t know if he could be confident in what he was telling them.301 

I tell him I thought he made a mistake by telling them anything. I do not 

understand why this is so important to everyone. I thought he was trying 

to make me feel guilty or box me in somehow.302 

The recorded conversation continued as follows: 

HC: What - what else can I do? 

LM: I’m serious, you made a mistake. 

HC: Okay. 

LM: What did he say when he left? 

300 Id. at 3.


301 Medlar Redaction Log at 2.


302 Medlar Redaction Log at 2-3.


IV-58 
HC: Well, he was more comfortable than what he thought, which was . . . you know 

kind of . . . 

LM: He doesn’t know anything about the monthly? 

HC: Uh-uh. 

LM: And he thinks that what you . . . 

HC: . . . that - that - that you have needs that revolve around . . . the start of school, 

or the Christmas season, or a summer camp, or things like that, you know, that 

303 you need . . . the high points.

Cisneros further informed Medlar that Clinton had specifically sent Hubbell 

to discuss the payments: 

HC: Well, it was a long conversation. But, uh . . . Clinton personally sent him, this 

is one of his personal people . . . 

LM: Uhm-hmm. 

304 HC: . . . to look me in the eye, and find out these things.

Cisneros then told Medlar that he believed he might not be nominated because 

of the payments: 

LM: Why do you feel you’re not gonna be nominated since you think he was . . . 

more comfortable? 

HC: Because, I think Clinton has problems, will have problems, with the . . . 

303 Medlar Tape Transcript Q-13 12/12/92 at 4. The OIC believes this 

conversation actually took place on December 11, 1992. See OIC Corroboration 

Chart for Q-13. The bracketed portion of this transcript was held to be inadmissible 

at trial. United States v. Cisneros, 59 F. Supp. 2d 58, 65 (D.D.C. 1999). 

304 Id. at 4-5. This bracketed portion of the transcript was held to inadmissible 

at trial. United States v. Cisneros, 59 F. Supp. 2d 58, 65 (D.D.C. 1999). 

IV-59 
(US) 

LM:	 . . . (UI) You’re not gonna tell them about . . . the monthly or the . . . 

HC:	 Mhm-hmm. 

LM:	 . . . or the house or anything like that, right? 

HC:	 Mhm-hmm. But, I mean, he was, he was, they - they worry about things like, 

would the tellers at the bank who’ve seen you make the deposit be one place 

(UI) . . . (US) . . . (UI) vulnerable (UI) . . . 

LM:	 Is that, did you tell them about that? 

HC:	 What? I mean, he asked me how it was made. 

LM:	 Henry, you are so dumb. (Sighs) (US) I could just brain you for that. 

HC:	 Well, what am I supposed to do? You want me to tell lies?

LM:	 No, but I - I don’t, I mean, all you should’ve said was directly. 

HC:	 I mean, am I making it directly? How did I do that? 

LM:	(Lau ghs) You know, you could have said directly to her, or something like 

that, or . . . 

HC:	 . . . that won’t get it, that won’t get it. 

LM:	 What? That you haven’t Fed Ex’ed, uh, money to me before? 

HC:	 Well, then that would probably worry ‘em more, maybe. They’d yo-, they’d -

they’d, they’d have, you’d have my handwriting and a stack of Fed Ex sheets. 

LM:	 Oh, for pity sakes . . . . So, you don’t think you’ll be nominated? 

HC:	 Uh-huh. 

LM:	 You really don’t? 

IV-60 
• • • 

HC:	 Uh-huh. I don’t think he can afford it.305 

Cisneros then acknowledged to Medlar that the payments looked like hush 

money: 

LM: I don’t understand why this would cause a problem. I mean, Henry, if . . . 

HC: . . . because it looks like a payoff. 

LM: . . . if you had never said anything about it . . . 

HC: I can’t afford to do that . . . . 

HC:	 And - and - and, and it would be very much worse if (US) everybody’s teeth 

fell out of their mouths when that came up at the Senate hearing . . . because 

I was asked a direct question. It’s a big deal in the sense that it looks like hush 

money. 

LM: Is that what they said? 

HC: No, but, I mean, I’m te- (US), that’s what it sounds like. 

(US) 

LM: . . . (UI) believe that, you know, I mean, unless you or I one . . . confirmed it 

. . . 

HC: Probably a bunch of people know. 

LM: Who? 

305 Id. at 5-6. The bracketed portions of this transcript were held to be 

inadmissible at trial. United States v. Cisneros, 59 F. Supp. 2d 58, 65 (D.D.C. 1999). 

IV-61

HC: Tammy.[306]

 Whoever she talked to: boyfriends, husband, in-laws. You just 

(US), I mean, you cannot keep something like that quiet. See, the operative 

rule around here is if it happened, somebody knows, whatever it is. If it 

happened, somebody knows. 

LM: Uhm, you get that from Shipley. 

HC: No. Uh-uh. The lawyers here.307 

Cisneros told Medlar that Hubbell was going to report to Clinton with 

incomplete information:


LM: Well, when are they supposed to let you know?


HC: He’s probably gonna talk to Clinton tomorrow, but tomorrow Clinton is


resigning the governorship, so that may be difficult, but Sunday at the latest. 

(US) 

LM: They only know . . . about parts of it, right? 

HC: Yeah. 

LM: And they don’t know about the rest, right? 

HC: Uhm-hmm. 

LM: And he felt bet-, he felt better when he left? 

HC: Yeah, much better. 

LM: Is that what he said? 

306 This refers to Tammy Wooten, the ex-wife of Medlar’s nephew Michael 

Wooten. See OIC Interview Report Marcella Wooten 9/12/96 at 1. 

307 Medlar Tape Transcript Q-13 12/12/92 at 7-8. The OIC believes this 

conversation actually took place on December 11, 1992. See OIC Corroboration 

Chart for Q-13. 

IV-62 
HC:	(UI) 

LM:	 Well, then why do you have a, a bad feeling? 

HC:	Because, I think that he is gonna tell Clinton, and then Clinton’s gonna, “Well 

. . . how come . . .” 

(US) 

LM: How does he know that? 

HC:	 Probably, well, he asked me, that’s easy to check.

LM:	 Henry, can’t you just say, couldn’t you just say, “I, you know. . . .”

HC:	 . . . I said your fa - family helps you, and Stan helps you some, and that you 

worked occasionally: special projects and things. I mean, had to say that, 

because they wanted to know the total amount of what I had done in these 

increments, you know. I told them, “Well, it came to ten thousand dollars, 

fifteen thousand dollars over a year,” you know. That’s not enough to live 

on.308 

Medlar told the OIC she erased portions of the tape at this point because it 

contained discussions about threats she had made to go to the press. Medlar 

reconstructed the erased conversation, in substance as follows: 

HC thought Clinton would ask Hubel about how I supported myself and 

Kristan & what I would do if the payments stopped. HC talked about 

me threatening him (about going to the press & the fact they did not 

know of this.309 

The conversation continued as follows: 

308 Id. at 8-9. The bracketed portion of this transcript was held to be 

inadmissible at trial. United States v. Cisneros, 59 F. Supp. 2d 58, 65 (D.D.C. 1999). 

309 Medlar Redaction Log at 3. 

IV-63 
HC:	They were trying to get down to just exactly how you, you know, how it’s 

going to be explained, you know. (Chuckles) 

LM:	 Did you tell him I didn’t have a house? I mean, that I didn’t . . . own a house? 

HC:	 I told him it was a townhouse . . . in a suburban setting . . . you know, like 

many, nothing high-, high-falutin’. 

LM:	 Did they want to know how you knew? (Laughs) 

HC:	 No, I - I told them that I’d seen it. 

LM:	 Did they ask you if you still saw me? 

HC:	 I told them I didn’t. 

LM:	 Did they ask you about your plans for the future or anything? 

HC:	 No. Um-um. We didn’t talk that. Uh, they did want to know how we would 

stay in touch. I told them Shirl310 . . . would you, would - would be, you know, 

would . . . . I think they were concerned that, that you might call on a 

government line and that’s traceable an’ . . . and, uh, then that kind of thing, 

you know. Or I might call on a government line.311 

Cisneros and Medlar continued to discuss Cisneros’s disclosures about the 

payments to Hubbell and the vetters. Medlar told the OIC she erased a portion of the 

tape at this point because she was urging Cisneros to lie. Medlar represented that the 

following conversation, in substance, had been erased: 

310 This refers to Shirley Thomas, who worked with Cisneros when he was 

Mayor of San Antonio and became his Special Assistant at HUD from 1993 to 1996. 

OIC Interview Report Thomas 8/21/96 at 1. During an interview with the OIC, 

Thomas described Cisneros and Medlar as her friends and stated that she was a 

confidante to Cisneros. Id. at 1-3. 

311 Medlar Tape Transcript Q-13 12/12/92 at 9-10. The OIC believes this 

conversation actually took place on December 11, 1992. See OIC Corroboration 

Chart for Q-13. 

IV-64 
We talked about what we could tell them about future payments. I told 

him I just wanted to come up with a lump sum & tell them there would 

be no future payments. He said he couldn’t do that but that he would 

come up with something. I was urging him to tell them anything he had 

to, but to keep them away from me.312 

When the taped conversation resumed, Cisneros represented to Medlar, falsely, 

that he had told the vetters that she was stable: 

LM: You still just laid it out as every once in a while, right? 

HC: Uh-hmm. On, you know, when their special needs arise and that it (US) total 

of (UI) the largest sum I’ve ever given you was twenty-five hundred dollars 

and a total . . . 

(US) 

LM: . . . (UI) amazed that you told them that we would at all. 

HC:	 Well, I mean, the question, the question was, “What if,” you know, “she gets 

angry or frustrated because she can’t get ahold of you,” you know, “how would 

you communicate (US) . . . if there’s a problem that needs to be addressed,” 

you see. It’s a natural question. If we communicated before about special 

needs, you know . . . then the operative situation might arise again when you 

need . . . (US) . . . went to great lengths to describe your stability. This is not 

a person who’s going to go flying off the handle. (US) Because I think you 

have been pretty responsible, and the discussion in the, in the press . . . 

LM: Pretty responsible? (Laughs) 

HC:	 And it shows great, very responsible, and it shows, and it shows, a frame of 

mind that after you’ve blown your stack, you settle into . . . uh, a thoughtful 

response.313 

312 Medlar Redaction Log at 3. 

313 Medlar Tape Transcript Q-13 12/12/92 at 14. The OIC believes this 

conversation actually took place on December 11, 1992. See OIC Corroboration 

(continued...) 

IV-65 
Cisneros told Medlar that, although he recognized there was some chance that 

the issue of his payments to her could emerge before the Senate, he thought Clinton 

would appoint him if he could tell the Senate that he would not make any future 

payments: 

LM: Do you think you’ll hear for a couple of days? 

HC: Uhm-hmm. Probably mid-week, next week. I would say after the economic 

summit. Uh, the key problem . . . I think he could live with everything, 

including the business about the future, if the future could be timed so that at 

confirmation time I would say . . . that there was nothing ahead. 

LM: (US) I’ve always said that. 

HC: At confirmation time, I could honestly look these people in the face, and I’d 

say, “There’s no intent to provide payment in the future.” 

(US) 

LM: That’s what I was talking to you about today. 

HC: Right. But that means then divesting before confirmation. 

LM: Well, Henry, that has to be done anyway. 

HC: But the company wanted to wait and see if I was confirmed or not. (Sigh) 

Okay. 

LM: All right. 

HC: Tell you what I think I might do. 

LM: What? 

313(...continued) 

Chart for Q-13. 

IV-66

HC:	 Send you the money for the house, and then just . . .314 

Medlar told the OIC that she had excerpted a portion of the tape at this point 

because it concerned threats she made to Cisneros. Medlar represented that the 

following conversation, in substance, had been erased: 

HC was going to tell them he had given me $30,000 for any future needs 

and that would be the last payment. I urged him to do that. HC said in 

order to do that I would have to stand by him & not scare him with 

threats when I got angry.315 

The conversation continued as follows: 

HC: . . . at last . . . 

(US) 

LM:	 Don’t tell them anything about that. 

HC:	 I have to now. Uh, they, they, I mean, now they think that there’s, they got to 

be a party to some plan to . . . (UI) continue something. 

LM:	 Just tell them that you’ve, you’ve talked with me and . . . that, uh, there would 

be no future increments. 

HC:	 Okay.

LM:	 You know. I mean, that’s all you have to tell them. But, in order for you to do 

that at the confirmation hearing, uh, like I said, it has to be divested first, it has 

to be done before then, and then they can’t do - - they can’t say anything. It 

can’t be a standing thing going on after you’re in office though, do you 

understand? 

HC:	 Yeah, of course. 

314 Medlar Tape Transcript Q-13 12/12/92 at 19-20. 

315 Medlar Redaction Log at 4. 

IV-67 
LM:	 Well, but that’s what you were talking about.316 

Cisneros then expressed his concern that the IRS would discover a large 

payment to Medlar: 

HC:	See, the thing is, I don’t think you can move those sums of money around 

without the IRS or the bank examiners or somebody taking a note of those 

volumes.317 

Cisneros and Medlar then discussed what could happen if the payments became 

publicly known: 

LM: Yeah, I know. I know. I - I truly do believe, though, that the best thing to do 

is a way . . . to, when you divest, some way to move the money in lum-, in the 

lump sum. 

HC:	 (Laughs) 

LM:	 No, I’m being very serious with you, Henry. As opposed to any payments 

going out, because even after you get in there, do you think they wouldn’t love 

to have a scandal? 

HC:	 All right. (Sigh) 

(US) 

318 LM:	 . . . (UI) tell you that absolutely no more payments can be made.

316 Medlar Tape Tr. Q-13 12/12/92 at 20-21. The OIC believes this 

conversation actually took place on December 11, 1992. See OIC Corroboration 

Chart for Q-13. The bracketed portion of this transcript was held to be inadmissible 

at trial. United States v. Cisneros, 59 F. Supp. 2d 58, 65 (D.D.C. 1999). 

317 Id. at 21. 

318 Id. at 22. The bracketed portion of this transcript was held to be 

inadmissible at trial. United States v. Cisneros, 59 F. Supp. 2d 58, 65 (D.D.C. 1999). 

IV-68

Medlar told the OIC that she erased a portion of the tape at this point because 

it concerned threats she made to Cisneros. Medlar represented that the following 

conversation, in substance, had been erased: 

He says he would always make the payments because he loved me even 

though I had threatened to destroy him & he knew I could. That should 

give me confidence.319 

Cisneros and Medlar then discussed coming up with a story he could tell 

Hubbell at their next meeting about a final payment he would make to her: 

LM: I thought that’s what you were gonna, I mean, I thought that’s what you totally 

intended to do anyway. Will you do that and then call me? 

HC: Well, let me think on it because it may not be possible, but, yeah. Okay. 

LM: What, what won’t be possible? 

HC: It may not be, it may not be believable. 

LM: Honey. 

HC: . . . (UI) the only thing I can tell them is, this, this is the only thing that would 

be believable. I did tell them that I thought I had some resources to deal with 

the final . . . payment, and so what I would say is, “Look, I went into those . . .” 

320 (US) . . . and then I just would have to struggle to take . . .

Medlar told the OIC that she had excerpted a portion of the tape at this point 

because it concerned threats she made to Cisneros. Medlar represented that the 

following conversation, in substance, had been erased: 

HC is explaining what he could say to Huble that would be believable. 

He said he would tell him he went into his resources & came up with 

319 Medlar Redaction Log at 4. 

320 Medlar Tape Transcript Q-13 12/12/92 at 26. The bracketed portion of this 

transcript was held to be inadmissible at trial. United States v. Cisneros, 59 F. Supp. 

2d 58, 65 (D.D.C. 1999). 

IV-69 
$30,000 final payment & then he would just find some way to get the 

money to me either before or after confirmation. He wanted to make 

sure I would stand by him & not threaten to do anything when I got 

angry.321 

Cisneros then told Medlar he was thinking about how a final payment to her 

could be made: 

HC: No, I’m just trying to figure how . . . 

LM: . . . to move it around? 

HC: Uhm-hmm. 

LM: Okay. All right. 

HC: Okay. (Sigh) Lord Almighty. 

(US) 

LM: I don’t want you to not do this because of me. 

HC: Well, Linda, don’t say that, because, you know, I have to do the - the - the 

money, you don’t have an alternative. 

(US) 

LM: . . . (UI) should be a consideration here. 

(US) 

HC: If this phone’s tapped, we’re sunk anyway. 

LM: (Laughs) That, nobody even knows . . . where I am. 

321 Medlar Redaction Log at 6. 

IV-70 
HC: Okay.322 

Hubbell reported the results of his December 11, 1992 meeting with Cisneros 

directly to the President-elect.323 Hubbell testified that, after he had briefed Clinton 

on the results of the Cisneros meeting, Clinton was favorably inclined to nominate 

Cisneros on the condition that Cisneros consult a “good lawyer” about the lump sum 

payment and any tax issues that might arise from it or from past payments.324 

Cisneros and his attorney, Seagal Wheatley, traveled to Little Rock, Arkansas 

on December 13, 1992, to meet with Hubbell and to discuss the legal arrangements 

for Cisneros’s payment of a lump sum to Medlar.325 Hamilton told the OIC that the 

Transition Team was concerned that Medlar was volatile and might go public with 

information regarding the payments from Cisneros.326 Hamilton testified that, in 

weighing the risks associated with Medlar’s volatility and the likelihood that she 

would talk to the press, the fact that Cisneros had worked out a lump sum payment 

arrangement with Medlar “clearly was a relevant factor.”327 (He further testified, 

“before you suggest that there’s something evil about that . . . it is a different matter 

to make arrangements so the press and the public don’t know something and to make 

arrangements so that the FBI or the Senate doesn’t know something.”328) Cisneros 

spoke with Medlar on the phone numerous times on December 13, 1992.329 

322 Medlar Tape Transcript Q-13 12/12/92 at 27. 

323 FBI-302 Hubbell 12/15/94 at 2; FBI-302 Hubbell 2/7/95 at 1-2; GJ 97-1 Tr. 

Hubbell 11/4/97 at 44-45. 

324 GJ 97-1 Tr. Hubbell 10/23/97 at 175; 11/4/97 at 52-54, 61-62. 

325 FBI-302 Hubbell 2/3/95 at 2; GJ 97-1 Ex. 406. 

326 GJ 97-1 Tr. Hamilton 11/12/97 at 160-62. 

327 Id. at 162-63. 

328 Id. at 163. 

329 Cisneros Event Chronology at 31 (Cisneros call to Medlar for 5 minutes); 

Id. (Cisneros call to Medlar for 52 minutes); Id. (Medlar call to Cisneros at Excelsior 

Hotel for 4 minutes); Id. (Medlar call to Cisneros at Excelsior Hotel for 11 minutes); 

Id. (Cisneros call to Medlar for 25 minutes). Medlar also attempted to reach Cisneros 

(continued...) 

IV-71 
• • • 

Before going to Little Rock, Cisneros had a telephone conversation with 

Medlar, which she taped. During the conversation, Medlar asked Cisneros if the 

vetters and Hubbell knew about his dealings with Morris Jaffe: 

LM: . . . Do they know anything about your dealings with Jaffe?


HC: (UI) Mhm-hmm.


LM: Because that comes under ethics.


HC: Answer’s no.


LM: Okay.


HC: There is no dealings with Jaffe.


LM: Okay.


(US) 

LM: I’m asking you from me to you. 

HC: There is, there is - is, there’s nothing, there’s nothing there. 

[330] LM:	 . . . I understand that, but I also know Shipley, and I also know Robert, and

that I, they both know . . . that, I, Robert was the one who told me how the deal 

worked. 

HC:	 What deal? 

329(...continued) 

on December 14, 1992. Id. at 32 (indicating seven calls from Medlar to the Excelsior 

Hotel on 12/14/92). 

330 This refers to Robert Marbut, Jr., an aide to Cisneros when he was Mayor 

of San Antonio. OIC Interview Report Marbut 12/17-18/96 at 2. Marbut introduced 

Medlar to Cisneros. Id. at 7. 

IV-72 
LM:	 Henry, when you went over to Jaffe’s and came back with ten thousand dollars 

in cash that one, was never reported by him and never reported by us. 

HC: Not true. (Whispering) 

LM:	 Henry, let me tell you something. It happened during the Dome, and you know 

it. And it happened subsequently before that. All I’m saying is, “Is there a 

problem there?” You know, the people at the Dome, if Robert knew about it, 

then Valero[331]

 knew about it, you see what I mean? 

HC:	 (UI) . . . I don’t recall any such thing on the Dome. 

(Whispering) 

LM: Huh? 

HC: I don’t recall any such thing on the Dome. 

LM: (Laughs) 

HC: I really don’t. 

LM: You gave it to me. 

HC: For what purpose? 

LM: (Laughs) It eventually, you said, went to Shipley. 

HC: I truly don’t remember that. (Whispering) 

LM: But it was, it was pure . . . 

HC: I mean, but it, but it, but you’re not suggesting that I used it for personal (UI), 

are you? 

331 This refers to Valero Energy Corporation, a refining company based in San 

Antonio. Medlar worked for Valero in 1988, at the same time as the Alamodome 

campaign. IRS Interview Report Medlar 11/21/94 at ¶ 19. According to Medlar, 

Valero contributed $10,000 to the campaign. Id. 

IV-73 
LM: No. I - I, Hon - Honey, I’m not suggesting anything like that. I’m saying, is 

it a problem? 

HC: I didn’t think so. 

LM: . . . because, quite frankly, I know it was never reported. 

HC: Yeah, I don’t believe so. (Sighs) I don’t believe so. 

LM:	 You know, and I don’t (US), I don’t know what happened to it, but I know it 

also happened, uh, during your campaign. You were the one who explained 

it to me. 

HC: (UI)


LM: (UI) Well (US) don’t you, eh . . .


HC: (UI)


LM: Yes, you do, too, and I know you don’t . . . want to admit it right now, but I’m


just asking you point blank, “Is there a problem there?” 

HC: (UI) 

(US) 

LM: Even though it wasn’t reported? 

HC: No. 

LM: What, does it have to be such and such amount before there is a problem? 

HC: (Laughing) (UI) I’m not going to talk about this. 

LM: Why? . . . I’m just . . . (US) I was just saying . . . 

HC: (UI) tape recorder? 

LM: My tape recorder? Henry, I don’t even have a tape recorder in the house. 

IV-74

• • • 

HC: You told me before you taped Mary Alice.


LM: Oh, I taped Mary Alice a long time ago.


HC: (Laughs)


LM: (Laughs) I did. (Laughs) Ba-basically, I got tired of the garbage, you know,


it’s what . . . 

HC: How’d you tape her? 

LM: Off of a telephone . . . .332 

Later that night after Cisneros arrived in Little Rock, he and Medlar had 

another telephone conversation that Medlar taped. Cisneros again expressed his 

concern that Medlar might be taping him and reiterated that Medlar was not to tell 

anyone about his dealings with Jaffe: 

LM: Just tell me that you love me, okay? 

HC: (Laughs) I (UI) Baby Doll, Baby Doll, you’re taping me. 

HC: Listen to me, that conversation about Jaffe and stuff, I mean, that didn’t 

happen, okay? 

LM: Okay, it didn’t happen. 

HC: (Laughing) 

LM: (Sigh) I mean, I don’t know what that proves, but okay . . . 

HC: (Laughing) 

332 Medlar Tape Transcript Q-14 12/15/92 at 5-9. The OIC believes this 

conversation actually took place on December 13, 1992. See OIC Corroboration 

Chart for Q-14. 

IV-75 
LM:	 . . . whatever you say. 

HC:	 This is silly. 

LM:	 No, uh, there are some, there - there’s some other things, you know, that I 

could bring up too, but . . . 

HC:	 Bring ‘em up. 

LM:	 . . . you evidently don’t want to talk about ‘em. 

HC:	 Well, I’ll talk to you about anything you want to in person. 

LM:	 (Laughs) Well, considering that you’re in Little Rock, and I’m here, that’s kind 

of hard. 

HC:	 Okay.333 

On or about December 13, 1992, Wheatley and Cisneros advised Hubbell that 

they had an accountant available to work out the arrangement for Cisneros to give 

Medlar a lump sum.334 Wheatley also recalled briefing Hubbell on the status of the 

divorce suit filed by Mary Alice Cisneros.335 

333 Id. at 15-16. 

334 FBI-302 Hubbell 2/3/95 at 3; OIC Interview Report Wheatley 11/21/97 at 

1; 12/13/92 Excelsior Hotel guest records showing Wheatley and Cisneros as guests; 

12/14/92 Excelsior Hotel guest records showing Wheatley checking out. 

335 The Cisneros and Medlar divorce suits were evidently a matter of concern 

for the vetters and Transition Team. Cisneros employee John Rosales faxed the 

divorce petition filed by Mary Alice Cisneros to Arky on December 14, 1992. GJ 97­

1 Ex. 356. Arky in turn faxed the petition to Veve on the same day. Id. Wheatley 

also faxed the petition to Hubbell on December 16, 1992, along with Henry 

Cisneros’s Original Answer, Mary Alice’s Motion for Nonsuit, and the court order 

dismissing the suit. GJ 97-1 Ex. 398. The divorce petition filed by Stan Medlar had 

already been faxed to Hubbell and Calamaro on December 11, 1992. GJ 97-1 Ex. 

388. 

IV-76 
According to Hamilton, the “second layer of vetting,” as evidenced by the 

Hubbell visit, distinguished Cisneros from other candidates.336 Christopher called the 

additional vetting an unusual, extra step that signified the Cisneros vetting had been 

“raised out of an ordinary level.”337 

On December 14, 1992, Cisneros completed and executed a Supplement to the 

SF-86.338 Question 10S of the Supplement asked, “Is there anything in your personal 

life that could be used by someone to coerce or blackmail you?” In response, 

Cisneros cited “no reason for coercion or blackmail.”339 Cisneros then signed the 

document, immediately following the statement that read: “I understand that the 

information being provided on this Supplement to the SF-86 is to be considered part 

of the original SF-86 . . . and a false statement on this form is punishable by law.”340 

Cisneros’s SF-86, which he had executed on December 7, 1992, indicated to 

the applicant that the purpose of an FBI background investigation was to ensure that 

candidates “are eligible for a required security clearance or for performing sensitive 

duties” and that the information supplied by each candidate would be used 

“primarily” to determine the candidate’s qualifications for a national security 

position.341 The form also notified the applicant that “knowingly falsifying or 

concealing material is a felony which may result in fines of up to $10,000 or five 

years imprisonment, or both” and that “Federal agencies generally fire, do not grant 

a clearance, or disqualify individuals who have materially and deliberately falsified 

these forms.”342 

336 GJ 97-1 Tr. Hamilton 11/6/97 at 29, 136; GJ 97-1 Tr. Hamilton 11/12/97 at 

138-39. 

337 OIC Depo. Tr. Christopher 9/17/97 at 59-60, 94-95. 

338 Cisneros Supp. to SF-86 12/14/92. The SF-86 Supplement was provided to 

the Transition Team on December 15, 1992. GJ 97-1 Ex. 332(b). 

339 Cisneros Supp. to SF-86 12/14/92. 

340 Cisneros Supp. to SF-86 12/14/92. 

341 Cisneros SF-86 12/7/92. 

342 Id. 

IV-77 
Cisneros also completed a Memorandum for Prospective Appointees on 

December 14, 1992.343 In signing the memorandum, Cisneros consented to an FBI 

background investigation, including “the collection and use of relevant information 

concerning [his] personal history.”344 Soon afterward, Hamilton requested that the 

results of all background investigations be forwarded directly to him.345 

On December 15, 1992, on the eve of Clinton’s designating Cisneros as his 

HUD Secretary, Medlar called Cisneros in Little Rock, Arkansas, from Methodist 

Hospital in Lubbock346 where she was awaiting surgery. The next day, Medlar had 

the surgery.347 

e. Cisneros as Designated Nominee 

On December 17, 1992, President-elect Clinton publicly announced his 

intention to nominate Cisneros for the position of Secretary of Housing and Urban 

Development.348 

As of December 17, 1992, the vetting team had spoken with Cisneros’s 

accountant, Luis Hernandez.349 The vetting team had also ordered and received an 

analysis of Cisneros’s tax returns undertaken by a tax attorney.350 It confirmed that 

Cisneros should have filed a gift tax return for the Medlar payments and that Cisneros 

343 Memorandum for Prospective Appointees 12/14/92. 

344 Id. 

345 GJ 97-1 Ex. 409. 

346 Cisneros Event Chronology at 33. 

347 Medlar v. Cisneros, Medlar Depo. Tr. Ex. 155 at 4, 6, 10, 11; Medlar 

Medical Records. 

348 Washington Post, “Cisneros chosen for HUD” 12/18/92. 

349 GJ 97-1 Tr. Arky 10/2/97 at 182-83. 

350 Id. at 91-92, 184-85; GJ 97-1 Ex. 331 at 8. 

IV-78 
had been “sloppy” in filing his income tax returns.351 On that day, another tax 

attorney reviewing Cisneros’s tax returns for the vetting team informed them that 

gifts over $10,000 required the filing of a federal gift tax return and that Cisneros 

might have violated state gift tax law as well.352 

At about the same time, according to Medlar, she and Cisneros agreed to tell 

the FBI, contrary to what Cisneros had told the Transition Team, that his single 

largest payment to her had been $2,500 and that his payments to her had never totaled 

more than $10,000 to $15,000 a year.353 Medlar said that they also agreed to tell the 

story that Cisneros would be paying Medlar a $30,000 lump sum as a final 

payment.354 This story, they agreed, would allow Cisneros to claim during his 

confirmation hearings that he did not intend to make any future payments.355 

Cisneros closed on a $30,000 loan from First Interstate Bank on December 17, 

1992.356 

On the day before, December 16, 1992, $8,000 from Cisneros had been 

deposited into Medlar’s Broadway National Bank account, documented as 

“currency.”357 Then, on December 18, 1992, a check for $10,200 payable to and 

endorsed by Cisneros was deposited into Cisneros’s First Interstate Bank account.358 

On the same day, Cisneros employee Sylvia Arce-Garcia withdrew $10,200 in 

351 GJ 97-1 Tr. Arky 10/2/97 at 184-85; GJ 97-1 Ex. 331 at 8. 

352 GJ 97-1 Ex. 331 at 8. 

353 IRS Interview Report Medlar 11/21/94 at ¶¶ 33-34; FBI-302 Medlar 

12/27/94 at 2; Suppression Hearing Tr. Medlar 6/21/99 at 126. 

354 Suppression Hearing Tr. Medlar 6/21/99 at 126-27; see also FBI-302 

Medlar 12/27/94 at 2. 

355 Id. 

356 First Interstate Bank Credit Authorization 12/10/92. 

357 12/16/92 Medlar BNB deposit slip for $8,000; 12/16/92 BNB receipt for 

$8,000. 

358 12/8/92 European-American Bank & Trust Co. check #10440 for $10,200; 

12/18/92 Cisneros FIB deposit slip for $10,200. 

IV-79 
currency from the same account.359 The Bank Secrecy Act required that a Currency 

Transaction Report (“CTR”) be filed for any withdrawal or deposit of currency of 

$10,000 or higher.360 First Interstate Bank filed a CTR on this transaction, reflecting 

that Arce-Garcia had made the withdrawal on behalf of Cisneros.361 That same day, 

another $8,000, also documented as “currency,” was deposited into Medlar’s 

Broadway National account. The deposit was documented as consisting of “coin,” 

and brought the two-day total of Cisneros’s transfers to Medlar to $16,000.362 

If either of these cash deposits into Medlar’s account had exceeded $10,000, 

a CTR would have been required. The CTR would have identified the source and the 

recipient of the deposited funds363 and therefore could have linked Cisneros to a large 

payment that Medlar received in the days surrounding his designation as HUD 

Secretary. By splitting the funds into deposits of less than $10,000, Cisneros evaded 

the $10,000 threshold for filing a CTR and concealed his ongoing payments to 

Medlar. Splitting the deposits and not declaring them on a CTR was itself a criminal 

offense known as “structuring.”364 

In fact, Cisneros’s trusted employee and confidante, Alfred Ramirez, had been 

required to fill out a CTR almost two years earlier on February 26, 1991, when he 

359 12/18/92 FIB withdrawal slip for $10,200. 

360 31 U.S.C. § 5311 et seq. The Act required a financial institution within the 

United States to file a CTR, Internal Revenue Service Form 4789, for each transaction 

in currency over $10,000. One of the principal purposes of CTRs is to alert banks 

and law enforcement agencies to the movement of large amounts of cash that may be 

associated with the drug trade, money laundering, or other illegal activities. 31 

U.S.C. § 5311.

361 CTR 12/18/92. 

362 12/18/92 Medlar BNB deposit slip for $8,000; 12/21/92 BNB account 

statement showing receipt of deposit. 

363 Id. 

364 In certain cases, transactions spread over a number of days may also 

constitute a transaction requiring the filing of a CTR. See 31 U.S.C. § 5324 

(governing the “structuring” of transactions to evade the reporting requirement). 

IV-80 
deposited $12,000 from Cisneros into Medlar’s bank account.365 Besides listing 

Ramirez’s and Medlar’s names, the CTR disclosed that Ramirez was the manager of 

one of Cisneros’s companies.366 Ramirez testified to the grand jury that having to fill 

out the CTR was “very unexpected.”367 He also informed the grand jury that he had 

previously taken steps to avoid anyone connecting Cisneros and Medlar to the 

deposits he was making.368 Those steps included never disclosing that the deposits 

were being made on Cisneros’s behalf and using the drive-up teller to lessen the 

chance that someone would recognize him or identify him as a Cisneros employee.369 

According to Medlar, Ramirez was very upset after he had to complete the 

CTR.370 Medlar also stated that Cisneros told Ramirez to keep the deposits under a 

certain amount so that no forms would have to be filled out.371 

In a conversation Medlar taped about a week later, Cisneros mentioned the 

$16,000 he had deposited for her – apparently referring to the two recent $8,000 

deposits: 

HC:	 No, I’m not talkin’ about that. I’m talkin’ ‘bout my motives with respect to 

you. I mean, you say I don’t ever think of it, or I don’t ever . . . I mean, Lord, 

it’s not easy to come up with sixteen thou-, I had to stretch and pull and . . . do 

all kinds . . . I did it. 

LM:	 You got a loan, Henry. And you got a thirty thousand dollar loan because you 

were short at the office. You told me. 

365 GJ 97-1 Ex. 429. 

366 Id. 

367 GJ 97-1 Tr. Ramirez 11/19/97 at 81. 

368 Id. at 82-83. 

369 Id. 

370 IRS Interview Report Medlar 5/31/95 at 3. 

371 Id. 

IV-81 
HC: Linda, don’t make light of it. It’s big money. Real money.372 

In the same conversation, Cisneros expressed his awareness of the CTR filing 

requirements by stating that a lump sum payment to her would raise “massive 

problems” because of “things like the drug laws and so forth.”373 

By December 20, 1992, Cisneros was receiving congratulations on his 

nomination.374 In the meantime, Medlar had checked out of the hospital following her 

surgery and was put on pain medication.375 She stayed at the her mother’s home in 

Lubbock, Texas to recuperate. 

On December 22, 1992, Cisneros met with Howard Pastor, who was in charge 

of preparing the incoming administration’s cabinet nominees for confirmation.376 

Pastor considered the relevance of Cisneros’s affair with Medlar to have been 

diminished by the fact that Cisneros had reconciled with his wife.377 Pastor, unlike 

Hamilton and Christopher, did not consider Cisneros’s payments to Medlar to be 

“particularly significant” because their affair was well known to the public.378 As a 

result, Pastor did not expect the subject to come up at Cisneros’s confirmation 

372 Medlar Tape Transcript Q-16 12/24/92 at 10-11. 

373 Id. at 12. 

374 OIC Depo. Tr. Christopher 9/17/97 at 91-93; see also Washington Post, 

“Cisneros chosen for HUD” 12/18/92. 

375 Medlar v. Cisneros, Medlar Depo. Ex. 155 at 10-11; Medlar Medical 

Records. 

376 Cisneros Calendar 12/22/92; GJ 97-1 Ex. 332 at 3; GJ 97-1 Tr. Pastor 

11/24/97 at 22-23. Pastor was responsible for preparing potential nominees for their 

Senate confirmation hearings. GJ 97-1 Tr. Pastor 11/24/97 at 46-48. He met with 

each designee and tried to anticipate what issues the Senate might raise in the 

confirmation hearing. Id. at 47. When it came to controversial information, Pastor 

would try to “manage the circumstances” by sharing information with relevant 

Senators in an attempt to convince them that the controversy “should not be 

disqualifying.” Id. at 47-48. 

377 Id. at 73-74. 

378 Id. at 78. 

IV-82 
hearing.379 By the time of this meeting, Cisneros had received expressions of support 

from Senators Phil Gramm (R-TX) and Pete Domenici (R-NM), as well as then-HUD 

Secretary Jack Kemp.380 

Also on December 22, 1992, a draft of Cisneros’s “Statement for Completion 

by Presidential Nominees” was faxed to Arky and Calamaro.381 The statement called 

for written answers to a variety of questions regarding Cisneros’s education, 

professional qualifications, personal life, and finances.382 In response to a request that 

he “[l]ist sources, amounts and dates of all anticipated receipts from deferred income 

arrangements, stock options, uncompleted contracts and other future benefits which 

you expect to derive from previous business relationships, professional services and 

firm memberships or from former employers, clients, and customers,” Cisneros stated 

that he expected to receive $30,000 from “lecture income.”383 

Cisneros did not include dates or sources for this “lecture income” in his 

Statement.384 Beginning in the last quarter of 1992, Cisneros had greatly curtailed his 

paid speechmaking in order to work on the Clinton campaign.385 However, on 

December 17, 1992, five days before submitting this Statement, Cisneros had 

received a $30,000 loan from First Interstate Bank.386 Thirty thousand dollars was the 

379 Id. at 112-13.


380 OIC Depo. Tr. Christopher 9/17/97 at 93-94.


381 Fax to Arky/Calamaro 12/22/92.


382 See GJ 97-1 Ex. 358.


383 GJ 97-1 Ex. 358.


384 GJ 97-1 Ex. 358.


385 GJ 00-001 Ex. 20 at 54.


386 First Interstate Bank Credit Authorization 12/10/92.


IV-83 
amount of the lump sum payment that Cisneros was representing that he intended to 

pay Medlar.387 Cisneros began to draw on the $30,000 loan on December 28, 1992.388 

In the meantime, Medlar was funneling the money she received from Cisneros 

to the Wootens so that they could purchase a house for her. On December 22, 1992, 

shortly after Cisneros’s two $8,000 cash deposits into Medlar’s account, Patsy 

Wooten deposited a check from Medlar for $7,495 into her account at Southwest 

Lubbock National Bank.389 Later that day, Patsy Wooten wrote a check in the same 

amount to Stewart Title Company as part of the transaction to purchase the house in 

the Wootens’ name.390 

On December 23, 1992, Cisneros met with Senator Donald Riegle (D-MI),391 

the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs 

(“Banking Committee”) responsible for conducting Cisneros’s confirmation 

hearing.392 During the meeting, Cisneros gave Riegle the impression that he was in 

the process of resolving the Medlar issue so that it would not be a concern at the 

confirmation hearings.393 Cisneros also told Riegle that the payments were made out 

of a sense of moral obligation to Medlar.394 They did not discuss the precise amount 

of the payments.395 

In a conversation recorded December 24, 1992, Cisneros and Medlar argued 

about his payments to her. Cisneros told Medlar that, if he did testify before the 

387 Suppression Hearing Tr. Medlar 6/21/99 at 126-27. 

388 First Interstate Bank Credit Advice 12/28/92. 

389 Check #1332 dated 12/22/92 drawn on Medlar’s BNB account. 

390 Check #540 dated 12/22/92 drawn on Patsy Wooten’s Special Account at 

SWLNB. 

391 Cisneros Calendar 12/23/92. 

392 GJ 97-1 Ex. 376 at 1 (Cisneros Confirmation Hearing Tr. 1/12/93). 

393 FBI-302 Riegle 11/30/94 at 3. 

394 Id. 

395 Id. 

IV-84 
Senate in the way they had agreed, she would have the power to expose him to 

criminal penalties for contempt of Congress: 

HC:	 Alright. I didn’t call to argue with you. Look, I . . . intend . . . to get that 

money there for you. Now, if you’re telling me . . . that you don’t want me to, 

and you want to throw in the towel, and you want to pursue some other option, 

. . . then I guess you need to tell me. 

LM:	 What other option? 

HC:	 I don’t know . . . 

LM:	 . . . what are you talking about? 

HC:	 . . . what you’re talking about. I don’t know what you’re talking about. 

didn’t know yesterday whether you’re . . . I don’t, I - I don’t know what you’re 

saying. If you’re saying to me, you want me to make this work, I promise you 

I will. 

LM:	 Henry, you are gonna be going through confirmation where they’re gonna be 

asking you questions. 

HC:	 The subject probably is not even gonna come up. 

LM:	 And what if it does? 

HC:	If it does, I’ll tell them what we agreed . . . and the only person in the world . . . 

who can sink me at that point, and I mean serious, I’m talking con - con ­

contempt of Congress, jail, is you. . . . But it dudn’t even - I mean, you know, 

what, I mean, I know what purpose that would serve. Beca-, I intend to do 

right. 

LM:	 Henry, I seriously don’t . . . 

HC:	Okay. Linda, you have a . . . there is a flaw in your thinking . . . and it has to 

do with the value of money. I have busted my ass, I would, I mean, I cannot 

tell you how much money. . . . But damn, give me a little credit for doing it all 

these years. . . . And give me a little credit, ‘cause I have a plan in my mind. 

IV-85


I 
(US in background) 

LM:	Wel l, maybe your plan isn’t what . . . I mean, it, just because it’s your plan, 

maybe it’s not what I need.396 

Medlar told the OIC that she had excerpted a portion of the tape shortly past 

this point because it concerned threats she made to Cisneros. Medlar represented that 

the following conversation, in substance, had been erased: 

Argument about HC divesting and his waffling as to how to make the 

payments to me. (Some threats from me)397 

The recorded conversation continued acrimoniously: 

LM: Things have changed dramatically from where we were three or four weeks ago 

. . . from your attitude. You think I don’t know that; you think I don’t feel that. 

HC: No, that’s not true. 

LM: Don’t give me that, Henry! 

HC: All right. Look, don’t get upset, and, uh, please, I mean, I, it - it’s so hard to 

call you when I know that every conversation is gonna end this way. 

LM: Well, I’m sorry Henry, but you’re the one who’s . . . 

HC: . . . no, you don’t have to be this way. 

LM: . . . you are the one who’s changed, not me. 

HC: You don’t have to be this way. 

LM: You’re the one who’s changed, not me. 

HC: I haven’t changed a bit. 

396 Medlar Tape Transcript Q-16 12/24/92 at 11-12. 

397 Medlar Redaction Log at 9. 

IV-86 
LM:	 Yes, you have. You’ve changed in - in . . . just about every way. 

HC:	 Linda, if you, if you don’t, I haven’t changed a bit. Don’t make me change by 

runnin’ me through the . . . ringer every time I pick up the phone to call you. 

LM:	 I don’t . . . 

HC:	 . . . don’t make me dread calling you because I know it’s gonna be an 

emotional harangue. 

LM:	Well, nobody’s making you call me. 398 

f. The FBI Background Investigation 

On December 29, 1992, the Director of the FBI instructed the agency’s 

Washington Main Field Office (“WMFO”) to interview Cisneros in accordance with 

usual FBI protocols.399 Moreover, the WMFO was directed to gather information 

concerning any and all extramarital affairs Cisneros might have had, determining in 

particular the names of individuals with whom he was having or had had an affair, 

when each affair ended, and why it ended.400 The San Antonio Division was to 

interview each individual identified by the WMFO, confirming the facts about the 

duration of the affair and the reasons for the break-up, and further developing the 

WMFO’s list of identified affairs.401 

According to Cisneros employee John Rosales, on December 29, 1992, Medlar 

called and left a message for Cisneros, threatening that she would “have to take 

398 Medlar Tape Transcript Q-16 12/24/92 at 13-14. 

399 Routing Slip from FBI Director 12/29/92. 

400 Id. 

401 Id. 

IV-87 
action” if Cisneros did not return her call.402 Cisneros called Medlar on December 29, 

1992 and again on December 30, 1992.403 

FBI Special Agents interviewed Cisneros on December 30, 1992.404 The agents 

informed Cisneros that they were conducting a background investigation on him in 

connection with his nomination for HUD Secretary.405 They also told him that the 

purpose of the interview was to gather complete, current, and accurate information 

about him.406 The agents provided Cisneros a copy of his completed SF-86 and 

Supplement, and they asked him to review the documents and advise them of any 

changes.407 Cisneros told the agents that his disclosures on the forms were accurate 

and correct to the best of his knowledge and recollection.408 

Cisneros’s answers to the FBI’s questions differed in several material respects 

from those he had given the Transition Team. In discussing his affair with Medlar 

with the FBI, Cisneros made no mention of his past or ongoing payments to her.409 

Cisneros stated that he was unaware of anything that could, would, or should prevent 

him from receiving a position with the United States Government, or that could be 

used to coerce or compromise him if he were to receive a position.410 He also told the 

402 FBI-302 Rosales 12/31/92 at 2. 

403 Cisneros Event Chronology at 49 (12/29/92 call from Cisneros to the 

residence of Medlar’s mother for 4 minutes); Id. (12/30/92 call from Cisneros to the 

residence of Medlar’s mother for 20 minutes). 

404 FBI-302 Cisneros 12/30/92. 

405 Id. at 1. 

406 Id. 

407 Id. 

408 Id. 

409 Id. 

410 Id. at 2. 

IV-88 
FBI that Medlar was a “stable” individual and that he had had only one extramarital 

affair aside from his relationship with Medlar.411 

The FBI also interviewed Cisneros’s accountant, Luis Hernandez, on December 

30, 1992.412 Hernandez requested confidentiality, and the FBI reports refer to him as 

“SA T-1.”413 Hernandez told the agents that certain monies Cisneros had received 

from paid lectures had not been deposited into Cisneros’s business or personal 

accounts.414 Hernandez estimated that Cisneros had not deposited as much as $60,000 

per year and “considered the possibility” that the money might be going to Linda 

Medlar.415 Hernandez also noted that, as of November 1992, Cisneros was continuing 

not to deposit all of his lecture income.416 

Cisneros called Medlar after these interviews to tell her about his FBI interview 

and to alert her that the FBI would try to contact her; Medlar taped the conversation: 

HC:	 . . . I’m at the airport, and I am a little short, but, and I don’t want you to get 

upset, but I did want to tell you that the FBI came to see me today in the course 

of the regular investigation that they’re supposed to do. 

LM:	 Yeah. 

HC:	 And, uh (clears throat), they, uh, you know, asked me about us because we’re 

public and, uh, asked me a whole series of questions . . . th - the money was not 

raised, but it might be. Uh, they did talk about, uh, you know, kind of the date 

that it was, that it was public, and the date that you moved to Lubbock, and 

things like that. . . . And they’re gonna be trying to get a hold of you. And you 

should talk to ‘em. Uh, uh, they, you know, know that your mother’s name is 

Jones and so forth. I didn’t have her address, uh, and I don’t want ‘em to 

411 Id. at 3. 

412 FBI-302 Hernandez 12/30/92. 

413 Id. at 1. 

414 Id. at 2. 

415 Id. 

416 Id. 

IV-89 
bother you there, because I told ‘em that, you know, you were recovering from 

surgery and so forth, but they can easily get a telephone number. And, uh, it ­

it is the FBI after all. And, but it - it shouldn’t be anything, you know, you 

worry about or panic over or anything like that . . . uhm . . . . They, I - I, you 

know, you’re very mature about these things and, you know, under fire you 

handle ‘em well. Uhm, but I just needed to let you know that that will happen 

and when it comes, don’t - don’t panic. 

LM:	 Don’t panic? They didn’t say anything about the money? 

HC:	 No, but I - I - I talked to Sylvia, and she said that, uh, they talked to Louis 

Hernandez, who is an accountant, and asked him today whether, uh, he knew 

of any payments and, uh, he said no, he didn’t because he doesn’t. . . . He, I,

doesn’t get involved in that. He accounts with, he accounts for the money that 

we put into the . . . system, and the money that I help you with comes before 

that, comes out of that before it gets to him. 

LM:	 Uh-huh. 

HC:	 Uh . . . frankly, the line that I have been . . . holding to, you know . . . 

LM:	 Uh-huh. 

HC:	 . . . is - is - is - is, I think, the, the right answer. Uhm, I’ve made sure that they 

know that you were a private person, and wanted your privacy, and so forth. 

Uh, and - and let me just say that - that, how this works, just so you have a feel 

for it. The FBI was brought into this for executive level persons, for security 

reasons, uhm, that’s primarily what they’re interested in. Their report is not 

made available generally to the Committee, to the Senate, or anyone else. (UI) 

LM:	 Then why are they doing it? 

HC:	It is made available to, I think, the Chairman of the Committee, and that’s it. 

Uhm, and the Chairman of the Committee can, uh, then determine whether, you 

know, there is something problematic. Now, our good fortune is the Chairman 

of the Committee is a Democrat, it is Senator Riegle, who has had some very 

severe personal problems that were . . . abused by the press. He, uh, had a 

relationship, and, uh, a tape recording was made of a . . . a, literally a private 

conversation, intimacy, you know, lovemaking. 

IV-90

• • • 

LM:	 What did they ask you about us? 

HC:	 Well, they wanted to know, uh, uhm, roughly when, uhm, we were together . . . 

questions about dates, uhm, questions about your status. 

LM:	 What did you say there? 

HC:	 Well, that you were a private person living in Lubbock. Uh, but I think they 

just want us, uh, what they’re after is, uh . . . uh, evidence of stability . . . and ­

and blackmailability, those are two issues, words he used . . . you know, is this 

a, a stable person and also is there here the potential for blackmail which is 

what the money issue will come up. Uh, and, uh, I don’t think it’s gonna be a 

problem. But, you know, some people when you hear “F-B-I,” you know, all 

of a sudden panic, and I just think, you just need to know, stay as steady as you 

can. And but I felt I had to tell you about it just in case it happens as early as 

tomorrow. They’re, they’re at it now, and they’re gonna try to finish it . . . by 

. . . what’d they say? I forget, the seventh or something like that, so . . . 

LM:	 And what if they find out about the money? I mean, I’m just . . . asking. 

HC:	 Well, I . . . uhhh . . . they asked me whether I had told Clinton, and I told them 

that I had . . . in transition (UI).[417]

 I mean, you know, this is not a discovery 

we’re now making, uh, we’re not making some kind of a discovery here of any 

kind . . . Uhm, you know, about our, about the relationship, and, of course, it 

was public. Uh . . . what if they find out? . . . I don’t think there’s a problem, 

and I think I’m gonna, I will continue to . . . say what I’ve . . . said all along 

about this. 

LM:	 What’d you tell Clinton? . . . And you assured them that the relation-, did they 

ask you if you were still in contact with me? 

HC:	 I forget the words exactly, it wasn’t “in contact,” never mentioned “in contact” 

or anything like that, but it was something like . . . uh . . . you know, “Are you, 

417 According to the FBI report of this interview, the payments to Medlar were 

not actually discussed. FBI-302 Cisneros 12/30/92. 

IV-91 
• • • 

are you still seeing each other,” or something like that. I mean, it was, it was 

easy to say no, because it was the truth. 

LM:	 Okay. 

HC:	Don’t worry, please. 

LM:	 (Sighs) 

HC:	 Don’t worry, don’t worry. It’s uh . . . . I mean, number one, nothing’s gonna 

happen to you. Number two, if it happens to me, it’s my own doing, and I 

won’t let you get hurt, so . . . okay? 

LM:	 All right. 

HC:	 Thank you. 

LM:	 Thank me for what? 

HC:	 Just for being a . . . steady girl when, uh . . . like when we get into the 

clinches.418 

On December 31, 1992, the FBI interviewed three of Cisneros’s 

employees—Sylvia Arce-Garcia, John Rosales, and Maria Elena Delgado.419 These 

employees were familiar with Cisneros’s relationship with Medlar. Arce-Garcia had 

made payments to Medlar on behalf of Cisneros beginning in early 1992 by 

418 Medlar Tape Transcript Q-17 12/30/92 at 2-6. The next day, December 31, 

1992, Cisneros spoke with Medlar at least twice. Cisneros Event Chronology at 54 

(12/31/92 call from CISCOM to the residence of Medlar’s mother for approximately 

32 minutes); Id. (12/31/92 call from CISCOM to residence of Medlar’s mother for 

approximately 28 minutes). 

419 GJ 97-1 Tr. Delgado 11/24/97 at 19. 

IV-92 
transferring cash from Cisneros’s account to Medlar’s account.

420 Delgado had 

answered calls from Medlar and, following the instructions of her supervisors, 

transferred them to Arce-Garcia and Rosales regardless of whether Cisneros was 

available.421 On one occasion, she had overheard Arce-Garcia and Rosales discussing 

threats that Medlar had made to the effect that she would destroy Cisneros.422 

According to Delgado, Cisneros met with the three employees jointly before 

their FBI interviews. He told them that there was no need to tell the FBI about the 

payments to Medlar.423 In the same meeting, Arce-Garcia and Rosales reiterated this 

suggestion to Delgado.424 

The FBI then interviewed the three employees and, as Cisneros had instructed 

them, no one disclosed the payments to Medlar. When the FBI asked Arce-Garcia 

about Medlar directly, she denied having any knowledge of the payments and stated 

that she was not aware of any individuals receiving financial support from Cisneros, 

with the exception of his family.425 Rosales told the agents that he was not aware of 

Cisneros’s payments to Medlar, although he did say that Medlar told him that she 

would “have to take action” if Cisneros did not return her calls.426 Delgado did not 

mention the payments and told the FBI that she had no derogatory information about 

Cisneros.427 She later testified that she did not tell the FBI about Cisneros’s payments 

to Medlar because “it would hurt him.”428 

420 FBI-302 Arce-Garcia 2/16/95 at 4. 

421 GJ 97-1 Tr. Delgado 11/24/97 at 11; FBI-302 Arce-Garcia 2/16/95 at 5. 

422 GJ 97-1 Tr. Delgado 11/24/97 at 12-13. 

423 Id. at 19-20; GJ 97-1 Tr. Delgado 9/10/97 at 212-15. 

424 GJ 97-1 Tr. Delgado 11/24/97 at 20. 

425 FBI Investigative Insert Arce-Garcia 12/31/92 at 2. 

426 FBI-302 Rosales 12/31/92 at 2. 

427 FBI Investigative Insert Delgado 12/31/92. 

428 GJ 97-1 Tr. Delgado 9/10/97 at 212-214. Delgado was very reluctant to 

provide information about Cisneros. She was served with a grand jury subpoena but 

(continued...) 

IV-93 
Delgado also said that, after her interview, Arce-Garcia had asked her what she 

had told the FBI about Medlar and the payments.429 Delgado said she had told the 

FBI that she “didn’t know anything about that.”430 

On the same day as her FBI interview, Arce-Garcia completed an Application 

for Federal Employment (SF-171) for the position of Special Assistant to the 

Secretary of HUD.431 About two weeks later, Rosales completed an SF-171 for the 

position of Special Assistant to the Secretary of HUD.432 Both were subsequently 

hired.433 

The FBI also interviewed Cisneros’s friend, Frank Wing, on December 31, 

1992.434 Wing stated that Cisneros was a highly ethical person with excellent 

character.435 Wing described Cisneros as a very frugal individual who lived well 

428(...continued) 

filed a motion to quash it (GJ 97-1 Ex. 322) and failed to appear to testify. The OIC 

filed a motion asking that Delgado be held in contempt and opposing her motion to 

quash. The court issued an order directing her to show cause why she should not be 

held in contempt for failing to appear before the grand jury. Order to Show Cause 

8/28/97. When Delgado failed to appear at the show cause hearing, the court issued 

a bench warrant for her arrest. Warrant for Arrest of Witness Maria Elena Delgado 

9/4/97. Delgado then appeared before the grand jury and invoked her privilege 

against self-incrimination. GJ 97-1 Tr. Delagado 9/10/97 at 10. She was then 

compelled to testify pursuant to an order of immunity under 18 U.S.C. §§ 6002 and 

6003. See GJ 97-1 Ex. 333. 

429 GJ 97-1 Tr. Delgado 11/24/97 at 21. 

430 Id. at 21-22. 

431 Arce-Garcia SF-171 12/31/92. 

432 Rosales SF-171 1/19/93. 

433 GJ 97-1 Tr. Delgado 9/10/97 at 65-66. 

434 FBI-302 Wing 12/31/92. 

435 Id. at 1. 

IV-94 
within his financial means.436 Wing was later hired as Cisneros’s Senior Advisor at 

HUD.437 

The FBI assigned the task of interviewing Medlar to its Dallas Division.438 On 

January 1, 1993, the FBI contacted Medlar’s mother regarding an interview with 

Medlar.439 She advised them that Medlar was recovering from major surgery and had 

been instructed by her doctors to rest for a minimum of six weeks.440 She further 

stated that Medlar’s mental and nervous condition was extremely poor and that the 

FBI should not attempt to contact Medlar until January 8, 1993 or, preferably, at the 

end of her six-week recovery period.441 

The FBI interviewed Cisneros’s marriage counselor, Dr. Robert Jimenez, on 

January 5, 1993.442 Jimenez stated that he began counseling Cisneros and his wife 

once Cisneros’s affair with Medlar became public.443 He said that Cisneros’s 

marriage had survived several separations and as many as four to six “one night 

stands” by Cisneros.444 Jimenez further stated that the Cisneroses had made a 

decision to make the marriage work and that Cisneros’s wife was determined to 

436 Id. 

437 Wing SF-85P 1/23/93; FBI-302 Wing 1/2/95 at 1. Wing’s application was 

expedited so that he could report to HUD on February 1, 1993. Note from Walker to 

Vobis 1/23/93 (asking Vobis to “rush this and grant interim clearance” for Wing). 

438 FBI Teletype 12/31/92. 

439 FBI Memorandum 1/6/93. 

440 Id. 

441 Id. 

442 FBI-302 Jimenez 1/5/93. Cisneros and his wife had signed an Authority to 

Release Medical Information on January 4, 1993. Id. 

443 Id. at 1. 

444 Id. at 1-2. 

IV-95 
support his political career.445 The FBI report of Jiminez’s interview contained no 

information concerning Cisneros’s payments to Medlar.446 

In November 1996, Cisneros’s attorney Cono Namorato informed the OIC that 

he had interviewed Jimenez, whom he deemed a “very credible witness.” According 

to Namorato, Jimenez claimed that during Cisneros’s background investigation he 

(Jimenez) had told the FBI the exact amount that Cisneros had paid to Medlar.447 

Namorato said that he had seen Jimenez’s notes concerning the interview and 

characterized them as very interesting.448 

The OIC obtained Jimenez’s files concerning Cisneros and his wife Mary 

Alice, and subsequently interviewed him. Jimenez told the OIC that, during one of 

her counseling sessions, Mary Alice had told him that Cisneros had paid Medlar 

between $200,000 and $400,000, and that the payments amounted to approximately 

$4,000 per month.449 Jimenez was unable to recall when Mary Alice had told him 

this.450 According to Jimenez, Mary Alice had supposedly learned of the payments 

through telephone calls with individuals whose identities were unknown to him, some 

of them complete strangers to Mary Alice.451 

According to Jimenez, after the FBI interviewed him on January 5, 1993, he 

made notes of the interview. Jimenez showed these notes to the OIC.452 They 

445 Id. at 2. 

446 Id. at 1-4. 

447 OIC Memorandum of Meeting with Defense Counsel 11/26/96 at 2. 

448 Id. 

449 OIC Interview Report Jimenez 7/11/97 at 8. 

450 Id. 

451 Id. 

452 Id. at 17. 

IV-96 
indicate that Jimenez had told the FBI that Mary Alice knew about the payments to 

Medlar.453 

Although Jimenez produced to the OIC notes for two joint therapy session 

conducted with Cisneros and Mary Alice,454 he did not produce notes of any 

counseling sessions which on their face or by his characterization related only to 

sessions with Mary Alice. He did not produce any notes of counseling sessions 

referencing the payments. Jimenez claimed that no notes were taken at many of the 

interview sessions with her because they were informal.455 

One page of Jimenez’s notes did bear the following notations: 

Session directed L. Medlar . . . payment of 4000 Medlar discussed 

(unintelligible). Mary Alice suspects major amounts $300,000 already 

had to do it obligated can’t get job ruined because office ostracized 

(unintelligible) (unintelligible) earned it no burden to them.456 

These notes follow other notes of a counseling session Jimenez had with Cisneros. 

There is no other indication of who the source of this information was, nor is there 

any indication of when the session occurred or when Jimenez made the notes. The 

report of Jimenez’s OIC interview reflects no information offered by Jimenez 

concerning these entries.457 

The OIC also interviewed Homero Rivera and Michelle Castor, the FBI Special 

Agents who had interviewed Jimenez. Castor stated that the FBI-302 memorializing 

the Jimenez interview—which has no reference to Cisneros’s payments to 

Medlar—was accurate.458 Both agents confirmed that Jimenez did not take notes 

453 Id. 

454Id. at 13, 15. 

455 Id. at 18. 

456 Id. at 16. 

457 Id. 

458 OIC Interview Report Castor 12/18/96 at 2. 

IV-97 
during the interview.459 They reported that Jimenez did not state in the interview that 

Cisneros had been making payments to Medlar,460 and never specifically stated that 

Cisneros had paid Medlar $200,000 to $400,000.461 Rivera told the OIC that such a 

revelation would have been a “major red flag”;462 Castor said that it would have been 

“a major find.”463 Both said that, if Jimenez had told them about Cisneros’s payments 

to Medlar, they would have included it in the FBI-302 and would have notified their 

supervisor.464 

Also on January 5, 1993, the FBI interviewed Cisneros’s trusted employee and 

confidante, Alfred Ramirez.465 Ramirez told the FBI that he did not know any 

derogatory information about Cisneros466 and that, except for the affair with Medlar, 

he had no information about Cisneros’s private or public life that would jeopardize 

Cisneros’s appointment or embarrass the United States government.467 When the FBI 

attempted to probe Ramirez further about his knowledge of the affair with Medlar, 

he declined to make further comment and stated that any other questions regarding 

the affair should be directed to Cisneros.468 

459 Id.; OIC Interview Report Rivera 12/18/96 at 2. 

460 OIC Interview Report Castor 12/18/96 at 3; OIC Interview Report Rivera 

12/18/96 at 3. 

461 OIC Interview Report Castor 12/18/96 at 3; OIC Interview Report Rivera 

12/18/96 at 3. 

462 OIC Interview Report Rivera 12/18/96 at 3. 

463 OIC Interview Report Castor 12/18/96 at 3. 

464 OIC Interview Report Castor 12/18/96 at 3; OIC Interview Report Rivera 

12/18/96 at 3. 

465 FBI-302 Ramirez 1/5/93. 

466 Id. at 2. 

467 Id. at 3. 

468 Id. at 4. 

IV-98 
On January 6, 1993, the FBI conducted a second interview of Luis Hernandez, 

Cisneros’s accountant.469 Hernandez said that he had heard gossip in Cisneros’s 

office that payments were being made to Medlar in 1992.470 Hernandez stated that the 

gossip was prompted by some of Medlar’s calls to the office, and that the last call of 

which he was aware had come into Rosales’s office on about December 30, 1992.471 

Hernandez said that he had noticed withdrawals of $2,000 per month from Cisneros’s 

deposits, at least through October 1992.472 He also indicated he believed that the 

accounting methods used by Cisneros’s former accountant, Rene Gonzalez, were too 

risky and questionable.473 

The FBI reinterviewed Hernandez the next day, January 7, 1993.474 Hernandez 

reiterated that Cisneros regularly withheld $2,000 per month from deposits to his 

account, and stated that, on some occasions, Cisneros had withheld as much as $4,000 

to $6,000.475 (After Hernandez’s first interview with the FBI, Cisneros had told 

Medlar: “[Hernandez] doesn’t get involved in that. He accounts with, he accounts for 

the money that we put into the . . . system, and the money that I help you with comes 

before that, comes out of that before it gets to him.”476) Hernandez claimed, however, 

that there was “nothing unusual or improper” about these transactions because 

Cisneros paid income tax on all money that came into the business.477 Hernandez also 

469 FBI-302 Hernandez 1/6/93. 

470 Id. at 1. 

471 Id. 

472 Id. 

473 Id. at 2. 

474 FBI-302 Hernandez 1/7/93. 

475 Id. 

476 Medlar Tape Transcript Q-17 12/30/92 at 3. 

477 Id. 

IV-99 
stated that he was aware that gifts in excess of $10,000 in a year were subject to gift 

tax requirements but that he had never discussed the gift tax with Cisneros.478 

The FBI also reinterviewed Cisneros’s employee John Rosales on January 6, 

1993.479 Rosales had answered several telephone calls from Medlar to Cisneros at 

CISCOM.480 Rosales advised that the calls from Medlar never indicated a sense of 

urgency or antagonism.481 (Rosales had previously told the FBI that Medlar had 

called CISCOM on December 29, 1992, and that he recalled her saying that if 

Cisneros did not return her call she would “have to take action.”482) Rosales said that 

he did not keep a written record of Medlar’s calls or of any messages that she left.483 

Cisneros and Medlar were in frequent telephone contact while the FBI 

conducted the background investigation. On January 4, 1993, Cisneros paid Medlar 

$4,000. On the same day, Medlar and Cisneros had a phone conversation that Medlar 

recorded. During this call, Cisneros expressed his concern over the FBI’s ongoing 

background investigation: 

HC: Yeah, okay. Uhm . . . oh boy, . . . it’s gonna be dicey. 

LM: Why is it gonna be dicey? 

HC: The FBI’s crawling all over everything. 

LM: The what? 

HC: The FBI. 

LM: What are they crawling all over? 

478 FBI-302 Hernandez 1/7/93. 

479 FBI-302 Rosales 1/6/93 at 1. 

480 Id.; see also FBI-302 Rosales 12/31/92 at 2. 

481 FBI-302 Rosales 1/6/93. 

482 FBI-302 Rosales 12/31/92 at 2. 

483 FBI-302 Rosales 1/6/93 at 1. 

IV-100 
HC: Well, the business about whether or not . . . money was paid, and so forth.


LM: Who are they talking to?


HC: Well, talking to just about everybody I’ve ever known in my life.


LM: Well, then how do you know that, they haven’t talked to me, so how do you


know they’re . . . 

HC: They haven’t talked to you? 

LM:	 No.484 

Medlar told Cisneros that the FBI had tried to contact her but that her mother 

had told the FBI that she could not be interviewed: 

LM: Uh, but they haven’t talked to me. They called and Mother told (UI) . . . 

HC: That was when? 

LM: Uhh. 

HC: Over the weekend? 

LM: It was, the - the first. It was the . . . 

HC: The first? 

LM: Yeah, it was on Friday, the first, and, I was asleep and she . . . 

HC: They will. They’ll talk to you. 

LM:	 . . . she told them in, in no uncertain terms that I had just had surgery, and she 

didn’t feel it was appropriate that they call. I mean, that’s exactly what she 

told them. 

HC:	 (Chuckles) 

484 Medlar Tape Transcript Q-19 12/2/92 at 1-2. 

IV-101 
LM: And she was really upset about it. 

HC:	 Yeah.485 

Medlar and Cisneros also discussed how the FBI had learned about the 

payments: 

LM:	 . . . So, I mean, they haven’t talked to me, so where would they be getting the 

thing about the money? 

HC:	 I don’t know. I truly don’t know. 

LM: Well, what had, what has been said? 

HC: Well (sigh), they had a meeting, for example, with one of the lawyers today 

from the transition. And they said, “Well, what - what can you tell us about, 

you know, the payments. Uh, you know, amount or frequency or whatever,” 

you know, and . . . and uh, it was as if they knew, and they were just trying to 

confirm, you know, with other people. 

LM: Umm. No, they haven’t even talked to me. 

HC: Yeah. (UI) 

LM: And probably they won’t. 

HC: I don’t know whether the FBI can look at your bank records without you even 

knowing that they are? I just don’t know. 

LM: I don’t think so. 

HC: Yeah. 

LM: I think that’s an invasion of privacy. Now, they can probably look at yours. 

HC: Yeah. 

485 Id. at 3-4. 

IV-102 
LM: But I don’t think they can look at mine.


HC: Okay.


LM: Because that’s an invasion of privacy, I mean, I can . . .


HC: I put the money in there personally today for the month.


LM: I could go . . .


HC: And I’m working on the other. But the, but your money for the month is there,


so, if you have to pay bills the next few days or whatever.486 

The conversation then turned to how Medlar should deal with the FBI: 

LM: You know . . . but, uh, I - I really, unless the FBI just makes me talk to them, 

I’m not gonna talk to them. I really and truly don’t understand why it would 

have anything to do, you know, unless, unless, they were trying to get me to 

say something about you, I mean . . . 

HC: You know, I think you might be, you can get away with that. 

LM: I’m going to.487 

Cisneros then expressed concern that the contents of the FBI Background 

Investigation Report would have an adverse impact on his upcoming Senate 

confirmation hearing: 

LM: The hearing, are you nervous about this hearing?


HC: Yep. (Laughs)


LM: Why? I - I didn’t, I - I had heard, maybe on TV, I said, I guess CNN, that they,


you’re not one of the ones they’re goin’ after . . . 

486 Id. at 4-5. 

487 Id. at 13. 

IV-103

HC:	 Well, when they get the FBI report . . . 

[488] LM: . . . goin’ after Ron Brown.


HC: . . . when they get the FBI report, it’s all gonna change.


LM: They’re goin’ after Ron Brown.


HC: When they get the FBI report on Thursday . . . 


LM: Uh-huh.


HC: . . . it will all change. 

LM: I thought only the Chairman got it. 

HC: Yep, that’s true but . . . uh, I ‘spect, I ‘spect if there’s something questionable 

(clears throat), that he has to bring in the minority . . . ranking member, and . . . 

you know, it’s just a question how they wanna interpret it. 

LM: You know, I also don’t understand that. How on earth can they ask you 

questions if they haven’t seen the FBI report? 

HC: Well, they’re asking policy questions for the most part . . . . I think, well, we’ll 

see, my life’s gonna become a little bit more complicated . . . by about Friday 

of this week. 

LM: Why? 

HC:	 Because that’s when the Chairman will have reviewed the report and feel 

compelled to . . . you know, maybe put a hold on this or something.489 

488 Brown was President Clinton’s nominee to be Secretary of Commerce. 

Statement on the Nomination of Ron Brown 1/21/93, 139 Cong. Rec. S164-02. 

489 A “hold” describes a Senator’s request to the Senate Majority Leader that 

a nomination not be considered on the Senate floor. (Holds are not part of the 

Senate’s written rules or standing orders.) The Majority Leader need not honor the 

(continued...) 

IV-104 
LM: And if he doesn’t, then do you feel comfortable with it?


HC: No, no, ‘cause, you know, I mean, it can leak at any time, you know.


LM: Leak what?


HC: To the press.


LM: Ab-, about the payments you mean? Is, is this all you’re talk-, is that what


you’re talking about? 

HC: Yeah. Mm-hmm. Yeah. 

LM: And you think because the FBI has asked something about it . . . . Well, they 

asked your own staffer about it, didn’t they? 

HC: Right. 

LM: So, it’s not . . . so, this is, I mean, this isn’t something that just came up? 

HC: No, they shouldn’t be acting surprised about it, but . . . we’ll see. 

LM: Who shouldn’t be acting surprised? 

HC: The FBI. 

LM: Well you said that the guy, and I’ve forgotten his name . . . . Who’s the 

Chairman of the Committee? 

HC: Riegle? 

LM: . . . yeah, had had personal problems. 

HC: Big time. 

489(...continued) 

Senator’s request, but is put on notice that the Senator may filibuster any motion to 

consider the nomination. See U.S. Senate Website; Glossary Definition of “Hold” 

<http://www.senate.gov/reference/glossary_term/hold.htm>. 

IV-105 
LM: And so, you don’t feel like he’ll bring up any of that. 

HC: Well, I don’t think he will, he’s a Democrat. 

LM: Well, then who else could, if nobody else gets the FBI report? 

HC: Uh, the - the, that’s a good point. But, but, I guess, if there’s something truly 

questionable, he’s honor-bound, probably, to share it with like the ranking 

minority member, you know. 

LM: (Laughs) Henry, I have a little bit of a problem with that, “he’s honor-bound?” 

HC: Hmm. 

LM: You really believe that? 

HC:	 I don’t know, I just truly don’t know how - how, I - I’ll, I have to find out more 

about, how, what, what exactly he would do, if he had, if there was something 

in there that, you know, he felt he had (UI). 

LM: How do you know nobody else sees that report? 

HC:	 Well, it’s the way it’s supposed to work. But that’s not the way it worked with 

- with Tower,[490] they kept leaking pieces, you know? 

LM:	 You know, I absolutely cannot believe that the other members don’t see that 

report. 

HC:	 They don’t.491 

Cisneros then reviewed with Medlar what he was going to tell the FBI about 

the payments if he was asked: 

490 This refers to former Senator John Tower, whom the Senate failed to 

confirm as Secretary of Defense in 1989 amid allegations of misconduct. See GJ 97­

1 Ex. 395. 

491 Medlar Tape Transcript Q-19 12/2/92 at 15-18. 

IV-106 
• • • 

LM: So, when is the FBI gonna come back to you, first of all?


HC: Probably Wednesday.


LM: Wednesday?


HC: I would think so.


LM: And do you think they’ll ask you anything on that?


HC: Mhm-hmm . . . .

LM: All right. You’re going to tell them the same thing?


HC: What we, what - what we spoke before.


LM: All right, well, I need to know what is said.


HC: Okay. You can reach me at the Jefferson [Hotel in Washington, D.C.] if you


need me, okay? 

LM: Yeah, okay. 

HC: And if that gets, if it’s, if it’s in the middle of the day, and I’m not here from 

morning to night . . . then the transition . . . and I don’t have the number, but 

Sylvia [Arce-Garcia] or John [Rosales] will have it.492 

Cisneros then emphasized to Medlar the trust he was placing in her: 

HC: I’ll call you tomorrow. 

LM: All right. 

HC: Okay. 

492 Id. at 23-24. 

IV-107 
LM: But we’re straight on everything, right?


HC: I think so. 


LM: Until after this hearing or what?


HC: No, no, no, no, no.


LM: And if I don’t talk to the FBI, there’s no downside to that, is there?


HC: Uh, no.


LM: You’d really prefer that I didn’t.


HC: I - I want you, uh, I’m gonna tell you something you’re not gonna believe here.


I trust you, I trust your judgment, I trust you. After all we’ve been through and 

everything that’s been said, I think you’re an intelligent . . . person. I trust you 

with my life. 

LM: No, I wouldn’t go that far. 

HC: Well, this is my life. It’s on the line. If they knock me out, man I am wiped. 

All that board stuff I was gonna do, . . . the company, I probably need to divest 

anyway . . . become a liability there, I mean, I am wiped. I might as well cash 

in everything I’ve got, pay off all my bills, and just . . . get outta town.493 

Finally, Medlar and Cisneros again discussed the upcoming Senate 

confirmation hearing, and his anxiety about the proceedings:


LM: . . . and then the only reason that they would wanna get in touch with me is to


see if I would confirm it. Is the only thing I can figure out. Right? 

HC: Yeah. 

LM: But if they, if it comes up in hearing, and you fade it, then it’s all right. Or if 

it comes up, if it doesn’t come up at all, then you feel comfortable, right? 

493 Id. at 31-32. 

IV-108

• • • 

HC: That’s right. 

LM: Then the Senate . . . cannot go back and ask anymore questions, right? 

HC: Oh, yeah. That’s why I say I’m not asking anybody to make any moves . . . 

until the Senate actually votes. 

LM: Well, when will you go up there? 

HC: Well, I’ll be in and outta there. And then I’m suppose to go to work the 

morning of the twenty-first as Acting, even if I’m not confirmed by the Senate 

yet. 

HC: Yeah. Okay. I’m gonna let you go, and I’ll talk to you tomorrow. 

LM: All right. 

HC: Get some rest, you need the rest. 

LM: (Laughs) I need all of this to be over with. 

HC: Uhm-hmm. Me, too. Believe me nobody is wrestling with this more than, my 

stomach’s upset, I feel like I got a knot, and I feel like quitting about every few 

. . . few hours. 

LM: But you won’t. . . . 494 

On January 7, 1993, because of the inconsistencies in the information it had 

received from Cisneros, his staff, and Hernandez, the FBI decided to interview 

Cisneros for a second time.495 In the FBI memorandum directing the interview, the 

interviewing agents were instructed to: 

494 Id. at 33-35. 

495 FBI Routing Slip 1/7/93 (instructing agent to reinterview Cisneros). 

IV-109 
Advise Mr. Cisneros that he should be completely candid during this 

interview, that he should provide any information not previously 

provided, and that if there is any other information such as other affairs, 

payments made to any other individuals, etc., that it would be in his best 

interest to come forth with that information now.496 

The agents were also instructed to ask Cisneros about whether he was making or had 

ever made payments to Medlar, the amount of the payments, his last contact with 

Medlar, Medlar’s threats to him, his wife’s knowledge of the payments, the reasons 

his wife filed for divorce, and his other extramarital affairs.497 

In this interview, Cisneros acknowledged to the FBI that he had financially 

“assisted” Medlar, but he claimed, as he had earlier agreed with Medlar, that he had 

never paid her more than $10,000 in a single year or more than $2,500 at any one 

time.498 He also claimed that he had paid taxes on all of his salary from his 

speechmaking,499 and stated that he understood that the gift tax laws would apply to 

any payments to Medlar that exceeded $10,000 annually.500 

In reality, Cisneros had paid Medlar approximately $189,000 between January 

1990 and January 7, 1993. His total annual payments had exceeded $10,000 in 1990 

($44,500), 1991 ($73,000), and 1992 ($67,500). Twenty-eight of the 64 payments he 

had made had exceeded $2,500 – the last of these occurring on January 4, 1993, just 

three days before Cisneros’s second FBI interview. 

Payments from Cisneros to Medlar in Excess of $2,500 

January 1990-January 7, 1993 

Payment Date Payment Amount 

February 1, 1990 $3,000 

496 FBI Routing Slip 1/7/93 at ¶ 1.


497 Id. at ¶¶ 3-15.


498 FBI-302 Cisneros 1/7/93 at 2.


499 Id. at 1.


500 Id. at 2.


IV-110 
Payment Date Payment Amount 

May 31, 1990 $4,500 

June 29, 1990 $3,000 

September 13, 1990 $3,000 

October 5, 1990 $4,000 

October 12, 1990 $5,100 

November 1, 1990 $3,000 

December 4, 1990 $4,000 

December 8, 1990 $4,000 

January 9, 1991 $6,000 

February 2, 1991 $4,000 

February 26, 1991 $12,000 

April 17, 1991 $4,000 

April 18, 1991 $4,000 

May 1, 1991 $4,000 

May 31, 1991 $4,000 

July 3, 1991 $4,582 

August 2, 1991 $4,000 

October 2, 1991 $4,500 

November 5, 1991 $3,925 

December 2, 1991 $4,000 

March 2, 1992 $3,000 

May 5, 1992 $4,000 

August 3, 1992 $4,000 

December 3, 1992 $4,000 

IV-111

Payment Date Payment Amount 

December 16, 1992 $8,000 

December 18, 1992 $8,000 

January 4, 1993 $4,000 

Cisneros also told the agents that he did not make the payments on a regular 

basis,501 and that he was not then making payments to Medlar.502 He asserted that 

Medlar had never threatened, coerced, or otherwise tried to obtain money from him,503 

and that the payments were not “hush money.”504 He said that he had not had any 

substantive conversations with Medlar since early 1991.505 He maintained that he had 

had only one affair with a woman other than Medlar.506 Cisneros also assured the FBI 

agents that his payments to Medlar had been fully discussed at the highest levels of 

the Clinton Transition Team.507 

The FBI contacted Medlar on January 8, 1993.508 She told them that she had 

recently undergone major surgery and was neither physically nor emotionally capable 

of being interviewed at that time, and that she did not understand why she should 

answer any questions from the FBI.509 She then requested that the FBI not contact her 

501 Id. at 1. 

502 Id. at 2. 

503 Id. 

504 Id. at 1. 

505 Id. at 3. 

506 Id. at 3, 4, 5. 

507 Id. at 1. 

508 FBI-302 Medlar 1/8/93. 

509 Id. at 1. 

IV-112 
again concerning Cisneros.510 Medlar’s rebuff of the FBI was preceded by at least 

two calls from Cisneros on the same day.511 

The FBI interviewed Cisneros’s wife Mary Alice Cisneros on January 8, 

1993.512 She informed the FBI that she was aware that Cisneros had paid money to 

Medlar on various occasions in the past and stated that Cisneros may still be giving 

money to Medlar.513 Mrs. Cisneros specifically recalled that Cisneros gave Medlar 

$8,000 so that Medlar could move to Lubbock, Texas.514 Mrs. Cisneros stated that 

her husband paid Medlar out of sympathy and because Medlar claimed that she could 

not get a job.515 Mrs. Cisneros disclosed that she filed for divorce in October 1991 

but then withdrew the divorce petition when her husband decided “to stand by his 

moral upbringing and stay with his family.”516 Mrs. Cisneros also stated that she was 

aware of the fact that Cisneros had had more than two extramarital affairs in the 

past.517 

On January 15, 1993, Cisneros and Medlar had a taped telephone conversation 

regarding Mrs. Cisneros’s FBI interview: 

LM: And what did she say to them? 

510 Id. 

511 Cisneros Event Chronology at 70 (1/8/93 call from Cisneros/Jefferson Hotel 

to residence of Medlar’s mother at 12:12 AM for 10 minutes); Id. (1/8/93 call from 

Cisneros/Jefferson Hotel to residence of Medlar’s mother at 8:24 AM for six 

minutes). 

512 FBI-302 Mary Alice Cisneros 1/8/93. 

513 Id. at 1-2. 

514 Id. at 1. Mrs. Cisneros stated that this payment was preceded by Medlar 

appearing at the Cisneros home at 1:00 AM in April 1991. When she answered the 

door, Medlar said “We’ve got to talk,” and the Cisneroses and Medlar then had a 

“meeting.” Id. 

515 Id. at 2. 

516 Id. at 1. 

517 Id. 

IV-113 
HC:	 She . . . played along like she knew. And, ah . . . because she knew that if she 

didn’t, it would be blackmail. 

LM:	 What do you mean it’d be blackmail? 

HC:	 Their main concern about the money . . . was that there was illegality involved. 

That - that you were . . . would be threatening me with something, and that’s 

why I was giving you the money. 

LM:	 Uhm-hmm. 

HC:	 So that, and the main thing would be disclosure to spouse and so forth. And, 

also I guess, you know, just generally. So, uhm, you know, she understood that 

and had to acknowledge that she knew . . . so that it wouldn’t have been cast 

as an illegal thing.518 

g.	 Transition Team Reaction to the FBI Report 

On January 11, 1993, Transition Team Counsel Hamilton received a copy of 

the FBI’s summary memorandum containing the results of the Cisneros background 

investigation (“FBI Report”).519 The summary memorandum expressly incorporated 

the reports of Cisneros’s FBI interviews.520 Copies of the FBI reports of the Cisneros 

interviews and the Hernandez interview, among other things, were enclosed with the 

summary memorandum. 

The reports of Cisneros’s FBI interviews reflected his misstatements to the 

interviewing agents about the frequency and amount of his payments to Medlar, the 

number of his extramarital affairs, and his view of Medlar’s mental stability.521 Some 

of the information in the interview reports was inconsistent with information known 

to Hamilton and other Transition Team members. For example, Transition Team 

documents reflect that Cisneros advised them that he had paid Medlar approximately 

518 Medlar Tape Transcript Q-20 1/15/93 at 4. 

519 GJ 97-1 Ex. 375 at 41010462. 

520 GJ 97-1 Ex. 375 at 41010477. 

521 See GJ 97-1 Ex. 375 at 41010497, 41010499-503. 

IV-114 
$2,500 per month for about three and one-half years.522 Moreover, according to 

Hubbell, Cisneros told him that he had, on at least one occasion paid Medlar the sum 

of $15,000.523 In contrast, according to the report of Cisneros’s January 7, 1993 FBI 

interview attached to the FBI Report, he claimed never to have given Medlar more 

than $2,500 at a time or $10,000 in a single year.524 Similarly, Cisneros indicated to 

the Transition Team that Medlar was unstable, but the FBI interview report attached 

to the FBI Report indicated that Cisneros had said that she was stable.525 

The FBI Report itself does not contain Cisneros’s false statements; the 

enclosed and incorporated interview reports do. The Report does, however, relate the 

comment from Cisneros’s accountant, Luis Hernandez (who is not identified in the 

Report because he had requested confidentiality), that he had perceived that about 

$60,000 per year of Cisneros’s lecture income was not being deposited in Cisneros’s 

personal or business bank accounts.526 The report states that Hernandez speculated 

that these funds might be going to Medlar.527 

Hamilton reviewed the FBI Report when he received it.528 Testifying before 

the grand jury, Hamilton did not recall what parts he had read carefully but 

acknowledged that he likely had read the references to Medlar and the payments.529 

He further testified that he could not recall whether he had noticed any 

inconsistencies between the FBI Report, with its attachments, and the information 

522 Hubbell notes at 4, 6. 

523 GJ 97-1 Tr. Hubbell 10/23/97 at 130. 

524 GJ 97-1 Ex. 375 at 4101500. 

525 Arky notes at 4 (noting Medlar was “unstable”); GJ 97-1 Tr. Arky 10/2/97 

at 122 (indicating that Medlar was “mentally unstable”); GJ 97-1 Ex. 375 at 4101497. 

526 GJ 97-1 Ex. 375 at 41010466. 

527 GJ 97-1 Ex. 375 at 41010466. 

528 GJ 97-1 Tr. Hamilton 11/12/97 at 177-78. 

529 GJ 97-1 Tr. Hamilton 11/12/97 at 178. 

IV-115 
Cisneros had given the Transition Team.530 Hamilton acknowledged that the 

information he had been provided by the vetting team regarding the payments was, 

in and of itself, inconsistent.531 He further acknowledged that, if the payments had 

been $60,000 per year, his concern would have been increased, and he might have 

reported the matter to Christopher.532 

Hamilton told the OIC grand jury that he wanted “everyone in the decisionmaking process to know about the payments,”533 and that the decisionmakers included 

Clinton, Gore, Christopher, and the FBI.534 He also testified that he would have been 

concerned if he thought that a candidate was lying to him about anything.535 

Hamilton’s deputy, Gary Ginsberg, also reviewed the FBI Report in early 

January 1993. Ginsberg testified that the reporting of Cisneros’s payments to Medlar 

“did stick out” and was “certainly going to make you question the contents.”536 

Furthermore, Ginsberg testified that he considered the payments to be a “significant” 

issue.537 

Ginsberg testified to the grand jury that it was his regular practice to discuss 

the contents of FBI reports with Hamilton, particularly when the reports raised 

sensitive questions.538 Ginsberg presumed that he discussed the Cisneros FBI Report 

530 GJ 97-1 Tr. Hamilton 11/12/97 at 179-80, 182-83, 188-90, 192-93, 196-97. 

531 GJ 97-1 Hamilton Tr. 11/12/97 at 192, 194. 

532 Id. at 201-03. 

533 Id. at 110. 

534 Id. at 110, 114-15. 

535 Id. at 204. 

536 GJ 97-1 Tr. Ginsberg 10/7/97 at 64-65. 

537 Id. at 76. 

538 Id. at 65-66. 

IV-116 
with Hamilton insofar as it related to Medlar and the payments.539 Ginsberg testified 

that he might have called Hamilton to relay information about the payments contained 

in the Report, only to find out that Hamilton already knew about it.540 

Ginsberg met with Cisneros to review the contents of the FBI Report.541 

Ginsberg testified that Arky was also present while he briefed Cisneros on the 

contents of the Report.542 According to Ginsberg, the meeting was memorable to him 

because Cisneros was visibly agitated and nervous.543 As a result, Ginsberg was able 

to recall the meeting in detail, including the timing of the meeting and the location 

of Cisneros and Arky in the room when he gave the briefing.544 

Ginsberg testified that he orally read or summarized the relevant portions of the 

Report during the meeting.545 Ginsberg testified that the briefing he gave Cisneros 

most likely included the details and specifics in the Report relating to Medlar and the 

payments.546 He told the grand jury that he assumed he went over everything in the 

Report relating to the payments.547 He also testified that it would have been his 

normal practice to convey this type of information and that he had no reason to 

539 Id. at 65. 

540 Id. at 75. 

541 Id. at 64, 66. 

542 Id. at 67. Arky had assumed the role of assisting Cisneros with scheduling 

in preparation for his confirmation hearings. GJ 97-1 Tr. Arky 10/16/97 at 92. 

Following Cisneros’s confirmation, she took a job as his Special Assistant at HUD 

and was later made his Deputy Assistant in HUD’s Congressional Affairs Office. GJ 

97-1 Tr. Arky 10/2/97 at 130. She worked at HUD until June 1995. Id. at 133. 

543 GJ 97-1 Tr. Ginsberg 10/7/97 at 72. 

544 Id. at 67-68, 70. 

545 Id. at 67-68. 

546 Id. at 68-69, 76. 

547 Id. at 79-80. 

IV-117 
believe that he deviated from that practice in the meeting with Cisneros and Arky.548 

Ginsberg acknowledged before the grand jury that the information he related could 

have included an FBI estimate of $60,000 in total payments (which Cisneros 

mentioned to Medlar in a taped telephone conversation on January 15, 1993).549 

Ginsberg also identified Hamilton as a possible source of the $60,000 reference.550 

Arky testified that she “assumed [the information regarding the payments] 

would be disclosed to the FBI as it was disclosed to [the vetting team] and that it 

would be in the FBI report and part of the confirmation process.”551 During the 

vetting process, Cisneros had told Arky that he had paid Medlar approximately 

$30,000 a year over a three and a half year period.552 Therefore, if Ginsberg followed 

his regular practice of going over the specifics in an FBI Report, and relayed the 

$60,000 figure during his briefing, Arky would have known that the FBI Report 

contained information that was inconsistent with what Cisneros had told the vetters. 

Arky disclaimed any knowledge of the inconsistencies and said she did not 

know what Cisneros told the FBI.553 Contrary to Ginsberg’s detailed recollection of 

the meeting, Arky claimed that she was not present when Ginsberg read or 

summarized the contents of the Report.554 Furthermore, according to Arky, Ginsberg 

specifically stated that it would be inappropriate to tell her what was in the FBI 

Report.555 

Hamilton authorized the FBI to release the Report to the Personnel Security 

Office of the DOJ (“DOJ-PSO”) to determine whether to grant Cisneros a security 

548 Id. at 68-69. 

549 Id. at 69-70; Medlar Tape Transcript Q-20 1/15/93 at 6. 

550 GJ 97-1 Tr. Ginsberg 10/7/97 at 70. 

551 GJ 97-1 Tr. Arky 10/16/97 at 66. 

552 FBI-302 Arky 12/20/94 at 2; Arky notes (with entry: “$2,500 for 3 1⁄2 yrs – 

high side”). 

553 GJ 97-1 Tr. Arky 11/20/97 at 11-12, 36. 

554 GJ 97-1 Tr. Arky 11/20/97 at 9-10. 

555 Id. at 10-11. 

IV-118 
clearance.556 Cisneros anticipated this use of the FBI Report; on December 30, 1992, 

he told Medlar: “The FBI was brought into this for executive-level persons, for 

security reasons, uhm, that’s primarily what they’re interested in.”557 Thus, the FBI 

was unaware of what Cisneros had told the Transition Team and, therefore, did not 

know that his statements to the Transition Team conflicted with the information in 

the Report. The FBI furnished the Report to DOJ-PSO on January 14, 1993 unaware 

that it was inconsistent with the enclosed and incorporated interview reports and with 

the information Cisneros had given the Transition Team. 

Dominic Jerry Rubino, the DOJ-PSO official responsible for making the 

ultimate decision on Cisneros’s security clearance, told the OIC that he would not 

have granted clearance to Cisneros if he had known that Cisneros had intentionally 

lied to the FBI – at least not without getting further information.558 Rubino indicated 

that Cisneros’s lies to the FBI regarding when he had spoken to Medlar and how 

much he had paid her would have been very serious matters bearing on his decision 

to grant Cisneros a top secret security clearance.559 Rubino also stated that a subject’s 

making large payments to a former girlfriend would require further scrutiny before 

clearance could be granted.560 Rubino further indicated that, if information about a 

discrepancy in the amount of Cisneros’s payments to Medlar became known after he 

was granted a security clearance, it possibly or even probably would have meant that 

the clearance would have been suspended immediately, pending further 

investigation.561 

DOJ-PSO Security Specialist Carol Snyder, who also reviewed the Cisneros 

matter, testified that whether a person had lied to the FBI during his or her 

background investigation was the most important thing that DOJ-PSO looked at in 

556 Letter from Hamilton to Bourke 1/11/93. 

557 Medlar Tape Transcript Q-17 12/30/92 at 3. 

558 GJ 97-1 Tr. Rubino 7/30/97 at 26-27. 

559 Id. at 20, 37. 

560 Id. at 20. 

561 Id. at 32. DOJ-PSO ceded the authority to investigate or re-investigate 

Cisneros or to suspend or revoke his security clearance to HUD on January 20, 1993, 

the first day of the Clinton administration. Id. at 30-31. 

IV-119 
determining whether to grant a security clearance.562 According to Snyder, the FBI 

report was “very important” because DOJ-PSO had to make a security determination 

solely on the basis of the information provided to the FBI.563 Snyder also testified 

that, beyond the significance of Cisneros’s lying to the FBI, the substance of the lie – 

concealing the true amount of his payments to Medlar – would have caused DOJ to 

deny him security clearance.564 

Ginsberg testified that he vaguely recalled that DOJ-PSO had expressed 

concern about granting Cisneros clearance in light of his payments to Medlar.565 

Ginsberg further testified that, although he did not recall the specifics of his response, 

“it would not surprise me if I communicated back to them . . . that it was the 

determination of the Clinton Transition Team to move forward with the 

nomination.”566 Similarly, Hamilton informed the OIC grand jury that “the fact that 

[Cisneros] was a Hispanic and the fact that he was an extremely attractive, forceful, 

intelligent guy, when weighed in the balance outweighed these negatives, at least as 

far as the people in Little Rock who made the decisions were concerned.”567 

Hamilton also testified to the grand jury that “unless it had been discovered that 

[Cisneros] had committed some very heinous crime, you know, something that spoke 

of moral turpitude or something that was really totally damning . . . he was going to 

get appointed.”568 

DOJ-PSO personnel recalled informing Hamilton and/or Ginsberg that, on the 

basis of their review of the Report, DOJ-PSO was concerned about Cisneros’s 

payments to Medlar. The DOJ-PSO personnel were informed that the Transition 

Team was aware of the payments and, since the affair was public and Cisneros’s wife 

was aware that Cisneros had made payments to Medlar, the Transition Team was not 

562 GJ 97-1 Tr. Snyder 7/30/97 at 31. 

563 Id. at 30. 

564 Id. at 41-42. 

565 GJ 97-1 Tr. Ginsberg 10/7/97 at 90-91. 

566 Id. at 91. Ginsberg testified that this determination was probably relayed to 

him by either Hamilton or Pastor. Id. 

567 GJ 97-1 Tr. Hamilton 11/12/97 at 139-40. 

568 Id. at 136. 

IV-120 
concerned about Cisneros’s fitness for office or eligibility to receive his security 

clearance.569 The DOJ-PSO personnel were informed that the Transition Team 

wanted Cisneros’s clearance granted as quickly as possible.570 Cisneros received his 

clearance on January 20, 1993.571 

Shortly after Clinton was sworn in, all documents received or created by DOJPSO during its review of various Clinton Cabinet and other high-ranking appointees 

(including notes) were returned to the White House. DOJ-PSO’s files were delivered 

to Ginsberg, then employed by the White House Counsel’s Office (“WHCO”), and 

to Beth Nolan, another WHCO attorney.572 As DOJ-PSO personnel understood it, 

pursuant to the MOU executed between the incoming and outgoing Administrations, 

these files were to become part of Clinton’s Presidential Papers.573 

The OIC subpoenaed from the White House all documents concerning 

Cisneros’s FBI background investigation, security clearance, and vetting.574 The 

White House failed to produce the DOJ-PSO files concerning Cisneros or identify 

them in a log of documents that were being withheld from the grand jury on grounds 

of privilege.575 Before the grand jury, Ginsburg was unable to account for the 

documents; similarly, Nolan had no recollection concerning them.576 

569 OIC Interview Report Synder 7/1/97 at 3; OIC Interview Report Alliman 

6/30/97 at 3; OIC staff notes (undated). 

570 OIC staff notes (undated). 

571 Letter from Rubino to Hamilton 1/20/93. 

572 GJ 97-1 Tr. Snyder 7/30/97 at 54-55; OIC Interview Report Snyder 5/17/99; 

GJ 97-1 Ex. 377. 

573 GJ 97-1 Ex. 371 at 2. 

574 OIC Subpoena to White House (F-252) issued 10/23/96. 

575 White House Privilege Logs 12/20/93 and 7/16/97. 

576 GJ 97-1 Tr. Nolan 11/18/97 at 85-86. 

IV-121 
h. The Senate Committee Evaluation 

The Transition Team provided the FBI Report, but not the attached FBI 

interview reports, to the Chairman of the Senate Banking Committee responsible for 

holding Cisneros’s confirmation, without disclosing any additional or inconsistent 

information the Transition Team had received from Cisneros.577 The FBI Report 

related Hernandez’s observation that Cisneros was diverting as much as $60,000 a 

year from his lecture income, possibly to Medlar, but did not otherwise discuss the 

amount of the payments. Arky then arranged for Cisneros to make personal courtesy 

calls to other Senators on the Banking Committee,578 none of whom were provided 

with the FBI Report or informed of the inconsistencies in Cisneros’s story.579 

Arky testified to the grand jury that the courtesy calls presented “the 

opportunity for the Senators to raise their concerns and their issues.”580 However, 

according to Arky, the Senators did not raise the issue of the affair, the payments, or 

the tax implications of the payments.581 Moreover, neither Cisneros nor Arky raised 

the issues themselves.582 When asked why she did not inform the Senators about the 

derogatory information surrounding Cisneros’s pending nomination, Arky replied that 

her only obligation was to the vetting team and that it would have been up to Cisneros 

to relay the information “if he was asked.”583 

In a similar vein, Hamilton testified that it would not have been legitimate for 

the Transition Team “to keep certain matters from people who have an official reason 

to know.”584 With respect to the Senate in particular, he testified that “given their 

official role, they had a right to an honest answer, if a question were asked,” but that 

577 GJ 97-1 Tr. Ginsberg 10/7/97 at 84; FBI-302 Ginsberg 11/22/97 at 2. 

578 GJ 97-1 Tr. Arky 10/16/97 at 92. 

579 Id. at 131-32. 

580 Id. at 132. 

581 Id. 

582 Id. at 131-32. 

583 Id. at 133-34. 

584 GJ 97-1 Tr. Hamilton 11/12/97 at 116. 

IV-122 
“[i]t doesn’t mean that you have to provide every piece of information in your 

background to the Senate that somebody might in some context be interested in.”585 

However, after allegations about Cisneros’s false statements became publicly 

known, several Senators indicated that accurate information about the payments 

would have been important to them. For example, on October 11, 1994, Senator 

Lauch Faircloth, a member of the Banking Committee, sent a letter to FBI Director 

Louis Freeh.586 Faircloth wrote that he was “extremely disturbed by continuing press 

reports concerning Secretary Henry Cisneros” and requested an opportunity to 

examine the original FBI Report.587 

Several other Senators on the Banking Committee later told the OIC that both 

the amount and circumstances of Cisneros’s payments, and the fact that he had lied 

about them, would have been material to their consideration of Cisneros’s 

nomination. For example, Senator Richard Shelby (R-AL) told the OIC that he had 

relied on the belief that Banking Committee Chairman Riegle had carefully reviewed 

the FBI Report and that the report was accurate and complete.588 According to 

Shelby, if he had been made aware of the discrepancies between the actual amount 

of the payments and the amount which Cisneros disclosed to the FBI, and it had been 

determined that Cisneros had lied to the FBI during the background investigation 

regarding the true amount, he would not have voted to confirm him.589 Shelby would 

have wanted to know where the money came from and whether it was “hush 

money.”590 He also told the OIC that the amount of the payments, and not just the fact 

that Cisneros lied regarding those amounts, would have been important to him.591 

585 GJ 97-1 Tr. Hamilton 11/12/97 at 117. 

586 GJ 00-001 Ex. 351. 

587 GJ 00-001 Ex. 351. 

588 OIC Interview Report Shelby 11/6/97 at 1. 

589 Id. at 2. 

590 Id. at 2. 

591 Id. 

IV-123 
Shelby also noted that, if Cisneros had structured payments to avoid the filing of a 

CTR, that would have compounded the issue in his confirmation.592 

Likewise, the ranking minority member of the Banking Committee, Senator 

Alfonse D’Amato (R-NY), told the OIC that a lack of candor on the part of Cisneros 

would have been unacceptable and that he would not have supported Cisneros’s 

nomination if he was aware of the fact that Cisneros was not fully candid during the 

confirmation process.593 D’Amato further stated that the fact that Cisneros had made 

two $8,000 payments to Medlar in a two-day period would have been a “red flag” to 

everyone that Cisneros was attempting to avoid the CTR filing requirements, and that 

neither he nor any other members of the Banking Committee would have voted to 

confirm Cisneros had they known about this.594 D’Amato further stated that other 

disqualifying factors would have included evidence that the payments were hush 

money and evidence that Cisneros attempted to avoid the payment of gift taxes.595 

At the conclusion of his OIC interview, D’Amato was shown a copy of a 

December 1994 letter he had sent in response to a letter from Cisneros’s attorney, 

Cono Namorato. The Senator wrote that “the specific amount of the payment made 

by Secretary Cisneros to the person in question would not have changed my judgment 

concerning Secretary Cisneros’ qualifications for confirmation.”596 Regarding the 

apparent conflict between his position in the letter and his comments to the OIC, 

D’Amato stated that he would never have indicated that the amount of the payments 

did not matter to him had he been aware that Cisneros had intentionally withheld the 

true amount.597 

However, information about Cisneros’s inconsistent statements, or about the 

true extent of his payments, was not made available to the members of the Senate 

Banking Committee in January 1993. On January 12, 1993, the Senate Banking 

592 Id. 

593 OIC Interview Report D’Amato 12/1/97 at 1. 

594 Id. 

595 Id. at 2. 

596 GJ 97-1 Ex. 514. 

597 OIC Interview Report D’Amato 12/1/97 at 2. 

IV-124 
Committee held Cisneros’s confirmation hearing.598 The Committee raised neither 

Cisneros’s relationship with Medlar nor his payments to her.599 In fact, Medlar was 

not mentioned at all during the hearing.600 

On January 15, 1993, in a taped conversation, Cisneros and Medlar discussed 

what the FBI had uncovered about the payments: 

LM:	 And so, what, did they have any amounts? 

HC:	 I don’t know. I don’t know what they . . . . But, it’s just amazing to me, they 

talked to sixty-five people, and most of ‘em about this. So they picked up bits 

and pieces and they, and, I mean, they had me dead to rights on some things. 

They asked me, for example, in the interview with me . . . last week, latter part 

of last week, “When (US) is the last time you talked to her?” And I said, 

“Well, we talked, you know, through late 1992.” 

LM:	 (Laughs) Why do you lie to them? 

HC:	 Well, I wudn’t lying. It was true. I talked to you in late nin-, you know, late 

1992. I mean, this was like the first week of January. And - and he said, 

“Well, we have uh, we have uh, we learned that she called your office on 

December 29 and said that if you didn’t call her back, she would take action.” 

LM:	 Well, that must’ve been from Sylvia [Arce-Garcia]. 

HC:	 No, it was from John [Rosales]. See John’s a journalist. And he felt that if 

they asked him direct questions he could not lie. So, being the amateur that he 

is, I mean he just spilled his guts. (Laughs) 

LM:	 Hum. 

598 GJ 97-1 Ex. 376. 

599 See GJ 97-1 Ex. 376 (Confirmation Hearing Tr. 1/12/93). 

600 Id. 

IV-125 
HC: 

LM: 

HC: 

LM: 

HC: 

LM: 

HC: 

LM: 

HC: 

LM: 

HC: 

And they asked everybody. They went through Rene the accountant.[601] And 

when they couldn’t get it from him, they went to Luis the accountant. And 

they finally figured out the discrepancy between what comes in and what goes 

to other expenditures. 

Mhm-hmm. 

And they did have that figure. 

And what did they ask you? 

They, they didn’t ever talk to me . . . well, they did, I guess, they talked 

amounts, and I gave ‘em the same fact situation that I had given ‘em before. 

So it was real delicate. 

Is that basically why it didn’t come up in the hearing? 

No, let me tell you something. It’s in the report. It’s in the FBI report. 

Uh-huh. 

The FBI report is . . . like forty pages. 

Yeah. 

(Sighs) And, in the FBI report is . . . not, ah, a full discussion of our situation 

and also the money. And it estimates . . . sixty thousand dollars . . . . Because

that’s the discrepancy. See, they took, they had an interview, they had FBI 

agents here in San Antonio, they had FBI agents in Washington. When I 

talked to you last week and you were so angry with me, I thought I was dead. 

I mean, I thought it was over. And it wasn’t what you would do, it’s was alre-, 

it’s what the FBI was already getting. . . .602 

601 This refers to Rene Gonzalez, Cisneros’s former accountant, who preceded 

Luis Hernandez. OIC Interview Report Gonzalez 11/16/95 at 1-2. 

602 Medlar Tape Transcript Q-20 1/15/93 at 4-6. 

IV-126 
Cisneros then described to Medlar the discussions he had in Washington, D.C. 

with the Transition Team regarding the contents of the FBI Report: 

HC:	 . . . I went, I had a private meeting with the lawyers in Washington, where they 

worked me over with every possible follow-up, prosecutorial question. 

LM:	 And so what did you tell ‘em? 

HC:	 I told ‘em, you know, I told ‘em, I, well, finally what it boils down to is the 

truth. I mean, the fact of the matter is, I have helped you all along, because I 

wanted you to have what you needed. Not because, as I’ve told you many, 

many, many, many times, because I was afraid of what you would do. 

LM:	 But how much do they think you’ve given? 

HC:	 What? 

LM:	 What do they think you’ve given? 

HC:	 Well they don’t know, I mean, the FBI thinks, I mean, the FBI has virtually the 

truth, because they just figured it out. So it’s in the report. Now, on Monday 

afternoon, my, my, my thing is Tuesday, on Monday evening, I get a call from 

the Clinton ethics people . . . 

LM:	 Mhm-hmm. 

HC:	 . . . to tell me that they just have been through the FBI report, and that as far as 

they have read it, at that moment they’ve read about half of it, there’s nothing 

in there that hasn’t been known, or I haven’t been forthright about, that hasn’t 

been public, or that can’t be faded. 

LM:	 (Sighs) 

HC:	 Now, the FBI report is supposed to go to the Senate on Thursday afternoon. 

But they’re still working on it on Monday. 

IV-127

LM:	 Mhm-hmm.603 

In another January 15, 1993 telephone conversation taped by Medlar, Cisneros 

and Medlar continued discussing the FBI background investigation and his 

confirmation hearing: 

HC:	 . . . Uhhh . . . anyway I was telling you, where was I? 

LM:	 The FBI report on Monday. 

HC:	 Yeah. So on Monday, now they worked all week, they dispatched extra agents 

over the weekend on this. 

LM:	 Oh, is that why they came to see me? 

HC:	 Uh-huh. I mean, see, what happened is this: The FBI was complaining; there 

was a story in the Washington Post that the FBI was complaining that . . . they 

hadn’t been given enough time with the first round of people who went to 

hearings, like Ron Brown last week. The FBI is complaining that they usually 

get, by law they’re supposed to have two weeks notice, but they were ten days 

and a weeks notice and less. And Ron Brown came up, and Ron Brown ended 

up being very controversial; he’s been in trouble all the way. Okay? 

LM:	 Uhm-huh. 

HC:	 So. With me, they got more than two weeks because I was on the transition, 

and I’ve been talked about as possible Cabinet for a long time, and they’ve had 

my forms for, you know, since I went on the transition thing. So they started 

on me pretty early. And the FBI loves things that have to with . . . sex and 

intimacy and so forth. They’re real bad at tracking down financial things 

‘cause they’re not accountants and so forth, but they just, they’re, they’re just 

righteous guys who love to get into this stuff. I mean, they’re just gossipers 

and (takes breath) scandalizers like everybody else, you know. So, by the way, 

the FBI is, I have found out, is heavily, well, who knows, never mind. 

Anyway. I don’t want to talk on this phone, if it’s tapped, I don’t want to say 

anything that . . . (laughs) 

603 Id. at 6-7. 

IV-128 
• • • 

LM:	 On your phone? Why would they tap your phone? 

HC:	 Uh. People tell me my phone’s been tapped all along, so . . . 

LM:	 Oh, I don’t believe that. 

HC:	 . . . So anyway, so then Monday afternoon rolls around, and I’m, I’m, I’m 

cooked. I mean, I figure, first of all the Committee’s supposed to have it on 

Thursday. The Senate Committee is supposed to have it on Thursday; it goes 

to the Chairman. The ranking minority member has an opportunity to see it. 

But it doesn’t go to the Chairman in my case, ‘til Monday night, like eleven 

o’clock at night. It could have stalled the hearing if he had wanted it, but he’s 

a Democrat, and he’s a pro, and got his own problems and so forth. But he is 

pretty stringent about the FBI reports. So, I go into the Committee and, to my 

knowledge, he hasn’t seen it, but he scanned it, and D’Amato hasn’t seen it . . . 

Okay. But D’Amato’s got his own problems too. He’s up for an ethics 

investigation. . . . So it doesn’t come up in the hearing at all . . . at all. But . . . 

which surprised me a little bit, except that the Republicans have all been saying 

positive things in the press . . . and D’Amato had been saying “Bullshit, we’re 

not gonna get into the personal stuff,” and-and Phil Gramm’s got . . . that 

investigation on him in Maryland, so he’s not anxious to get into ethics stuff 

. . . 

LM:	 Just wait though, that could come back to haunt you. 

HC:	 That they didn’t bring it up? 

LM:	 Uhm-hmm. 

HC:	 Well, yes it could. And frankly I would have preferred a question, so I could 

get it out on the record . . . and answer it. 

LM:	 But . . . what were you gonna say if they’d said something about the amount? 

IV-129

HC:	 Well, I was gonna do my very best to-to-to answer the way we had agreed, 

which is what, the position I’ve taken all along.604 

Cisneros then told Medlar about a conversation he had had with Riegle 

regarding the payments two days after his confirmation hearing: 

HC:	 I - I forgot to tell you, I mean, I, uh, I - I, we got off the subject. On, two days 

after the hearing, I called Senator Riegle, because he’s the Chairman of the 

Committee and I’m gonna have to deal with him a lot. I called to share with 

him some of my thinking about Assistant Secretaries, and I said, “I - I need to 

talk about something sensitive with you,” and it was a person that I’m thinking 

of hiring who’s coming off of their staff . . . for Chief of Staff. And, uh, he 

said, “Well, I’m glad you’re showing that kind of candor with me, becauseI 

want to talk about something sensitive with you, too.” And then we got into 

the payments question . . . 

LM:	 Uhm-hmm. 

HC:	 . . . from the FBI report . . . 

LM:	 Uhm-hmm . . . 

HC:	 . . . and he, uh said, “Look, I - I - I need your explanation, and I need, uh, I 

need it,” and he said, “I may send you some questions in writing, because, uh, 

obviously if it comes up again in the future, uh, someone may ask whether or 

not the FBI knew it, and they did, and then they may ask, ‘Well, if the FBI 

knew it, why didn’t the Senate Committee pursue it,’ and I wanna be able to 

say that I did.” 

LM:	 And so what did you tell him? 

HC:	 I told him, uh, I didn’t - he didn’t get into numbers or anything like that. Now, 

the only question standing at this moment is whether D’Amato is going to, uh, 

want it. He’s the only person who has access to it . . . 

LM:	 I wouldn’t think he would. 

604 Medlar Tape Transcript Q-21 1/15/93 at 1-4. 

IV-130 
HC:	 Well, he has said he doesn’t give a shit. I mean, he has said that to me in those 

words, you know . . .605 

Cisneros and Medlar continued to discuss the contents of the FBI Report and 

what Cisneros had told Riegle about the payments: 

HC:	 I told him that . . . why I did it. 

LM:	 And that’s all that was said about it? 

HC:	 Uhm-hmm. The FBI report makes clear it was not hush money. The FBI 

report itself in this, in the, in the paragraph that deals with the issue, says it was 

not hush money. 

LM:	 What did they say it was? 

HC:	Assistance . . . understandable under the circumstances . . . your move to 

Lubbock . . . and so forth. 

LM:	 But he doesn’t know any dollar amount? 

HC:	 It’s in the, it’s in . . . . There, there are speculations in the report. 

LM:	 Sixty thousand dollars in assistance? 

HC:	 That’s what it says? It says, you know, it doesn’t actually assu-, uh, you know, 

uh, estimate the sixty, but it says that that’s the, that’s the amounts . . . that it 

could be, judging from the way our accounting is. 

LM:	 And so what did the Clinton people say when they . . . read that? 

HC:	 They, uh, that’s, I mean, they, they said it was not a problem, because it’s 

characterized as, as assistance. 

LM:	Did anybody remark that, uh, I didn’t talk to the FBI? 

HC:	 I don’t know. 

605 Id. at 9-10. 

IV-131 
LM:	 See, because they had wanted to get back in touch . . . 

HC:	 Oh yes, yes, the FBI report says you were, uh, ill . . . it does. 

LM:	 Hmm.606 

Cisneros and Medlar then discussed threats that Medlar had made to Cisneros 

and Medlar’s decision not to provide information damaging to Cisneros to the FBI 

or the press: 

LM:	 . . . And on top of everything, Henry, you have not been that con-, you haven’t 

been concerned about me. I didn’t get any flowers from you; I didn’t get a 

card; I didn’t get a note. 

HC:	 Yeah. You don’t understand, I mean, every time I do something like that, you 

end up, you threatening me with it. 

LM:	 Huh? 

HC:	 You do. 

LM:	 Henry. 

HC:	 You do. 

LM:	 Henry, if I was gonna do anything to you, don’t you think that FBI report 

would have been the . . . 

HC:	 Look, ya know . . . 

LM:	 I mean . . . 

HC:	If you’re me, how could you separate ‘em? I mean, how could you separate 

when you’re serious and when you’re not serious, and when you’re threatening, 

and when you’re just angry, ya know? 

606 Id. at 12-13. 

IV-132 
LM:	 Well, in the first place if I’d ever done it before, I guess, ya know. I mean, 

Honey, I’m sm-, as smart, as they come; I know exactly what would do you in. 

I’ve always known that. I knew exactly who I could have called and all this 

other stuff. I’m not dumb. I wouldn’t have called the press, you know, but the 

FBI report could have done you in. It could have done you in with Clinton . 

. . . I mean, and - and certain things like that, which I told you I wouldn’t do. 

You know, and I’ve never done it before. I haven’t gone to the press, even 

when the press has called me. You and Mary Alice have been the ones who 

have bad mouthed me. 

HC:	 No. 

LM:	 Hon . . . 

HC:	 Okay, okay, okay, okay. I gotta go.607 

As the conversation continued, Cisneros expressed his concern that the 

“scandal” would be revealed: 

HC:	 I’ll call you in the next couple of days. 

LM:	 No, you won’t either. 

HC:	 I promise you I will. The only reason I didn’t . . . was - was the last 

conversation you had, you busted me good, I mean, I was wiped. I figured it 

was gonna be gone that day; (US in background) and I was gonna embarrass 

Clinton and the whole country, and have lost everything. 

LM:	 You figured what? 

HC:	That I had lost everything, I mean, company, boards, honoraria, John Paul, all 

of it, because I was gonna self-destruct before the whole country in a white 

flot- white hot flash of scandal - it’s over. I just, you know, I just, I mean, I 

was sick.608 

607 Id. at 25-26. 

608 Medlar Tape Transcript Q-21 1/15/93 at 30. 

IV-133 
On the same day as this conversation, January 15, 1993, Cisneros executed a 

request to liquidate his Lincoln Benefit Life insurance annuity.609 He submitted the 

request two days later.610 

On January 18, 1993, Patsy and Allen Wooten received a mortgage loan of 

$78,100 from the Plains National Bank and closed on the house they were purchasing 

on Medlar’s behalf with funds she had received from Cisneros.611 One condition of 

the loan was that they occupy the property they were purchasing.612 Although they 

were actually purchasing the house for Medlar to occupy, the Wootens signed 

numerous bank documents in which they falsely declared their intention to occupy 

the property. The Wootens affirmed that they intended to occupy the house as their 

“primary residence” on a “Uniform Residential Loan Application.”613 They signed 

an “Affidavit and Agreement” stating that they would in “good faith . . . occupy the 

Property.”614 They signed a “Deed of Trust” which stated that the “[b]orrower shall 

occupy, establish, and use the Property as Borrower’s principal residence.”615 They 

further indicated that they “intend[ed] to occupy the premises as our home” on an 

“Owner Occupancy Affidavit.”616 

Furthermore, to obtain the loan, Patsy Wooten falsified information on two 

“Request for Verification of Employment” (“VOE”) forms to be completed by the 

Wootens’ company, West Texas Lighting (“WTL”). She misstated her husband’s 

salary and made up a monetary bonus to “beef up the application.”617 Patsy Wooten 

then forged Marcella Wooten’s signature on both forms on behalf of WTL, as the 

609 GJ 97-1 Ex. 466 at 2. 

610 GJ 97-1 Ex. 466 at 1. 

611 Bank Note 1/18/93 (signed by Allen & Patsy Wooten). 

612 Fannie Mae Affidavit and Agreement 1/18/93 at representation 7. 

613 Uniform Residential Loan Application 1/18/93. 

614 Affidavit & Agreement 1/18/93. 

615 Deed of Trust 1/18/93 at ¶6. 

616 Owner Occupancy Affidavit 1/18/93. 

617 OIC Interview Report Patsy Wooten 1/6-8/98 at 11. 

IV-134 
Wootens’ employer.618 Marcella Wooten was married to Patsy Wooten’s son Michael 

and was nominally a WTL employee.619 

A few days later, on January 19, 1993, two days before Cisneros took office, 

payments from Cisneros for $845 and for $1,000 were deposited into Medlar’s 

Broadway National Bank account.620 These payments brought the number of 

Cisneros’s payments to Medlar during the less than three months of the transition and 

confirmation process to ten, and the total to $31,845. 

5. Secretary Cisneros’s Continuing Relationship with Medlar 

After Cisneros became the Secretary of Housing and Urban Development, his 

relationship with Medlar posed a continuing problem for him. He no longer had the 

financial means to keep up his payments to her at their previous levels. However, 

because she knew about the false statements that Cisneros had made throughout the 

appointment process, she was well positioned to cause considerable harm to his 

reputation and, by extension, to that of the Clinton administration, if she became 

dissatisfied with Cisneros. The investigation uncovered various efforts to exploit 

Cisneros’s position as HUD Secretary, and to tap his political supporters outside the 

government, to provide Medlar with financial support. 

a. Continuing Payments to Medlar 

William Jefferson Clinton was sworn in as the forty-second President of the 

United States on January 20, 1993. That same day, Cisneros’s nomination for 

Secretary of HUD was officially submitted,621 and DOJ-PSO granted Cisneros’s 

618 Id.; OIC Interview Report Patsy Wooten 8/20/97 at 2; OIC Interview Report 

Marcella Wooten 7/16/97 at 2. 

619 OIC Interview Report Marcella Dillard Wooten 9/12/96 at 1, 3. Marcella 

Wooten informed the OIC that she did not really work for WTL, even though she 

drew a salary. Id. 

620 OIC Chart of 1993 Payments to Medlar. 

621 GJ 97-1 Ex. 452. 

IV-135 
• • • 

security clearance.622 On January 21, 1993, the Senate confirmed Cisneros’s 

nomination, and he was formally appointed to the position.623 

On January 21, 1993, before the Senate confirmation vote, Medlar and 

Cisneros spoke about his continuing payments to her and the possible legal 

ramifications of his false statements to the FBI: 

LM: You don’t feel like you have any problems? 

HC: Umm . . . (clears throat) I don’t think so. I mean, alls I’m working with the 

Senators on the problems in their states and stuff, you know, and they’re all 

being very positive. And it could be as early as tonight that the Senate votes 

. . . and uh, if that’s the case, uh, they’re talking about maybe a mass swearing 

in over the weekend, just swearing everybody together . . . all the cabinet 

officers together that are ready. 

LM: When will you be back to San Antonio? 

HC: I won’t. 

LM: Henry! Then how is this other gonna work? 

HC: What? 

LM: The money? 

HC: Oh, it - it - it - it’s, it will be fine. 

LM: How are you going to do that from Washington? 

HC: Well, Sylvia [Arce-Garcia] is still there. 

622 Letter from Hamilton to Rubino 1/20/93. 

623 GJ 97-1 Ex. 452; Washington Post, “Senate votes to confirm all but two of 

Clinton’s Cabinet nominees” 1/22/93. 

IV-136 
• • • 

LM:	 Oh, please! Don’t do it through Sylvia. 

HC:	 Well, in that case she’ll just wire, fo-, wire me the money, and I’ll take care of 

it. I mean, if - if, (UI) they do it from here. Uh . . . and uhm . . . and - and then 

I’m still cashing in these annuities and stuff, but they - they haven’t come in 

yet. But when they do, I mean, I’m gonna take that full amount and put it in 

an account. We gotta - gotta figure out how you have access to that account, 

you know, to draw it down. 

LM:	 Uhm, she [Mary Alice Cisneros] has no idea about any of the money that’s 

coming . . . 

HC:	 Uhm . . . .

LM:	 . . . or anything like that? 

HC:	 No, I mean, she doesn’t have any idea of the amounts involved, no. 

LM:	 But she doesn’t think you’re still giving me money, does she? 

HC:	 No. 

LM:	 So what would they do, I mean, what would the . . . well, never mind. 

HC:	What would happen if . . . if it were not a Republic-, is that what you’re 

saying? 

LM:	 Yeah. What would happen if the FBI . . . 

HC:	 Came back? 

LM:	 . . . came back? 

HC:	 I don’t know . . . . You know, blackmail or something like that. That, that’d be 

the only . . . illegality. I mean, they can’t say I lied to ‘em, because it’s in, it’s 

in the FBI report, you know. 

IV-137

LM: Yeah, but it’s in, it’s, you had told them that it was . . . 


HC: The FBI report talks in terms of sixty thousand dollars.


LM: I know, but you told them point blank that it was less than that.


HC: Yeah, but the FBI report speculates as to what it is.


LM: And did Clinton or any of the attorneys ever say anything to you?


HC: Mm-mm.


LM: And do you, do you think that can be construed as some sort of cover up?


HC: No . . . 


LM: Because . . . 


HC: . . . because it’s in the FBI report and it went to the Senate.


LM: That’s what I mean, because Riegle or none of the Senators even asked you


about it. 

HC: No. They regard it as uh, th-, I, yeah, Riegle talked to me about it, I told you 

that. 

LM: Uhm-hmm. 

HC: And he was satisfied with the explanation. And he wanted to make sure that 

we talked about it. It’s in the realm of personal . . . as opposed to overtly . . . 

eth-, unethical conduct, you know. It’s in the realm of personal. It may be 

inappropriate, it may have been unwise, all of that. But it’s not illegal, and it 

was my, it was my call as to what I did with my money lawfully gained, and I 

paid taxes on it, you know. (US) 

LM: I guess you got everything figured out.624 

624 Medlar Tape Transcript Q-23 1/21/93 at 8-14. 

IV-138 
Seven days later, on January 28, 1993, $5,000 was deposited in Medlar’s 

Broadway National Bank account.625 

Medlar repeatedly attempted to contact Cisneros in Washington, D.C. in early 

February 1993.626 When Cisneros called Medlar from his office during this time 

period, he sometimes used a private credit card on his office phone, and sometimes 

even used a HUD pay phone.627 Medlar also exchanged calls with Frank Wing, 

Cisneros’s friend and Senior Advisor at HUD, on numerous occasions during this 

period.628 

In February 1993, Cisneros cashed out some of his retirement accounts to 

provide funds for Medlar. On February 9, 1993, Cisneros opened a checking account 

at Crestar Bank in Washington, D.C. with $29,686.06 he had received from his 

625 OIC Chart of 1993 Payments to Medlar. 

626 In fact, Medlar made 13 calls to HUD within a 20-minute period on 

February 1, 1993. Cisneros Event Chronology at 99-100. Medlar also called six 

Washington, D.C. hotels during a 16-minute period on February 1, 1993. Id. at 101. 

627

 Medlar Tape Transcript Q-25 3/93 at 1-2.; see, e.g., Cisneros Event 

Chronology at 98 (1/29/93 call from Cisneros’s calling card (via HUD pay phone) to 

Medlar for 4 minutes). 

628 Cisneros Event Chronology at 100 (2/1/93 Medlar call to Wing for 1 

minute); Id. at 101 (2/2/93 Medlar call to Wing (HUD) for 1 minute); Id. (2/2/93 

Wing call (from home) to Medlar for 22 minutes); Id. (2/2/93 Wing call (from home) 

to Medlar for 23 minutes); Id. at 102 (2/3/93 Medlar call to Wing (HUD) for 1 

minute); Id. (2/4/93 Wing call (from home) to Medlar for 9 minutes); Id. at 103 

(2/6/93 Medlar call to Wing (at home) for 1 minute); Id. (2/6/93 Medlar call to Wing 

(at home) for 19 minutes); Id. (2/7/93 Medlar call to Wing (at home) for 1 minute); 

Id. (2/7/93 Medlar call to Wing (at home) for 1 minute); Id. (2/7/93 Wing call (from 

home) to Medlar for 27 minutes); Id. at 104 (2/7/93 Medlar call to Wing for 4 

minutes); Id. (2/7/93 Medlar call to Wing for 8 minutes); Id. (2/8/93 Medlar call to 

Wing (HUD) for 3 minutes); Id. at 105 (2/8/93 Medlar call to Wing (HUD) for 1 

minute). 

IV-139 
Lincoln Benefit Life annuity.629 Cisneros also opened a Money Market account at 

Crestar Bank with another $20,000 he had received from Lincoln Benefit Life.630 

On the same day, February 9, 1993, Cisneros called Medlar; he informed her 

that he had had begun wiring her funds in increments of about $7,500: 

HC:	 Ah, I just want to tell you. I - I, I went to the bank, deposited the money that 

I have in an account (clears throat) here, and then wired you, ah, seventy-five 

hundred dollars . . . 

LM:	 (Sighs) 

HC:	 . . . which, ah, is the most that I could wire given that it’s the first day that I 

opened the account. And, ah, that is now in your account, ah, for use to pay, 

you know, what bills you need to, and I will wire you an additional sum, ah, 

either tomorrow, or day after tomorrow, as soon as they let me and they tell me 

that the bank is clear. The, in other words, the - the bank had a problem 

because the - the check has to clear. And I had to get special permission from 

the manager in order to even send the seventy-five hundred. 

LM:	 All right, now, you wired it to my bank? 

HC:	 Correct. 

LM:	 So, it’s in my account? 

HC:	 It- it will be as soon as it goes through the Federal Reserve this afternoon. But 

certainly by morning you’ll have it. In other words, if it’s not done this 

afternoon, it will be available for spending in the morning. You - you’re -

you’re safe to write a check today, I think, but . . . ah, because it’ll be there. 

LM:	And when will the rest come? 

629 Crestar Account Summary 2/9/93 deposit of $29,686.06. 

630 Crestar Account Summary 2/9/93 deposit of $20,000. 

IV-140 
• • • 

HC:	 Well (clears throat), that’s the only question . . . is how long it takes the bank 

to be comfortable that my check has cleared. But I gue-, I’ll, I’ll send it to you, 

ah, let’s see, what’s today? Tuesday? I’ll send it to you Thursday or Friday. 

LM:	 And you’ll send the whole sum? 

HC:	 Uhm (clears throat), why don’t I send another amount similar. 

LM:	 Why? 

HC:	 Because I can’t send you increments of - of larger than about that size. 

LM:	 Henry, I want this all done so that I don’t have to call you on things and you 

don’t have to call me. 

HC: Okay. All right. 

LM: . . . but I’m just saying, this does not include the medical.


HC: Right, correct.


LM: And when do think you’ll need, you’ll have that?


HC: I don-, right now I don’t have it. I’m waiting on those annuities and so forth


that I’ve cashed in - those insurance and retirement and all that . . . to come in. 

LM:	 I thought that’s what this was. 

HC:	 This is one. 

LM:	 And so when do you think that’ll be? I mean, I need to get this all straight in 

my head. 

HC:	 Uhm, Anna Marie Ornelas, who is the insurance person in San Antonio, tells 

me that it was being sent today, so another few days. 

LM:	 So you’ll be able to send all of it . . . within about a week? 

IV-141 
HC:	 Yeah. 

LM:	 And then it . . . our communication will be over with until next January? 

HC:	 Well, that’s up to you. I mean, I’m here if you need me.631 

Cisneros then told Medlar that liquidating his retirement assets to pay her 

would probably result in adverse tax consequences for him, and that he had to be 

careful not to transfer large sums of money to her at any one time because doing so 

would set off “alarms”: 

LM:	 All right, so you will call me no later than Friday morning? 

HC:	 Correct. Friday during the day. But I knew you had some bills to pay right 

away, so I - I thought you needed this. So I got permission from the manager, 

even though they don’t do this, because they wait for the check to clear before 

they let a person, you know, take money. But it was a check from an insurance 

bank company and, you know, so he assumed it was a good check, even though 

it will take a few days to clear. 

LM:	 All right. And there’s no problem in doing that? 

HC:	 Well, I’m sure it’s a big tax problem for me probably, but, but, but, but . . . and 

then I don’t know what other, you know, now-a-days anytime a big chunk hits 

a . . . a bank it, ah, sets off all kinds of alarms because of drugs an’ . . . and so 

forth. So, but I just don’t know, I mean, I . . . this is different than what I could 

do in San Antonio, when I could go and take cash and put it in there myself.632 

On the next day, February 10, 1993, $7,500 was wired from Cisneros’s Crestar 

checking account to Medlar’s First National Bank of Lubbock account.633 

631 Medlar Tape Transcript Q-24 2/6/93 at 1-3. The OIC believes this 

conversation actually took place on February 9, 1993. See OIC Corroboration Chart 

for Q-24. 

632 Id. at 4. 

633 Crestar Bank General Ledger 2/10/93 showing $7,500 transfer from 

(continued...) 

IV-142 
On February 12, 1993, three checks totaling over $36,000 were forwarded to 

Cisneros, following his complete surrender of his Mass Mutual IRA annuities.634 The 

letter accompanying the checks advised Cisneros that “these are taxable proceeds as 

Mass Mutual will report these distributions to the IRS. Inform your CPA of this 

transaction when you file your taxes for 1993.”635 Cisneros’s insurance representative 

Annamaria Ornelas told the OIC that she had previously advised Cisneros not to 

make the withdrawals because he would have to pay a penalty, but that Cisneros had 

told her, “I need it, I want to do it.”636 

On February 16, 1993, $15,000 was wired from Cisneros’s Crestar checking 

account to Medlar’s First National Bank of Lubbock account.637 Then, on February 

24, 1993, another $15,000 was wired from Cisneros’s Crestar money market account 

to Medlar’s First National Bank of Lubbock account.638 (Telephone records show 

that Medlar called both Cisneros and Wing on this day.

639) A $10,873.45 payment 

followed on March 15, 1993.640 Cisneros then paid Medlar $15,000 on July 16, 

1993,641 $4,000 on October 12, 1993, and $1,300 on December 3, 1993.642 

633(...continued) 

Cisneros to Medlar; Medlar Bank Statement 2/10/93 showing $7,500 deposit. 

634 Letter from Ornelas to Cisneros 2/12/93. 

635 Id. 

636 IRS Interview Report Ornelas 10/3/96 at 2. 

637 Crestar Bank General Ledger 2/16/93 showing $15,000 transfer from 

Cisneros to Medlar; Medlar Bank Statement 3/15/93 showing $15,000 deposit on 

2/16/93. 

638 Crestar Bank General Ledger 2/24/93 showing $15,000 transfer from 

Cisneros to Medlar. 

639 Cisneros Event Chronology at 112 (2/24/93 call from Medlar to Cisneros 

(HUD) for 2 minutes); Id. (2/24/93 call from Medlar to Wing (HUD) for 1 minute). 

640 Crestar Bank General Ledger 3/15/93 showing $10,873.45 transfer from 

Cisneros to Medlar. 

641 7/8/93 Frost National Bank Cashier’s Check #2889749 for $15,000; 7/16/93 

(continued...) 

IV-143 
Cisneros made the July 16, 1993 payment of $15,000 by signing over to Medlar 

a cashier’s check from his attorney, Seagal Wheatley. On January 15, 1993, Cisneros 

received a check for $200,000 as payment for his common stock in CAMCO.643 On 

July 1, 1993, Cisneros deposited the check into his Washington Federal Savings Bank 

account, which was in his wife’s name as well as his own.644 On July 1, 1993, 

Cisneros wrote a check on that account for $25,000 to Wheatley’s law firm, with the 

notation “Legal.”645 On July 2, 1993, the check was deposited, with $10,000 going 

into the firm’s operating account and $15,000 going into the firm’s Interest on 

Lawyer Trust Account (“IOLTA”).646 (IOLTAs are intended to house client funds, 

including advances for costs and expenses. They are not intended for funds 

belonging totally to the attorney or the law firm.647) Six days later, on July 8, 1993, 

Wheatley withdrew $15,000 from the IOLTA Trust Account and purchased a 

cashier’s check for $15,000 payable to Cisneros.648 Cisneros endorsed the check over 

to Medlar, who deposited it into her FNB Lubbock account on July 16, 1993.649 

Because the transaction was executed in this manner, the bank records accessible to 

Cisneros’s wife showed only a payment to his attorney, with no indication that 

$15,000 had gone to Medlar. 

641(...continued) 

FNB Lubbock Deposit Slip for $15,000. 

642 OIC Chart of 1993 Payments to Medlar. 

643 6/15/93 Texas Commerce Bank check #4608 for $200,000. 

644 Washington Federal Savings Bank Statement (“Washington Federal”) 

7/30/93. 

645 7/1/93 Washington Federal check #0154 for $25,000. 

646 7/2/93 Frost National Bank Deposit Ticket for $10,000 to Wheatley & 

Sharpe LLP account; 7/2/93 Frost National Bank Deposit Ticket for $15,000 to 

IOLTA Trust Account. 

647 See Model Rules of Professional Conduct Rule 1.15. 

648 7/8/93 Frost National Bank check #1013 for $15,000; 7/8/93 Frost National 

Bank Cashier’s Check #2889749 for $15,000. 

649 7/8/93 Frost National Bank Cashier’s Check #2889749 for $15,000; 7/16/93 

FNB Lubbock Deposit Slip for $15,000. 

IV-144 
Medlar told the OIC that, in July 1993, Cisneros said that Wheatley would be 

sending her $15,000.650 However, according to Medlar, Cisneros later told her that 

Wheatley was nervous about sending money directly to her and that he (Cisneros) 

would get a check and endorse it over to her.651 

During a November 21, 1997 interview, the OIC asked Wheatley about this 

transaction. Wheatley denied acting as a conduit of funds from Cisneros to Medlar.652 

He then claimed attorney-client privilege on all information surrounding the July 8, 

1993 cashier’s check for $15,000.653 

Overall, Cisneros’s payments to Medlar in 1993 totaled almost $80,000. 

Cisneros’s 1993 Payments to Medlar 

Payment Date Payment Amount 

January 4, 1993 $4,000.00 

January 19, 1993 $845.00 

January 19, 1993 $1,000.00 

January 28, 1993 $5,000.00 

February 10, 1993 $7,500.00 

February 16, 1993 $15,000.00 

February 24, 1993 $15,000.00 

March 15, 1993 $10,873.45 

July 16, 1993 $15,000.00 

October 12, 1993 $4,000.00 

650 OIC Interview Report Medlar 4/27/96 at 3. 

651 Id. 

652 OIC Interview Report Wheatley 11/21/97 at 4. 

653 Id. 

IV-145 
December 3, 1993 $1,300.00 

TOTAL $79,518.45

b. Medlar’s Efforts to Exploit Cisneros’s Position 

In December 1992 or early 1993, Medlar, her sister Patsy Wooten, and Patsy’s 

son Michael Wooten discussed the possibility of starting a HUD management 

company.654 Patsy Wooten stated that the idea came from either Michael Wooten or 

Medlar as a means of “getting in on the HUD money,” and that Medlar said that she 

would look into it and contact Cisneros.655 Michael Wooten said that the idea of 

using HUD contacts originated with Medlar, who wanted a cut.656 Patsy Wooten said 

that Medlar was concerned about her compensation for opening doors through her 

relationship with Cisneros, and that Michael Wooten told Medlar she would be paid 

a commission.657 Michael Wooten told the OIC that Cisneros became a “definitive 

door” to HUD business opportunities after his confirmation,658 and that he had 

suggested that Medlar use her relationship with Cisneros to the benefit of the 

proposed company.659 Michael Wooten also informed the OIC that, without Medlar’s 

contacts at HUD, he would have never pursued any HUD contracts.660 

According to Medlar and Michael Wooten, any income that Medlar earned 

from the business venture was meant to offset money Cisneros otherwise would have 

654 OIC Interview Report Patsy Wooten 6/30/96 at 11-12; OIC Interview Report 

Michael Wooten 7/11/96 at 10. 

655 OIC Interview Report Patsy Wooten 6/30/96 at 12. 

656 OIC Interview Report Michael Wooten 7/12/96 at 1. 

657 OIC Interview Report Patsy Wooten 6/30/96 at 12. 

658 OIC Interview Report Michael Wooten 7/12/96 at 3. 

659 OIC Interview Report Michael Wooten 6/29/96 at 4; see also OIC Interview 

Report Patsy Wooten 6/30/96 at 12. 

660 OIC Interview Report Michael Wooten 7/12/96 at 1. 

IV-146 
paid her.661 Medlar testified that she and Cisneros discussed the fact that, if the 

company were formed, she could work for the company and be paid for the work she 

did.662 

According to Michael Wooten, Medlar told him to telephone Cisneros when 

he became Secretary of HUD.663 Medlar contacted Cisneros on January 15, 1993 to 

set up Wooten’s call. Before bringing up the business venture, she discussed the 

substantial cost to Cisneros of her medical bills and described how Michael Wooten 

would be helping her with health insurance in the future: 

LM:	 The hospital bill, well, I can send you a copy of it, the hospital bill is seventynine hundred. That’s just the hospital. The doctor’s a little over three 

thousand. The ER is something, it seems like, six hundred or something like 

that. 

HC:	 Uhm-hmm. 

LM:	 But it’s not done . . . 

HC:	 I understand. 

LM:	 . . . because the, of the . . . some, you know, other things going on. 

HC:	 Okay. 

LM:	 So, anyway, uhm . . . I think you’re in for a rocky road. 

HC:	 Looks like it, dudn’t it? 

LM:	 Yeah. 

661 OIC Interview Report Michael Wooten 7/15/97 at 1; Suppression Hearing 

Tr. Medlar 6/21/99 at 151-52. 

662 Suppression Hearing Tr. Medlar 6/21/99 at 152. 

663 OIC Interview Report Michael Wooten 6/29/96 at 10; OIC Interview Report 

Michael Wooten 7/11/96 at 11. 

IV-147 
• • • 

HC: I’m gonna be flat busted when this thing’s done. 

LM: . . . Oh, by the way, Michael has put me on his insurance plan.


HC: That’s good.


LM: So, hopefully this will never happen again.


HC: But you have to pay a premium.


LM: Yeah, I have to pay it monthly, but at least it’s a good plan.


HC: Yeah, that’s good.664


Medlar then immediately raised the issue of the property management 

company: 

LM: And, uh, he’s starting a management company, that, uh, Patsy is gonna be . . . 

HC: Property management? 

LM: Yeah, he wants to do some management. 

HC: That’s good. 

LM: And Patsy’s gonna be the head of it, so it’ll be a minority. 

HC: Woman-owned? 

LM: Yeah. 

HC: That’s great! 

664 Medlar Tape Transcript Q-22 1/16/93 at 5-8. The OIC believes this 

conversation actually took place on January 15, 1993. See OIC Corroboration Chart 

for Q-22. 

IV-148 
• • • 

• • • 

HC: What - what - what will it do?


LM: . . . Truthfully? I’m - I’m not really sure. It’s something to do, his attorney has


- has done this before, and it has, it does have something to do with HUD. 

HC: Is that right? 

LM: Uh-huh. Has something to do with management of . . . 

HC: Of - of - of properties. 

LM: . . . of the HUD properties, yeah. 

LM:	 . . . Uh, Michael wanted me to talk to you and ask you exactly, you know, kind 

of what the ins and outs are of it. 

HC:	 I’ll find out. 

LM:	 You know, and who he has to talk to, and . . . . But he’s doing me a great favor 

just by doing the insurance and . . . said he’d try to work a deal where he can 

get my car insurance done through the company or something. 

HC:	 That’s great. 

LM:	 . . . you know, because they’ve seen what I’ve gone through this time. And 

then Patsy, naturally, is putting everything in her name. So, I told them if they 

needed any questions ask-, answered at least I could get the answers for them. 

HC:	Sure. 

LM:	 Ya know. 

IV-149

HC: Yep.665 

After Cisneros took office, Medlar and the Wootens continued their efforts to 

use him as their management company’s entry to HUD. Michael Wooten told the 

OIC that he called Cisneros at Medlar’s direction, knowing that Medlar had already 

spoken to him, and Cisneros told him that starting a HUD management company was 

a good idea.666 According to Wooten, Cisneros told him that his Senior Advisor 

Frank Wing would return the call to discuss the necessary steps.667 Wooten then 

spoke to Wing more than once to discuss HUD regulations and sources of 

information, and his proposed property management company.668 Wing and Wooten 

discussed an upcoming HUD contract that was to be awarded by HUD’s Dallas 

office.669 

Wooten further stated that Wing told him that it would be virtually impossible 

and would look too suspicious for a new company to win a lucrative HUD contract.670 

On the basis of this information from Wing, Michael Wooten said, he decided to work 

through an established management company instead of creating a new one.671 

Wooten also said that he abandoned the idea of creating a HUD property management 

company because it proved to be too complicated administratively; an easier route 

was to provide consulting and brokering services for established companies.672 

According to Wooten, Medlar was concerned about bringing in an outsider because 

665 Id. at 8-10. 

666 OIC Interview Report Michael Wooten 6/29/96 at 10. 

667 Id. 

668 Id.; OIC Interview Report Michael Wooten 7/12/96 at 2. 

669 OIC Interview Report Michael Wooten 7/11/96 at 11-12. 

670 OIC Interview Report Michael Wooten 7/11/96 at 11. 

671 OIC Interview Report Michael Wooten 6/29/96 at 11; OIC Interview Report 

Michael Wooten 7/11/96 at 12. 

672 OIC Interview Report Michael Wooten 6/29/96 at 11. 

IV-150 
she wanted to be sure she got paid, but she gave in to the idea because she needed the 

help.673 

Even before Wooten talked to Wing about starting a management company, his 

attorney Michael Carper had put him into contact with another Carper client, John 

Condit, who was the president of Domicile Property Management Company 

(“Domicile”), an experienced HUD contractor.674 According to Condit, Domicile was 

the largest HUD property management company in South Texas.675 Condit and 

Michael Wooten discussed the business of HUD property management on the 

telephone.676 Wooten said that Carper told Condit about Wooten’s relationship with 

Medlar.677 

However, Condit told the OIC that, although he knew that Medlar had had an 

affair with Cisneros, he “never knew,” before the date of his OIC interview, that 

Michael Wooten was Medlar’s nephew.678

 Condit claimed that, if he had known 

about Wooten’s relation to Medlar, he would not have dealt with him.679 Condit also 

claimed that Wooten never made any guarantees or offered to assert any influence in 

getting the HUD contract.680 

After one of his telephone discussions with Frank Wing, Wooten had a lunch 

meeting with Condit.681 According to Wooten, Condit said at the meeting that he 

673 OIC Interview Report Michael Wooten 7/12/96 at 4. 

674 OIC Interview Report Michael Wooten 6/29/96 at 10; OIC Interview Report 

Michael Wooten 7/11/96 at 10. 

675 OIC Interview Report Condit 8/28/96 at 2. 

676 OIC Interview Report Michael Wooten 7/11/96 at 10-11. 

677 Id. 

678 OIC Interview Report Condit 8/28/96 at 3. 

679 Id. 

680 Id. 

681 OIC Interview Report Michael Wooten 7/11/96 at 10-11;OIC Interview 

(continued...) 

IV-151 
wanted to have ten minutes of access to Cisneros to discuss a proposed HUD policy 

change.682 

At the lunch meeting, Wooten and Condit discussed the upcoming HUD 

management contract in West and South Texas that Domicile was bidding on.683 

Wooten told the OIC that he proposed that his company do refurbishing work for 

Domicile, but Condit was not willing to give up the lucrative refurbishing work, 

which was done by another of his companies.684 Instead, according to Wooten, they 

conceived the idea of Wooten’s company entering into a consulting contract for 

which it would receive a fee for helping Domicile with introductions, so that 

Domicile could be the vehicle through which he and Medlar would be paid on a 

percentage basis.685 

After the lunch meeting, Wooten called Cisneros more than once and told him 

Condit would call him about Domicile.686 According to Wooten, Cisneros said he 

would check out Domicile and get back to him or Medlar.687 Wooten told the OIC 

that Cisneros later got back to him directly or through Medlar and said that Domicile 

was a good company.688 

Medlar said she wanted something in writing before she spoke further to 

Cisneros. She reviewed a draft contract between Domicile and Michael Wooten’s 

company, and then said she would tell Cisneros about the bid, presumably referring 

681(...continued) 

Report Michael Wooten 6/29/96 at 10. 

682 OIC Interview Report Michael Wooten 7/11/96 at 10; OIC Interview Report 

Michael Wooten 7/12/96 at 4. 

683 OIC Interview Report Condit 8/28/96 at 2. 

684 OIC Interview Report Michael Wooten 7/11/96 at 12; OIC Interview Report 

Michael Wooten 7/12/96 at 1-2. 

685 OIC Interview Report Michael Wooten 7/11/96 at 12. 

686 OIC Interview Report Michael Wooten 6/29/96 at 11. 

687 Id. 

688 Id. 

IV-152 
to the upcoming HUD South and West Texas management contract.689 She later told 

Wooten that Cisneros was going to look at the Domicile bid.690 

Domicile faxed a contract between itself and Wooten’s company Oasis Energy 

Development and Services, Inc. (“Oasis”) to Wooten on March 31, 1993.691 The 

contract referenced a specific HUD bid solicitation for the South and West Texas 

Contract Areas.692 The Domicile/Oasis contract provided that Oasis would receive 

a “consulting fee” if Domicile were the successful bidder; the fee was to be 20% of 

Domicile’s net income received for management service on the projects awarded, or 

5% of gross income, whichever was higher.693 

When he was interviewed by the OIC, Condit initially said that Wooten was 

simply interested in obtaining rehabilitation and construction work from Domicile, 

and that he never heard from Wooten after the lunch meeting.694 Condit also said that 

he had only entered into a short agreement with Wooten for finder’s fees on 

properties that Domicile purchased.695 When he was confronted with the actual 

contract between Domicile and Oasis, Condit was unable to provide specific details 

of the agreement or to explain why he entered into it; he acknowledged that it “looks 

bad.”696 

Despite the signed contract, Michael Wooten claimed in his OIC interview that 

the plan of a HUD-related venture never got past the telephone call phase because it 

689 OIC Interview Report Michael Wooten 7/12/96 at 5. 

690 GJ (Lubbock) Tr. Michael Wooten 7/16/97 at 139-40. 

691 OIC Interview Report Michael Wooten 6/29/96 (attachment). 

692 Id. 

693 Id. 

694 OIC Interview Report Condit 8/28/96 at 1-2. 

695 OIC Interview Report Condit 8/28/96 at 2. 

696 OIC Interview Report Condit 8/28/96 at 3. 

IV-153 
was going to be too much of a business “hassle.”697 He stated that Medlar did not 

want her name on any of the documents associated with the business because she was 

worried that her connection to Cisneros would be discovered.698 Patsy Wooten told 

the OIC that the idea of obtaining HUD business through Medlar’s relationship never 

came to fruition, and she denied taking the matter seriously.699 

Sometime after the Domicile contract was faxed to Michael Wooten,700 Medlar 

received and taped a telephone call from Frank Wing that appears to address issues 

related to a pending HUD bid:701 

FW: Need to just give you a real quick update on something that the secretary has 

asked me to kind of uh look into. 

LM: The secretary, okay. (laughing). Okay. 

(Call breaks) 

FW: Domicile. An excellent company. 

LM: M-huh. 

FW:	 Has done uh, uh, exceptional work in, uh, in San Antonio and other areas. (call 

breaks) An excellent chance of the uh, with the uh, the uh, proposal they have 

before the uh, regional office. 

LM: Oh for Fort Worth.


FW: Mhuh.


LM: Okay.


697 OIC Interview Report Michael Wooten 6/29/96 at 11.


698 Id.; GJ 97-1 Tr. Michael Wooten 7/16/97 at 147-48.


699 OIC Interview Report Patsy Wooten 6/30/96 at 12.


700 OIC Interview Report Michael Wooten 7/11/96 at 11.


701 In this transcript, “FW” stands for Frank Wing.


IV-154 
• • • 

• • • 

FW: And, uh, as I uh, as I go through this a little bit more . . . 

LM: Mhuh. 

FW:	 . . . then I’ll be able to uh, this is just uh, a preliminary thing that we did uh, so 

that we could report back right away then uh, we’re going to follow up on it, 

as it, as it goes up the process. 

LM:	 Okay, okay, well. I thank you for the information and uhm, then Henry’s 

gonna, or you’re gonna follow up on it. 

FW:	 Yes, I, I’ll be doin’ it. Yeah. 

LM:	 That’s okay. Do, do you have any idea when a decision will be made on this 

region, uhm, on the Fort Worth Regional Proposal. 

FW:	 No, that’s my next follow-up. 

LM:	 Okay. 

FW:	 Okay, I uh, I uh, I have to, you know, kinda gingerly (laughs). 

LM:	 I know. 

FW:	 Win my way through those things. 

LM:	 I know. 

FW:	 If you know what I mean. 

LM:	 Yeah I do. Okay, well. 

FW:	 But I’ll, I’ll do it as soon as possible, okay. 

LM:	 Okay. 

IV-155 
FW: Alrighty. 

LM: I thank you.702 

After reviewing the transcript of this conversation between Medlar and Wing, 

Wooten told the OIC that he did not know that the matter had become that serious, 

that he did not have additional contact with Domicile after the contract was executed, 

and that he never received money from the company.703 Wooten said that he quit 

pushing HUD business and that Medlar “dropped the ball.”704 According to Condit, 

Domicile eventually dropped out of the bidding for the HUD contract for reasons 

unrelated to Wooten or Medlar.705 

The FBI interviewed Wing on January 2, 1995 as part of DOJ’s preliminary 

investigation.706 Wing recalled that Medlar was looking for business for a family 

lighting company he described as “W T.”707 This was clearly a reference to the 

Wootens’ company, West Texas Lighting (“WTL”).708 Wing said that he told Medlar 

702 Medlar Tape Transcript Q-18 (Undated) at 1-3. While undated, this 

transcript contains a reference to Cisneros traveling to Florida. After being shown 

the transcript, Wing told the FBI that he thought this could refer to Cisneros’s trip to 

Florida after Hurricane Andrew struck. FBI-302 Wing 1/2/95 at 5. The FBI-302 put 

the probable date of the conversation as occurring between February and May 1993. 

Id. Hurricane Andrew actually hit South Florida in late August 1992, before Cisneros 

took office. Washington Post, “Hurricane rips Miami area, aims at Gulf States” 

8/25/92. However, Cisneros traveled to South Florida to assess the situation in late 

February or early March 1993. White House Transcript of Interview of President 

Clinton by Southern Florida Press 3/13/93. 

703 OIC Interview Report Michael Wooten 6/29/96 at 11. 

704 OIC Interview Report Michael Wooten 7/11/96 at 12. 

705 OIC Interview Report Condit 8/28/96 at 2. 

706 FBI-302 Wing 1/2/95. 

707 Id. at 4. 

708 WTL was the Wootens’ lighting company with an office in Lubbock, Texas. 

Medlar was an employee of WTL for short periods of time, including a few months 

(continued...) 

IV-156 
that he would look into a HUD contract in the Fort Worth area that was of interest to 

her but claimed that he had never traveled to or contacted the Fort Worth Regional 

Office to look into the matter on behalf of Medlar.709 Wing informed the FBI that he 

had never intended to assist Medlar through his HUD connections, but instead had 

just told Medlar what she wanted to hear to calm her down.710 

On December 12, 1996, the OIC interviewed Frank Wing regarding Domicile 

and other matters.711 Wing told the OIC that he was not familiar with Oasis or 

Michael Wooten.712 He stated that he was uncertain about Michael Wooten’s 

connection to WTL.713 Wing further stated that had never heard of Domicile and was 

uncertain about its principals, business purpose, or location.714 He claimed that he 

had never had any dealings with Domicile, directly or indirectly, and did not recall 

speaking with Medlar regarding any matter involving Oasis or Domicile.715 He 

maintained that he knew nothing of Medlar’s involvement in any business dealings 

708(...continued) 

in early 1993 and another period in late 1993 or early 1994. OIC Interview Report 

Michael Wooten 6/29/96 at 5; OIC Interview Report Patsy Wooten 6/30/96 at 2. 

709 Id. at 5. 

710 Id. 

711 Wing was represented by counsel when DOJ interviewed him on January 2, 

1995 during its preliminary investigation before the appointment of the Independent 

Counsel. FBI-302 Wing 1/2/95. The OIC determined that, because it was conducting 

an investigation separate from DOJ’s, it did not need to notify Wing’s counsel before 

interviewing Wing in January 1996. Wing did not request that counsel be present at 

the OIC interview. Wing’s counsel later objected to the fact that he had not been 

informed in advance of the interview. 

712 OIC Interview Report Wing 12/16/96 at 6. 

713 Id. 

714 Id. 

715 Id. 

IV-157 
involving Oasis, Domicile, and HUD.716 He also stated (contrary to what he told the 

FBI on January 2, 1995) that did not recall discussing any HUD matter with Medlar, 

including potential bids on HUD contracts, or any matter concerning a business 

transaction she was contemplating with her family members that involved HUD 

properties or their management.717 He further asserted that he had not, at any time, 

assisted Medlar with any matter involving HUD or Domicile, including meetings and 

telephone calls.718 

In his 1996 OIC interview, Wing admitted that he had met with Condit on one 

occasion (possibly the Summer of 1996), but claimed that he did not know that 

Condit was affiliated with Domicile.719 According to Wing, the meeting was fairly 

short and concerned a “perceived problem” that Condit then had with HUD 

concerning a property located in Del Rio, Texas.720 Wing informed the OIC that he 

had not felt that Condit’s problem had any connection to HUD and did not take any 

action on Condit’s behalf.721 The meeting was arranged by Roger Perez, who was 

Cisneros’s brother-in-law.722 According to Wing, Perez described Condit as a 

friend.723 

The OIC agents interviewing Wing advised him that, in 1993, Medlar had 

taped one of their phone conversations – the conversation quoted above concerning 

Domicile and a pending HUD proposal.724 Wing read the transcript of the call and 

716 Id. 

717 Id. at 6-7; FBI-302 Wing 1/2/95 at 4-5. 

718 Id. at 6. 

719 OIC Interview Report Wing 12/16/96 at 6. 

720 Id. 

721 Id. 

722 Id. 

723 Id. 

724 Id. at 13; Medlar Tape Transcript Q-18 (Undated). Although undated, the 

OIC believes this conversation actually took place around March 1993. 

IV-158 
claimed he could not recall speaking with Medlar regarding that subject matter.725 

Wing was also advised that the OIC had obtained phone records indicating that he 

had called the Wootens’ place of business, WTL, where Medlar was an intermittent 

employee.726 Wing claimed that he could not recall ever, at any time, speaking with 

Michael Wooten regarding any matter.727 However, Wing acknowledged that Medlar 

had asked him to use his political influence and contacts to obtain business for 

WTL.728 

Domicile submitted a bid on the same HUD proposal referenced in the Oasis 

contract.729 The bids were evaluated at HUD’s Source Evaluation Board (“SEB”) in 

Fort Worth, Texas.730 On July 30, 1993, the SEB narrowed the field to three 

bidders.731 Domicile was not one of them and, in fact, was specifically listed as one 

of the contractors not in the competitive range.732 However, Medlar said that Wing 

725 OIC Interview Report Wing 12/16/96 at 13. 

726 Id.; Report of Calls From Wing at 78 (12/6/93 call from Wing to WTL for 

2 minutes); Id. at 79 (12/18/93 call from Wing to WTL for 1 minute); Id. (12/20/93 

call from Wing to WTL for 1 minute); Id. at 87 ( 8/14/94 call from Wing to WTL for 

10 minutes). Wing also called Michael Wooten on 4/1/93. Id. at 71. Furthermore, 

Wing received numerous calls from WTL. Report of Calls to Wing at 67 (4/1/93 call 

from WTL to Wing for 1 minute); Id. at 76 (10/21/93 call from WTL to Wing for less 

than 1 minute); Id. (11/1/93 call from WTL to Wing for less than 1 minute); Id. at 77 

(11/15/93 call from WTL to Wing for less than 1 minute); Id. at 78 (12/6/93 call from 

WTL to Wing for less than 1 minute); Id. at 79 (12/17/93 call from WTL to Wing for 

1 minute); Id. (12/21/93 call from WTL to Wing for less than 1 minute). 

727 OIC Interview Report Wing 12/16/96 at 6. 

728 Id. at 9. 

729 HUD Reply Letter to Domicile 11/5/93. 

730 Initial Report of SEB 7/30/93. 

731 Id. 

732 Id. 

IV-159 
had told her that, although Domicile had not made the “first cut,” there would be 

another review of the matter in which they would make the cut.733 

Less than one month later, HUD employee Sandra Carson lowered the cutoff 

score to include Domicile and another bidder.734 On August 26, 1993, Carson wrote 

Domicile asking for additional information.735 Ultimately, Domicile did not receive 

the contract. 

Carson told the OIC that she alone determined that it was necessary to lower 

the competitive range on the HUD contract and claimed that she did so without any 

instructions or pressure from anyone.736 When asked by the OIC about lowering the 

cutoff score in the face of the SEB recommendations, Carson responded that it was 

not uncommon for her to expand the competitive range to include additional 

contractors that might be able to raise their scores.737

 However, when asked to 

identify another occasion when she lowered or expanded the competitive range, 

Carson could not specifically recall another instance in which it had occurred.738 

Carson also claimed that her August 26, 1993 letter requesting additional information 

from Domicile did not “affect the proposal” and stated that “you can always request 

clarifications” to a proposal that do not alter a proposal.739 Carson, however, could 

not explain why the letter was prepared and admitted that the letter was “unusual.”740 

The OIC advised her that phone records obtained by the OIC showed that 

someone in Carson’s branch (the contracting branch) of the Fort Worth HUD office 

had called Wing directly 14 times around the period of time that Carson widened the 

733 OIC Interview Notes Medlar 3/30/99 at 1. 

734 Determination of Competitive Range 8/24/93; OIC Interview Report Carson 

5/6/96 at 2. 

735 Letter from Carson to Domicile/Condit 8/26/93. 

736 OIC Interview Report Carson 5/6/98 at 2. 

737 Id. 

738 Id. 

739 Id. at 2-3. 

740 Id. 

IV-160 
competitive range to include Domicile.741 Carson stated that she would be “shocked” 

if that were true; she could not explain why she or anyone in her branch would want 

to talk to Wing, and stated that calling Wing would “be like calling Cisneros.”742 The 

OIC’s investigation found no similar pattern of calls between Carson’s office and 

Wing’s office at any other time.743 

Although the evidence reviewed above suggests that Cisneros or Wing had 

improperly sought to divert HUD business to Domicile to benefit Medlar, her family, 

and Cisneros, there was insufficient evidence to prove beyond a reasonable doubt that 

such a scheme was implemented. Specifically, there was insufficient evidence that 

Cisneros or Wing attempted to influence the SEB’s evaluation or selection of 

proposals for the benefit of Medlar. Therefore, OIC did not bring charges against 

Cisneros, Wing, Medlar, or the Wootens in connection with the Domicile 

investigation. 

c. Payments to Medlar from Cisneros’s Friend Jaffe 

Cisneros paid Medlar over $79,500 in 1993.744 By November 1993, Cisneros’s 

friend, Morris Jaffe, began to provide assistance to Medlar on Cisneros’s behalf.745 

741 Domicile Phone Records at 14-15 (showing 14 calls from HUD’s Fort 

Worth Office to Wing between 8/17/93 and 9/2/93); OIC Interview Report Carson 

5/6/98 at 3. 

742 OIC Interview Report Carson 5/6/98 at 3. 

743 See generally Cisneros Event Chronology; Domicile phone records at 14-15. 

744 OIC Chart of 1993 Payments to Medlar. 

745 Medlar Tape Transcript Q-27 12/93 at 2-3. The OIC believes this 

conversation actually took place on November 4, 1993. See OIC Corroboration Chart 

for Q-27.

 The Attorney General’s March 13, 1995 Application for the Appointment of 

an Independent Counsel specifically excluded allegations that Cisneros had received 

money from Jaffe and others as a gratuity in violation of 18 U.S.C. § 201. GJ 00-001 

Ex. 3. The OIC therefore did not investigate possible gratuity offenses involving 

Jaffe or anyone else. However, the OIC did look into payments Jaffe made to the 

(continued...) 

IV-161 
• • • 

In their interviews with the OIC, Medlar and Michael Wooten stated that they 

understood that Jaffe was willing to give Medlar money to help Cisneros. According 

to Medlar, in early 1994 Wing told her that Jaffe wanted to help Cisneros and that he 

would give her $20,000 to cover five payments.

746 Michael Wooten stated that he 

was aware that Jaffe had given Medlar money to benefit Cisneros.747 

Cisneros was aware of Jaffe’s assistance to Medlar. Medlar told the OIC that, 

in around November of 1993, Cisneros spoke to her of borrowing a large sum of 

money, maybe $250,000, from Jaffe to make a final lump sum payment to her; Jaffe 

spoke to her cryptically about this money when she called him, and then sent her a 

$5,000 check marked “loan.”748 During a recorded telephone conversation that took 

place on or about November 4, 1993, Medlar told Cisneros that Jaffe had recently 

sent her a check for $5,000: 

HC: What do you need right this minute? 

LM: I don’t need anything quite frankly because Morris sent me a check. 

HC: Okay. A check? 

LM: Yeah. 

HC: A check? 

LM: A check. 

HC: Jesus. (Laughing) 

745(...continued) 

extent that they related to a possible conspiracy to defraud and commit offenses 

against the United States, which was within the Independent Counsel’s jurisdiction. 

GJ 00-001 Ex. 4 at 2. 

746 OIC Interview Notes Medlar 1/30-31/96 at 1. 

747 OIC Interview Report Michael Wooten 6/29/96 at 8. 

748 OIC Interview Report Medlar 2/22/96 at 2. 

IV-162 
• • • 

HC: How much was it? 

LM: Five. Which I do need this month because I’ve got some medical bills 

HC: Let me tell you something, can I, I mean, this guy . . . this guy’s a savior . . . .749 

The OIC obtained a copy of a check dated November 3, 1993 from Jaffe to 

Medlar for $5,000.750 The memo section of the check contains the notation “loan.”751 

Medlar deposited the check in her bank account.752 The OIC also uncovered a 

December 10, 1993 check from Jaffe to Medlar for $2,000, likewise designated as a 

“loan,” that Medlar cashed.753 

Around the same time, in late 1993 or early 1994, Medlar told Michael Wooten 

that Cisneros was behind in his monthly payments to her and that Jaffe had agreed to 

pay Medlar $20,000 to assist Cisneros.754 Medlar told Michael Wooten that the 

money had to be picked up from Jaffe in person, but that she was scared that if she 

went herself she would “disappear.”755 According to Michael Wooten, he agreed to 

749 Medlar Tape Transcript Q-27 12/93 at 9-10. The OIC believes this 

conversation actually took place on November 4, 1993. See OIC Corroboration Chart 

for Q-27. 

750 11/3/93 Groos Bank, N.A. check #1069 for $5,000. 

751 Id. 

752 11/4/93 FNB deposit slip for $5,000 check designated “Jaffe;” 11/4/93 FNB 

receipt for $5,000; 11/15/93 FNB statement. 

753 12/10/93 Groos Bank, N.A. check #1105 for $2,000; 12/13/93 FNB deposit 

slip for $2,000 check from “Jaffe” less $100 cash. 

754 OIC Interview Report Medlar 1/30-31/96 at 1; OIC Interview Report 

Michael Wooten 6/29/96 at 9; OIC Interview Report Michael Wooten 7/11/96 at 3-4. 

755 OIC Interview Report Michael Wooten 6/29/96 at 9; OIC Interview Report 

Michael Wooten 7/11/96 at 4. 

(continued...) 

IV-163 
travel to San Antonio to meet with Jaffe on Medlar’s behalf, believing that meeting 

Jaffe also presented a good business opportunity for WTL.756 

Michael Wooten traveled to San Antonio on January 12, 1994, and met with 

Morris Jaffe and his son Doug.757 Wooten told the OIC that he delivered a letter from 

Medlar to Morris Jaffe.758 Wooten did not know the contents of the letter, but Morris 

Jaffe read it in his presence, and stated that it would not be a good idea for Medlar to 

go public regarding the payments from Cisneros.759 According to Wooten, Morris 

Jaffe then said that he did not want to get into trouble for paying money to Medlar 

and that he had just spent over $1,000,000 on the successful defense of Doug Jaffe 

for an unrelated criminal charge.760 Wooten also told the OIC that Morris Jaffe said 

that he did not want to know how much money Medlar was going to get and that the 

transaction needed to “look legit.”761 According to Wooten, Jaffe also told him 

755(...continued) 

In Medlar’s September 28-29, 1994 interview with the FBI, she stated that she 

was afraid of Morris Jaffe and what he might do to her and her daughter. FBI-302 

Medlar 9/28-29/94 at 3. Medlar also told the OIC she had heard that Jaffe was 

associated with organized crime and that people who crossed him turned up missing 

or dead. OIC Interview Notes Medlar 4/7/99 at 6-7. Medlar told the OIC that, when 

she relayed these stories to Cisneros, he told her that he did not doubt them. Id. 

756 OIC Interview Report Michael Wooten 6/29/96 at 9; OIC Interview Report 

Michael Wooten 7/11/96 at 3. 

757 FBI-302 Michael Wooten 10/4/94 at 1. 

758 OIC Interview Report Michael Wooten 7/11/96 at 4-5; OIC Interview 

Report Michael Wooten 6/29/96 at 9. 

759 OIC Interview Report Michael Wooten 6/29/96 at 9; OIC Interview Report 

Michael Wooten 7/11/96 at 5. 

760 It appears that Morris Jaffe was referring to the November 1992 acquittal 

of Doug Jaffe on charges that he violated federal campaign contribution laws. 

Houston Chronicle, “Donors cleared in FEC case” 11/8/92. 

761 OIC Interview Report Michael Wooten 7/11/96 at 5. 

IV-164 
that he was doing a “favor” for Cisneros and that Cisneros was a “good man and 

should not be brought down by this.”762 

Michael Wooten also told the OIC that he and Jaffe explored the idea of Jaffe 

finding work for WTL as a way to channel funds to Medlar and thereby benefit 

Cisneros.763 According to Wooten, Jaffe suggested that he might have some lighting 

surveys that WTL could perform, and Wooten and Doug Jaffe went to lunch to work 

out the details.764 Wooten told the OIC that Doug Jaffe said he wanted invoices for 

the lighting surveys, at which time he would provide Wooten with a check.765 

According to Wooten, after lunch Doug Jaffe directed him to go to one of the 

Jaffes’ buildings and talk to the property manager about a lighting survey.766 

However, Wooten testified that when he arrived at the property the manager told him 

that Jaffe was a minority holder in the business and did not have the authority to 

authorize the audit.767 According to Wooten, it was clear to him by then that the idea 

of the lighting surveys was a sham business deal.768 

Wooten stated to the OIC that Medlar was upset that he did not bring back any 

money from the Jaffes.769 According to Wooten, Medlar subsequently called Doug 

Jaffe to complain and Doug Jaffe told her that he would mail her a check.770 Wooten 

762 Id. 

763 GJ (Lubbock) Tr. Michael Wooten 7/16/97 at 62-66. 

764 OIC Interview Report Michael Wooten 7/11/96 at 6. 

765 Id. 

766 Id. 

767 Id. 

768 OIC Interview Report Michael Wooten 7/11/96 at 6. 

769 Id. at 7. 

770 Id. 

IV-165 
also claimed to the OIC that Medlar called Cisneros, who told her that he would call 

Jaffe about the problem.771 

Approximately two weeks later, a check from Morris Jaffe made out to WTL 

in the amount of $12,000 arrived at the WTL offices.772 The check was deposited into 

the WTL business account.773 Wooten deducted his travel expenses totaling about 

$1,500 from the $12,000 and gave the remainder to Medlar.774 According to Wooten, 

WTL invoices were subsequently prepared and sent to the Jaffes for the lighting 

surveys that were never performed.775 

The OIC also interviewed Morris Jaffe regarding the WTL transaction. Jaffe 

told the OIC that Medlar had set up his meeting with Michael Wooten to discuss 

potential lighting work for WTL.776 Jaffe maintained that the check to WTL was 

payment for work performed by WTL and not a loan or advance to Medlar.777 When 

asked if WTL had ever performed the lighting surveys, Jaffe responded that if the 

surveys had not been performed it was “news to him.”778 However, Jaffe also told the 

OIC that there was “no question” that the WTL transaction was done to help Medlar, 

in that she had a business interest in WTL,779 and because “Henry was our [Jaffe’s and 

771 Id. 

772 Id.; OIC Interview Report Michael Wooten 6/29/96 at 9; Check #1556 for 

$12,000 dated 1/25/94 made to West Texas Lighting signed by Morris Jaffe. 

773 Id. 

774 Check #471 dated 1/26/94 for $10,648 drawn on WTL’s account at ABC 

Bank; OIC Interview Report Michael Wooten 6/29/96 at 9; OIC Interview Report 

Michael Wooten 7/11/96 at 7. 

775 OIC Interview Report Michael Wooten 6/29/96 at 9-10; OIC Interview 

Report Michael Wooten 7/11/96 at 7. 

776 OIC Interview Report Morris Jaffe 5/6/97 at 7. 

777 Id. at 8. 

778 Id. at 9. 

779 Id. Medlar worked intermittently as a salaried employee for WTL in early 

(continued...) 

IV-166 
Wing’s] friend and we didn’t want to hurt him.”780 He also recalled a conversation 

with Medlar shortly after Wooten’s trip to San Antonio, during which Medlar told 

him that she was no longer involved with WTL and that she had never received any 

of the money Jaffe paid WTL.781 

Jaffe admitted to the OIC that he had attempted to assist Medlar in finding a 

job on several occasions. He said he tried to get Medlar a job at a travel agency and 

sent Medlar an advance of either $2,000 or $4,000.782 Jaffe also told the OIC that he 

attempted to get Medlar jobs at a radio station,783 a jewelry store,784 and a beer 

distributor.785 Jaffe also stated he contacted a friend, “Spike” Late, about getting 

779(...continued) 

1993 and again in late 1993 or early 1994, but was neither an owner nor a shareholder 

in the business. OIC Interview Report Patsy Wooten 6/30/96 at 2 (stating Medlar 

worked at WTL on occasion for several months for approximately $350 per week); 

OIC Interview Report Michael Wooten 6/29/96 at 5 (stating Medlar worked for three 

months for WTL starting in February 1994 for $250-300 per week). 

780 OIC Interview Report Morris Jaffe 5/6/97 at 9. 

781 Id. 

782 OIC Interview Report Morris Jaffe 5/6/97 at 3. 

783 Id. The OIC interviewed William Franklin Warnick regarding this matter. 

OIC Interview Report Warnick 1/28/97. Warnick did not know Jaffe personally but 

assumed that Jaffe got his name from one of the politicians that he worked with on 

the Texas School Land Board. Id. at 1. Warnick had also represented an individual 

in the purchase of a radio station in the late 1970s or early 1980s. Id. According to 

Warnick, Jaffe called him and said he needed Warnick to do Cisneros a favor and 

“put this lady to work.” Id. at 1. Warnick recalled Jaffe asking him to get Medlar a 

job doing public relations work or at a radio station. Id. at 1, 2. Warnick told Jaffe 

he did not need any help at the time. Id. at 1. Warnick informed the OIC that Jaffe 

had said that the hiring of Medlar would benefit Cisneros. Id. 

784 OIC Interview Report Morris Jaffe at 4. 

785 Id. The OIC interviewed Robert Allen Gentry regarding this matter. OIC 

Interview Report Gentry 1/30/97. Gentry owned Great Plains Distributors and 

recalled Jaffe telling him, “I have a friend in Lubbock who needs a job.” Id. at 1-2. 

(continued...) 

IV-167 
Medlar a job at Late’s car dealership.786 According to Jaffe, Late said he would hire 

Medlar, so Jaffe advanced Late $1,500 in cash to give to Medlar with the instruction 

that Late was not to tell Medlar that Jaffe was the true source of the money.787 Jaffe 

told the OIC that this was the only cash he had ever given Medlar.788 

785(...continued) 

Gentry stated that Jaffe did not mention Cisneros during the conversation. Id. at 2. 

According to Gentry, Medlar contacted him and said that she was interested in 

position in “public relations and politics.” Id. Gentry responded that he did not have 

an opening for someone in those areas. Id. 

786 OIC Interview Report Morris Jaffe 5/6/97 at 4. 

787 Id. The OIC interviewed John Steven Late regarding this matter. OIC 

Interview Report Late 8/29/96. Late claimed that Jaffe told him that Cisneros was in 

Washington, D.C. and was “broke.” Id. at 2. Late told the OIC that Jaffe went on to 

state that Medlar was “after [Cisneros] all the time” and will not “get off his back.” 

Id. According to Late, Jaffe then asked him if he could get Medlar a job. Id. Late 

owned a car dealership and called Medlar on several occasions to see if she would be 

interested in doing some advertising for the dealership. Id. Late stated that he set up 

several meetings with Medlar, but she always canceled. Id. Late told the OIC that, 

after Medlar had canceled several appointments, Jaffe called him and stated “we have 

a problem, you haven’t found that girl a job.” Id. Late stated that he explained the 

situation to Jaffe, Jaffe became angry at Medlar, and told him that he would look to 

find her a job elsewhere. Id. at 2-3. According to Late, a short time later, Jaffe gave 

him $1,500 in cash to give to Medlar. Id. at 3. Late told the OIC that he sent the 

money to Medlar but did not tell her that it was from Jaffe; he claimed that he was 

trying to “protect” Jaffe’s identity. Id. 

788 OIC Interview Report Morris Jaffe 5/6/97 at 4. 

IV-168 
Jaffe’s Payments to Medlar 

Payment Date Payment Amount 

Summer 1993 $1,500789 

November 3, 1993 $5,000 

December 13, 1993 $2,000 

January 25, 1994 $12,000790 

TOTAL $20,500 

d.	 Cisneros’s Senior Advisor’s Interaction with Medlar 

and Jaffe 

Cisneros’s friend and Senior Advisor Frank Wing appears to have become 

directly involved in the efforts to placate Medlar. Wing told the OIC that, when 

Medlar asked for his help in finding her a job in March or April of 1993, he contacted 

Jaffe and asked him to find work for Medlar.791 According to Wing, Jaffe tried to find 

Medlar a job as a favor to him, not Cisneros; however, Wing said he “probably 

mentioned” to Cisneros that he had enlisted Jaffe’s assistance.792 

789 Jaffe was the source of this cash payment even though it was mailed to 

Medlar through Steve Late. OIC Interview Report Morris Jaffe 5/6/97 at 4. 

790 As previously discussed, Jaffe made this check out to WTL for lighting 

services that were never performed. When making the plans that resulted in this 

check, Jaffe told Michael Wooten that he did not want to know how much money 

Medlar was going to get. OIC Interview Report Michael Wooten 7/11/96 at 5. 

Medlar actually received $10,648 after Wooten subtracted his travel expenses. Check 

#471 dated 1/26/94 for $10,648 drawn on WTL’s account at ABC Bank. 

791 OIC Interview Report Wing 12/16/96 at 7. 

792 Id. at 8-9. 

IV-169 
Jaffe claimed that Wing had asked him to help Medlar find a job because 

Medlar was giving Cisneros “hell.”793 Jaffe said that Wing told him that Medlar was 

telephoning HUD every day and that he (Wing) was having to intercept her calls and 

facsimiles.794 Jaffe also told the OIC that Wing had told him that while Cisneros was 

still living in San Antonio, Medlar had gone to Cisneros’s house in the early morning 

and attempted to cause a scene.795 

However, Wing denied that he was a “go-between” for Medlar, Cisneros, and 

Jaffe regarding any financial matter.796 Wing said that on one occasion Jaffe lent 

Medlar some money, but Wing claimed he did not ask Jaffe to make the loan.797 The 

interviewing agents showed Wing a letter dated September 6, 1996 from Jaffe to 

Medlar in which Jaffe requested that Medlar repay a loan.798 The first sentence of the 

letter states: “As you are aware, Frank Wing asked me to loan you some money and 

that you would repay it once you were employed.”799 Wing was unable to explain 

why Jaffe said the loan was made at his request. Wing denied asking Jaffe to give 

financial assistance to Medlar800 and concluded that Jaffe must have made the loan 

as a favor to Cisneros.801 

The agents also showed Wing a transcript of a phone call between Medlar and 

Cisneros recorded November 4, 1993 during which Cisneros stated that Wing was 

793 OIC Interview Report Jaffe 5/6/97 at 3. 

794 Id. 

795 Id. 

796 OIC Interview Report Wing 12/16/96 at 8. 

797 Id. 

798 Id. 

799 Letter from Jaffe to Medlar 9/6/96. 

800 OIC Interview Report Wing 12/16/96 at 8. 

801 Id. 

IV-170 
going to meet with Jaffe in San Antonio to discuss ways to help Medlar financially.802 

Wing’s HUD travel records indicate that he visited San Antonio on December 14, 

1993.803 Wing could not explain to OIC why his name came up in conjunction with 

a financial transaction involving Cisneros, Medlar, and Jaffe, and stated that Cisneros 

never asked him to travel anywhere on any matter involving Medlar.804 

Wing also told the OIC that he did not learn of Cisneros’s payments to Medlar 

until sometime in 1994.805 Wing claimed that, even though Medlar had called him 

trying to get for money from Cisneros, he had no idea that Cisneros had been making 

regular monthly payments to her.806 According to Wing, Medlar never told him about 

the payments and he never questioned Cisneros about his financial dealings with 

Medlar.807 

The interviewing agents asked Wing to review two facsimiles that Medlar sent 

to Cisneros at HUD.808 The faxes made no explicit mention of the payments, but 

referred to “the matter at hand,” to “a plan you were going to take care of,” and, 

several times, to “our agreement.”809 One fax also demanded that Cisneros respond 

to Medlar regarding the agreement personally or through “a representative (F or 

802 Id. at 13; see Medlar Tape Transcript Q-27 12/93 at 7-12. The OIC believes 

this conversation actually took place on November 4, 1993. See OIC Corroboration 

Chart for Q-27. 

803 12/14/93 HUD Travel records including 12/14/93 plane ticket to San 

Antonio. 

804 OIC Interview Report Wing 12/16/96 at 9, 14. 

805 Id. at 3. Specifically, Wing claimed that he learned about the payments 

when Medlar filed her civil lawsuit against Cisneros. Id. 

806 OIC Interview Report Wing 12/16/96 at 5. 

807 Id. at 5. 

808 Both documents are handwritten, in letter format, and addressed to Henry 

Cisneros at the “Office of HUD.” One letter is labeled “personal-confidential” and 

addressed to a Washington, D.C. phone/fax number. The other references “my last 

fax.” GJ 97-1 Ex. 490. 

809 Id. 

IV-171 
M).”810 Wing reviewed the faxes and denied ever seeing either document and further 

denied that he had any knowledge of Medlar faxing, mailing, wiring, or delivering 

any documents to Cisneros while he was at HUD.811 

However, Charlene J. Anderson, a Cisneros staff assistant at HUD, recalled 

taking a fax from Medlar addressed to Cisneros from the HUD fax machine and 

delivering it directly to Wing, who had been concerned about who else had seen it.812 

Anderson told the OIC that the fax contained a statement about money and 

instructions to Cisneros that if he “[did] not comply” with the demand for money, 

Medlar “[would] have no other choice.”813 

Anderson also told the OIC that Cisneros telephoned her after she had 

delivered the fax to Wing; Cisneros asked who had taken the fax from the machine 

and what had happened to it after it was received.814 Anderson said that Cisneros had 

apologized for involving her in his dealings with Medlar.815 

Anderson further related that Wing directed her to transfer all of Medlar’s calls 

to him instead of Cisneros and instructed her not to log Medlar’s calls into the official 

HUD message booklet.816 According to Anderson, Wing wanted Medlar’s messages 

recorded on plain paper.817 

810 “F or M” are not identified by Medlar in the fax. However, given their 

relationship to Cisneros and their role in obtaining money for Medlar, the OIC 

surmised that “F or M” stood for Frank Wing or Morris Jaffe. 

811 OIC Interview Report Wing 12/16/96 at 5. 

812 OIC Interview Report Anderson 8/21/96 at 3; OIC Interview Report 

Anderson 9/30/97 at 1. 

813 OIC Interview Report Anderson 8/21/96 at 3. 

814 OIC Interview Report Anderson 9/30/97 at 1. 

815 Id. 

816 OIC Interview Report Anderson 8/21/96 at 2. 

817 Id. 

IV-172 
Wing told the OIC agents that he took it upon himself to deal with Medlar 

because he did not want Medlar to hurt Cisneros or Cisneros’s family.818 Wing 

admitted that he instructed Anderson to forward all of Medlar’s calls to him, but he 

denied instructing anyone at HUD not to record Medlar’s calls in the official log.819 

6. Disclosure of the False Statements 

Cisneros’s false statements became public knowledge in 1994 when Medlar 

stated her case on national television and sued him because his payments to her 

stopped. By this time, she had edited and rerecorded the audiotapes she had made of 

her conversations with Cisneros. She later surrendered the tapes to interested 

government officials without disclosing that they were modified copies. 

a. Medlar Sues Cisneros 

By January 1994, Medlar had received her last payment from or on behalf of 

Cisneros.820 Unable to pay her mortgage and facing foreclosure, Medlar was forced 

to sell her house – through the Wootens, the nominal owners.821

 In late June 1994, because she had not been receiving money either directly 

or indirectly from Cisneros since the beginning of the year, Medlar decided to consult 

with a bankruptcy attorney, Bruce Magness, whom she had chosen from a Yellow 

Pages advertisement.822 Medlar told Magness that she had received payments from 

Cisneros for years pursuant to an oral agreement to give her $4,000 per month until 

her daughter graduated from college.823 She also informed Magness that she had 

818 OIC Interview Report Wing 12/16/96 at 4. 

819 Id. at 4-5. 

820 FBI-302 Medlar 9/28/94 at 5. 

821 OIC Interview Report Patsy Wooten 1/6-8/98 at 3, 4, 8. Medlar had made 

all of the monthly mortgage payments on the house until this point. See checks dated 

March 1993 - June 1994 from Medlar’s FNB account to Fleet Mortgage Company. 

822 Suppression Hearing Tr. Medlar 6/21/99 at 168-71. 

823 GJ (Lubbock) Ex. 1 (Medlar’s original petition filed 7/29/94 in Medlar v. 

(continued...) 

IV-173 
recorded conversations with Cisneros.824 Magness suggested that she had a possible 

lawsuit against Cisneros,825 and Medlar gave some of the tapes to Magness for his 

review.826 

Magness associated Floyd Holder, a trial attorney in Lubbock, Texas, to help 

advise Medlar.827 Holder listened to some of the tapes,828 and then he and Magness 

suggested that Medlar could sue Cisneros for breach of contract.829 They also told 

Medlar that the tapes could be the basis for a story that could be sold to the media.830 

On July 29, 1994, Medlar filed a civil lawsuit against Cisneros in the District 

Court of Lubbock County, Texas.831 Medlar’s petition sought damages for breach of 

contract and fraud, arising from Cisneros’s alleged promise to support her 

financially.832 For tactical reasons, the petition did not disclose that she had audio 

recordings of some of her conversations with Cisneros.833 

823(...continued) 

Cisneros, No. 94-547854) at 6. 

824 Suppression Hearing Tr. Medlar 6/21/99 at 168-71. 

825 Id. at 171-72. 

826 Id. at 172-73. 

827 Id. at 174-76. 

828 Id. at 176-77. 

829 Suppression Hearing Tr. Medlar 6/22/99 at 143-44. 

830 Id. at 144. 

831 GJ (Lubbock) Ex. 1 (Medlar’s original petition filed 7/29/94 in Medlar v. 

Cisneros, No. 94-547854). 

832 Id. 

833 Suppression Hearing Tr. Medlar 6/21/99 at 187-89. 

IV-174 
On the same day, July 29, 1994, Cisneros issued a press release through the 

HUD Public Affairs Office addressing the suit.834 In the press release, Cisneros 

acknowledged his former romantic relationship with Medlar and his past financial 

assistance to her; however, he denied any legal obligation to her.835 The press release 

further stated, contrary to fact, that “I have not provided any assistance since 

assuming office in January of 1993.”836 Similarly, Cisneros was subsequently quoted 

as saying: “There was never any mutual agreement for monthly payments of $4,000 

or any other amount. I couldn’t afford something like that.”837 

Press reports soon began to appear suggesting that, contrary to the assertion in 

his press release, Cisneros had made payments to Medlar while he was still HUD 

Secretary.838 In one article, Cisneros admitted to sending Medlar $15,000 in July 

1993.839 In reality, Cisneros had made at least eight payments to Medlar, totaling 

more than $73,000, since being sworn in as HUD Secretary on January 21, 1993.840 

b. The Inside Edition Broadcast 

On September 12, 1994, Medlar appeared on the nationally televised program 

841 Inside Edition. She was paid $15,000 for the appearance, of which approximately 

$6,000 to $7,000 went to her attorneys.842 In the course of the broadcast, she accused 

Cisneros of lying to the FBI during his background investigation about the amount 

834 Cisneros Press Release 7/29/94. 

835 Id. 

836 Id. 

837 The Dallas Morning News, “Woman sues Cisneros over payments” 7/30/94. 

838 See, e.g., San Antonio Express-News, “Cisneros is disputed on date 

payments to ex-lover ended – Medlar’s attorney produces bank records showing late1993 deposits” 7/31/94. 

839 Houston Post, “Her life’s in ruins, Cisneros’s former mistress says” 8/8/94. 

840 OIC Chart of 1993 Payments to Medlar. 

841 Inside Edition Tr. 9/12/94. 

842 Suppression Hearing Tr. Medlar 6/22/99 at 20-21. 

IV-175 
of money he had paid her.843 The show featured the playing of excerpts of some of 

Medlar’s taped conversations with Cisneros.844 During the program, Medlar also 

presented deposit slips documenting payments from Cisneros totaling approximately 

$150,000, which was about $90,000 more than the estimates in the FBI’s background 

investigation report.845 The deposit slips also documented, contrary to Cisneros’s 

claims to the FBI, individual payments to Medlar larger than $2,500.846 

The same Inside Edition episode also showed Cisneros’s reaction to Medlar’s 

lawsuit.847 Cisneros again admitted to giving Medlar financial assistance but stated 

that “there was no agreement of any kind.” He further stated that he had “been 

forthright in every step . . . from the beginning of when this whole matter occurred,” 

and suggested that any “disagreement” about the exact amounts he had paid to Medlar 

stemmed from the fact that he had not kept records and was “speaking from 

memory.”848 

The program also noted that, although Cisneros had claimed in his July 29, 

1994 press release that he had not made any payments to Medlar since becoming 

HUD Secretary, Medlar alleged that Cisneros had paid her $55,000 in that time 

period.849 According to newspaper stories published shortly after the broadcast, 

Cisneros acknowledged that his earlier representation that he had not paid Medlar 

while serving in the Cabinet had been inaccurate. Specifically, Cisneros admitted to 

making payments to Medlar totaling more than $50,000 after he was confirmed as 

HUD Secretary.850 Cisneros was also quoted as saying that his press statement had 

843 Inside Edition Tr. 9/12/94. 

844 Id. 

845 Id. 

846 Id. 

847 Id. 

848 Id. 

849 Id. 

850 New York Times, “Housing Secretary faces new questions,” 9/22/94. 

IV-176 
been hastily drafted851 and that he had meant to say that he “did not intend to provide 

further assistance” to Medlar from that point on.852 

c. Medlar Alters the Tapes 

Even before Medlar filed her lawsuit against Cisneros, her attorneys Magness 

and Holder had advised her that the tapes could cause her serious legal problems if 

they contained threats against Cisneros, defamatory comments, or evidence of 

blackmail or extortion.853 Medlar testified that the attorneys returned her tapes and 

told her, in effect, to “go home and make sure . . . that the things I had identified, any 

threats, anything embarrassing to me personally, or anything embarrassing to other 

people . . . were not on there.”854 Medlar took this to mean that she should erase 

problematic passages on the tapes.855

 However, Magness and Holder subsequently 

testified that they had never intended for her to alter the tapes and did not know that 

she had done so.856 

Shortly after her lawsuit was filed, Medlar began to edit the tapes. She 

purchased a dual-tape cassette recorder and used it to create duplicate tapes from 

which she omitted passages she considered problematic.857 According to Medlar, she 

destroyed, in their entirety, four or five tapes, containing threats or passages 

concerning Jaffe and other matters.858 Medlar testified that she removed passages 

from five or six of the tapes that remained; these contained threats that she would go 

851 Dallas Morning News, “Cisneros admits apparent contradiction on payments 

to ex-mistress” 9/22/94. 

852 Washington Times, “Cisneros alters story on paying ex-mistress,” 9/22/94. 

853 Suppression Hearing Tr. Medlar 6/21/99 at 175-78. 

854 Id. 

855 Id. at 177-78. 

856 Suppression Hearing Tr. Holder 6/25/99 at 83-85, 88-89, 98, 103; 

Suppression Hearing Tr. Magness 7/7/99 at 165-67, 179-85. 

857 Suppression Hearing Tr. Medlar 6/21/99 at 178-87. 

858 Suppression Hearing Tr. Medlar 6/23/99 at 14-15; OIC Interview Notes 

Medlar 4/7/99 at 2. 

IV-177 
to Clinton, the press, or the FBI; conversations with persons other than Cisneros; or 

discussions of a sexual nature.859 Medlar told the OIC that she threatened Cisneros 

about going to the press as many as 25 times.860 The subjects of her threatened 

revelations to the press included Cisneros’s other extramarital affairs, the fact that 

Cisneros had moved out of his home at times, and his lying to the press to portray 

himself as someone he was not.861 Medlar told the OIC that she threatened to tell 

Clinton that Cisneros had lied to the Transition Team, that he had agreed with her to 

tell lies, that he had paid her a lot more money than he claimed, that he had had other 

girlfriends, that he had accepted $10,000 from Morris Jaffe during the Alamodome 

campaign, and other personal facts that would embarrass Cisneros.862 According to 

Medlar, Cisneros told her that going to Clinton or the press made no sense because 

it would ruin him, end his income-generating capability, and, thus, render him unable 

to make payments to her.863 

Medlar further informed the OIC that she even re-recorded the tapes from 

which she had not deleted anything, to make the entire set of tapes look and sound the 

same.864 She destroyed all the original tapes.865 

After the Inside Edition broadcast, Cisneros’s payments to Medlar became a 

matter of public controversy, and both the FBI and the IRS asked Medlar for originals 

859 Suppression Hearing Tr. Medlar 6/22/99 at 5-7. According to a tape expert 

who later analyzed the tapes for the OIC, there was no evidence that Medlar added 

anything to the tapes, moved any passages on the tapes from one location to another, 

or spliced together words taken from different locations on the tapes. Suppression 

Hearing Tr. Koenig 6/30/99 at 71-72. 

860 OIC Interview Notes Medlar 3/18/99 at 1. 

861 OIC Interview Notes Medlar 3/18/99 at 1-2. 

862 OIC Interview Notes Medlar 4/7/99 at 4. 

863 OIC Interview Notes Medlar 4/7/99 at 3; OIC Interview Notes Medlar 

4/16/99 at 3. 

864 Suppression Hearing Tr. Medlar 6/22/99 at 5-6. 

865 Id. at 6; OIC Interview Notes Medlar 3/24/99 at 3. 

IV-178 
of her tapes so that they could make copies.866 Medlar gave both the FBI and the IRS 

her redacted copies of the tapes.867 In so doing, she falsely represented that the tapes 

she provided were originals, and she did not tell the agents that they were the product 

of her systematic efforts to alter them.868 

d. Resolution of Medlar’s Lawsuit 

In late May 1995, two months after the Attorney General applied for the 

appointment of an independent counsel to investigate Cisneros,869 Cisneros agreed to 

pay Medlar $49,000 to settle her lawsuit against him.870 In exchange, Medlar agreed 

not to make any more claims against Cisneros.871 She also agreed to allow Cisneros’s 

criminal attorneys to debrief her.872 Shortly after the suit was settled, on May 24, 

1995, David M. Barrett was appointed Independent Counsel In re: Cisneros.873 

The IRS interviewed Medlar on May 31, 1995, and she turned over tapes of her 

conversations with Cisneros.874 Medlar knew that the IRS wanted the original tapes, 

but she provided them with the redacted copies and represented that they were the 

originals.875 

866 Suppression Hearing Tr. Medlar 6/22/99 at 26-31. 

867 Suppression Hearing Tr. Medlar 6/22/99 at 26-31. 

868 Suppression Hearing Tr. Medlar 6/22/99 at 26-31. 

869 GJ 00-001 Ex. 3. 

870 GJ 95-2 Ex. 62. 

871 GJ 95-2 Ex. 62. 

872 GJ 97-1 Tr. Holder 8/20/97 at 133, 149; Suppression Hearing Tr. Medlar 

6/23/99 at 149. 

873 GJ 00-001 Ex. 4. 

874 IRS Interview Report Medlar 5/31/95 at 5. 

875 Suppression Hearing Tr. Medlar 6/22/99 at 39. 

IV-179 
Medlar was debriefed by Cisneros’s attorneys in June or July 1995.876 

According to Medlar, Cisneros’s counsel told her that she would be better served by 

helping Cisneros than by cooperating with the OIC because she and Cisneros would 

“sink or swim” together.877 

7. Cisneros’s Resignation 

On November 21, 1996, shortly after President Clinton was re-elected, 

Cisneros announced that he would resign as Secretary of Housing and Urban 

Development. The resignation letter to the President stated, in part: 

Though I would like to help build on the progress we have made . . . , I 

have concluded that I cannot ask to be considered for service in the next 

four years.878 

Cisneros’s last day as HUD Secretary was January 19, 1997.879 

876 GJ 95-2 Tr. Ladd 11/26/96 at 36.


877 OIC Interview Notes Medlar 6/20/99 at 2.


878 Cisneros resignation letter 11/21/96.


879 List of HUD Secretaries and their terms, www.hud.gov.


IV-180 
C. The Lubbock, Texas Prosecutions 

1. Medlar’s Failure to Cooperate 

Linda Medlar was the Government’s key witness in the OIC’s investigation and 

prosecution of Cisneros for making false statements about his payments to her. She 

also proved to be a most difficult witness. 

In November 1995, the OIC agreed to grant Medlar immunity from prosecution 

in exchange for her complete and truthful cooperation.880 The “Witness Acceptance” 

statement attached to the letter agreement, executed by Medlar and her attorney, 

represented that she had read the agreement and understood it, after consulting with 

her attorney, who had fully explained to her its meaning and consequences.881 The 

document made clear that she was required to answer all questions concerning the 

subject matter of the investigation truthfully, fully, and completely, could not 

withhold any information, and could not commit any future state or federal criminal 

violations.882 It also specified that any violations of these provisions would constitute 

a breach of the agreement and entitle the OIC to use any information she had 

provided to prosecute her for any criminal offense.883 

The OIC began meeting with Medlar to debrief her in January 1996. Although 

she at times appeared to be emotionally upset, Medlar began to provide the 

investigation valuable information about Cisneros’s false statements and the facts 

surrounding them. For example, through these interviews, the OIC learned for the 

first time that Cisneros had given Medlar $16,000 for the down payment on a house 

in Lubbock, purchased in the name of her sister and brother-in-law to protect 

Cisneros during the confirmation process.884 

Before long, Medlar’s cooperation with the investigation deteriorated 

markedly. In early April 1996, Medlar abruptly canceled scheduled interviews with 

880 Letter from OIC to Holder re Immunity Agreement 11/13/95. 

881 Letter from OIC to Holder re Immunity Agreement 11/13/95 at 4. 

882 Letter from OIC to Holder re Immunity Agreement 11/13/95 at 2. 

883 Letter from OIC to Holder re Immunity Agreement 11/13/95 at 2-3. 

884 OIC Interview Report Medlar 1/30-31/96 at 2. 

IV-181 
OIC staff and told FBI agents working for the OIC that she no longer wished to honor 

her agreement.885 

However, Medlar agreed to meet with the OIC again later that month.886 In that 

interview, she made several representations of fact that proved to be materially false. 

These false statements included the following: 

•	 That she did not know of anything that could affect the validity of the tapes of 

her conversations with Cisneros.887 (In reality, she had edited the tapes herself 

and had deleted substantial parts of some of them.)888 

•	 That she had given the IRS the original tapes in 1995.889 (She had actually 

given the IRS her edited copies.)890 

•	 That she had lost the recorders used to make the tapes, which was important to 

an expert determination of whether the tapes were authentic, in a recent 

move.891 (She had in fact retained them in a storage shed. The moving 

company informed the OIC that she had later tried to have it corroborate this 

false story.)892 

885 See Letter from OIC to Medlar 4/11/96; see also Letter from Jones (Medlar) 

to OIC 4/12/96; FBI-302 Medlar 4/12/96 at 1. 

886 See OIC Interview Report Jones (Medlar) 4/26/96. 

887 OIC Interview Report Jones (Medlar) 4/26/96 at 1-2. 

888 United States v. Cisneros, 59 F. Supp. 2d 58, 59-60 (D.D.C. 1999); 

Suppression Hearing Tr. Medlar 6/22/99 at 39. 

889 OIC Interview Report Jones (Medlar) 4/26/96 at 2. 

890 United States v. Cisneros, 59 F. Supp. 2d 58, 60 (D.D.C. 1999); Suppression 

Hearing Tr. Medlar 6/22/99 at 39. 

891 OIC Interview Report Jones (Medlar) 4/26/96 at 1. 

892 OIC Interview Report Strait 10/29/96 at 1. 

IV-182 
•	 That she had turned over all relevant records to the OIC.893 (She had in fact 

withheld evidence, including financial records and correspondence to and from 

Cisneros.)894 

The OIC submitted tapes that Medlar claimed were originals to Bruce Koenig, 

an expert analyst, who determined that the tapes were copies, not originals.895 Koenig 

also determined that some data had been removed from some of the tapes.896 Medlar 

therefore had lied about a crucial evidentiary matter central to the investigation of 

Cisneros, both when she first surrendered the tapes and after she had entered into her 

immunity agreement with the OIC. 

The OIC subpoenaed Medlar to testify before the grand jury in Washington, 

D.C. in September 1996.897 It then interviewed her again in its D.C. offices in the 

presence of her counsel a few days before her scheduled grand jury appearance,898 

which was subsequently canceled. In that interview she again stated, falsely, that the 

tapes she had given the Government were originals.899 

At the same September interview, the OIC asked Medlar if she would consent 

to a search of her home in Lubbock, Texas, as a gesture of good faith, and she did 

so.900 However, just before the search began, the press arrived at the home, tipped off 

893 Letter from Medlar to OIC 4/12/96. 

894 Inventory of items seized 9/17/96 pursuant to search warrant. 

895 United States v. Cisneros, 59 F. Supp. 2d 58, 61 (D.D.C. 1999); 

Suppression Hearing Tr. Koenig 6/30/99 at 43. 

896 United States v. Cisneros, 59 F. Supp. 2d 58, 61-62 (D.D.C. 1999); 

Suppression Hearing Tr. Koenig 6/30/99 at 67- 68. 

897 OIC Grand Jury Subpoena (Medlar) for 9/19-20/96; see also FBI-302 Jones 

(Medlar) 9/10/96. 

898 OIC Interview Report Jones (Medlar) 9/17/96. 

899 OIC Interview Report Jones (Medlar) 9/17/96 at 2. 

900 Id. at 12; Consent to Search 9/17/96. 

IV-183 
by a neighbor who had identified the FBI agents waiting to conduct the search.901 

Medlar learned from a phone call with her mother about the presence of the press.902 

The OIC had not contacted the press, and had no advance knowledge of their 

presence; however, Medlar accused the FBI of leaking information about the search, 

and Medlar and her attorney left the meeting.903 The agents proceeded with the search 

by executing a search warrant that they had previously obtained in case she did not 

consent to the search.904 After that, Medlar ceased cooperating with the OIC.905 

Among other things, the search found two cassette recorders that Medlar had 

used to make the tapes of her conversations with Cisneros.906 Documentary evidence, 

including copies of bank statements, checks, deposit slips, tax records, transcripts, 

and notes to and from Cisneros, was also seized.907 

The OIC remained in communication with Medlar’s attorney in an attempt to 

convince Medlar to cooperate with the investigation. In November 1996, after these 

efforts failed, the OIC sent Medlar’s attorney a letter, stating that the OIC no longer 

considered her to be a cooperating witness; that she no longer would enjoy any 

immunized status; and that the OIC could, if it chose, prosecute her, using all the 

statements and information that she had provided to that date.908 Medlar’s attorney 

901 OIC Interview Report Medlar 9/17/96 at 20; GJ 97-1 Tr. Graham 8/5/97 at 

95- 96. 

902 OIC Interview Report Medlar 9/17/96 at 20. 

903 Suppression Hearing Tr. Medlar 6/24/99 at 33-34. 

904 OIC Interview Report Medlar 9/17/96 at 20; Sealed Search Warrant issued 

9/17/96. 

905 Suppression Hearing Tr. Medlar 6/24/99 at 33-34. 

906 Inventory of items seized 9/17/96 pursuant to search warrant. 

907 Id. 

908 Letter from OIC to David Boyd 11/5/96. 

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proposed one further attempt to restore Medlar’s status as an immunized witness, 

which the OIC declined.909 

The OIC then began a thorough investigation of Medlar as a potential 

defendant. It scrutinized all of her actions as they related to Cisneros’s false 

statements and delved into her false statements to law enforcement agencies. The 

OIC developed evidence that Medlar and the Wootens had violated federal law by 

materially misleading a financial institution in the purchase of a house.910 

Specifically, the Wootens had falsely represented that they were buying a house for 

their own occupancy, when in fact they were purchasing it for Medlar to occupy, 

using funds secretly supplied by Cisneros.911 

Medlar’s actions greatly hampered the OIC’s efforts to investigate and 

prosecute Cisneros’s false statements. Because she had openly violated the 

agreement by which she had promised to give complete and truthful testimony in 

exchange for immunity from prosecution for her past acts, the OIC saw no alternative 

to prosecuting her for past and continuing violations of law. 

2. The Indictment 

On September 12, 1997, the OIC brought a 26-count Indictment against Medlar 

and Patsy and Allen Wooten in the United States District Court for the Northern 

District of Texas, Lubbock Division.912 The Indictment named Medlar alone in eight 

counts charging obstruction of justice; engaging in a scheme to falsify, conceal, and 

cover up material facts; and making a false statement to IRS Special Agents.913 It 

charged all three defendants with bank fraud, making false statements to a federally 

insured bank, money laundering, and conspiring to commit these substantive 

909 Letter from Boyd to OIC via fax 11/6/96. 

910 GJ (Lubbock) Exs. 46-54. 

911 OIC Interview Report Patsy Wooten 6/30/96 at 11. 

912 Indictment 9/12/97 (Case No. 5-97CR0074-C). 

913 Indictment 9/12/97 (Case No. 5-97CR0074-C). 

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crimes.914 A First Superseding Indictment adding a money laundering count against 

all three defendants and a concealment count against Medlar was returned on 

September 23, 1997.915 

Count One, the conspiracy charge, alleged that the three defendants conspired 

to commit substantive offenses appearing elsewhere in the First Superseding 

Indictment – bank fraud, making false statements to a federally insured bank, 

laundering monetary instruments, and engaging in monetary transactions with funds 

obtained from the bank fraud and false statement crimes.916 The conspiracy 

concerned the Wootens’ purchase of a house in Lubbock, Texas for Medlar.917 

(Although the Indictments did not mention the fact, the house was purchased with 

funds Medlar received from Cisneros, and the purpose of the conspiracy was to 

conceal the source of the funds at the time that Cisneros was under scrutiny for his 

appointment as HUD Secretary.) 

The charges in Counts Two through Nine of the Superseding Indictment arose 

from allegations that the Wootens acted as “straw purchasers” when they obtained a 

mortgage loan to purchase the house for Medlar.918 In late 1992 and January 1993, 

the Wootens claimed in loan papers submitted to the Plains National Bank in 

Lubbock that they were purchasing the house to live in themselves, knowing that 

Medlar would reside there.919 The Wootens also lied to the Plains National Bank 

about their income and submitted forged documents reporting their employment 

status and income.920 The Superseding Indictment alleged that these acts amounted 

to bank fraud and illegal false statements to a bank, undertaken to buy the house for 

Medlar, who was unemployed at the time, did not want to be associated with the 

914 Indictment 9/12/97 (Case No. 5-97CR0074-C). 

915 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C). 

916 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 15-31. 

917 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 15-31. 

918 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 5, 31-35. 

919 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 5, 31-35. 

920 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 5, 31-35. 

IV-186 
transaction, and lacked sufficient assets and income to qualify for a mortgage loan to 

purchase the house.921 

The money laundering charges, Counts Ten through Nineteen, stemmed from 

the Wootens’ use of the fraudulently obtained loan proceeds to purchase the house 

and from their subsequent rental and sale of that property.922 According to the 

Superseding Indictment, after Medlar stopped receiving money from Cisneros, she 

became financially incapable of keeping up with her mortgage payments, so she sold 

the house for a profit; the purchaser moved into and rented the house before 

settlement.923 The Superseding Indictment alleged that the rental payments, the 

mortgage payoff, and the sale proceeds represented money laundering transactions, 

because those funds were proceeds or derivatives of the illegally obtained mortgage 

loan that the defendants used to purchase the house.924 

The remaining counts of the Superseding Indictment were addressed to Medlar 

alone. Three counts of obstruction of justice, Counts Twenty through Twenty-Two 

and four counts of concealment, Counts Twenty-Three through Twenty-Seven, arose 

from the events occurring after Medlar entered into the immunity agreement with the 

OIC in November 1995, in which Medlar had promised to cooperate with the OIC 

investigation.925 The Indictment alleged that Medlar obstructed justice by providing 

false and misleading information to FBI Special Agents who were assisting the grand 

jury investigation. Specifically, she lied about whether she had produced the 

originals or copies of tape recordings of certain telephone conversations she had with 

Cisneros and others, and when she had rented the safety deposit box in which she 

921 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 5, 31-35. 

922 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 5-6, 11, 

36-39. 

923 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 5-6, 11, 

36-39. 

924 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 5-6, 11, 

36-39. 

925 Letter from OIC to Holder re Immunity Agreement 11/13/95. 

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stored those tapes.926 The Indictment further charged that Medlar also obstructed 

justice by withholding evidence – the devices she used to record those 

conversations – from the grand jury.927 The concealment charges were founded on 

her alleged failure to disclose material information to the FBI, including the fact that 

she had not turned over all records requested by the OIC and that she had lied when 

she told the FBI that she had provided the original tapes to the IRS when she had in 

fact provided copies.928 

The false statement count, Count Twenty-Eight, concerned Medlar’s alleged 

lie to the IRS that, before she met with them in May 1995, she had stopped by her 

safety deposit box to retrieve the original tapes.929 The Superseding Indictment 

alleged that Medlar in fact knew that she had last accessed that box more than two 

weeks before, and that the tapes she had given the IRS were copies, not originals.930 

3. Pretrial Proceedings 

The case against Medlar and Patsy and Allen Wooten was assigned to the 

Honorable Sam R. Cummings, United States District Court Judge. All three 

defendants pleaded not guilty.931 Trial was initially set for November 3, 1997, and 

later moved to January 15, 1998 on defendants’ motions.932 

On January 5, 1998, each defendant filed two motions to dismiss the 

Indictment. The first set of motions argued that the Independent Counsel Act 

926 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 13. 

927 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 39-40. 

928 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 13-15, 

39-41. 

929 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 

41-42. 

930 First Superseding Indictment 9/23/97 (Case No. 5-97CR0074-C) at 13-14, 

41-42. 

931 Arraignment Orders 9/26/97. 

932 Arraignment Orders 9/26/97; Order Granting Defendants’ Motion for 

Continuance 12/8/97. 

IV-188 
unconstitutionally gave executive power to the Special Division, a part of the Judicial 

Branch.933 The second set of motions argued that the charges found in Counts Ten 

to Nineteen of the Indictment violated an established DOJ policy against prosecuting 

money laundering cases without prior consultation with DOJ’s Asset Forfeiture and 

Money Laundering Sections.934 The motions also urged that Counts Twenty-three to 

Twenty-eight violated an established DOJ policy against prosecuting alleged 

violations of 18 U.S.C. § 1001 absent “significant underlying wrongdoing.”935 

Medlar also moved to suppress the statements she had given to law 

enforcement agents on the ground that her consent to cooperate with the Government 

had not been voluntary.936 She also filed a motion for a judicial determination that 

she had not breached her immunity agreement,937 coupled with a motion for a judicial 

determination of whether the Government had an independent source for any 

evidence to be used against her, which would be required if the immunity agreement 

had not been breached.938 

The court denied all of these defense motions.939 

On January 6, 1998, Medlar’s attorney filed a motion for a psychiatric or 

psychological examination to determine Medlar’s competency to stand trial.940 The 

motion stated that Medlar appeared “to be suffering from either a mental disease or 

933 Defendants’ First Motions to Dismiss 1/5/98. 

934 Defendants’ Second Motions to Dismiss 1/5/98. 

935 Defendants’ Second Motions to Dismiss 1/5/98. 

936 Motion to Suppress Defendant’s Statements (Involuntary) 1/5/98. 

937 Motion for Judicial Determination of Breach of Immunity Agreement 

1/5/98. 

938

 Motion for Judicial Determination of Independent Source of Evidence 

Pursuant to Kastigar v. United States 1/5/98. 

939 Order Denying Defendants’ Second Motion to Dismiss 1/13/98; Order 

Denying Defendant’s Motion for Judicial Determination (Kastigar Motion) 1/13/98. 

940 Motion for Psychiatric or Psychological Examination of Linda Jones to 

Determine Competency to Stand Trial 1/6/98. 

IV-189 
defect or from the side effects of current psychiatric medications,”941 and that 

therefore her mental status affected her ability to assist in her defense.942 The court 

granted Medlar’s motion, and set a hearing for January 14, 1998 to consider the 

results of the examination.943 After hearing testimony from witnesses for Medlar and 

the Government, including several doctors and a pretrial services officer, all of whom 

had examined her, Judge Cummings ruled from the bench that Medlar was competent 

to stand trial.944 

4. Plea Bargains 

On January 15, 1998, all defendants pleaded guilty pursuant to plea 

agreements.945 

The Wootens pleaded guilty to conspiracy to commit bank fraud and to make 

false statements to a federally insured bank.946 As part of their agreement, they agreed 

to cooperate with the OIC. Specifically, each of them agreed: 

[T]o cooperate fully with the United States in the investigation and 

prosecution of other persons, and to testify, subject to a prosecution for 

perjury or making a false statement, fully and truthfully before any 

federal Court proceeding or federal grand jury in connection with the 

charges in this case and other matters, such further cooperation to 

include a full and complete disclosure of all relevant information, 

941 Id. at 1. 

942 Id. at 2. The legal standard for competency is whether the defendant “has 

sufficient present ability to consult with his lawyer with a reasonable degree of 

rational understanding – and whether he has a rational as well as factual 

understanding of the proceedings against him.” United States v. Dusky, 362 U.S. 402 

(1960) (internal quotation marks omitted). 

943 Order Granting Psychiatric or Psychological Examination 1/6/98. 

944 Competency Hearing Tr. 1/14/98 at 114. No written opinion was issued. 

945 Medlar Plea Agreement 1/15/98 at 2. 

946 Patsy Wooten Plea Agreement 1/15/98 at 2; Allen Wooten Plea Agreement 

1/15/98 at 2. 

IV-190 
including production of any and all books, papers, documents, and other 

objects in defendant’s possession or control, and to be reasonably 

available for interviews which the United States may require.947 

In return, the OIC agreed to dismiss the Indictment and the First Superseding 

Indictment returned against the Wootens,948 and to recommend a two-level downward 

adjustment for acceptance of responsibility pursuant to United States Sentencing 

Guideline (“USSG”)949 § 3E1.1.950 The OIC also agreed to consider, at the 

completion of the Wootens’ cooperation, whether the cooperation qualified as 

“substantial assistance” in accordance with USSG § 5K1.1, warranting a filing of a 

motion for a downward departure, the imposition of a sentence below the statutory 

minimum, or a reduction in sentence.951 As a result of this agreement, sentencing of 

the Wootens was deferred pending the outcome of the Cisneros litigation.952 

Medlar pleaded guilty to all counts in the First Superseding Indictment.953 She 

also voluntarily waived her “right to appeal and/or contest the conviction, sentence, 

and/or judgment, directly or collaterally, entered in this case for any reason,” 

947 Patsy Wooten Plea Agreement 1/15/98 at 4; Allen Wooten Plea Agreement 

1/15/98 at 4-5. 

948 Patsy Wooten Plea Agreement 1/15/98 at 11; Allen Wooten Plea Agreement 

1/15/98 at 12. 

949 The United States Sentencing Guidelines set an allowable range for a 

sentence imposed for a federal offense, absent special circumstances, and provide for 

upward and downward departures on a case-by-case basis. 18 U.S.C. § 3553(b). 

950 Patsy Wooten Plea Agreement 1/15/98 at 4; Allen Wooten Plea Agreement 

1/15/98 at 4. 

951 Patsy Wooten Plea Agreement 1/15/98 at 4-5; Allen Wooten Plea 

Agreement 1/15/98 at 5. 

952 See United States’ Motion to Dismiss Charges Against Defendants Patsy J. 

Wooten and Allen R. Wooten 9/22/99 at 2. 

953 Medlar Plea Agreement 1/15/98 at 2. 

IV-191 
expressly including the filing of a writ of habeas corpus.”954 However, unlike her 

sister and brother-in-law, Medlar did not agree to cooperate with the OIC.955 Her 

sentencing hearing was set for March 25, 1998.956 

Judge Cummings sentenced Medlar to 42 months at the Federal Medical 

Center, Carswell in Fort Worth, Texas, three years of supervised release following her 

incarceration, and $1,750 in special assessments.957 Judge Cummings also imposed 

special conditions on Medlar’s supervised release, including requiring her to 

participate in mental health treatment services until successfully discharged and to 

provide 100 hours of community service during the first 12 months of the supervisory 

term.958 

Medlar began serving her prison sentence on April 15, 1998,959 and was still 

facing the prospect of additional prosecution pursuant to a December 1997 Indictment 

returned against her, Cisneros, Arce-Garcia, and Rosales in Washington, D.C.960 (The 

District of Columbia proceedings are discussed in detail below.) However, the OIC 

had determined that Medlar would be a key witness against Cisneros in those 

proceedings. In March 1999, the OIC and Medlar reached an informal agreement 

whereby Medlar agreed to cooperate with the OIC in future proceedings in exchange 

for the OIC dismissing the pending Indictment in Washington, D.C. and 

recommending a reduction of the sentence she was serving as a result of the Lubbock 

conviction.961 

954 Id. at 6. 

955 See Medlar Plea Agreement 1/15/98. 

956 Order Rescheduling Sentencing Hearing 3/16/98. 

957 Medlar Judgment Order 3/25/98 at 1-3; Medlar Sentencing Tr. 3/25/98 at 

3-4. 

958 Medlar Judgment Order 3/25/98 at 4. 

959 Id. at 2. 

960 Indictment (Cr. No. 970485) 12/11/97; GJ 00-001 Ex. 7. 

961 See Cooperation Agreement 3/18/99. 

IV-192 
On March 23, 1999, in contemplation of Medlar’s truthful and complete 

cooperation in the Washington, D.C. proceedings, the OIC filed a motion for 

reduction of sentence pursuant to Federal Rules of Criminal Procedure 35(b) in the 

United States District Court for the Northern District of Texas, Lubbock Division.962 

Judge Cummings agreed to defer ruling on the motion until Medlar’s cooperation 

with the OIC was complete. 

On March 24, 1999, Medlar filed a petition for writ of habeas corpus in the 

District Court for the Northern District of Texas, seeking to overturn her 

conviction.963 In the petition, she alleged that her guilty plea was not voluntary, due 

to her addiction to Ativan; that she had had ineffective assistance of counsel; and that 

the OIC had engaged in prosecutorial misconduct.964 The court dismissed Medlar’s 

petition on her own motion in May 1999.965 

Medlar cooperated with the OIC in the Washington, D.C. proceedings. In 

particular, she testified at the evidentiary hearings held in the Summer of 1999 in 

Washington, D.C., which are discussed in detail below. 

On August 16, 1999, the OIC filed a supplement to its earlier Rule 35 motion 

asking that Medlar’s sentence be reduced.966 That same day, the OIC filed a motion 

to dismiss the D.C. Indictment against Medlar.967 On September 14, 1999, the D.C. 

court dismissed the charges with prejudice.968 On September 16, 1999, the Lubbock 

962 United States’ Sealed Motion to Reduce Sentence 3/23/99. 

963 Petition for Writ of Habeas Corpus by a Person in Federal Custody Pursuant 

to 28 U.S.C. § 2255 3/24/99. 

964 Petition for Writ of Habeas Corpus by a Person in Federal Custody Pursuant 

to 28 U.S.C. § 2255 3/24/99 at Ex. B (Medlar Decl.). 

965 Order Granting Motion to Dismiss 5/24/99. 

966 Letter from OIC to Judge Cummings 8/16/99. 

967 United States’ Motion To Dismiss The Indictment Against Defendant Linda 

D. Medlar 8/16/99. 

968 Order Dismissing Indictment 9/14/99. 

IV-193 
court ordered that Medlar’s sentence be reduced to time served, subject to the threeyear period of supervised release that he had previously imposed.969 

On September 22, 1999, the OIC filed a motion to dismiss the charges against 

the Wootens.970 The motion stated in pertinent part: “Given the cooperation by the 

[Wootens] with this Office and their good conduct and behavior since the entry of 

their respective guilty pleas, the United States respectfully requests that all charges 

against them be dismissed and the prosecution thereby terminated.”971 The Lubbock 

court immediately ordered that all charges against the Wootens be dismissed with 

prejudice.972 

969 Order Reducing Sentence 9/16/99.


970 United States’ Motion to Dismiss 9/22/99.


971 Memorandum of Law in Support of Motion to Dismiss 9/22/99 at 2.


972 Order 9/22/99 dismissing charges against Patsy and Allen Wooten.


IV-194 
D. The Washington, D.C. Prosecutions 

1. The Indictment 

On December 11, 1997, a grand jury sitting in the United States District Court 

for the District of Columbia returned a 21-count Indictment against Henry Cisneros, 

Linda Medlar, Sylvia Arce-Garcia, and John Rosales.973 The Indictment charged the 

defendants with, among other things, impeding the appointment and confirmation 

process by which Cisneros became HUD Secretary.974 In particular, it catalogued the 

defendants’ false statements to the Government and the other ways they had 

concealed Cisneros’s payments to Medlar from government officials.975 

At the time the Indictment issued, the White House Counsel had tentatively 

agreed to schedule for the OIC an interview with President Clinton. On December 

12, 1997, White House Counsel wrote to the Independent Counsel, in reference to the 

Indictment, “I see no reason why your Office has any continuing need to speak with 

the President.”976 The Independent Counsel wrote back and informed the White 

House Counsel that the OIC continued to require information from the President.977 

However, the OIC was never allowed to interview the President. 

The leading charge of the Indictment, Count One, was that Cisneros, with 

Medlar, Arce-Garcia, and Rosales, had conspired to obstruct the FBI in investigating 

Cisneros’s background, the Senate in confirming his appointment, and the 

Department of Justice in deciding on his top-secret security clearance.978 The 

Indictment alleged that the defendants conspired to violate various federal laws, 

including 18 U.S.C. § 1505 (obstructing governmental proceedings); 18 U.S.C. 

§ 1001 (making false and misleading statements to and concealing information from 

973 See Indictment (Cr. No. 97-0485) 12/11/97; GJ 00-001 Ex. 7. 

974 Indictment (Cr. No. 97-0485) 12/11/97 at 31-49. 

975 Indictment (Cr. No. 97-0485) 12/11/97 at 49-59. 

976 Letter from Ruff to Independent Counsel 12/12/97. 

977 Letter from Independent Counsel to Ruff 2/13/97. 

978 Indictment (Cr. No. 97-0485) 12/11/97 at 32-33. 

IV-195 
government agencies); and 31 U.S.C. § 5324(a)(3) (structuring transactions with a 

financial institution).979 

Counts Two through Seventeen of the Indictment charged Cisneros with 

making false statements and concealing or not disclosing facts on his SF-86 and in 

his December 30, 1992 and January 7, 1993 FBI interviews.980 The Indictment 

charged that he had made the following false statements: 

•	 That he was aware of no basis upon which he could be subjected to coercion 

or blackmail; 

•	 That his answers on his SF-86 were accurate and correct; 

•	 That his payments to Medlar were not “hush money”; 

•	 That he was not “currently” making payments to Medlar; 

•	 That the single highest payment he had made to Medlar was about $2,500; 

•	 That his total payments to Medlar had never exceeded $10,000 per year; 

•	 That Medlar had never threatened, coerced, or tried to obtain money from him; 

•	 That he had not had substantial at length conversations with Medlar since early 

1991; and 

•	 That he had had only one extramarital relationship, other than with Medlar.981 

The Indictment further charged that Cisneros had concealed the following 

facts: 

•	 That he was making payments to Medlar; 

979 Indictment (Cr. No. 97-0485) 12/11/97 at 33-34. 

980 Indictment (Cr. No. 97-0485) 12/11/97 at 49-59. 

981 Indictment (Cr. No. 97-0485) 12/11/97 at 49-53, 55-58. 

IV-196 
•	 That Medlar had threatened to make his payments to her publicly known; 

•	 That he had structured payments to Medlar to avoid making a Currency 

Transaction Report; and 

•	 That he had not filed informational Gift Tax Returns with the IRS for payments 

to Medlar in excess of $10,000 per year.982 

The Indictment also charged that he had failed to disclose in his FBI interview 

that he had directed defendants Arce-Garcia and Rosales not to inform the FBI that 

he was making payments to Medlar, or the amount of such payments.983 

Count Eighteen of the Indictment further charged Cisneros with corruptly 

influencing, obstructing, and impeding a proceeding of the DOJ Personnel Security 

Office, by making false statements when it was deciding whether to issue him a 

security clearance.984 

Counts Nineteen and Twenty of the Indictment charged Rosales with making 

false statements to government officials in violation of 18 U.S.C. § 1001. He was 

charged with falsely stating to the IRS that he did not know of Cisneros’s payments 

to Medlar before he came to D.C., and with falsely stating to the FBI that he did not 

know of Cisneros’s payments to Medlar while he was employed at CISCOM.985 

Count Twenty-one of the Indictment charged Medlar with violating 18 U.S.C. 

§ 1001 when she falsely stated to the FBI that she had provided the original tapes of 

her recorded conversations with Cisneros to the IRS.986 

982 Indictment (Cr. No. 97-0485) 12/11/97 at 53-54. 

983 Indictment (Cr. No. 97-0485) 12/11/97 at 58-59. 

984 Indictment (Cr. No. 97-0485) 12/11/97 at 59-62. 

985 Indictment (Cr. No. 97-0485) 12/11/97 at 62-64. 

986 Indictment (Cr. No. 97-0485) 12/11/97 at 64-65. 

IV-197 
2. Pretrial Proceedings 

The District of Columbia proceedings were assigned to the Honorable Stanley 

Sporkin, United States District Court Judge.987 A trial date was set for November 4, 

1998.988 

Defendants attacked the Indictment on multiple grounds through pretrial 

motions. Judge Sporkin denied all of these motions, and issued three published 

opinions addressing some of the more important issues defendants raised.989 Cisneros 

appealed one of these adverse decisions, unsuccessfully.990 The net effect of these 

efforts was to delay the trial and ultimate resolution of the prosecutions. 

Specifically, in the Spring of 1998, all defendants moved for severance of their 

cases, each seeking a separate trial.991 The OIC agreed to the severance of Medlar’s 

case from those of the other defendants, but opposed any further severance.992 The 

court agreed with the OIC and denied severance of the other defendants.993 

Cisneros moved to sever Counts Nineteen and Twenty, which accused Rosales 

of making false statements to the IRS in 1995 and the FBI in 1996 by denying 

knowledge of Cisneros’s payments to Medlar.994 The crux of the defense argument 

was that the conspiracy and false statements charged in Counts One to Eighteen 

987 Indictment 12/11/97 cover sheet. 

988 Unopposed Joint Motion for Enlargement of Time for Filing of Pretrial 

Motions, 3/27/98 at 1. 

989 United States v. Cisneros, 26 F. Supp. 2d 13 (D.D.C. 1998); United States 

v. Cisneros, 26 F. Supp. 2d 24 (D.D.C. 1998); United States v. Cisneros, 59 

F. Supp. 2d 58 (D.D.C. 1999). 

990 United States v. Cisneros, 169 F.3d 763 (D.C. Cir. 1999). 

991 United States v. Cisneros, 26 F. Supp. 2d 13, 16 (D.D.C. 1998). 

992 United States v. Cisneros, 26 F. Supp. 2d 13, 19 (D.D.C. 1998). 

993 United States v. Cisneros, 26 F. Supp. 2d 13, 19 (D.D.C. 1998). 

994 Motion of Defendant Cisneros to Sever Counts 19-21 of Indictment 

(Cisneros Pretrial Motion Number 2) 3/9/98. 

IV-198 
(which were alleged to have occurred in 1992 and 1993 during the appointment 

process) could not have been part of the same scheme to mislead the Government as 

Rosales’s later false statements charged in Counts Nineteen and Twenty (which were 

alleged to have occurred during the Independent Counsel investigation).995 The court 

denied this motion, holding that all of the false statements were “clearly connected 

to the common scheme” – i.e., the “scheme among all four defendants to cover-up 

details about Cisneros [sic] affair with Medlar.”996 

Cisneros also challenged on two grounds the OIC’s constitutional authority to 

obtain indictments against him. First, he argued that the Special Division did not 

have the power to appoint an independent counsel.997 The springboard for this motion 

was the Supreme Court’s determination, in Morrison v. Olson, that the Special 

Division had properly been given its appointment power under Article II’s 

Appointments Clause, which allows a “Court of Law” to appoint “inferior officers” 

of the United States, including independent counsels.998 Cisneros argued that the 

Special Division was not a “Court of Law” within the meaning of the Appointments 

Clause because of its specialized functions, and therefore could not exercise the 

appointments power.999 The District Court rejected the argument, holding that the 

Supreme Court had implicitly determined in Morrison that the Special Division was 

a proper entity.1000 

Cisneros also argued that the deputies and associates appointed by the 

Independent Counsel were “officers” of the United States, as that term is used in the 

Constitution, and that therefore under Article II they could be appointed only by the 

President, the courts, or the heads of departments, and not by the Independent 

995 Memorandum in Support of Motion of Defendant Cisneros to Sever Counts 

19-21 of Indictment (Cisneros Pretrial Motion Number 2) 3/9/98 at 1. 

996 United States v. Cisneros, 26 F. Supp. 2d 13, 22 (D.D.C. 1998). 

997 Motion of Defendant Cisneros to Dismiss the Indictment for Lack of 

Prosecutorial Authority (Cisneros Pretrial Motion Number 3) 4/1/98. 

998 487 U.S. 654, 672 (1988). 

999 Motion of Defendant Cisneros to Dismiss the Indictment for Lack of 

Prosecutorial Authority (Cisneros Pretrial Motion Number 3) 4/1/98 at 9-17. 

1000 United States v. Cisneros, 26 F. Supp. 2d 13, 23. 

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Counsel.1001 The court rejected this argument, holding that these persons were 

employees, not constitutional “officers,” and that the Independent Counsel therefore 

had the constitutional authority to appoint them.1002 

Cisneros and Rosales filed separate but similar motions to dismiss the counts 

of the Indictment alleging false statements and acts of concealment in violation of 18 

U.S.C. § 1001 (Counts Two to Eighteen against Cisneros and Nineteen and Twenty 

against Rosales).1003 The statute prohibits false statements or the concealment of facts 

only if the statements or concealed facts are “material” to the government officials to 

whom they are made.1004 Cisneros argued that his false statements to the FBI could 

not have been material to the President and the Transition Team in the nomination 

process because they were aware, from other sources, of the truth about his affair with 

and payments to Medlar.1005 Rosales similarly argued that his false statements about 

Cisneros’s payments to the FBI and the IRS in their 1995-96 investigation could not 

have been material because Cisneros and Medlar had already disclosed the relevant 

information.1006 The court rejected these arguments, noting that “the relevant question 

is not whether, in fact, the relevant body relied upon the false information in making 

its determination,” but rather “merely whether that information had the capacity to 

influence the relevant decisionmaker.”1007 The court also noted that materiality is a 

question reserved for the jury.1008 

In a related motion, Cisneros moved to dismiss Counts One to Eighteen of the 

Indictment on the ground that adjudicating these charges would violate the 

1001 United States v. Cisneros, 26 F. Supp. 2d 13, 23. 

1002 United States v. Cisneros, 26 F. Supp. 2d 13, 23. 

1003 United States v. Cisneros, 26 F. Supp. 2d 24, 40. 

1004 18 U.S.C. § 1001. 

1005 United States v. Cisneros, 26 F. Supp. 2d 24, 40. 

1006 United States v. Cisneros, 26 F. Supp. 2d 24, 40. 

1007 United States v. Cisneros, 26 F. Supp. 2d 24, 40. 

1008 United States v. Cisneros, 26 F. Supp. 2d 24, 40-41. 

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constitutional separation of powers and the political question doctrine.1009 Cisneros 

argued that these counts, which went to his false statements to and concealment of 

facts from the executive and legislative branches, would require the judiciary to 

second-guess whether the statements and concealment were material to the political 

decisions of those branches.1010 In denying the motion, the court disagreed: “[I]t is 

clear that the relevant question is not what the criteria for presidential nominees 

should be, but whether the false statements were ‘capable of influencing’ a 

nomination.”1011 The court further noted: 

[Cisneros’s] position would allow unqualified candidates for high public 

office to lie their way into extremely sensitive positions of government. 

It would be unacceptable to place the citizens of this Nation at such 

risk.1012 

Cisneros also argued to the District Court that the prosecution was somehow 

inconsistent with DOJ policy. The court disagreed, observing that “[i]n this case, the 

Independent Counsel’s prosecutorial discretion is directly in step with DOJ 

policies.”1013 

In the same decision in which it addressed the materiality, separation of 

powers, and DOJ policy motions, the court denied 18 other defense motions.1014 

On August 10, 1998, Cisneros filed an interlocutory appeal of the court’s order 

denying his motion to dismiss on the grounds that prosecution was prohibited by the 

separation of powers doctrine.1015 On March 9, 1999, the Court of Appeals dismissed 

1009 United States v. Cisneros, 26 F. Supp. 2d 24, 34-36. 

1010 United States v. Cisneros, 26 F. Supp. 2d 24, 34-36. 

1011 United States v. Cisneros, 26 F. Supp. 2d 24, 36. 

1012 United States v. Cisneros, 26 F. Supp. 2d 24, 59. 

1013 United States v. Cisneros, 26 F. Supp. 2d 24, 47. 

1014 United States v. Cisneros, 26 F. Supp. 2d 24, 56-57. 

1015 Notice of Appeal 8/10/98. 

IV-201 
the appeal as premature because it preceded a final judgment in the case.1016 

Cisneros’s appeal caused significant delay, pushing the trial date back from 

November 1998 to September 1999.1017 

3. Renewed Efforts to Obtain Medlar’s Cooperation 

As the Cisneros trial approached, it was apparent to the OIC that the 

prosecution would be greatly handicapped if Medlar would not or could not testify 

truthfully for the prosecution. She was, of course, a percipient witness to much of the 

activity charged in the Indictment. In their numerous lengthy telephone 

conversations, Cisneros had described to her in detail his false statements in the 

appointment process. And she was the crucial authenticating witness for the 

audiotape recordings of their conversations, particularly since she had not only 

recorded them but had also redacted and re-recorded them. 

Medlar was also, for obvious reasons, a difficult witness for the prosecution. 

She had earlier lied under oath. Within months of signing an immunity agreement 

pledging complete and truthful cooperation with OIC, she had lied repeatedly to 

government agents and refused to cooperate further. She had been indicted for, and 

pleaded guilty to, obstruction of justice, making false statements, bank fraud, and 

money laundering in the Lubbock, Texas prosecution.1018 She was still serving her 

sentence for those offenses in early 1999. The OIC had indicted her in 1997 for false 

statements and conspiracy, with Cisneros, Rosales, and Arce-Garcia, in the very 

indictment underlying the trial in which she could be an important witness against 

Cisneros.1019 

Nevertheless, in early 1999, the OIC again explored the question of whether 

Medlar could be an effective trial witness against Cisneros. The OIC and the public 

defender who had represented her in Texas discussed a possible agreement under 

which she could become a cooperating witness. 

1016 United States v. Cisneros, 169 F.3d 763 (D.C. Cir. 1999). 

1017 United States v. Cisneros, 26 F. Supp. 2d 24, 60 (D.D.C. 1998). 

1018 See Judgment in a Criminal Case, United States v. Linda D. Jones (f/k/a) 

Linda D. Medlar; see also Sentencing Tr. Medlar 3/25/98. 

1019 See Indictment 12/11/97. 

IV-202 
On March 18, 1999, the OIC and Medlar reached an agreement under which 

she would provide a full and truthful proffer of evidence and the OIC would move 

pursuant to Federal Rule of Criminal Procedure 35(b) for a reduction in her Texas 

sentence to reflect her assistance in the prosecution of Cisneros.1020 She thereafter 

provided the OIC with information. The OIC filed its Rule 35 Motion on March 23, 

1999, because of the Rule’s requirement that the motion be made within a year of her 

March 25, 1998 sentencing, but asked the court to defer its ruling until a later date 

when Medlar’s cooperation could be gauged.1021 The court agreed to defer its ruling. 

To the OIC’s total surprise, on March 24, 1999, one day after the OIC filed its 

motion to reduce Medlar’s sentence, Medlar filed a petition for writ of habeas corpus 

in the federal District Court for the Northern District of Texas, seeking to overturn 

her conviction in that court.1022 The OIC received the moving papers on March 29, 

1999. The purported grounds for the petition included that her guilty plea was not 

made voluntarily due to her addiction to the prescription drug Ativan, which 

supposedly impaired her ability to focus and make decisions; that she had had 

ineffective assistance of counsel; and that the OIC had illegally used against her 

evidence obtained through an immunity agreement and had otherwise engaged in 

prosecutorial misconduct.1023 In fact, though, Medlar had been declared competent 

to stand trial by Judge Cummings before she entered her plea agreement, and she had 

specifically disclaimed these grounds for relief when questioned by the judge in open 

court at the time she entered her guilty plea.1024 Even more shocking was the fact that, 

the day before the habeas petition was filed, the OIC had filed its Federal Rule of 

Criminal Procedure 35 motion at her request, seeking a reduction in her sentence in 

contemplation of her truthful and complete cooperation.1025 In reaching the proffer 

1020 Cooperation Agreement between OIC and Linda Jones (Medlar) 3/18/99. 

1021 United States’ Sealed Motion to Reduce Sentence Pursuant to Fed. R. Crim. 

P. 35(b) 3/23/99. 

1022 Jones (Medlar) Petition for Writ of Habeas Corpus Pursuant to 28 U.S.C. 

§ 2255 3/24/99. 

1023 Id. 

1024 Rearraignment Tr. Jones (Medlar) 1/15/98 at 9. 

1025 See OIC Sealed Motion to Reduce Sentence Pursuant to Fed. R. Crim. P. 

(continued...) 

IV-203 
agreement that led to that motion, she had been represented by the same attorney from 

the Public Defender’s Office whom she characterized in the habeas petition as 

ineffective, and the Government had been represented by the OIC, the same 

prosecuting body that she attacked in the petition as having taken unfair advantage 

of her under a previous agreement. 

Attached to the habeas petition was a declaration that Medlar had executed 

under penalty of perjury on March 19, 1999, one day after she had agreed with the 

OIC that she would provide a full and truthful proffer of evidence.1026 In that 

declaration, she swore that her addiction to Ativan had rendered her unable to make 

reasonable judgements, decisions, or choices, and that she had been under the 

influence of Ativan when she dealt with the OIC.1027 She also falsely asserted that she 

had answered all of the OIC’s questions to the best of her ability.1028 The habeas 

petition, and in particular the attached declaration, directly undercut even further 

Medlar’s already shaky credibility as a potential trial witness. 

Nevertheless, the OIC continued to work toward securing Medlar’s 

cooperation. On April 7, 1999, Medlar and the OIC entered into a further agreement 

under which the OIC would recommend that the Texas District Court reduce her 

sentence, and would dismiss the District of Columbia charges against her, if she 

continued to cooperate with the OIC, in particular by testifying fully and truthfully 

at the Cisneros trial.1029 The OIC also agreed not to use her testimony against her1030 

unless she committed perjury, made a false statement, obstructed justice, or 

committed an act of contempt while serving as a witness in any proceeding relating 

1025(...continued) 

35(b) 3/23/99. 

1026 Jones (Medlar) Petition for Writ of Habeas Corpus Pursuant to 28 U.S.C. 

§ 2255 3/24/99 at Ex. B. 

1027 Jones (Medlar) Petition for Writ of Habeas Corpus Pursuant to 28 U.S.C. 

§ 2255 3/24/99 at Ex. B. 

1028 Jones (Medlar) Petition for Writ of Habeas Corpus Pursuant to 28 U.S.C. 

§ 2255 3/24/99 at Ex. B. 

1029 Cooperation Agreement between OIC and Linda Jones (Medlar) 4/7/99. 

1030 Id. 

IV-204 
to or arising out of the OIC’s investigation.1031 On May 25, 1999, the OIC notified 

Medlar’s attorney that it had accepted her proffer, thereby making the April 7, 1999 

agreement effective.1032 

At the end of May 1999, Medlar dismissed her petition for a writ of habeas 

corpus.1033 Even so, the habeas petition continued to be one more blemish on her 

credibility as a witness in any further proceedings. 

4. The Defense Motion to Exclude the Tapes 

The pivotal event in the Cisneros prosecution was the court’s resolution, 

following extensive evidentiary hearings, of Cisneros’s motion to suppress and 

exclude from evidence the tape recordings that Medlar had made of her telephone 

conversations with him.1034 With a trial date of September 9, 1999 looming, the 

evidentiary hearings spanned three weeks in late June and early July of 1999.1035 

The OIC proposed to present portions of 26 of Medlar’s tapes as evidence at 

trial.1036 Of these, four included sections from which Medlar had redacted 

portions.1037 She later supplied, from memory, a written version of what had been 

1031 Id. 

1032 OIC letter dated 5/25/99 accepting proffer pursuant to 3/18/99 agreement. 

1033 Motion to Dismiss Petition for Writ of Habeas Corpus 5/21/99; see also 

Order Granting Dismissal of Petition 5/24/99. 

1034 See United States v. Cisneros, 59 F. Supp. 2d 58 (D.D.C. 1999). 

1035 See United States v. Cisneros, 59 F. Supp. 2d 58, 59 (D.D.C. 1999). 

1036 United States v. Cisneros, 59 F. Supp. 2d 58, 59 (D.D.C. 1999). 

1037 United States v. Cisneros, 59 F. Supp. 2d 58, 59-60 (D.D.C. 1999). 

IV-205 
deleted.1038 However, the tapes to be presented into evidence were copies that Medlar 

had created from the original tapes, all of which she had discarded.1039 

Cisneros made two principal arguments against the admission of the tapes into 

evidence. The first was that the tapes were unlawful under Title III of the Omnibus 

Crime Control and Safe Streets Act of 1968 (“Title III”), which forbids the 

interception of a wire communication “for the purpose of committing a criminal or 

tortious act.”1040 Cisneros’s position was that Medlar had created the tapes to 

blackmail Cisneros or to extort money from him.1041 The second argument was that 

the only extant tapes, all of which were copies and some of which had been redacted, 

were unauthentic and unreliable.1042 

As a preliminary matter, Cisneros also filed a motion for a court-ordered mental 

and physical examination of Medlar.1043 The motion asked the court to order Medlar 

to undergo mental and physical examinations before the evidentiary hearing on the 

admissibility of the tapes, to determine whether she was suffering from any mental 

illness and whether she was addicted to any drugs.1044 The court allowed the hearing 

on the motion to exclude the tapes to begin without subjecting Medlar to the 

examinations.

1045 On July 20, 1999, after the hearing, it issued an order denying 

Cisneros’s motion for mental and physical examinations, noting that after four days 

of testimony “[t]he witness showed no evidence of mental or physical impairment that 

1038 See Medlar Redaction Log; see also United States v. Cisneros, 59 

F. Supp. 2d 58, 65 n. 14 (D.D.C. 1999). 

1039 See United States v. Cisneros, 59 F. Supp. 2d 58, 59 (D.D.C. 1999). 

1040 United States v. Cisneros, 59 F. Supp. 2d 58, 62 (D.D.C. 1999); see also 18 

U.S.C. § 2511(2)(d).

1041 United States v. Cisneros, 59 F. Supp. 2d 58, 62 (D.D.C. 1999). 

1042 United States v. Cisneros, 59 F. Supp. 2d 58, 62 (D.D.C. 1999). 

1043 Defense Motion for Court-Ordered Mental and Physical Examination 

6/7/99 at 1. 

1044 Defense Motion for Court-Ordered Mental and Physical Examination 

6/7/99 at 1. 

1045 See Suppression Hearing Tr. 6/21/99 at 21-22. 

IV-206 
bore on her abilities to recollect or recount information” and that “[t]his court can find 

no reason to question the witness’s competency to testify based on its own 

observations and examination of her demeanor.”1046 

The factual issues before the court on Cisneros’s motion to suppress concerned 

the events underlying the creation, duplication, and disposal of the tapes.1047 The 

evidentiary hearings consisted largely of Medlar’s testimony – in particular, how and 

why she had recorded and selectively copied the tapes, and then discarded the 

originals.1048 The court also heard testimony from other witnesses called to impeach 

portions of Medlar’s testimony, and from the Government’s forensic expert called to 

explain issues concerning the copying and editing of the tapes.1049 

An important issue throughout the hearings was Medlar’s credibility.1050 The 

defense presented and highlighted the numerous times she had lied – to the public, 

to her attorneys, to government officials, and under oath to courts of law.1051 In 

particular, the following instances of her earlier untruthfulness were explored at the 

hearing and urged in support of Cisneros’s suppression motion: 

•	 She had lied under oath repeatedly in the deposition taken in her civil suit to 

prosecute her breach of contract claim against Cisneros;1052 

1046 Order denying Motion for Mental and Physical Examination of Medlar 

7/20/99. 

1047 United States v. Cisneros, 59 F. Supp. 2d 58 (D.D.C. 1999); see also 

Suppression Hearing Tr. 6/22/99 at 18-19, 28-31. 

1048 See United States v. Cisneros, 59 F. Supp. 2d at 58, 59, 62. 

1049 Id. 

1050 See id. at 63. 

1051 See Post-Hearing Brief of Defendant Henry G. Cisneros 7/14/99. 

1052 Post-Hearing Brief of Defendant Henry G. Cisneros 7/14/99 at 80-81. 

IV-207 
•	 She had knowingly signed under oath an affidavit containing falsehoods in 

1053 support of her civil suit;

•	 When she first surrendered copies of the tapes to the FBI and to the IRS, she 

had falsely represented that she was giving them original tapes, and had not 

informed them that she had edited the tapes;1054 

•	 She had lied repeatedly to the IRS, the FBI, and the OIC about the nature of the 

tapes, and other matters, in breach of her agreements with the OIC; and1055 

•	 She had lied in the affidavit attached to her petition for habeas corpus, in which 

she represented that she had previously answered each question that the OIC 

had asked her to the best of her ability.1056 

The defense also catalogued what it characterized as numerous inconsistencies in the 

evidence presented in the suppression hearing – mostly, contradictions between 

Medlar’s testimony at the hearing and either her former attorneys’ testimony or her 

earlier out-of-court statements.1057 It used these inconsistencies to argue that Medlar 

had been untruthful in her testimony before the court, and that she therefore could not 

authenticate the tapes.1058 

In opposing the motion to suppress, the OIC did not argue that Medlar had 

always been truthful. Indeed, it had obtained her conviction in the Texas federal 

court for making false statements to and concealing facts from the OIC, the FBI, the 

grand jury, and federal banking institutions.1059 The OIC urged, however, that the key 

issue in the suppression hearing was not Medlar’s credibility but instead the 

authenticity of the recordings of her conversations with Cisneros, which was not 

1053 Id. at 79-80. 

1054 Id. at 81-82. 

1055 Id. 

1056 Id. at 77-78. 

1057 Id. at 77-82. 

1058 Id. at 2-7. 

1059 See Judgment in a Criminal Case 3/25/98. 

IV-208 
under serious challenge except for those instances in which she had edited out 

portions of the recording.1060

 The court issued its decision on July 26, 1999.1061 It granted in part and 

denied in part the defense motion to suppress and exclude the tapes.1062 It excluded 

none of the 26 tapes in their entirety.1063 Instead, the court held that a few small 

portions of the four tapes containing admitted redactions were inadmissible, noting, 

however, that Medlar would be permitted to testify about her recollection of the 

omitted conversations.1064 

The court found that Medlar did not create the tapes for a criminal or tortious 

purpose, but that she instead had created them to preserve a record of her financial 

agreement with Cisneros and to counter possible inaccurate public accounts of their 

relationship.1065 Because the admissibility of the recordings under Title III was 

governed by the purpose for which they were made, not by the use to which they are 

subsequently put, the court held that the recordings could not be excluded on the 

basis of that statute.1066 

The court also held that, save for small portions of the four redacted recordings, 

the tapes would not be excluded as unauthentic or unreliable.1067 Having listened to 

the tapes, reviewed the transcripts of the tapes, and conducted an extensive 

evidentiary hearing, the court concluded that “the vast majority of the tapes contain 

reliable and accurate representations of the conversations that occurred between 

1060 United States’ Post-Hearing Submission Regarding Admissibility of 

“Medlar Tapes” 7/14/99 at 42-44. 

1061 United States v. Cisneros, 59 F. Supp. 2d 58 (D.D.C. 1999). 

1062 Id. at 65. 

1063 Id. at 64. 

1064 Id. at 64-65. 

1065 Id. at 63. 

1066 Id. at 62-63. 

1067 Id. at 64-65. 

IV-209 
Medlar and Cisneros between April 1990 and December 1993.”1068 According to the 

court, the most important factor supporting this conclusion was that Cisneros 

presented no direct evidence that the voice on the tape was not his or that any of the 

statements attributed to him were inaccurate.1069 In fact, in admitting the vast majority 

of the tapes offered, the Court found that “all portions of the 22 tapes that do not 

contain admitted redactions . . . contain intelligible, logically consistent statements 

by both the witness, Medlar, and the defendant that demonstrate that the tapes are 

what they purport to be.”1070 The court held that this was the critical determination 

under the authenticity question before it.1071 The court also made clear, however, that 

it would hold a voir dire proceeding if further issues of authenticity of any of the 

tapes did arise during trial.1072 

In denying Cisneros’s motion to suppress and exclude the tape-recorded 

discussions, the court specifically observed that the tapes supported some of the 

allegations of the Indictment: 

Several of the indictment’s allegations receive probative support from 

the tapes. In a way they tend to prove the essence of what the OIC has 

charged, namely that the payments may well be ‘hush money’ and thus 

may be deemed the ‘res gestae’ of certain of the charges.1073 

5. The Cisneros Plea Bargain 

In July 1999, to focus on the pending trial of Cisneros, the OIC agreed to sever 

the charges against Rosales and Arce-Garcia and defer any prosecutions against 

them.1074 Accordingly, the OIC and these defendants entered into agreements under 

18 U.S.C. § 3161(h)(2), which allows delays in criminal prosecutions for the purpose 

1068 Id. at 64. 

1069 Id. 

1070 Id. 

1071 Id. 

1072 Id. at 65 n. 15. 

1073 Id. at 62-63 (emphasis added). 

1074 Agreement with Rosales 6/30/99; Agreement with Arce-Garcia 6/21/99. 

IV-210 
of allowing the defendant to demonstrate good conduct.1075 The court approved these 

agreements.1076 

Following the pretrial resolution of the tape admissibility issue, both the 

Government and Cisneros were in a position to engage in serious plea negotiations. 

Cisneros knew that the tapes could be used to evidence his false statements;1077 the 

Government knew that the credibility of its chief witness was subject to serious attack 

on numerous grounds.1078 As the trial approached, the OIC and Cisneros’s counsel 

explored how the case might be resolved through a negotiated plea. 

On September 7, 1999, the Cisneros prosecution was resolved with his plea of 

guilty to an Information charging him with lying to the FBI in connection with his 

1993 appointment to serve as Secretary of HUD,1079 in violation of 18 U.S.C. § 1018, 

a Class A misdemeanor.1080 Pursuant to the Government’s recommendation, the court 

1075 Agreement with Rosales 6/30/99; Agreement with Arce-Garcia 6/21/99. 

1076 Order (granting severance and deferral of prosecution for defendants ArceGarcia and Rosales) 7/14/99. 

1077 United States v. Cisneros, 59 F. Supp. 2d 58 (D.D.C. 1999). 

1078 See Post-Hearing Brief of Defendant Henry G. Cisneros 7/14/99. 

1079 See United States v. Cisneros, 66 F. Supp. 2d 38 (D.D.C. 1999); see also 

Plea Hearing Tr. Cisneros 9/7/99. 

1080 The statute provides: 

Whoever, being a public officer or other person authorized by any 

law of the United States to make or give a certificate or other writing, 

knowingly makes and delivers as true such a certificate or writing, 

containing any statement which he knows to be false, in a case where the 

punishment thereof is not elsewhere expressly provided by the law, shall 

be fined under this title or imprisoned not more than one year, or both. 

18 U.S.C. § 1018 (1994). 

IV-211 
imposed a sentence of a $10,000 fine, a $25 special assessment, and no incarceration 

or probation.1081 

Before imposing the sentence, the court reviewed the factual predicate of the 

guilty plea with Cisneros: 

THE COURT: And during [your FBI background investigation] interview that 

you knowingly and falsely stated to the FBI agent that you had 

made monthly payments to Linda Medlar of approximately 

$2,500 at a time; is that correct? 

CISNEROS: Yes, sir. 

THE COURT: And that the FBI wrote that down and forwarded it on; you 

understood that was going to happen? 

CISNEROS: Yes, sir. 

THE COURT: And that during that time you were actually making payments to 

Medlar in excess of $2,500 during the years 1990, 1991, and ‘92; 

is that correct? 

CISNEROS: Yes, sir. 

THE COURT: And you knew that. 

CISNEROS: Yes, sir. 

THE COURT: Okay. Was there a reason why you didn’t tell the FBI the truth at 

that time? 

CISNEROS: I think, sir, it was just that – for one thing, I wasn’t sure about the 

numbers personally. I had never calculated them up. But beyond 

that, I was trying to protect Mrs. Medlar, who didn’t want the 

information out, and my own wife, who didn’t know precisely 

what the number was. And in the final analysis I’ve attributed it 

1081 United States v. Cisneros, 66 F. Supp. 2d. 38, 41 (D.D.C. 1999). 

IV-212 
to the pressure and confused sort of fog of the moment where I 

gave a incorrect number. 

THE COURT: Well, it wasn’t just picking a number out of the air, was it? 

CISNEROS: No. The $2,500 had been a sort of informally agreed to number 

from sometime in the past, and it was what was in my head; it was 

what was my obligation, but in fact, it had grown to something 

more than that. 

THE COURT: You knew it? 

CISNEROS: Yes, sir. Certainly, when I look at the record, as has been shown 

to me in the – 

THE COURT: No, no. You knew it at the time, didn’t you? 

CISNEROS: Sure. I knew that I had given her more than that. 

THE COURT: You knew you had given, and that you were in effect, not being 

candid with the FBI? 

CISNEROS: That is correct.1082 

The court then gave Cisneros the opportunity to say anything he wanted. 

Cisneros made the following statement on the record: 

Thank you, Judge. I want the Court to know that I accept 

responsibility for the conduct as outlined in the [summary] that you have 

just read, and it is my hope that other people who aspire to and follow 

in public service will also perhaps learn a lesson from this, and that is 

that truth and candor are important in the process of selecting people for 

governmental positions. 

I appreciate the Court's consideration of this disposition; believe 

it to be a fair resolution of this matter, and thank the Court for the time 

1082 Plea Hearing Tr. Cisneros 9/7/99 at 14-16. 

IV-213 
• • • 

• • • 

the Judge and the other members of the court team have already spent 

on this issue. 

Obviously, this has been a difficult time, a four-and-a-half-year 

investigation for me and for my family, and it's my hope that the Court's 

acceptance of this disposition will allow us to resolve this matter in an 

equitable way and allow us to proceed with our lives.1083 

Judge Sporkin, who had presided over the case for almost two years, thought 

it appropriate to comment on the cases’s prosecution and disposition. The court’s 

extensive remarks after accepting the defendant’s plea serve as an apt summation for 

the entire Cisneros investigation and prosecution: 

I know there will be some second guessing about this plea. There 

will be some who will say that the sanction is not tough enough and 

others who will say here is more evidence of the Independent Counsel 

Act as not serving the public interest. When I was told of the 

disposition, my first impression was that it was too light. 

On more careful reflection, I came to the conclusion that this 

disposition, while maybe not perfect, is appropriate. Putting aside the 

taxing of the judiciary's resources in the short run, in the long term, the 

public interest is being served. 

Some might say the many millions of dollars the Independent Counsel 

had to expend is not justified by the seemingly light sanction obtained. 

But that is not the true measure of success of one of these proceedings. 

Some commentators have said this case should not have been pursued. 

I do not agree with this view in any respect. 

I want to take this opportunity to commend the parties for their 

fine work in this case and for the fair resolution they have reached. This 

1083 Plea Hearing Tr. Cisneros 9/7/99 at 20-21. 

IV-214 
• • • 

plea agreement draws to a close, at last, a long and sometimes nasty saga 

in the private and public life of Henry Cisneros. 

This case, at its core, concerns a unique defendant. From 

everything I know about him through this case, he is a decent human 

being. He spent a good part of his career as a public servant. He has 

performed every one of his public positions in commendable fashion. 

It is unfortunate that the personal problems that plagued Mr. 

Cisneros’ private life inevitably brought him under the sharp lens of 

public scrutiny. As the vetting process for Mr. Cisneros’ cabinet 

appointment ran its complicated course, the private details of his past 

caught up with him, eventually rendering public what he and others 

clearly wanted and intended to keep private. 

Many have been critical of the Office of Independent Counsel for 

pursuing this case, a case some thought was not worthy of the time and 

efforts of the OIC. I don't think that the OIC had much choice in the 

matter. The attorneys at the OIC had an obligation to maintain the 

integrity of their oath of office, and, in pursuing this matter, they did. 

I want to state on the record that counsel for the government and 

counsel for Mr. Cisneros have performed their duties well. You were 

zealous advocates in your respective clients' interests. As a result of 

your extreme diligence and hard bargaining, this disposition has 

emerged. 

Mr. Cisneros, I believe that you deeply regret the pain you have 

caused your loved ones and that you accept responsibility for the 

wrongdoing you committed against the American public. What you did 

was wrong. I know that you have learned from this experience and I 

hope that future public servants will learn from your ordeal. 

[W]e cannot permit an individual to lie his way into high public office. 

This clearly would undermine our system of government and would be 

a tremendous set back for what it means when a person raises his hand 

IV-215

• • • 

to tell the truth and then does not do so. The work of the Independent 

Counsel in this case reaffirms the importance of telling the truth. 

Mr. Barrett has taken a great deal of criticism for doing nothing 

more than honoring a call to duty. He obtained no personal gain from 

his office. He and his outstanding staff have worked diligently, 

competently and above all in a highly professional manner. There have 

been no press conferences and the work he has performed has been first 

rate. I commend him and his staff for a job well done. 

From Mr. Cisneros’ point of view, he will also benefit from this 

disposition. I told my staff on a number of occasions that I could not see 

Mr. Cisneros going to trial in this case. He and his lawyers were too 

smart to subject Mr. Cisneros to the ordeal of sitting at the defendant's 

table for some ten weeks. While there are a number of persons who 

would not mind having a “this is your life” experience, I don't think 

anyone would want to see his or her life portrayed in public in an 

adversarial setting. By this disposition, Mr. Cisneros can end a terrible 

ordeal. Since the appointment of the Special Prosecutor, Mr. Cisneros 

has been investigated for a period of more than five years. 

There is no evidence in this case that Mr. Cisneros in any respect 

compromised any of his public responsibilities. At all times, he has 

faithfully discharged the duties of his office. 

I really do not believe the so-called legal pundits got it right. 

There were a large number of the late night pontificators who said it was 

a mistake to have brought this case. I do not share that view. As I have 

already said you cannot permit someone to lie their way into public 

office. 

While I do not believe the commentators had it right, there was 

something amiss in this case. The problem with this case is that it took 

too long to develop and much too long to bring to judgment day. Such 

a day is necessary in order to inject reality into the process. Good 

defense lawyers doing their job will often attempt to cause the 

proceedings to be interminable. If I can assign fault to this experience, 

IV-216

it is that this case should have been resolved a long time ago, perhaps 

even years ago. 

I cannot ascribe all of the blame to these very able counsel. Here 

is where I believe the process is largely at fault. What was needed here 

was some form of independent objective intervention. Someone who 

could have evaluated the case at an early stage and suggested an 

appropriate resolution. In the civil arena we have the mediation process 

which performs this role. Under Federal Rule of Criminal Procedure 11, 

such an effort is specifically precluded. 

The reason for this provision is well founded. We do not want 

judges playing a role in bringing about coercive dispositions of criminal 

cases. Generally speaking, this is excellent public policy. However, 

experience teaches us that there is virtually always a need to make an 

exception with respect to even very good and sound rules. This is one 

case where I believe an exception to the rule could have proved 

extremely helpful. This is not rocket science. The case cried out for 

early resolution. Any knowledgeable impartial third party would have 

realized this was the fact and would have bridged the communication 

gap between prosecutor and defense counsel that often exists in cases 

like this. This is because in our adversarial system neither side wants to 

approach the other because to do so might be considered a sign of 

weakness in their case. So my parting words are simply to request a 

review of Rule 11 to allow for the exceptional case intervention by an 

impartial arbitrator to try to accelerate the criminal process and bring it 

to a more speedy conclusion.1084 

6. Post-Plea Litigation 

In September 1999, following the Cisneros guilty plea and sentencing, a Texasbased news organization applied to the District Court for access to the tapes and 

transcripts that the OIC had proposed to introduce as evidence in the Cisneros trial.1085 

The court denied the motion. 

1084 United States v. Cisneros, 66 F. Supp. 2d 38, 38-41 (D.D.C. 1999). 

1085 In re: Application of A. H. Belo Corp., 66 F. Supp. 2d 47 (D.D.C. 1999). 

IV-217 
7. Disposition of Charges Against Other Defendants 

Because Medlar had cooperated fully with the prosecution in the proceedings 

leading up to the Cisneros guilty plea, the OIC moved on August 16, 1999, for the 

dismissal of the charges against her in the D.C. Indictment.1086 By order of September 

14, 1999, Judge Sporkin dismissed the charges against her with prejudice.1087 On 

September 16, 1999, in the Lubbock prosecution, Judge Cummings ordered that 

Medlar’s sentence from the Lubbock prosecution be reduced to time served, subject 

to a three-year period of supervised release.1088 

On March 4, 2000, because Arce-Garcia and Rosales had complied with the 

terms of their agreements with the OIC under which their prosecutions had been 

deferred, and because the case against Cisneros had been resolved with a guilty plea, 

the OIC moved to dismiss the charges against these two defendants.1089 The court 

granted these motions.1090 

8. The Pardons 

On January 20, 2001, his last day in office, President Clinton pardoned or 

commuted the sentence of almost every individual whose conviction had been 

secured by an independent counsel during his Presidency. Cisneros and Medlar 

received full pardons for all the offenses to which they had pleaded guilty.1091 

1086 United States’ Motion to Dismiss Indictment Against Defendant Linda D. 

Medlar 8/16/99. 

1087 Order Dismissing D.C. Indictment Against Linda Medlar 9/14/99. 

1088 Order Reducing Sentence of Linda D. Jones (Medlar) 9/16/99. 

1089 United States’ Motion to Dismiss Charges Against Defendants Sylvia ArceGarcia and John A. Rosales 3/4/00. 

1090 Order Granting OIC Motion(s) to Dismiss Sylvia Arce-Garcia and John 

Rosales 4/19/00. 

1091 Letter from DOJ Pardon Attorney to OIC re Cisneros pardon 1/20/01; 

Letter from DOJ Pardon Attorney to OIC re Medlar pardon 1/20/01. 

IV-218 
The OIC received no prior notice from the Department of Justice or the White 

House of the pardons granted to Cisneros or Medlar. The OIC was not consulted 

about any recommendations it might have had regarding the worthiness of such 

grants, even though the views of the prosecuting attorney are customarily sought 

before pardons are recommended.1092 

1092 See 28 C.F.R. § 1.6(a) (2000); United States Attorney’s Manual § 1-2.111. 

IV-219 
V. The Obstruction Investigation 

A. Introduction 

From the Summer of 1997 to March 2003, the Office of Independent Counsel 

(“OIC”) investigated possible criminal offenses, including obstruction of justice and 

false statements to government officials, relating to the decisions of certain 

Department of Justice (“DOJ”) and Internal Revenue Service (“IRS”) officials not to 

authorize the investigation or prosecution of Cisneros for possible tax violations. The 

OIC’s investigation examined three related activities: (1) DOJ’s 1994-95 preliminary 

investigation of Cisneros, which resulted in the appointment of an independent 

counsel without jurisdiction over tax offenses;

1093 (2) DOJ’s 1997 decision to refuse 

the Independent Counsel’s request for an expansion of jurisdiction to include the 

authority to investigate and prosecute Cisneros for possible tax offenses in certain tax 

years;1094 and (3) the IRS’s 1997 decision to decline to refer for prosecution or grand 

jury investigation allegations that Cisneros committed criminal tax violations, which 

impacted DOJ’s decision not to expand the Independent Counsel’s jurisdiction.1095 

Although Cisneros’s redirection of income to make undisclosed payments to 

Medlar raised serious questions of whether he failed to declare significant amounts 

of income on his tax returns, the Attorney General in her initial 1995 appointment 

request did not ask that the Independent Counsel be given any jurisdiction over tax 

offenses. When the OIC later presented to the Attorney General further evidence of 

tax offenses and asked that its jurisdiction be expanded,1096 she requested that the 

Independent Counsel be given only very narrow tax jurisdiction, effectively 

preventing any prosecutions for tax offenses.1097 

As it conducted its false statement investigation and limited tax investigation, 

the OIC came upon significant evidence that certain officials of DOJ and the IRS had 

acted improperly to prevent an independent counsel investigation of Cisneros for tax 

1093 GJ 00-001 Ex. 4. 

1094 GJ 00-001 Ex. 87. 

1095 GJ 00-001 Ex. 93. 

1096 GJ 00-001 Ex. 51A. 

1097 GJ 00-001 Ex. 87. 

V-1 
offenses. Because obstruction of the Independent Counsel’s investigation fell 

squarely within his stated jurisdiction, the OIC investigated whether such obstruction 

had occurred. The investigation uncovered substantial evidence of questionable 

actions by certain DOJ and IRS officials but was truncated before the OIC could 

determine whether these acts constituted obstruction of justice or other criminal 

offenses. 

In spite of these discoveries, the OIC was unable to obtain cooperation from 

DOJ or a formal referral of jurisdiction from the United States Court of Appeals for 

the District of Columbia Circuit, Division for the Purpose of Appointing Independent 

Counsels (“Special Division”) as it tried to complete its obstruction investigation. 

Faced with those impediments, together with the sunsetting of the Independent 

Counsel Act and the running of statutes of limitations on possible offenses, the 

Independent Counsel elected to terminate the obstruction investigation without 

bringing formal charges. 

B. Limitations on Independent Counsel Jurisdiction over Tax Matters 

1. The Initial Appointment 

The Attorney General’s March 13, 1995 request for appointment of an 

independent counsel followed a preliminary investigation conducted by DOJ’s Public 

Integrity Section (“Public Integrity”), which urged that no independent counsel be 

appointed to investigate Cisneros for any offense. The Special Division’s May 24, 

1995 Appointment Order tracked the jurisdiction proposed by the Attorney General’s 

request. The Appointment Order therefore granted the Independent Counsel 

jurisdiction to investigate Cisneros’s false statements and related offenses, but not tax 

matters.1098 

Public Integrity, a part of DOJ’s Criminal Division, oversaw the preliminary 

investigations of all “covered persons” under the Independent Counsel Act, 28 U.S.C. 

§ 591 et seq. The basic process for determining whether to appoint an independent 

counsel was as follows: (1) the Attorney General initiated a 30-day initial inquiry to 

determine whether to conduct a full-fledged preliminary investigation; (2) if the 

initial inquiry revealed specific and credible information indicating an offense by a 

covered person subject to the statute, the Attorney General would initiate a 90-day 

preliminary investigation, which could be extended by up to 60 days; (3) following 

1098 GJ 00-001 Ex. 4. 

V-2 
the Attorney General’s initiation of a preliminary investigation, Public Integrity 

determined the scope and course of the investigation; (4) Public Integrity directed the 

FBI and others in conducting the investigation; (5) on the basis of the preliminary 

investigation, the Public Integrity Chief submitted a recommendation to the Attorney 

General (through his or her immediate supervisor, the Assistant Attorney General for 

the Criminal Division) as to whether an independent counsel should be requested; and 

(6) in light of that recommendation, the Attorney General determined whether there 

were reasonable grounds to believe that further investigation was warranted, and, if 

so, requested the appointment of an independent counsel.1099 

Public Integrity’s preliminary investigation of the Cisneros matter culminated 

in a February 27, 1995 memorandum from Public Integrity Chief Lee J. Radek to 

Assistant Attorney General Jo Ann Harris, recommending that the Attorney General 

not seek the appointment of an independent counsel to investigate Cisneros.1100 

Regarding the tax issue, the memorandum stated that “the evidence clearly 

established that taxes were paid on the income [directed to Medlar].”1101 The 

Attorney General’s application did ask for the appointment of an independent counsel 

with jurisdiction to investigate and prosecute Cisneros’s false statements, but also 

stated: 

Our investigation developed no evidence that Secretary Cisneros failed 

to pay any income . . . taxes due in connection with his payments to 

Medlar. . . . I conclude that no further investigation of this matter is 

warranted as a criminal tax matter, see 28 U.S.C. § 592(c)(1)(B).1102 

2. The OIC’s 1997 Expansion and Referral Requests 

From the May 1995 appointment of the Independent Counsel onward, the OIC 

investigated the allegation that Cisneros had made false statements to the FBI 

concerning his payments to Medlar. 

1099 See 28 U.S.C. § 592(a) - (c). 

1100 GJ 00-001 Ex. 372. 

1101 Id. at 5. 

1102 GJ 00-001 Ex. 3 at 4. 

V-3 
As the OIC began its investigation of Cisneros’s false statements, it became 

aware that the IRS had been investigating Cisneros for some time and had obtained 

information relevant to the OIC’s investigation. Notably, the OIC learned that the 

IRS had interviewed Medlar and obtained from her, pursuant to an IRS summons, the 

purportedly original tapes of the telephone conversations she had recorded.1103 The 

OIC also learned that the IRS had interviewed other witnesses the OIC intended to 

interview and that the IRS had obtained documentary evidence from some of these 

witnesses regarding Cisneros’s and Medlar’s finances.1104 

To conduct a complete investigation of Cisneros’s false statements, the OIC 

needed the original tapes of the telephone conversations Medlar had recorded, and 

it needed to track the payments Cisneros and others acting on his behalf had made to 

Medlar. The OIC needed to examine Cisneros’s and Medlar’s finances to determine 

the nature, extent, and motivation for the payments; the identity of everyone involved 

in the making of the payments; and the identity and motivation of everyone involved 

in the concealment of the payments.1105 Absent a court order, the IRS was not free to 

share the materials in its possession. 

The Tax Code, at 26 U.S.C. § 6103, provides as a general rule that tax returns 

and taxpayer return information obtained by the IRS are confidential and can be 

provided to other government agencies only under certain circumstances, with a court 

order. One of those circumstances, set forth in 26 U.S.C. § 6103(i)(A), is the 

disclosure of returns and return information to federal officers or employees for the 

use in criminal investigations or proceedings not involving tax administration. 

Independent counsels are specifically listed among the federal officials who may 

apply to a federal district judge for the disclosure of returns or return information 

under § 6103(i)(1)(A).1106 

Pursuant to § 6103(i)(1)(B), an application for disclosure must demonstrate 

that: 

1103 Roberts Affidavit at 5. 

1104 Id. 

1105 Id. at 4-5. 

1106 26 U.S.C.§ 6103(i)(1)(B). 

V-4 
(i)	 there is reasonable cause to believe, based upon information believed to 

be reliable, that a specific criminal act has been committed; 

(ii)	 there is reasonable cause to believe that the return or return information 

is or may be relevant to the matter relating to the commission of such 

act; and 

(iii)	 the return or return information is sought exclusively for use in a Federal 

criminal investigation or proceeding concerning such act, and the 

information sought to be disclosed cannot reasonably be obtained, under 

the circumstances, from another source.1107 

To obtain the tapes and the information concerning Cisneros’s and Medlar’s 

finances in the IRS’s possession, the OIC in October 1995 applied for and received 

an ex parte order (i.e., an order obtained by one party without formal notice to other 

parties) pursuant to 26 U.S.C. § 6103(i), authorizing the IRS to disclose to the OIC 

certain information the IRS had obtained during its Cisneros investigation. The OIC 

was authorized to use this information in its false statement investigation.1108 

Approximately four months later, in February 1996, the OIC applied for and 

received an amended ex parte order authorizing the IRS to disclose additional 

information to the OIC. The order likewise authorized the OIC to use the information 

in its false statement investigation.1109 

As the OIC’s examination of the payments to Medlar proceeded, the 

accumulated evidence strongly suggested that Cisneros had failed to declare and pay 

taxes on substantial income, including income redirected to Medlar in 1991 and 

1992.1110 By the end of 1996, the Independent Counsel had determined that it was 

necessary to investigate Cisneros for tax offenses. 

Because tax offenses were not within his original mandate, the Independent 

Counsel decided to make two formal requests that his jurisdiction be enlarged to 

1107 26 U.S.C. § 6103(i)(1)(B)(i)-(iii). 

1108 Ex Parte Order 10/24/95. 

1109 Ex Parte Order 2/6/96. 

1110 Roberts Affidavit at 9-16. 

V-5 
include these offenses. On January 29, 1997, he submitted a letter to the Attorney 

General requesting an expansion of jurisdiction to investigate and, if necessary, 

prosecute Cisneros for tax fraud or tax evasion involving funds paid to Medlar, for 

tax years 1989, 1991, 1992, and 1993.1111 Simultaneously, the Independent Counsel 

applied to the Special Division for a referral of jurisdiction to investigate and 

prosecute Cisneros for tax fraud or tax evasion involving “unreported income used 

for purposes unrelated to Medlar” for the same tax years.1112 

The submissions to the Attorney General and to the Special Division detailed 

the OIC’s analysis of Cisneros’s finances and tax returns, demonstrating that 

substantial income appeared to have been unreported for each of the tax years for 

which jurisdiction was requested. The total amount of unreported income identified 

by the OIC exceeded $300,000. In a follow-up letter to the Attorney General dated 

February 24, 1997, the Independent Counsel detailed evidence indicating that 

Cisneros’s underreporting of income was willful.1113 

On February 28, 1997, acting on the OIC’s expansion request, the Attorney 

General petitioned the Special Division to grant the Independent Counsel authority 

to investigate Cisneros’s potential tax violations, but only for tax year 1992. For the 

1111 GJ 00-001 Ex. 51A. Pursuant to 28 U.S.C. § 593(c), an independent 

counsel could petition the Attorney General (and only the Attorney General) for an 

expansion of his or her jurisdiction for matters “which are not covered by the 

prosecutorial jurisdiction of the independent counsel.” 28 U.S.C. § 593(c)(2) 

(emphasis added). Upon receiving an expansion request, the Attorney General had 

30 days to conduct a preliminary investigation, giving “great weight to any 

recommendations of the independent counsel.” 28 U.S.C. § 593(c)(2)(A). If the 

Attorney General determined that there were reasonable grounds to believe that 

further investigation was warranted or if the 30-day period elapsed before a 

determination was made by the Attorney General, the Special Division was required 

to expand the independent counsel’s jurisdiction or to appoint another independent 

counsel to investigate the matter. 28 U.S.C. § 593(c)(2)(C). 

1112 GJ 00-001 Ex. 50 at 4. Pursuant to 28 U.S.C. § 594(e), an independent 

counsel could ask the Attorney General or the Special Division to refer to the 

independent counsel “matters related to the independent counsel’s prosecutorial 

jurisdiction.” 28 U.S.C. § 594(e) (emphasis added). 

1113 GJ 00-001 Ex. 85. 

V-6 
other three years for which the Independent Counsel had requested jurisdiction – 

1989, 1991, and 1993 – the Attorney General told the Special Division that there were 

“no reasonable grounds” to believe that further investigation was warranted.1114 

On March 18, 1997, acting on the Attorney General’s request, the Special 

Division expanded the Independent Counsel’s jurisdiction to include possible tax 

offenses by Cisneros, but only for tax year 1992.1115 On March 26, 1997, the Special 

Division sua sponte entered an order clarifying that the Independent Counsel was 

being given authority to investigate matters related to possible tax offenses for tax 

year 1992, including perjury and obstruction of justice.1116 

The Attorney General’s February 28, 1997 petition to the Special Division also 

opposed the Independent Counsel’s request to the Special Division that it refer to him 

jurisdiction over tax matters involving funds not paid to Medlar, stating: 

[T]his Court lacks the authority to refer the matters requested by the 

Independent Counsel to him as related matters pursuant to section 

594(e). It is barred from doing so both by my findings . . . that further 

investigation is not warranted, and by my parallel findings in my 1995 

Notification to the Court.1117 

The OIC filed a reply urging referral.1118 

On April 10, 1997, the Special Division denied the OIC’s referral request in its 

entirety.1119 

1114 GJ 00-001 Ex. 87 at 1-2. 

1115 GJ 00-001 Ex. 91 (Order of Special Division 3/18/97). 

1116 GJ 00-001 Ex. 92 (Order of Special Division 3/26/97). 

1117 GJ 00-001 Ex. 87 at 16-17 (citing In re Olsen, 818 F.2d 34, 47 (D.C. Cir. 

1987)), 21-22. 

1118 Office of Independent Counsel’s Reply to DOJ’s Opposition 3/13/97. 

1119 GJ 00-001 Ex. 105 (Order of Special Division 4/10/97). 

V-7 
3. The IRS’s Review of Cisneros’s Possible Tax Violations 

In her February 28, 1997 petition to the Special Division asking that the OIC 

be given tax jurisdiction for 1992 only, the Attorney General acknowledged that the 

Cisneros tax matter was then being reviewed by the IRS, expressed her desire to 

allow the IRS investigation to “proceed to its natural conclusion,” and stated that she 

would reassess her determination if the IRS concluded that referral of the Cisneros 

tax matter to DOJ for “consideration” of criminal prosecution was warranted.1120 The 

Attorney General also acknowledged that, if the IRS’s inquiry “developed sufficient 

evidence of potential criminal tax violations,” the IRS would refer it to DOJ. At such 

time, she wrote, given that Cisneros was a covered person,1121 the inquiry “would be 

handled as an Independent Counsel matter and likely referred to the Independent 

Counsel as an expansion of jurisdiction.”1122 However, the IRS declined to refer the 

Cisneros case to DOJ for prosecution, over strong internal dissent. 

The IRS began its investigation of Cisneros’s possible tax violations following 

Medlar’s September 1994 appearance on the Inside Edition television program. The 

case was initially investigated by the IRS’s South Texas Criminal Investigative 

Division (“CID”) in San Antonio, Texas.1123 On December 20, 1996, CID forwarded 

the case, pursuant to normal IRS procedure, to the IRS’s District Counsel’s Office 

(“District Counsel”) in Austin, Texas, with a prosecution recommendation.1124 

District Counsel then began the review, purportedly in “partnership” with the IRS’s 

Assistant Chief Counsel’s Office for Criminal Tax (“ACC”) in Washington, D.C.1125 

In January 1997, before District Counsel had a chance to complete its review, 

ACC pulled the review of the case from District Counsel in the field into the national 

1120 GJ 00-001 Ex. 87 at 6. 

1121 A person covered by the Independent Counsel Act remained covered by the 

Act for one year after leaving office. 5 U.S.C. § 5312; 28 U.S.C. § 591(b)(7). 

1122 GJ 00-001 Ex. 87 at 16-17 n. 8. 

1123 GJ 00-001 Ex. 87. 

1124 GJ 00-001 Ex. 23. 

1125 GJ 00-001 Ex. 30. 

V-8 
office.1126 District Counsel forwarded the case to ACC, with a memorandum noting 

that there was a probability of conviction in the case.1127 

Nevertheless, in March 1997, approximately one month after the Attorney 

General’s decision to expand the Independent Counsel’s jurisdiction for only the 

1992 tax year, ACC declined to refer the Cisneros tax case to DOJ for prosecution or 

grand jury investigation.1128 The Attorney General apparently took no further action 

after this decision by the IRS. 

C. The OIC Tax Investigation 

The OIC began its investigation of Cisneros for tax violations in the Spring of 

1997 upon receiving jurisdiction over possible offenses in tax year 1992. The OIC 

already had in its possession substantial relevant evidence as it began the 

investigation, much of which is discussed in detail below. That evidence showed, 

among other things, that Cisneros had underdeclared his income in tax year 1992 and 

that he should have been aware of the underdeclaration because his expenses greatly 

exceeded his declared income. 

However, the OIC soon came to realize that it was unlikely to prove that 

Cisneros’s underdeclaration of income was willful because it could not show a pattern 

of similar acts over several years.1129 When it obtained the indictment of Cisneros for 

1126 GJ 00-001 Ex. 339B at 3; see GJ 00-001 Ex. 94 at 2. 

1127 GJ 00-001 Ex. 38. 

1128 GJ 00-001 Ex. 93. 

1129 Willfulness is defined as the voluntary, intentional violation of a known 

legal duty. United States v. Pomponio, 429 U.S. 10, 11-13 (1976). Willfulness is an 

essential element of the offenses of tax evasion (26 U.S.C. § 7201) and filing a false 

return (26 U.S.C. § 7206). It may be inferred from a “concealment of assets or 

covering up sources of income, handling one’s affairs to avoid making the records 

usual in transactions of the kind, and any conduct, the likely effect of which would 

be to mislead or conceal.” Spies v. United States, 317 U.S. 492, 499 (1942). DOJ’s 

own prosecutorial guidelines acknowledge that the courts have consistently held that 

“[w]illfulness may be inferred from evidence of a consistent pattern of underreporting 

large amounts of income.” United States Attorney’s Manual, 8.06[3], Examples: 

(continued...) 

V-9 
false statements and conspiracy, in late 1997, the OIC elected not to include any tax 

counts because of the seemingly insurmountable problem of proving willfulness for 

a single year. For the same reason, it did not seek to add such charges later. 

The plea bargain that resolved the Cisneros prosecution embraced all possible 

offenses with which the OIC might have charged Cisneros, including any tax 

offenses.1130 

D. Basis of the Obstruction Investigation 

The OIC did not know why the Attorney General had declined to recommend 

that it be given jurisdiction over what appeared to be a prima facie case of multi-year 

tax fraud by a public official. However, the materials the OIC acquired during its 

false statements and tax investigations included internal IRS and DOJ documents 

from their investigations. These documents illuminated not only Cisneros’s activities 

but also these agencies’ internal actions leading to the Attorney General’s decision 

to request that the Independent Counsel be given only limited jurisdiction to 

investigate tax offenses. From these materials, the OIC perceived that certain DOJ 

and IRS officials might have failed to follow normal procedures in investigating, and 

in making recommendations and decisions relating to, Cisneros’s possible tax 

offenses. 

In particular, in May 1997, the OIC received a copy of an internal IRS 

memorandum entitled “Possible Improprieties by Assistant Chief Counsel (Criminal 

1129(...continued) 

Proof of Willfulness. 

The IRS’s Office of Chief Counsel Basic Criminal Tax School Manual states 

that “[a] pattern of noncompliance is an important factor in Title 26 investigations. 

A pattern of multiple years is particularly relevant when an indirect method of proof 

is utilized to establish the offense.” Office of Chief Counsel Basic Criminal Tax 

School Manual (June 1998), Chapter 6-2. Similarly, the IRS’s Office of Chief 

Counsel Tax Crimes Handbook lists “substantial understatement of income in 

successive years” as an example of conduct from which willfulness can be inferred. 

1996 Office of Chief Counsel Tax Crimes Handbook at 10. 

1130 Cisneros Plea Agreement 9/7/99 at 2-3. 

V-10 
1131 Tax)” (“Improprieties Memorandum”). The memorandum was authored by the 

San Antonio Chief of CID, whose office had initially investigated the Cisneros tax 

matter. It strongly accused the head of ACC of improperly working with DOJ to 

impede a meritorious criminal tax prosecution of Cisneros, “regardless of the 

evidence.”1132 The memorandum noted that CID had forwarded the Cisneros case to 

District Counsel with a prosecution recommendation, but that ACC had then 

intervened by pulling the case into its Washington, D.C. office and subsequently 

declining to refer it to DOJ for grand jury investigation or prosecution. 

The Improprieties Memorandum alleged that ACC’s actions were improper. 

Specifically, it charged that: 

•	 there had been an “unprecedented deviation” from the IRS’s normal review 

process in the review of the Cisneros case;1133 

•	 ACC had pulled the Cisneros case from the field with the apparent intent to 

“kill” it;1134 

•	 ACC’s decision to decline the case had been made without regard to the 

evidence or the facts;1135 

•	 the head of ACC, who had made the decision to pull the case from the field and 

then to kill it, had had a very “cozy” relationship with Cisneros’s attorneys;1136 

and 

1131 GJ 00-001 Ex. 94. 

1132 GJ 00-001 Ex. 94 at 2. 

1133 GJ 00-001 Ex. 94 at 2-3. 

1134 Id. at 2. 

1135 Id. at 3-5. 

1136 Id. at 1-2, 5-6. 

V-11 
•	 ACC had made improper disclosures to DOJ’s Criminal Tax Division (“Tax 

Division”) in a further attempt to stop the Cisneros case from being 

prosecuted.1137 

Some of the Improprieties Memorandum’s accusations bore directly on the 

question of how the Independent Counsel’s jurisdiction was determined. The 

memorandum noted that the Independent Counsel had requested jurisdiction to 

investigate possible Cisneros tax offenses from both the Attorney General and the 

Special Division, and that it was awaiting an order from the Special Division.1138 The 

memorandum attributed to a DOJ official the complaint that CID, which was then 

trying to keep the case alive, had been “dragging its feet” so that the OIC could take 

jurisdiction.1139 

Furthermore, the Improprieties Memorandum noted that the Attorney General’s 

written response to the Independent Counsel’s expansion request seemed to mirror 

ACC’s reasons for killing the Cisneros tax case.1140 It concluded that the actions of 

ACC might have improperly influenced the Attorney General’s decision on whether 

to grant the Independent Counsel authority to investigate tax matters: 

It also appears that the possible disclosure by [ACC], of their intentions 

to decline the case, has potentially influenced Reno’s decision. Her 

decision should have been made independently and without knowledge 

of any tax investigation.1141 

The Improprieties Memorandum thus raised serious questions of whether 

improper activities within the IRS or DOJ might have wrongfully limited the tax 

jurisdiction that the OIC received, and thereby obstructed its investigation. It 

suggested that ACC, working in conjunction with DOJ officials who were attempting 

to head off a multi-year independent counsel tax investigation, had quashed a strong 

criminal tax fraud case. The memorandum and other materials available to the OIC 

1137 Id. at 2, 6-7. 

1138 Id. at 1. 

1139 Id. at 6-7. 

1140 Id. at 7. 

1141 Id. at 7. 

V-12 
in May 1997 indicated that the Attorney General’s initial decision not to request that 

the Independent Counsel be given tax jurisdiction, and her later decision to request 

an expansion allowing tax jurisdiction in only one year, might have resulted from 

activities amounting to obstruction of justice. If so, such activities fell squarely 

within the Independent Counsel’s mandate to investigate any obstruction of his 

investigation. 

E. The OIC’s Preliminary Obstruction Investigation 

The Independent Counsel’s 1995 original mandate and 1997 expansion 

mandates expressly included jurisdiction over any interference with or obstruction of 

his investigation, in addition to any matters related to his original jurisdiction. They 

gave the Independent Counsel: 

[J]urisdiction and authority to investigate any violation of 28 U.S.C. 

§ 1826, or any obstruction of the due administration of justice, or any 

material false statement or testimony in violation of federal criminal law, 

in connection with or arising out of [his original false statements 

investigation or his later 1992 tax investigation].1142 

[P]rosecutorial jurisdiction to fully investigate and prosecute the subject 

matters with respect to which the Attorney General requested 

appointment of independent counsel, [and the expansion of such 

independent counsel’s jurisdiction] . . . and all matters and persons and 

entities whose acts may be related to those subject matters, inclusive of 

authority to investigate and prosecute federal crimes . . . that may arise 

out of the above described matters, including perjury, obstruction of 

justice, destruction of evidence and intimidation of witnesses.1143 

From these mandates, the OIC determined that it had the authority to proceed 

with a preliminary investigation of possible obstruction of its investigations. The 

preliminary investigation addressed whether any laws had been broken in connection 

with the following: DOJ’s 1995 decision not to include tax offenses in the 

Independent Counsel’s original mandate; DOJ’s 1997 decision not to expand the 

Independent Counsel’s jurisdiction to include Cisneros’s possible tax offenses in 

1142 GJ 00-001 Ex. 4 at 2; see GJ 00-001 Ex. 91 at 2. 

1143 GJ 00-001 Ex. 92; see GJ 00-001 Ex. 4 at 2-3. 

V-13 
1989, 1991, and 1993; and the IRS’s decision not to refer the Cisneros tax case for 

prosecution or grand jury investigation, which under the Independent Counsel Act 

would almost certainly have been conducted by an independent counsel. 

In the Summer of 1997, at the OIC’s request, two FBI Special Agents and a 

Department of Treasury Office of Inspector General Special Agent were detailed to 

assist in its preliminary obstruction investigation. The OIC then questioned 

numerous IRS employees who had worked on or had knowledge of the Cisneros case, 

including CID agents and ACC attorneys. The OIC also obtained CID’s and ACC’s 

Cisneros case files and telephone and e-mail records, as well as various internal FBI 

documents relating to the Cisneros preliminary investigation. 

Evidence the OIC gathered in its preliminary investigation indicated that both 

DOJ and the IRS had had in their possession evidence showing that Cisneros had 

substantially underreported his income in several tax years. The OIC also obtained 

evidence confirming many of the Improprieties Memorandum’s allegations, including 

that ACC’s taking over the Cisneros case from a local office deviated from normal 

IRS procedure. 

F. The OIC’s Full-Scale Obstruction Investigation 

On the basis of its preliminary investigation, the OIC decided in early 1998 to 

initiate a full-scale investigation into obstruction of justice by DOJ and IRS officials. 

1. The 1998 Grand Jury Inquiry 

In the Spring of 1998, a federal grand jury in Washington, D.C. began taking 

evidence in the OIC’s obstruction investigation. The witnesses included two ACC 

attorneys who had reviewed the Cisneros case, Martin Klotz and Martin Needle, both 

originally represented by DOJ lawyers.1144 In May 1998, after their initial 

appearances before the grand jury and after the OIC had informed DOJ that they were 

subjects of its investigation,1145 both retained private counsel, who informed the OIC 

1144 See GJ 00-001 Exs. 164, 165, 174; Letter from DOJ to OIC 5/6/98; Letter 

from DOJ to OIC 5/18/98. 

1145 A “subject” of an investigation is a person whose conduct is within the 

scope of the grand jury’s investigation. United States Attorneys Manual 9-11.151, 

(continued...) 

V-14 
their clients would assert the Fifth Amendment privilege against self-incrimination 

if asked to testify again.1146 Klotz appeared before the grand jury on May 19, 1998, 

and asserted the Fifth Amendment in response to any and all questions.1147 (Both later 

testified pursuant to grants of immunity.)1148 

2. Temporary Suspension of the Obstruction Investigation 

In the Spring of 1998, United States District Judge Stanley Sporkin set a 

September 1998 date for the Cisneros false statements trial. Because its resources 

were limited, the OIC temporarily suspended further investigation of the obstruction 

of justice allegations pending the completion of the Cisneros trial. 

Intensive pretrial activity ensued, and the Cisneros trial date was repeatedly 

postponed. On the eve of trial, on September 7, 1999, the prosecution was resolved 

with Cisneros’s guilty plea.1149 

In the interim, on June 30, 1999, the Independent Counsel Act lapsed by its 

sunset provision.1150 However, the provision provided that the Act “shall continue in 

effect with respect to then pending matters before an independent counsel that in the 

judgment of such counsel require such continuation until that independent counsel 

determines that such matters have been completed.”1151 The OIC’s obstruction 

investigation had been pending since the Spring of 1997, and the Independent 

Counsel determined that it should continue after the Cisneros prosecution concluded, 

despite the sunsetting of the Act, because of the gravity of the obstruction allegations. 

1145(...continued) 

Advice of “Rights” of Grand Jury Witnesses. 

1146 OIC staff notes 5/18/98, 5/20/98; see Letter from DOJ to OIC 5/18/98. 

1147 GJ 97-1 Tr. Klotz 5/19/98. 

1148 GJ 00-001 Exs. 243, 267. 

1149 GJ 00-001 Ex. 11 at 20. 

1150 28 U.S.C. § 599. 

1151 Id. 

V-15 
3. Resumption of the Obstruction Investigation 

Following Cisneros’s September 1999 guilty plea, the OIC resumed its 

obstruction investigation. 

a. Investigation of Possible IRS Obstruction 

Continuing its investigation of possible obstruction by IRS officials, the OIC 

interviewed IRS agents and attorneys involved in the review of the Cisneros case, 

including officials from CID, District Counsel, ACC, and other IRS personnel. The 

OIC also obtained and analyzed additional records from the IRS and the FBI. 

Pursuant to an OIC request, a new grand jury was convened in February 2000 

to investigate the obstruction allegations. The grand jury heard testimony from a CID 

agent familiar with the Cisneros case, and from IRS attorneys who had worked on 

the Cisneros case in the IRS’s district, regional, and national offices. The grand jury 

heard extensively from Barry Finkelstein, the head of ACC, and from his subordinates 

Martin Klotz and Martin Needle. Finkelstein and Klotz testified pursuant to statutory 

grants of use immunity under 18 U.S.C. §§ 6002-6003.1152 Needle testified pursuant 

to an informal grant of use immunity conferred upon him by the OIC.1153 

b. Investigation of Possible DOJ Obstruction 

While the OIC was taking testimony from IRS personnel before the grand jury, 

it was also investigating possible obstruction of justice by DOJ officials. The OIC 

analyzed internal FBI documents from the Cisneros background and preliminary 

investigations, and limited documentation from DOJ relating to the 1994-95 

preliminary investigation. The OIC compared this evidence to the information it had 

obtained from the IRS. The OIC also interviewed current and former FBI agents who 

had worked on the Cisneros case during DOJ’s preliminary investigation leading to 

the Independent Counsel’s appointment. Several of these agents later testified before 

the grand jury. 

1152 GJ 00-001 Exs. 146, 243, 267; GJ 00-001 Tr. Finkelstein 5/23/00 at 23-27; 

GJ 00-001 Tr. Klotz 12/12/00 at 6-9. 

1153 GJ 00-001 Ex. 267; GJ 00-001 Tr. Needle 3/8/01 at 5-10. 

V-16 
The OIC determined that the evidence presented through the IRS and FBI 

witnesses, although substantial, provided an incomplete explanation of DOJ’s and 

ACC’s decisions in the Cisneros matter. The OIC therefore concluded that a 

responsible and thorough investigation would require the grand jury to consider the 

testimony of DOJ officials and to review DOJ documents. 

However, DOJ repeatedly rebuffed the OIC’s efforts to obtain its cooperation. 

Notably, on December 20, 2000, the Independent Counsel met with Assistant 

Attorney General for the Criminal Division James Robinson and Deputy Assistant 

Attorney General for the Criminal Division John Keeney.1154 At the meeting, the DOJ 

officials alluded to an October 2000 Wall Street Journal article describing the OIC’s 

obstruction investigation.1155 

The DOJ representatives expressed a concern that an obstruction investigation 

exceeded the Independent Counsel’s jurisdiction, and asserted that DOJ had some 

supervisory power over the exercise of an independent counsel’s jurisdiction.1156 

They said they had considered raising this concern after the Wall Street Journal 

article appeared but had decided against it, and that they were raising the issue then 

because the Attorney General wanted to be assured that the Independent Counsel was 

operating within his jurisdiction due to the forthcoming change in administration.1157 

They asked the Independent Counsel to disclose the nature of his ongoing grand jury 

investigation, but he declined to do so.1158 They then advised the Independent 

Counsel that his refusal to divulge the details of his investigation could constitute 

1154 DOJ requested this meeting days after the Supreme Court’s decision in 

Bush v. Gore, 531 U.S. 98 (2000). 

1155 Wall Street Journal, “Independent Counsel Barrett probes IRS, Justice 

Department on Cisneros tax case” 10/3/00. The article stated: “An independent 

counsel is investigating whether the Internal Revenue Service and Justice Department 

obstructed his probe of former Housing Secretary Henry Cisneros, lawyers familiar 

with the matter said.” 

1156 OIC notes 12/20/00 at 1. 

1157 Id. at 1. 

1158 Id. at 1-2. 

V-17 
“good cause” for his removal from office.1159 They also told him that a continuation 

of the investigation might lead to civil suits against him and his staff.1160 

The Independent Counsel responded by offering to meet privately and 

confidentially with the Attorney General to apprise her of the nature of the 

investigation to the extent he was able.1161 The OIC told the DOJ officials that it had 

informed the Special Division of the nature of its investigation. The DOJ officials 

indicated that DOJ would accept a ruling from the Special Division that the matter 

was within the Independent Counsel’s jurisdiction, but the Independent Counsel said 

he wanted to make sure that a Special Division referral would satisfy the Attorney 

General.1162 On January 19, 2001, her penultimate day in office, Attorney General 

Reno wrote to the Independent Counsel to tell him that she was passing the matter on 

to her successor.1163 

In early February 2001, the Independent Counsel met with the newly-appointed 

Attorney General John D. Ashcroft and disclosed to him the nature of the ongoing 

grand jury investigation. Thereafter, during the late Winter and early Spring of 2001, 

the OIC had informal discussions with DOJ concerning whether the new Attorney 

General would be willing to provide a referral of the obstruction matter as a “related 

matter” under 28 U.S.C. § 594(e). 

In May 2001, DOJ sent the Independent Counsel a draft letter unofficially 

declining to refer the matter.1164 The letter stated: “Because of the limited nature of 

our review, this letter does not represent an official Department position on your 

formal request.”1165 Noting that “there is no express statutory language that dictates 

how to evaluate a ‘related matter’ referral,” DOJ chose “to use a similar standard as 

1159 OIC notes 12/20/00 at 3; see 28 U.S.C. § 596(a)(1). 

1160 OIC notes 12/20/00 at 2. 

1161 Id. at 4. 

1162 Id. at 7-9. 

1163 GJ 00-001 Ex. 258. 

1164 Draft Letter from DOJ to Independent Counsel 5/2001 at 1. 

1165 Id. at 1-2. 

V-18 
for requests for appointment of an Independent Counsel under 28 U.S.C. § 591 and 

592.”1166 The unofficial denial was based on DOJ’s position that: 

[T]here are no reasonable grounds to believe the further investigation is 

warranted. We have seen no actual evidence supporting a conclusion 

that any employee of this Department or of the IRS violated a criminal 

law in connection with the prosecutive determination made by either the 

Attorney General or the Assistant Chief Counsel of the IRS.1167 

The letter also stated that “notwithstanding our preliminary view that the new 

allegations should not be referred to you . . . it is within your discretion to request 

such a referral from the Special Division.”1168 

Despite DOJ’s unofficial position that a referral was not appropriate, the OIC 

continued its obstruction investigation. However, by the end of the Summer of 2001, 

the OIC had determined that the investigation could not be completed until the 

jurisdictional issue was resolved. To advance the investigation and frame the 

jurisdiction issue, the OIC requested, in a September 10, 2001 letter to the Attorney 

General, that DOJ produce certain records crucial to the resolution of the obstruction 

investigation.1169 As of November 2001, the OIC had not received any response to 

this request. (The OIC recognized that this request came immediately before the 

events of September 11, 2001, which placed more pressing obligations on DOJ in the 

weeks immediately following.) 

4.	 The Application for a Referral of Jurisdiction over the 

Obstruction Allegations 

The OIC anticipated that DOJ would continue to ignore or resist any request 

for the production of records and that any subpoenas issued to DOJ or others would 

result in jurisdictional challenges. To avoid the significant delay such challenges 

1166 Id. at 4-5. 

1167 Draft Letter from DOJ to Independent Counsel 5/2001 at 6 (internal 

quotation marks omitted). 

1168 Id. at 9. 

1169 Letter from Independent Counsel to Attorney General Ashcroft 9/10/01. 

V-19 
would have caused, the OIC decided in late 2001 to seek a formal referral of the 

obstruction matter from the Special Division pursuant to 28 U.S.C. § 594(e). 

As interpreted by the Special Division, § 594(e) was essentially a means by 

which the court could clarify an independent counsel’s existing jurisdiction over 

matters related to the independent counsel’s core jurisdiction. Specifically, in making 

a § 594(e) referral, the Special Division was “interpreting, but not expanding, the 

independent counsel’s original prosecutorial jurisdiction, thus permitting this Court 

to make explicit the independent counsel’s jurisdiction over a matter that was 

implicitly included in the original grant.”1170 On November 30, 2001, the OIC filed 

an Application for a Referral of a Related Matter with the Special Division, urging 

the Special Division to interpret the Independent Counsel’s jurisdiction to encompass 

the obstruction of justice issue as a related matter.1171 

The Application explained why the OIC believed the obstruction matter was 

related to the jurisdiction already granted to the Independent Counsel. It also noted 

that the Independent Counsel Act’s sunset date of June 30, 1999 had passed.1172 The 

Application urged that the obstruction matter, which had been under investigation on 

June 30, 1999, should be continued because it met the statutory criteria – it was 

pending on the sunset date and the Independent Counsel had determined that it should 

be completed.1173 

The Special Division entered an order on January 16, 2002, denying the 

Application for a Referral.1174 The accompanying Memorandum Opinion indicated 

that the denial was on non-substantive grounds and proved, upon examination, to be 

somewhat cryptic. The Special Division held that the 1999 sunsetting of the 

1170 In re Espy, 80 F.3d 501, 506 (D.C. Cir. [Spec. Div.] 1996). 

1171 Office of Independent Counsel’s Application for Referral of a Related 

Matter Pursuant to 28 U.S.C. § 594(e) 11/30/01. 

1172 28 U.S.C. § 599. 

1173 Office of Independent Counsel’s Application For Referral Of A Related 

Matter Pursuant to 28 U.S.C. § 594(e) 11/30/01 at 31-32. 

1174 Special Division Order and Opinion 1/16/02. 

V-20 
Independent Counsel Act precluded it from granting the requested referral.1175 Its 

Opinion hinted, but did not clearly state, that it viewed the obstruction investigation 

as barred by the sunsetting of the statute.1176 However, the court noted that the 

question of whether the obstruction investigation survived the sunsetting of the Act 

had not been squarely put before it.1177 The court also stated that “[i]f [the obstruction 

investigation] was indeed a ‘pending matter’ [under 28 U.S.C. § 599] then it would 

not need to be referred.”1178 

5. The Subpoena to DOJ 

Because the Independent Counsel believed that the obstruction allegations 

should be fully investigated, the OIC decided to press ahead with the obstruction 

investigation without a formal referral, in light of the Special Division’s directive that 

a pending matter did not need to be referred. 

The next logical step in the investigation was to obtain information from DOJ, 

which had already indicated that it would not provide documents voluntarily. 

Therefore, on February 4, 2002, the OIC served on DOJ a grand jury subpoena for 

documents related to the obstruction investigation.1179 In an accompanying letter to 

the Attorney General, the Independent Counsel requested cooperation with the 

investigation and pledged to “complete the investigation as quickly and discreetly as 

possible” and “not . . . to examine conduct unnecessary to the completion of my 

investigation.”1180 The OIC then began informal discussions with DOJ concerning 

the subpoena and granted DOJ’s request for an extension of time to respond. 

The OIC disclosed to DOJ the fact that it had filed with the Special Division 

an earlier Application for Referral. However, because the Application and the 

Special Division’s Order and Opinion had been filed under seal, the OIC could not 

1175 Special Division Opinion 1/16/02 at 2. 

1176 Id. 

1177 Id. 

1178 Id. 

1179 OIC Subpoena to DOJ 2/4/02. 

1180 Letter from Independent Counsel to Attorney General Ashcroft 2/4/02. 

V-21 
disclose the particulars of the Application or the Special Division’s disposition of it. 

On February 8, 2002, the OIC requested the Special Division’s permission to disclose 

the Application and the Order and Opinion to DOJ.1181 By an order dated February 

21, 2002, the Special Division granted this request, with the proviso that “[t]his 

ORDER is not to be construed as conveying an opinion of this Court about the 

jurisdiction of Independent Counsel Barrett with respect to any aspect of the 

investigation, In re: Henry G. Cisneros.”1182 

The OIC then gave DOJ a copy of the Application and the Order denying the 

Application. On March 26, 2002, DOJ filed with the Special Division a “Motion for 

Clarification of Independent Counsel’s Jurisdiction.”1183 The motion asked the 

Special Division to “find that [the Independent Counsel] is not authorized to conduct 

these new lines of inquiry.”1184 The OIC’s Response argued that there was no 

statutory basis for such a motion.1185 Nevertheless, the Response urged the Special 

Division to resolve the substantive question underlying the DOJ motion. Specifically, 

it noted that the OIC had the implicit authority to request a reconsideration of the 

earlier denial of its referral application, and it expressly asked the Special Division 

to entertain the DOJ motion as an OIC request for reconsideration.1186 The OIC 

further urged that, if the Special Division did address the motion, it should hold that 

the OIC did indeed have the jurisdiction to proceed with the obstruction 

investigation.1187 

1181 Independent Counsel’s Sealed Motion for Limited Disclosure of Its 

Application for Referral of a Related Matter and the Court’s Order Denying the 

Application 2/8/02. 

1182 Special Division Order 2/21/02 at 2. 

1183 Motion For Clarification Of Independent Counsel’s Jurisdiction 3/26/02. 

1184 Motion For Clarification Of Independent Counsel’s Jurisdiction 3/26/02 at 

2. 

1185 Office of Independent Counsel’s Response To Department of Justice’s 

“Motion For Clarification Of Independent Counsel’s Jurisdiction” 4/2/02 at 1, 5-7. 

1186 Id. at 7-8. 

1187 Id. at 7-18. 

V-22 
On April 16, 2002, the Special Division rejected this new invitation to address 

the jurisdictional question, stating in its Memorandum Opinion that “we lack 

jurisdiction to entertain the DOJ’s motion.”1188 The Opinion further stated that “[w]e 

note in passing that it is well established that to obtain review of a subpoena, a party 

must refuse to comply with the subpoena, be held in contempt by the trial court, and 

appeal the finding of contempt to the appellate court.”1189 

On April 30, 2002, DOJ filed with the United States District Court for the 

District of Columbia a Motion to Quash the OIC subpoena.1190 The motion 

principally argued that the OIC did not have jurisdiction to conduct the obstruction 

investigation, and that any jurisdiction the OIC did have had lapsed with the 

sunsetting of the Independent Counsel Act. The OIC responded on May 20, 2002, 

arguing that it did have jurisdiction over the obstruction matter and that this 

jurisdiction survived the sunsetting of the Act because it was pending on June 30, 

1999, as required by 28 U.S.C. § 599.1191 The District Court did not immediately take 

action on the Motion to Quash and gave no indication of when it would rule. 

6. The Show Cause Order 

The District Court had taken no action on the Motion to Quash by the end of 

May 2002, which marked the seventh anniversary of the Independent Counsel’s 

appointment. The anniversary triggered 28 U.S.C. § 596(b)(2), which required the 

Special Division to determine annually, on its own motion, whether to terminate the 

office of an independent counsel: 

[O]n the ground that the investigation of all matters within the 

prosecutorial jurisdiction of such independent counsel . . . and any 

resulting prosecutions, have been so completed or substantially 

completed that it would be appropriate for the Department of Justice to 

complete such investigations and prosecutions. 

1188 Special Division Opinion 4/16/02 at 1. 

1189 Id. at 2 (internal quotation marks omitted). 

1190 Motion To Quash Grand Jury Subpoena Duces Tecum 4/30/02. 

1191 Office Of Independent Counsel David M. Barrett’s Opposition To 

Department Of Justice’s “Motion To Quash Grand Jury Subpoena Duces Tecum” 

5/20/02. 

V-23 
On May 29, 2002, referring to § 596(b)(2), the Special Division sent its annual 

request to the Independent Counsel for an update on the status of pending matters in 

his investigations.1192 The Independent Counsel responded on June 5, 2002, with a 

letter describing the status of the obstruction investigation, including the OIC’s 

efforts to obtain needed information from DOJ.1193 

On June 21, 2002, the Special Division issued an Order requiring the 

Independent Counsel to “show cause on or before 30 days why the Court should not 

order that any remaining investigations and prosecutions be transferred to the 

Department of Justice, and the Office of Independent Counsel terminated.”1194 The 

accompanying Special Division Order further stated that “the Court is unable to 

determine definitively whether the investigation of all matters within the prosecutorial 

jurisdiction of the Independent Counsel . . . and resulting prosecutions have been 

completed or substantially completed.”1195 The Order to Show Cause marked a 

departure from the Special Division’s past practice of annually authorizing the OIC 

to continue for a period of one year after receiving his annual status letter. 

The OIC responded to the Order to Show Cause on July 10, 2002.1196 Its 

Response described the obstruction investigation, explained why the obstruction 

investigation was within the Independent Counsel’s jurisdiction, and demonstrated 

that the obstruction investigation had been pending before the sunset date of the Act. 

The Response urged that the Special Division’s termination powers, pursuant to 28 

U.S.C. § 596(b)(2), were limited to those situations where “all matters within the 

prosecutorial jurisdiction of [the] independent counsel . . . have been completed or 

so substantially completed that it would be appropriate for the Department of Justice 

to complete such investigations and prosecutions.”1197 The Response asserted that: 

1192 Letter from Special Division to Independent Counsel 5/29/02. 

1193 Letter from Independent Counsel to Special Division 6/5/02. 

1194 Special Division Order 6/21/02 at 1-2. 

1195 Special Division Order 6/21/02 at 2. 

1196 Office of Independent Counsel’s Response To Order To Show Cause 

7/10/02. 

1197 Id. at 2. 

V-24 
[T]his is not “the unlikely situation where a special prosecutor may try 

to remain as special prosecutor after his responsibilities under this 

chapter are completed.” The investigation is neither complete nor 

substantially complete, and DOJ cannot appropriately continue it in 

OIC’s place.1198 

On September 3, 2002, the Special Division issued an Order on the termination 

issue. The court concluded that termination was “not currently appropriate under the 

standards set forth in 28 U.S.C. § 596(b)(2).” However, it further ordered that 

“within six (6) months of the date of this order, the Independent Counsel again show 

cause why his office should not be terminated, and that his response to this show 

cause order include new developments since the date of this order.”1199 The 

accompanying Memorandum further explained that, “because of the unique status of 

this investigation . . . we expect that this matter will be brought to a close in the 

foreseeable future.”1200 

7. The Decision to Terminate the Obstruction Investigation 

Following the Special Division’s September 3, 2002 Order, after thorough 

review and deliberation, the Independent Counsel decided to terminate the 

obstruction investigation and to confine the OIC’s activities to the completion of this 

Final Report. DOJ, through its resistance to the subpoena, had signaled its intention 

to resist the investigation at every turn. The District Court had taken no action on 

DOJ’s Motion to Quash, which was likely to be the subject of a lengthy appeal no 

matter what the outcome. The Special Division had clearly indicated that it wanted 

the matter resolved expeditiously. And, while all of these factors were slowing the 

progress of the investigation, the statute of limitations was becoming an increasingly 

serious concern for the prosecution of possible offenses that had, for the most part, 

taken place several years earlier. 

1198 Id. at 33, quoting Morrison v. Olsen, 487 U.S. 654, 653 n. 21 (1998) 

(citations omitted). 

1199 Special Division Order 9/3/02. 

1200 Special Division Memorandum 9/3/02 at 6. 

V-25 
Accordingly, on February 28, 2003, the OIC filed with the Special Division its 

Response to the September 3, 2002 Order.1201 In its Response, the OIC informed the 

Special Division that it had decided to cease all pending investigative and 

prosecutorial activities, had withdrawn the subpoena to DOJ, and had notified the 

District Court of the withdrawal. The OIC also informed the Special Division that 

its remaining activities would be directed to its non-investigative and nonprosecutorial duties, in particular the preparation and filing of its Final Report. 

On March 17, 2003, the Special Division entered an Order directing the 

Independent Counsel to continue his duties with respect to the filing of this Final 

Report.1202 

G.	 The Results of the OIC’s Obstruction Investigation 

1.	 Summary of Findings 

For the reasons discussed above, the OIC did not complete its investigation of 

possible obstruction of justice in connection with its earlier investigation of Cisneros. 

However, the incomplete investigation of obstruction issues yielded substantial 

credible evidence to draw certain inferences about the underlying facts. This 

evidence and these inferences are discussed below. 

Specifically, the OIC determined that this evidence supports the conclusion that 

certain DOJ officials had: 

•	 attempted to prevent an independent counsel from being appointed to 

investigate any of the allegations against Cisneros; and 

•	 in conjunction with certain IRS officials, attempted to prevent an independent 

counsel from being appointed to investigate allegations that Cisneros 

committed tax offenses. 

The OIC further found that this evidence supports the conclusion that certain 

officials of the IRS’s ACC had: 

1201 Office Of Independent Counsel’s Response To Order To Show Cause 

2/28/03. 

1202 Special Division Order 3/17/03. 

V-26 
•	 independently and in conjunction with certain DOJ officials, attempted to 

preclude an independent counsel investigation of Cisneros’s possible tax 

offenses; 

•	 discussed the Cisneros case with DOJ before DOJ had reached its 

determination on the OIC’s expansion request, indicating at that time that ACC 

was not going to forward the case for prosecution; 

•	 failed to follow normal IRS practices in reviewing the Cisneros case; 

•	 ignored, throughout their review, critical evidence that, in the view of the IRS 

officials who normally would make such determinations, clearly indicated that 

the Cisneros case warranted prosecution; 

•	 ignored crucial and seemingly undeniable facts in determining whether the 

evidence merited prosecution of Cisneros; and 

•	 given conflicting testimony on numerous issues before the grand jury in the 

OIC investigation. 

H.	 Findings Regarding the Initial Request for Appointment of an 

Independent Counsel 

Public Integrity’s preliminary investigation of the Cisneros matter, conducted 

in 1994 and 1995 pursuant to 28 U.S.C. § 592(a) to determine whether the Attorney 

General should request appointment of an independent counsel to investigate 

Cisneros, appears to have been tailored to preclude the appointment of an 

independent counsel. High-ranking Public Integrity officials seem to have shied 

away from obtaining relevant evidence concerning Cisneros, to have ignored other 

critical evidence, to have falsely claimed that they conducted investigations of issues 

concerning Cisneros’s financial dealings and potential tax violations, and to have 

engaged in a result-driven legal and factual analysis. All of this occurred when the 

Clinton Administration was beset by other accusations of impropriety and other 

independent counsel investigations, leading the head of Public Integrity to state that 

he did not want to recommend the appointment of another independent counsel 

because it would pose problems for the Attorney General in her role with the 

President. 

V-27

1. Preliminary Inquiries into the Cisneros Allegations 

In early September 1994, the press began reporting that Medlar had taped 

Cisneros and was preparing to appear on the television program Inside Edition, where 

she would tell her side of the story and air some of the recorded conversations.1203 It 

was also reported that Medlar and Cisneros had discussed his FBI background 

investigation on some of the tapes.1204 

Almost immediately, White House Chief of Staff Leon Panetta directed the 

White House Counsel’s Office (“WHCO”) to look into the matter. According to 

Panetta, the WHCO was instructed “to review the allegations that were out there 

regarding [Cisneros’s] conduct, as expeditious and thorough a review as they could, 

for purposes of making a recommendation . . . to the President as to whether or not 

action should be taken.”1205 The inquiry was not, and apparently was not designed to 

be, a fact-finding investigation, but rather a review to determine whether, as a 

political matter, Cisneros should remain and could function effectively as a Cabinet 

Secretary.1206 By the time Medlar’s Inside Edition episode aired on September 12, 

1994, the WHCO had spoken with Cisneros and reviewed the FBI reports of his 

background investigation interviews.1207 The day after the broadcast, Cisneros’s 

attorney, Seagal Wheatley briefed WHCO attorneys on the status of Medlar’s civil 

suit against Cisneros.1208 Transition Team Counsel James Hamilton was also 

contacted by the WHCO on September 13, 1994.1209 

1203 See, e.g., San Antonio Express-News, “Medlar sells story to ‘Inside 

Edition’” 9/3/94. 

1204 Id. 

1205 OIC Depo. Tr. Panetta 10/17/97 at 45-46. 

1206 OIC Interview Report Joel Klein 7/16/97 at 2. 

1207 OIC Depo. Tr. Cutler 10/21/97 at 30; White House Privilege Log Document 

#9 (notes from Nolan to Klein summarizing Cisneros’s FBI-302s). 

1208 San Antonio Express-News, “Cisneros’ attorney briefs White House” 

9/14/94. 

1209 Fax cover sheet from Klein to Hamilton 9/13/94. 

V-28 
On September 14, 1994, Public Integrity began an initial 30-day inquiry of 

Cisneros prompted by the allegations aired on Inside Edition. The purpose of the 

inquiry was to provide the Attorney General information to determine whether to 

initiate a 90-day preliminary investigation of Cisneros leading to the possible 

appointment of an independent counsel.1210 In making that determination, the 

Attorney General was obligated by statute to consider only two factors: (1) the 

specificity of the information received and (2) the credibility of the source of the 

information.1211 However, Public Integrity soon appeared to be taking steps that 

would preclude the acquisition of evidence relevant to these factors. 

On the same day that Public Integrity began its inquiry, September 14, 1994, 

the FBI office in San Antonio, Texas (“FBI San Antonio”) received from a 

confidential source 14 transcripts of tape recordings that Medlar had made of her 

telephone conversations with Cisneros. After reviewing the transcripts, FBI San 

Antonio determined that they did, in conjunction with revelations in the Inside 

Edition broadcast, contain evidence of potential criminality concerning Cisneros.1212 

Because Cisneros, as a Cabinet member, was a “covered person” under the 

provisions of the Independent Counsel Act,1213 FBI San Antonio was obligated by FBI 

internal procedures to notify FBI Headquarters in Washington, D.C. (“FBIHQ”) of 

its receipt of the transcripts. Consequently, on September 16, 1994, FBI San Antonio 

sent FBIHQ a teletype noting its receipt of the transcripts and describing their 

content. The teletype provided, in pertinent part: 

A review of these transcripts revealed that the fourteen 

conversations occurred between about November of 1992 through 

December of 1993. Many of the transcripts seem to be in a rough draft 

format and others appear closer to a final form. In brief summary, the 

conversations center on Medlar’s requests for money from Cisneros, 

discussions of the political career of Cisneros, and personal exchanges. 

Notations on the transcripts indicate that certain portions have been 

“skipped”; and from the context of the conversations, it appears that 

1210 See 28 U.S.C. §§ 591-92. 

1211 28 U.S.C. §§ 591(d)(1)(A)-(B). 

1212 GJ 00-001 Ex. 341. 

1213 28 U.S.C. § 591(b). 

V-29 
untranscribed conversations may contain information of value to 

captioned matter. 

Throughout the tapes, Medlar and Cisneros discuss the efforts of 

Cisneros to provide money for Medlar’s current financial needs as well 

as to provide for her future financial security.1214 

Around the same time, FBI San Antonio was contacted by an IRS CID agent 

based in San Antonio, who asked if the FBI had any interest in pursuing a joint 

investigation of Cisneros with the IRS.1215 The agent informed FBI San Antonio that 

the IRS had financial information concerning Cisneros that was relevant to the 

allegations made during the Inside Edition broadcast. FBI San Antonio informed the 

CID agent that, since Cisneros was a person covered by the Independent Counsel Act, 

DOJ in Washington, D.C. would control any investigation and that FBI San Antonio 

did not have the authority to go forward with the IRS in a joint investigation of 

Cisneros.1216 

Meanwhile, the WHCO continued with a review of FBI reports generated 

during the Cisneros background investigation, as well as transcripts of selected tapes, 

relevant newspaper articles, and other public documents. The WHCO interviewed 

Elizabeth Arky, a vetting team member who later became a Cisneros subordinate at 

HUD.1217 Arky provided the WHCO with her notes from the vetting process.1218 The 

WHCO also spoke with Vetting Team Captain Raymond Calamaro and President 

Clinton’s personal emissary Webster Hubbell.1219 

The WHCO had also arranged to interview Cisneros. The meeting took place 

on or about September 16, 1994; Cisneros was accompanied by his lawyers Mortimer 

Caplin and Cono Namorato from the law firm of Caplin & Drysdale in Washington, 

1214 GJ 00-001 Ex. 341 at 3. 

1215 GJ 00-001 Ex. 16. 

1216 OIC Interview Notes George Parks 6/14-15/01 at 2-3. 

1217 OIC Interview Report Joel Klein 7/16/97 at 1. 

1218 GJ 97-1 Tr. Arky 11/20/97 at 25. 

1219 OIC Interview Report Joel Klein 7/16/97 at 1, 3. 

V-30 
D.C.1220 This firm was well known for its tax practice; Caplin had served as IRS 

Commissioner and Namorato had served as an IRS Special Agent and the Assistant 

Attorney General of the Tax Division. 

The September 16 meeting was dominated by tax issues. According to White 

House Counsel Lloyd Cutler, who was present at the meeting: 

The bulk of the meeting was taken up with the tax issues relating to the 

payments [Cisneros] had made. It is my recollection that they were 

largely gift tax issues because they were in excess of the gift tax 

inclusion for an individual. Caplin and Namorato explained to us just 

what the tax issues were and why they thought there was no criminal 

violation of the tax laws.1221 

Cutler later indicated that the WHCO had speculated that the gift tax laws 

would have been implicated if the payments were as large as alleged in Medlar’s 

lawsuit and on the tapes, but that it was probably Cisneros and his attorneys who had 

raised the issue.1222 Cutler also recalled Cisneros stating that he had understated the 

amount of the payments to the FBI because he did not want his wife to know how 

much he had actually given to Medlar.1223 Cisneros reiterated the claim in his July 

1994 press release that he had not provided any assistance to Medlar since assuming 

office.1224 According to Cutler, Cisneros offered to resign because of the charges, but 

Cutler told him that “the presumption of innocence was in his favor and he should 

carry on until the matter progressed further.”1225 

On September 19, 1994, members of the WHCO reinterviewed Cisneros 

telephonically. According to notes taken by one of the WHCO attorneys, Cisneros 

1220 See OIC Interview Report Joel Klein 7/16/97 at 3; OIC Depo. Tr. Cutler 

10/21/97 at 20, 23-24. 

1221 OIC Depo. Tr. Cutler 10/21/97 at 23. 

1222 OIC Depo. Tr. Cutler 10/21/97 at 26-27. 

1223 Id. at 24-25. 

1224 Id. at 51. 

1225 Id. at 22. 

V-31 
informed them that he had paid Medlar $16,000 to assist her with the purchase of a 

home.1226 The notes also suggested that Cisneros discussed efforts to get Medlar a job 

and apparently alluded to a failed attempt to direct HUD business to Medlar’s 

relatives.1227 The same day, members of the WHCO met with incoming White House 

Counsel Abner Mikva to discuss the Cisneros matter.1228 

Also on September 19, 1994, the United States Attorney for the Northern 

District of Texas sent the Attorney General a letter, transferring to Public Integrity 12 

transcripts of the Medlar tapes he had received from Medlar’s attorneys. In the letter, 

the U.S. Attorney stated that Medlar’s attorneys had claimed that “the tapes indicate 

that Secretary Cisneros was not completely truthful to the FBI during his background 

check (for example, by not divulging the amount of the payments) and that he may 

not have reported the payments accurately on his returns.”1229 The letter was copied 

to Public Integrity Chief, Lee Radek. 

On September 21, 1994, Public Integrity lawyers, including Public Integrity 

Deputy Chief Jo Ann Farrington, who had substantial responsibility within Public 

Integrity for Independent Counsel Act matters, met with FBI agents to discuss 

Cisneros. FBI Supervisory Special Agent Steve Yount, who was present at the 

meeting, described it as “confrontational.”1230 The FBI believed that there was a need 

to explore further what was on the Medlar tapes; Public Integrity indicated that the 

tapes did not warrant further inquiry, and that the investigation should be stopped at 

that point.1231 

1226 Nolan notes 9/19/94 at 1.


1227 Id.; GJ 97-1 Tr. Nolan 11/18/97 at 51-52.


1228 GJ 97-1 Tr. Nolan 11/18/97 at 40.


1229 GJ 00-001 Ex. 342 at 1.


1230 GJ 00-001 Tr. Yount 12/6/01 at 13.


1231 GJ 00-001 Tr. Yount 12/6/01 at 13-14, 18.


V-32 
At the time of the meeting, the Public Integrity attorneys claimed to have 

reviewed approximately 6 of the 12 transcripts in their possession.1232 Medlar had 

made more than 80 tapes.1233 

At the September 21, 1994 meeting, the FBI agents expressed their 

disagreement with Public Integrity’s view that the investigation should not go further. 

Specifically, the FBI agents told the Public Integrity attorneys that Cisneros had 

possibly made false statements during his background investigation and that his 

dealings with San Antonio businessman Morris Jaffe, who had made payments to 

Medlar on Cisneros’s behalf, might involve bribery, extortion, conflict of interest 

violations, and financial disclosure violations.1234 The FBI agents further stated that 

no determination should be made in the Cisneros matter until all available 

information, not just part of it, was reviewed, and they advocated an interview of 

Medlar.1235

 At about the same time as the September 21, 1994 meeting, Farrington stated 

in substance to another Public Integrity attorney, regarding the investigation of 

Cisneros, that “we need to hurry up and shut the investigation down.”1236 

In the aftermath of the September 21, 1994 meeting between Public Integrity 

attorneys and FBI agents, Yount sent a memorandum to Jo Ann Harris, the Assistant 

Attorney General (Criminal Division).1237 Harris supervised Public Integrity and 

acted as an intermediary between Public Integrity and the Attorney General. The 

memorandum summarized information the FBI had received concerning Cisneros 

and relayed what had occurred at the September 21, 1994 meeting. It also reiterated 

the FBI’s position that the tapes should be secured and reviewed and that Medlar 

should be interviewed. 

1232 OIC Interview Notes Yount 7/6/01 at 3. 

1233 OIC Interview Notes Parks 6/14-15/01 at 3; see also FBI memo 10/3/94. 

1234 GJ 00-001 Ex. 344 at 3. 

1235 Id. 

1236 OIC Interview Notes (Witness Identity Withheld) 8/2001 at 2. 

1237 GJ 00-001 Ex. 344. 

V-33 
Yount testified that he sent the memorandum because the FBI believed that 

Public Integrity had no interest in fulfilling its statutory obligation to determine 

whether the allegations concerning Cisneros were “specific and credible.”1238 The 

FBI further believed that Public Integrity had already decided, on the basis of very 

limited investigation, that the Cisneros matter should go nowhere.1239 

On September 22, 1994, as Public Integrity was beginning its inquiry, the New 

York Times reported that: 

Webster L. Hubbell, who was a senior Clinton transition official and 

later Associate Attorney General, said in an interview that Mr. Cisneros 

had been “totally forthcoming” about the matter. He said that the 

transition team had accepted the explanation that Mr. Cisneros had been 

providing money to help Ms. Medlar, not to silence her, and that the 

team had found it “quite admirable.”1240 

The same day, September 22, 1994, the Attorney General was asked at a press 

conference if the Department of Justice was investigating Cisneros. She declined to 

comment.1241 Following the press conference, the Department of Justice issued a 

press release, which stated in pertinent part: 

The Ethics in Government Law directs the Attorney General to 

determine whether information received about a covered person alleging 

a violation of federal criminal law is specific enough and from a 

sufficiently credible source to warrant a preliminary investigation. 

The Justice Department has received information relating to material 

that was broadcast on the television show “Inside Edition” about 

Secretary Cisneros and is proceeding as the law provides.1242 

1238 GJ 00-001 Tr. Yount 12/6/01 at 15. 

1239 OIC Interview Notes Yount 7/6/01 at 3. 

1240 New York Times, “Housing Secretary faces new questions” 9/22/94. 

1241 Los Angeles Times, “Tapes of Cisneros, ex-girlfriend probed” 9/23/94. 

1242 GJ 00-001 Ex. 343 (September 22, 1994 DOJ Press Release). 

V-34 
On September 23, 1994, the Los Angeles Times reported that, according to 

Cisneros’s attorney Wheatley, he and Cisneros: 

[W]ere questioned in detail last week about Medlar’s allegations by 

White House Counsel Lloyd N. Cutler. He said Cutler was primarily 

interested in Medlar’s lawsuit alleging that Cisneros owed her 

money.1243 

By September 24, 1994, the WHCO was downplaying the allegations against 

Cisneros. The WHCO informed Panetta that there was “no evidence that . . . Cisneros 

had in any way . . . violated the law.”1244 Contemporaneously, the White House 

publicly emphasized that the allegations “involved pre-administration events” and 

that there were “no charges . . . about misuse of office.”1245 Administration officials 

also expressed President Clinton’s “confidence” in Cisneros.1246 

The FBI continued to investigate the matter. Although Public Integrity had 

informed the FBI that there was no need to interview Medlar or to obtain the tapes of 

her conversations with Cisneros, FBI San Antonio made arrangements through one 

of Medlar’s civil attorneys to meet with her and make copies of the tapes in Lubbock, 

Texas on September 28 and 29, 1994.1247 

While the FBI San Antonio agents were driving from San Antonio to Lubbock 

to meet with Medlar, Susan Park, an attorney from Public Integrity, called Yount in 

Washington, D.C. to express concern about the FBI obtaining the tapes. According 

to Yount, Park was “frantic” and wanted to instruct him on how the agents were to 

1243 Los Angeles Times, “Tapes of Cisneros, ex-girlfriend probed” 9/23/94. 

1244 OIC Depo. Tr. Panetta 10/17/97 at 63-64. 

1245 Dallas Morning News, “Cisneros faces risk from tapes” 9/24/94. 

1246 San Antonio Express-News, “Cisneros gets D.C. support – White House 

vote of confidence follows news of Justice review” 9/24/94. 

1247 OIC Interview Notes Parks 6/14-15/01 at 3; GJ 95-2 Tr. Magness 12/5/96 

at 159-60. 

V-35 
conduct the Medlar interview.1248 When Yount informed her that the agents could not 

be contacted, Park called FBI San Antonio and asked the supervising agent, who also 

described Park as “frantic,” to put her in contact with the interviewing agents.1249 

This time, Park stated that the FBI had no authority to get the tapes and said that they 

should not do so.1250 After she was informed that the FBI San Antonio agents could 

not be reached and that the Medlar interview was going forward, Park called FBI San 

Antonio at least two to three more times to find out what Medlar was telling the 

agents.1251 

Notwithstanding Park’s attempts to prevent the interview and preclude the FBI 

team from getting the tapes, Medlar met the two FBI agents as arranged. The agents 

interviewed Medlar and copied 86 tapes, which she represented to be originals.1252 

While the FBI agents copied her tapes, Medlar gave them information about the 

payments she had received from Cisneros and others acting on his behalf. She told 

them that, from 1990 to 1992, Cisneros had made continuing, regular monthly 

payments to her of about $4,000 as the result of an agreement they had made in 

January 1990.1253 She said that, in 1993, after Cisneros began serving as HUD 

Secretary, she had received fewer payments from Cisneros, but that the payments 

were in larger amounts.1254 She gave the agents records of some of these 

payments.1255 She further stated that she had received money and job offers from 

other individuals, including Morris Jaffe, acting on Cisneros’s behalf.1256 She also 

1248 OIC Interview Notes Yount 7/6/01 at 4. 

1249 Id.; OIC Interview Notes McClure 8/2/01 at 3. 

1250 Id. 

1251 Id. 

1252 FBI-302 Medlar 9/28-29/94 at 1. 

1253 See FBI-302 Medlar 9/28-29/94 at 1. 

1254 Id. 

1255 Id. at 5. 

1256 Id. at 1-3. 

V-36 
• • • 

advised that the tapes contained references to the possibility that Cisneros or his 

contacts might find jobs for a lighting business owned by her relatives.1257 

Medlar told the FBI that on two separate occasions, once in 1987 during his reelection campaign for Mayor and then again in 1989 during the Alamodome project, 

Cisneros had received $10,000 in cash from Morris Jaffe.1258 Medlar said she did not 

know what Cisneros had done with the money or what accounting, if any, was ever 

made of it. 

By September 29, 1994, Public Integrity had its first known contact with 

Cisneros’s attorney, Cono Namorato. On that day, purportedly at Radek’s request, 

Namorato provided Radek with copies of Cisneros’s personal tax returns for 1988 to 

1993.1259 

That same day, September 29, 1994, the San Antonio Express-News reported 

that Cisneros claimed that he had not enlisted support from the White House but 

nevertheless thought that their “view” was that “this is a matter now in the 

appropriate stage and that they will await the review that everyone else is 

anticipating.”1260 

On October 3, 1994, the FBI sent another memorandum to DOJ. The 

memorandum summarized the information the FBI had gathered by that date and 

noted, among other things, the following: 

San Antonio obtained copies of eighty-six cassette tapes recorded 

by MEDLAR which contain conversations between MEDLAR and 

CISNEROS. 

1257 Id. at 2. 

1258 Id. at 4. 

1259 Letter from Namorato to Radek 9/29/94. 

1260 San Antonio Express-News, “Accuracy of Medlar transcript attacked” 

9/29/94. 

V-37 
• • • 

• • • 

A review of the FD-302 of interview of CISNEROS on January 

7, 1993, at Washington, D.C. by the FBI indicates CISNEROS 

advised . . . that he paid taxes on all the receipts he was paid as salary 

for speeches made. 

A review of financial records obtained from MEDLAR during the 

interview indicate MEDLAR received regular monthly payments which 

averaged approximately $4,000.00 a month from February of 1990 

through January 19, 1993. 

MEDLAR’s bank records show deposits of $42,000.00 in 1990, 

$56,524.21 in 1991, $60,700.00 in 1992, and $60,873.45 in 1993, which 

MEDLAR advised were monies received from CISNEROS.1261 

On October 4, 1994, the FBI, on its own initiative, interviewed Medlar’s 

nephew Michael Wooten.1262 Following Medlar’s FBI interview on September 28 and 

29, 1994, one of Medlar’s attorneys had told the FBI in San Antonio that in January 

1994, Cisneros’s friend Morris Jaffe had paid Medlar a large sum of money through 

Wooten, who was involved in the family lighting business – WTL – that Medlar had 

1261 GJ 00-001 Ex. 347 at 1-2. The following items among others were also 

transmitted to the Department with this memorandum: 

•	 two FD-302s of Cisneros (December 30, 1992 and January 7, 1993); 

•	 FBI Summary of Bank Statements for Linda Medlar from January 1990 

through July 1993; 

•	 Medlar’s financial records; 

•	 FBI summary listing of 86 conversations; and 

•	 FBI draft transcripts of 21 conversations. 

1262 FBI-302 Michael Wooten 10/4/94 at 1. 

V-38 
• • • 

• • • 

mentioned in her FBI interview.1263 The attorney also told the FBI that he had 

received an additional tape from Medlar, which he was going to provide to the FBI. 

The attorney advised that the tape, made in December 1993, contained discussion 

about “sending business WTL’s way – Jaffe providing more business for WTL, so 

that WTL could hire Medlar.”1264 

During his FBI interview, Wooten told the FBI agents about his dealings with 

Jaffe in San Antonio and gave them copies of a $12,000 check Jaffe had made out to 

WTL and a WTL check made out to Medlar, which passed Jaffe’s funds (less 

Wooten’s expenses) on to Medlar.1265 

On October 5, 1994, an article in the Washington, D.C. press reported: 

Justice Department officials close to an ongoing probe of Mr. 

Cisneros said his resignation could come this week. 

Clinton officials said Mr. Cisneros has told White House Counsel Abner 

Mikva that he is prepared to quit if the president wants him to. 

“He’s told friends he’d resign if his case was hurting us,” said a senior 

administration official of Mr. Cisneros. 

The official added that Mr. Clinton doesn’t want the former San 

Antonio mayor to quit. “We don’t want him to leave yet. We’re not 

ready yet,” said the official. 

1263 FBI Investigative Insert McClure 10/1994; FBI-302 Medlar 9/28-29/94 at 

2. 

1264 FBI Investigative Insert McClure 10/1994. 

1265 FBI-302 Michael Wooten 10/4/94 at 1-4. 

V-39 
The Justice Department is investigating the payments, and a top 

White House official said the administration doesn’t want to push Mr. 

Cisneros aside before a report is filed.1266 

On October 6, 1994, Namorato and his partner Scott D. Michel met with a 

Public Integrity attorney and reviewed Public Integrity files concerning Cisneros.1267 

At some point, they were permitted to hand-copy Cisneros’s FBI interview reports.1268 

On October 7, 1994, during a press conference, President Clinton publicly 

signaled his support for Cisneros. He was asked the following question and gave the 

following answer about Cisneros: 

Q.	 Did you know when you nominated Secretary Cisneros that he was 

making payments to a former mistress? If you did, did you ask any 

questions about them? And, finally, do you think the recent controversy 

about them undermines his effectiveness in your Cabinet? 

A.	 [President Clinton] We knew what the facts were at the time and the 

legal counsel or the people – excuse me – who were handling it for me 

reviewed it, decided that there was nothing illegal or inappropriate about 

what was done by Secretary Cisneros – something that was fully know 

[sic] by his family. And, no, I don’t think it undermines his 

effectiveness. I mean, what he did in his past he’s dealt with, and he’s 

been pretty forthright. He’s been, in fact, I think painfully forthright. 

And I think he has been an extraordinary gifted HUD Secretary. . . . He

is doing the job that I hired him to do for the American people. And as 

long as he is doing that job at a high level, I think he ought to be 

permitted to continue to do it.1269 

1266 Washington Times, “Payments to his ex-mistress may force Cisneros to 

resign” 10/5/94. 

1267 Letter from Namorato to Park 10/7/94. 

1268 OIC Memorandum of 11/26/96 meeting with Namorato and Michel. 

1269 Remarks by President Clinton in Press Conference 10/7/94, 1994 WL 

3824293. 

V-40 
Thus, by October 7, 1994, as Public Integrity was investigating Cisneros, it was 

publicly known that the White House had reviewed the Cisneros matter, that Cisneros 

had not been asked to resign, and that he had the support of President Clinton – who 

announced that, at the time of Cisneros’s nomination, his payments to Medlar had 

been reviewed and this review had determined that Cisneros had done nothing illegal 

or unethical. 

Around this same time, Farrington spoke with a Public Integrity attorney who 

agreed with the FBI that the Cisneros matter should be fully investigated. Farrington 

told this attorney that it would be unfortunate if Cisneros were to resign.1270 

On October 11, 1994, Senator Lauch Faircloth (R-NC), a member of the Senate 

Banking Committee that had held Cisneros’s confirmation hearing, wrote to FBI 

Director Louis Freeh.1271 In his letter, Faircloth stated that he was “extremely 

troubled” by press reports about Cisneros; that Senate approval of Cisneros’s 

nomination had been “predicated upon background information” Cisneros had 

provided to Congress; that “[i]t now appears this information may be inaccurate and 

misleading”; and that “[t]oo many high level Administration officials have displayed 

to the American people and to Congress a blatant disregard for the truth.” The 

Senator also requested an opportunity to examine the original FBI Background 

Investigation Report on Cisneros. The FBI referred the letter to DOJ for a 

determination of whether the FBI Report should be released. 

2. The Ninety-Day Preliminary Investigation 

Against this backdrop, on October 14, 1994, DOJ initiated a preliminary 

investigation of the Cisneros allegations.1272 By statute, the investigation was to last 

a maximum of 90 days, if not extended.1273 By this time, Public Integrity had copies 

of Cisneros’s tax returns and knew that Cisneros had been paying Medlar on average 

over $4,000 a month. 

1270 OIC Interview Notes (Witness Identity Withheld) 8/2001 at 2. 

1271 GJ 00-001 Ex. 351. 

1272 The OIC was never able to determine which DOJ officials recommended 

in favor of or against the initiation of a preliminary investigation. 

1273 28 U.S.C. § 592(a). 

V-41 
On October 19, 1994, Public Integrity attorneys, led by Public Integrity Chief 

Lee Radek and including Farrington and Park, met with FBI agents to discuss the 

preliminary investigation. The meeting quickly became a heated discussion about the 

Cisneros investigation. The Public Integrity attorneys indicated that they were not 

inclined to conduct an investigation that would lead to the appointment of an 

independent counsel.1274 Radek said that Public Integrity’s function was to find ways 

to decline Independent Counsel Act cases.1275 

During this meeting, there was “extensive discussion” about the scope of the 

investigation and the manner in which it was going to be conducted.1276 Public 

Integrity told the FBI agents that the investigation only concerned whether Cisneros’s 

false statements about the amount of his payments were “material” to “decision 

makers” involved in Cisneros’s vetting and his subsequent Senate confirmation.1277 

Public Integrity proposed that the preliminary investigation identify “all 

decision makers” and all persons in the vetting process.1278 Public Integrity was 

interested in ascertaining what information the FBI had made available to these 

individuals.1279 However, Public Integrity excluded several key decisionmakers from 

its consideration. 

For example, Radek stated that he saw no reason to interview Senators.1280 

Faircloth, whose October 11, 1994 letter of concern was forwarded to DOJ by the 

1274 OIC Interview Notes Martin 6/14-15/01 at 3; OIC Interview Notes Parks 

6/14-15/01 at 5. 

1275 OIC Interview Notes Parks 6/14-15/01 at 5. 

1276 GJ 00-001 Ex. 350 at 1. 

1277 Id. 

1278 Id. 

1279 Id. 

1280 OIC Interview Notes Parks 6/14-15/01 at 5; see also OIC Interview Notes 

Enderson 6/20/01 at 5. 

V-42 
FBI, was specifically discussed. Radek said that the Senator would not be 

interviewed because it was already known what he would say.1281 

Furthermore, Public Integrity did not consider the FBI to be a decisionmaker, 

and thus maintained that the fact that Cisneros had lied to the FBI agents was 

irrelevant and could not be inquired into.1282 Radek told the FBI agents that questions 

concerning Cisneros lying to the FBI would be offensive and unfair.1283 

Farrington informed the FBI agents that Public Integrity was assuming that 

financial dealing among Cisneros, Medlar and Jaffe had occurred.1284 Farrington told 

the FBI that there was no need to investigate any financial transactions involving 

Jaffe.1285 The agents responded that this made no sense. Radek’s response was that 

“this is the way it’s going to be.”1286 Radek also informed the agents that there would 

be no investigation of any income tax violations by Cisneros.1287 There was no 

discussion at all about whether the DOJ Personnel Security Office was a 

decisionmaker, or in particular whether knowledge of the true amounts of the 

payments, or the fact that Cisneros had lied to the FBI, would have had any effect on 

its decision to grant Cisneros the top secret security clearance required for his Cabinet 

position. 

Public Integrity also imposed limits on the FBI’s interviewing of other parties 

with relevant information. For example, it informed the FBI that it did not want 

1281 GJ 00-001 Tr. Enderson 8/9/01 at 53-54. 

1282 OIC Interview Notes McClure 8/2/01 at 5; OIC Interview Notes Gallagher 

6/21/01 at 3; OIC Interview Notes Enderson 6/20/01 at 3; OIC Interview Notes 

Martin 6/14-15/01 at 3; OIC Interview Notes Parks 6/14-15/01 at 5. 

1283 OIC Interview Notes Parks 6/14-15/01 at 5. 

1284 GJ 00-001 Ex. 350 at 1. 

1285 GJ 00-001 Tr. Enderson 8/9/01 at 17; OIC Interview Notes McClure 8/2/01 

at 5. 

1286 OIC Interview Notes McClure 8/2/01 at 5. 

1287 OIC Interview Notes Enderson 6/20/01 at 3; GJ 00-001 Tr. Enderson 8/9/01 

at 17. 

V-43 
interviews conducted of Medlar1288 or of the FBI agents who had interviewed 

Cisneros during the background investigation.1289 

The FBI agents expressed strong disagreement with, among other things, 

Public Integrity’s views that the FBI was not a decisionmaker, that lying to the FBI 

was irrelevant, and that the inquiry should focus solely on the question of whether 

knowledge of the truth would have been material.1290 This resolution of the 

discussion caused the FBI agents to leave the meeting with the conclusion that Public 

Integrity did not want to conduct an investigation that would lead to the appointment 

of an independent counsel.1291 

Similarly, a Public Integrity attorney whose views of the proper scope of the 

Cisneros investigation were similar to the FBI’s concluded at that time that Radek 

and other Public Integrity supervisory attorneys intended to conduct a very limited 

inquiry into the materiality of Cisneros’s false statements as a means of killing the 

investigation, regardless of the facts.1292 The attorney expressed his/her disagreement 

with the approach taken by Public Integrity on several occasions and was 

subsequently excluded from Public Integrity’s meetings regarding the Cisneros 

investigation.1293 

Park, on behalf of Public Integrity, and the FBI again discussed the issue of 

materiality in a late October 1994 meeting. Park reiterated Public Integrity’s position 

that the FBI was not a decisionmaker and that the fact that Cisneros had lied to the 

1288 OIC Interview Notes McClure 8/2/01 at 5. 

1289 OIC Interview Notes Yount 7/6/01 at 4-5. 

1290 OIC Interview Notes McClure 8/2/01 at 5; OIC Interview Notes Enderson 

6/20/01 at 3; OIC Interview Notes Martin 6/14-15/01 at 3; OIC Interview Notes Parks 

6/14-15/01 at 5. 

1291 OIC Interview Notes Martin 6/14-15/01 at 3; OIC Interview Notes Parks 

6/14-15/01 at 5. 

1292 OIC Interview Notes (Witness Identity Withheld) 8/2001 at 2-4. 

1293 Id. 

V-44 
FBI was irrelevant.1294 Park further stated that the purpose of Public Integrity’s 

Independent Counsel Act investigations was, unlike that of other investigations, not 

to determine whether the allegations were true, but rather to prove that the allegations 

were false.1295 An FBI agent present at the meeting informed Park that the FBI’s job 

was to gather the facts, regardless of who was being investigated.1296 

On November 2, 1994, FBIHQ issued a written statement directing field agents 

in both San Antonio and Washington, D.C. to communicate “immediately” any 

“[c]oncerns or conflicts with the Public Integrity Section” to FBIHQ.1297 This unusual 

directive resulted from the substantial disagreements between Public Integrity and 

the FBI concerning the scope of the Cisneros investigation and from the FBI’s 

conclusion that Public Integrity did not want to conduct a proper inquiry.1298 

The 90-day deadline for completing the Attorney General’s preliminary 

investigation fell on January 11, 1995. On or about November 9, 1994, Public 

Integrity informed the FBI that it wanted the results of the FBI’s preliminary 

investigation by December 14, 1994, so that Public Integrity could have “sufficient 

time to prepare [a] report for the AG.”1299 

Public Integrity continued to limit the scope of the investigation. FBI 

Supervisory Special Agent Yount testified: 

In general, any time they knew of an interview that we were going to do, 

first they would discuss whether they felt it should be done and if it was 

going to be done, again what specific questions we were allowed to ask 

and which ones they did not want asked.1300 

1294 OIC Interview Notes Gallagher 6/21/01 at 3. 

1295 Id. 

1296 Id. 

1297 GJ 00-001 Ex. 352. 

1298 OIC Interview Notes Yount 7/6/01 at 5. 

1299 GJ 00-001 Ex. 353. 

1300 GJ 00-001 Tr. Yount 12/6/01 at 26. 

V-45 
As of November 28, 1994, the FBI had interviewed seven individuals. Five of 

these individuals had been involved in vetting Cisneros or in preparing him for his 

confirmation hearing: Michael Veve (Transition Team member), James Hamilton 

(Transition Counsel), Howard Pastor (Transition Team Congressional Liaison), 

Raymond Calamaro (Cisneros Transition Team Vetting Leader), and Gary Ginsberg 

(Transition Assistant Counsel). Public Integrity had ordered each of these 

interviews.1301 The FBI interviewed two other individuals – Medlar and Medlar’s 

nephew, Michael Wooten – on its own initiative.1302 On December 15 and 20, 1994, 

the FBI also interviewed Clinton’s personal emissary Hubbell and vetting team 

member Arky, respectively.1303 These interviews were coordinated with Public 

Integrity. 

On November 30, 1994, Public Integrity allowed the FBI to interview Senator 

Donald W. Riegle, Jr. (D-MI), the Chairman of the Senate Banking Committee that 

held Cisneros’s confirmation hearings. Riegle had received a copy of the FBI’s 

Background Investigation Report on Cisneros before his private January 1993 preconfirmation meeting with Cisneros. However, the copy that Riegle had received 

contained only the FBI’s summary of the results of the preliminary investigation, and 

not the individual interview reports, because the Transition Team had removed 

them.1304 The summary report that Riegle saw indicated that one witness had reported 

that Cisneros had given Medlar as much as $60,000 per year, but did not report that 

Cisneros had told the FBI that his payments did not exceed $10,000 per year.1305 Nor 

did the Transition Team inform Riegle that the information Cisneros had supplied to 

the Transition Team differed materially from the information he had given the FBI. 

1301 OIC Interview Notes McClure 8/2/01 at 3; OIC Interview Notes Parks 6/14-

15/01 at 5; OIC Interview Notes Enderson 6/20/01 at 5-6. 

1302 OIC Interview Notes Parks 6/14-15/01 at 3; see also OIC Interview Notes 

McClure 8/2/01 at 4. 

1303 FBI-302 Hubbell 12/15/94; FBI-302 Arky 12/20/94. 

1304 GJ 97-1 Tr. Ginsberg 10/7/97 at 82-84. 

1305 FBI-302 Riegle 11/30/94 at 2-3. 

V-46 
In his 1994 FBI interview, Riegle could not recall the contents of the FBI 

summary report he had seen in early 1993.1306 According to the Senator, he and 

Cisneros had discussed the affair and the payments to Medlar, and Cisneros had 

answered his questions satisfactorily.1307 He recalled discussing the payments, but did 

not recall the amounts, except that he had been satisfied that they were consistent 

with the purposes Cisneros had represented.1308 He also could not recall if the 

Banking Committee’s Ranking Minority Member, Senator Alfonse D’Amato (R-NY), 

had been given access to the Report, and he recommended that the FBI contact 

D’Amato to find out.1309 

On December 1, 1994, the day after the FBI interviewed Riegle, Cisneros’s 

counsel Cono Namorato faxed D’Amato a letter asking for his position “as to whether 

the amount of [the] payments would have been relevant to your consideration of the 

Secretary’s confirmation.”1310 This letter was preceded by a phone call from 

Namorato to the Senator during which Namorato asked the same question.1311 One 

week later, on December 8, 1994, D’Amato responded that “the specific amount of 

the payments made by Secretary Cisneros to the person in question would not have 

changed my judgment concerning Secretary Cisneros’ qualifications for 

confirmation.”1312 The FBI interviewed the Senator on December 13, 1994.1313 

Public Integrity received a copy of D’Amato’s response from Namorato but declined 

to share it with the FBI.1314 

1306 FBI-302 Riegle 11/30/94 at 2. 

1307 Id. at 3. 

1308 Id. 

1309 Id. at 2. 

1310 Letter from Namarato to D’Amato 12/1/94. 

1311 FBI-302 D’Amato 12/13/94 at 3. 

1312 Letter from D’Amato to Namorato 12/8/94. 

1313 Letter from Namorato to Radek 12/21/94 at 2. 

1314 Gallagher notes of Public Integrity activity during preliminary 

investigation. 

V-47 
In his FBI interview, D’Amato said that he did not receive or review the FBI’s 

Background Investigation Report on Cisneros.1315 The Senator also stated that he did 

not discuss Cisneros’s relationship with Medlar or the payments to Medlar during his 

pre-confirmation meeting with Cisneros.1316 Regarding the payments, D’Amato 

informed the FBI that he had been contacted by Namorato and that he had responded 

in writing that the specific amount of the payments would not have altered his 

judgment of Cisneros’s qualifications.1317 The Senator expanded on this statement, 

telling the FBI that the specific amount of the payments made by Cisneros was not 

relevant to the confirmation process, but the fact that a person was not truthful during 

the FBI Background Investigation would be relevant.1318 

On December 14, 1994, Riegle received a letter from Namorato similar to the 

one D’Amato had received.1319 Riegle responded the same day, stating that he did not 

recall discussing the specific amount of the payments with Cisneros, and that “[a]ny 

specific amounts – per se – were not relevant to my judgment as to his fitness to serve 

– or to my support of his nomination.”1320 Public Integrity declined to share this 

correspondence with the FBI.1321 

On December 19, 1994, shortly after the D’Amato interview, Namorato met 

with Radek and Public Integrity attorneys working on the Cisneros matter to discuss 

whether there would be a recommendation to the Attorney General for the 

appointment of an independent counsel. On December 21, 1994, Namorato wrote 

Radek a letter addressing some of the issues discussed at December 19, 1994 meeting. 

1315 FBI-302 D’Amato 12/13/94 at 2. 

1316 Id. at 1. 

1317 Id. at 3. 

1318 Id. at 3-4. 

1319 GJ 97-1 Ex. 518. 

1320 Letter from Riegle to Namorato 12/14/94 at 1. 

1321 Gallagher notes of Public Integrity activity during preliminary 

investigation. 

V-48 
Relying in part on the Riegle and D’Amato letters, Namorato argued that Cisneros’s 

false statements were not material.1322 

Notwithstanding his letter to Namorato, D’Amato later told the OIC that he 

would never have indicated that the specific amount of the payments would not have 

changed his confirmation vote if he had known that Cisneros had intentionally 

withheld information.1323 The Senator further stated that he would have absolutely 

wanted to know the size of the payments, the source of the payments, and the manner 

in which the payments were structured if he had been aware of the fact that Cisneros 

was lying.1324 D’Amato further asserted that the gift tax and hush money issues would 

have also been important to his confirmation decision,1325 and that Cisneros’s two 

successive payments of $8,000 to Medlar within a very short time would also have 

been a “red flag” to other Senators because they raised the issue of structuring 

transactions to avoid legal reporting requirements.1326 

Namorato’s letter to Radek further stated that “[t]here are no reasonable 

grounds to investigate whether Mr. Cisneros engaged in any wrongdoing arising out 

of Mr. Jaffe’s assistance to Ms. Medlar.”1327 Addressing the gratuities issue, it 

continued as follows: 

[I]t is unreasonable to believe that further investigation will reveal 

evidence to the contrary. As we noted at our meeting, Mr. Jaffe went to 

school with Mr. Cisneros’ mother; Mr. Jaffe and members of his family 

have been friends of Mr. Cisneros and his family for many years; and 

Mr. Jaffe apparently has a longstanding personal relationship with Mr. 

Frank Wing, who urged him to assist Ms. Medlar. Thus, aside from the 

1322 Letter from Namorato to Radek 12/21/94 at 1-2. 

1323 OIC Interview Report D’Amato 12/1/97 at 2. 

1324 Id. 

1325 Id. 

1326 Id. at 1. 

1327 Letter from Namorato to Radek 12/21/94 at 4. 

V-49 
utter lack of any connection between HUD and Mr. Jaffe, it is clear that 

Mr. Jaffe considered this matter to be purely personal.1328 

The next day, after receiving this exculpatory presentation from defense 

counsel, Public Integrity directed the FBI to interview Medlar and Cisneros’s friend 

Frank Wing.1329 This was the first time that Public Integrity showed any desire to 

interview Medlar or Wing and marked a change from the position Public Integrity had 

taken during the October 19, 1994 meeting. 

The FBI was opposed to interviewing Wing during the preliminary 

investigation, because Wing was involved in the Jaffe matter. It was the FBI’s 

position, on the basis of FBI San Antonio’s prior experience in investigating Jaffe for 

other, unrelated violations, that any investigation of the Jaffe issue would require the 

authority to issue grand jury subpoenas to compel the production of documents and 

witness testimony.1330 The FBI also felt that, even without an interview of Wing or 

further examination of the Jaffe issue, the preliminary investigation had uncovered 

sufficient evidence to require further investigation, thereby requiring the Attorney 

General to request the appointment of an independent counsel.1331 Grand jury 

subpoenas could not, by statute, be issued during the preliminary investigation.1332 

Unlike the FBI during the preliminary investigation, an independent counsel could 

fully investigate the matter with the benefit of subpoena power. The FBI explained 

its position to Public Integrity; Public Integrity rejected the argument and directed the 

FBI to interview Wing.1333 

The FBI also thought that reinterviewing Medlar without first obtaining certain 

background information was “premature.”1334 Specifically, it wanted first to obtain 

1328 Id. at 5. 

1329 FBI Memo 12/21/94 at 1. 

1330 OIC Interview Notes Parks 6/14-15/01 at 5-6. 

1331 GJ 00-001 Exs. 361, 362. 

1332 28 U.S.C. § 592(a)(2)(A). 

1333 FBI Memo 12/21/94 at 1. 

1334 GJ 00-001 Ex. 359 at 2. 

V-50 
a transcript of Medlar’s civil deposition. It had also shortly before learned that the 

IRS had interviewed Medlar. Thus, given the fact that Medlar had gone on the record 

several times already, the FBI expressed the concern that “an interview of Medlar 

before a review of those documents could prove detrimental to Medlar’s witness 

value in any prosecutive effort.”1335 Nevertheless, Public Integrity ordered the FBI 

to interview Medlar, without the benefit of the additional information it sought. 

Radek had apparently decided to recommend against the appointment of an 

independent counsel before these interviews took place. On December 22, 1994, 

Radek allowed FBI Supervisory Special Agent Woody Enderson to review a draft 

memorandum he had prepared recommending that the allegations against Cisneros 

not be referred to an independent counsel.1336 Radek would not allow Enderson to 

make a copy of the draft or to take notes, and he required Enderson to review the draft 

in his presence.1337 

Enderson disagreed with many of the statements in the recommendation and 

pointed out to Radek the sections that he believed were in error.1338 Radek responded 

that he would look at those areas when revising the draft.1339 

The contents of Radek’s draft so disturbed Enderson that, immediately after 

reviewing it, he wrote a memorandum setting out his concerns; Enderson addressed 

the memorandum to Assistant FBI Director Larry Potts and prepared it for FBI 

Deputy Assistant Director William Esposito’s signature.1340 In this memorandum, 

Enderson stated that “numerous facts were either misrepresented or distorted by 

[Public Integrity] to arrive at the . . . recommendation.”1341 The memorandum noted, 

among other things, that the draft recommendation: 

1335 Id. 

1336 OIC Interview Notes Enderson 6/20/01 at 4-5. 

1337 OIC Interview Notes Enderson 6/20/01 at 5. 

1338 Id. 

1339 Id. 

1340 GJ 00-001 Ex. 360. 

1341 Id. at 1. 

V-51 
•	 devoted more than a page to falsely claiming that the FBI did not consider 

Cisneros’s false statements to be an issue during his background investigation; 

•	 falsely indicated that the Jaffe issue had been resolved during the preliminary 

investigation, when, in fact, virtually no investigation had been conducted due 

to lack of subpoena power; 

•	 indicated that the Jaffe payments to Medlar were nothing more than a friend 

helping a friend; 

•	 engaged in “selective reporting” to minimize the Jaffe issue, by omitting the 

fact that Jaffe instructed Medlar’s nephew to prepare fraudulent company 

invoices to cover a payment made by Jaffe that ultimately went to Medlar; and 

•	 falsely indicated that the issue of Cisneros’s non-reporting of business income 

had been resolved by Public Integrity’s review of his tax returns.1342 

Enderson’s memorandum further stated that: 

The primary focus of the 90-day preliminary investigation on 

Cisneros has been the alleged false statements Cisneros made to the FBI 

during his [background investigation] interviews. It has been and 

continues to be the FBI’s position that the false statements were material 

in that Cisneros openly discussed with Medlar prior to the FBI interview 

that he did not want the full knowledge of the payments to become 

known for fear that this information could jeopardize his nomination to 

a cabinet position. 

[Public Integrity’s] position has been that “materiality” centered 

around the transition team. [Public Integrity] opined that members of 

the transition team involved in “vetting” Cisneros needed to be 

interviewed to determine whether the members felt that the “true” 

statements relative to payments to Medlar would have materially made 

a difference in the decision to push forward Cisneros’ nomination as 

Secretary of HUD. In other words, if the members would not have 

changed their decision given the true information, then the statements 

made to the FBI were “immaterial.” 

1342 Id. at 1-2. 

V-52 
Investigation relative to Jaffe, possible tax violations, and other 

possible gratuity violations has not been conducted for several reasons. 

First, it was the position of FBIHQ, San Antonio and WMFO [the FBI’s 

Washington Metropolitan Field Office] that these areas of investigation 

could not adequately be addressed during the preliminary investigation, 

largely due to the lack of subpoena power. Second, that the false 

statement aspect was “sufficient” for referral to an IC, who then would 

have the subpoena power necessary to address these violations.1343 

On December 24, 1994, following his receipt of the Enderson memorandum, 

Esposito discussed the Cisneros investigation with the Attorney General. According 

to Esposito, the Attorney General instructed him “to do everything that can be done 

to get at the truth” and wanted to know why the preliminary investigation had not 

been more thorough.1344 

In fact, the FBI had already prepared a document, entitled “Leads the FBI 

would like to cover (Independent Counsel - Subpoena Authority),” listing 23 

investigative steps that the FBI believed should be taken by an independent counsel 

with subpoena authority.1345 These steps included further investigation of Medlar, 

Wing, and Jaffe. 

Around the same time, FBI representatives, including Special Agent Dan 

Gallagher, met with DOJ officials, including Radek and Assistant Attorney General 

Jo Ann Harris. During this meeting, Radek falsely represented that an FBI San 

Antonio agent, who was not present, had determined that there was no evidence of 

wrongdoing concerning Jaffe’s relationship with Cisneros. Gallagher, who had been 

working on the Cisneros investigation in close conjunction with FBI San Antonio, 

knew that the agent had never made such a determination. Gallagher pointed this out 

and stated that the San Antonio agent actually believed that the Jaffe issue was not 

resolvable without the use of grand jury subpoenas. Nevertheless, Radek repeated 

1343 Id. at 2. 

1344 OIC Interview Notes Esposito 7/26/01 at 5; GJ 00-001 Ex. 361B. 

1345 GJ 00-001 Ex. 361B. 

V-53 
this misrepresentation during the same meeting, forcing Gallagher to correct him 

again.1346 

On January 5, 1995, prompted by the serious problems with Public Integrity’s 

investigation and Radek’s draft recommendation, FBI Director Louis B. Freeh sent 

DOJ a memorandum that “strongly” urged the Attorney General to appoint an 

independent counsel to investigate Cisneros.1347 This conclusion was based upon a 

review of the caselaw concerning materiality, the underlying facts, and, most 

particularly, the numerous taped conversations between Cisneros and Medlar, in 

which they discussed the need to control the information conveyed to the FBI. The 

Director concluded in the memorandum, among other things, that Cisneros “and 

Medlar agreed prior to any decision by the President to nominate him, not to mention 

the payments to anyone.”1348 He also cited portions of ten different taped 

conversations between Cisneros and Medlar as “a representative sample of the 

manner and degree in which Cisneros and Medlar conspired to furnish false 

information” to the FBI and, consequently, to DOJ and the United States Senate.1349 

Regarding tax issues, the FBI Director’s memorandum noted that “it is 

inconceivable to believe that a review of Cisneros’s tax returns would be sufficient 

to draw the conclusion that Cisneros had not been skimming money from his 

company to make payments to Medlar.”1350 Likewise, with respect to the Jaffe issue, 

the memorandum noted that “investigation relative to Jaffe providing money to 

Cisneros and Medlar was not pursued,” and that, absent such investigation, the Jaffe 

matter could not have been resolved.1351 The memorandum also reiterated that “[i]t 

1346 GJ 00-001 Tr. Enderson 8/9/01 at 43; OIC Interview Notes Gallagher 

6/21/01 at 3-4. 

1347 GJ 00-001 Ex. 362 at 1. 

1348 Id. at 4-5. 

1349 Id. at 6-9. 

1350 Id. at 10. 

1351 Id. at 10. 

V-54 
was the opinion of the FBI . . . that the allegations relative to Jaffe . . . could not be 

sufficiently investigated without effective use of subpoenas.”1352 

3. The Sixty-Day Extension of the Preliminary Investigation 

On January 13, 1995, pursuant to 28 U.S.C. § 592(a)(3), the Attorney General 

extended the Cisneros preliminary investigation for a period of 60 days.1353 The OIC 

was not able to determine the circumstances behind the Attorney General’s decision 

to extend the preliminary investigation for 60 days, or who, if anyone, recommended 

for or against the extension. 

On January 18, 1995, Radek met with FBI Supervisory Agents Enderson and 

Yount. The purpose of the meeting was to discuss specific investigative steps to be 

taken during the 60-day extension of the preliminary investigation. According to a 

letter dated January 23, 1995 from the FBI to Radek documenting the meeting, the 

discussion centered on three main areas: (1) the Cisneros vetting process, (2) tax 

violations, and (3) an interview with Cisneros.1354 The letter indicated that Webster 

Hubbell would be reinterviewed concerning his discussions with the President-elect 

regarding his meeting with Cisneros; Christopher and Wing were also considered for 

additional interviews.1355 The FBI was to prepare a list of all vetters, a chronology of 

their interviews, and the information Cisneros had given them.1356 The letter stated 

that the FBI was to obtain certified copies of the depositions of Medlar and Cisneros 

taken in Medlar’s civil suit in Texas.1357

 The letter further indicated that Public 

Integrity asked the FBI to make copies of the available Medlar tapes; Public Integrity 

had not previously asked that it be provided any of the tapes.1358 

1352 Id. at 4. 

1353 GJ 00-001 Ex. 2 (DOJ Notice of 60-day extension of time 1/13/95). 

1354 GJ 00-001 Ex. 364. 

1355 Id. at 1. 

1356 Id. at 1. 

1357 Id. at 2. 

1358 Id. 

V-55 
The FBI’s letter indicated that the FBI was to interview Cisneros’s accountant, 

Luis Hernandez, “concerning the tax violations,” following a request to Cisneros’s 

attorney that Cisneros waive any accountant-client privilege that Cisneros might have 

concerning Hernandez.1359 Hernandez was to be asked if he knew of any funds 

Cisneros had not deposited into his bank accounts1360 and whether Cisneros had paid 

taxes on any of those funds.1361 The letter related that Radek had asked the FBI to 

obtain copies of Cisneros’s speechmaking calendar for comparison to his reported 

speaking fees, as well as clearer photocopies of checks payable to Cisneros and 

endorsed by Medlar.1362 

Although Public Integrity and the FBI agreed on the need to interview 

Hernandez, they disagreed about the interview’s purpose. Public Integrity wanted the 

interview to address tax violations.1363 The FBI did not believe that the interview 

could resolve the tax issues.1364 

The FBI’s letter also stated that, at the recommendation of the Attorney 

General, the Deputy Attorney General, and the Assistant Attorney General for the 

Criminal Division, Public Integrity would ask Cisneros’s attorney to make Cisneros 

available for an interview. 

Despite the agreed-upon investigative steps indicated in the letter, Radek 

continued to express his view that the case should not go forward.1365 Yount testified 

that, at the January 18, 1995 meeting, Radek was very clear that his role was to 

prevent cases from being referred to an independent counsel.1366 

1359 GJ 00-001 Ex. 364 at 2. 

1360 GJ 00-001 Ex. 364 at 2. 

1361 GJ 00-001 Ex. 364 at 2. 

1362 GJ 00-001 Ex. 364 at 2. 

1363 GJ 00-001 Tr. Yount 12/6/01 at 49. 

1364 GJ 00-001 Tr. Yount 12/6/01 at 45-46. 

1365 GJ 00-001 Tr. Yount 12/6/01 at 46. 

1366 Id. 

V-56 
At that meeting, according to Yount: 

[Radek] expressed concerns with the fact that the Attorney General 

worked for the President and that there were several ongoing 

Independent Counsels at the time. To recommendation [sic] to her that 

she should refer another case for an Independent Counsel would pose 

potential problems for the Attorney General, as far as her role or job 

with the President and he did not want to put her in that situation.1367 

On January 19, 1995, Radek met with Namorato.1368 Radek requested from 

Namorato copies of Cisneros’s appointment books, calendars, and other documents 

that would list speeches Cisneros gave from 1990 to 1993.1369 Radek also requested 

that Namorato make Cisneros available for an interview.1370 

In a January 25, 1995 letter to Radek, Namorato denied Radek’s request to 

interview Cisneros.1371 However, Namorato did provide Cisneros’s appointment 

books and some logs maintained by Arce-Garcia, which, he claimed, listed Cisneros’s 

speeches and the amount of income he had received for each speech.1372 

Namorato’s letter also offered Public Integrity the opportunity to interview 

Hernandez and Arce-Garcia.1373 The letter predicted that the documents provided and 

the interviews would show that further investigation would not produce evidence of 

violations.1374 

1367 Id. at 46-47. 

1368 Letter from Namorato to Radek 1/25/95. 

1369 Id. at 1. 

1370 Id. at 2. 

1371 Id. at 2. 

1372 Id. at 1. 

1373 Id. at 1, 3. 

1374 Id. at 3. 

V-57 
On January 26, 1995, FBI San Antonio agents interviewed Hernandez. In 

direct contradiction to the 1992 and 1993 FBI background investigation interviews, 

in which he had stated that Cisneros was not depositing certain portions of his 

speechmaking income, Hernandez advised that “he was not aware of any funds 

received by Cisneros that were not deposited into Cisneros’s bank accounts.”1375 

On the face of the FBI’s interview report, it is not apparent how Hernandez 

calculated Cisneros’s income for tax purposes. At one point, he advised that he had 

calculated 1991 and 1992 income for CISCOM “based on the amount listed on Forms 

1099”1376 issued by payers to Cisneros.1377 He also advised that “all deposits were 

counted as income,” resulting in a probable overreporting of income because some 

transfers between accounts appeared as deposits.1378 Finally, he advised that, in 

computing Cisneros’s income for 1991 to 1993, he compiled different amounts from 

the Forms 1009, the books, and the accounts receivable log and reported the highest 

figure as income.1379 

The FBI agents interviewing Hernandez did not feel prepared to conduct a tax 

investigation – they did not have experience investigating tax matters, they did not 

receive guidance about tax violations, and they did not have the necessary financial 

records to compare to Hernandez’s answers or to confront him with.1380 Therefore, 

the interviewing agents did not question Hernandez further on his methodology for 

1375 GJ 00-001 Ex. 366 at 2. 

1376 IRS Form 1099 is commonly used as the means to report payments for 

services. The payer issues the 1099 form to both the recipient of their payments and 

the IRS. The form enables taxpayers to report their income on their tax forms 

accurately, and the IRS to make sure the recipient reports such income. 

1377 Id. at 1. 

1378 Id. at 2. 

1379 Id. at 3. 

1380 OIC Interview Notes Martin 6/14-15/01 at 4; OIC Interview Notes Parks 

6/14-15/01 at 6-7. 

V-58 
• • • 

preparing Cisneros’s tax returns. Instead, they focused on Cisneros’s payments to 

Medlar.1381 

During the interview, Hernandez told the FBI that the IRS had served him a 

summons requesting that he provide, by February 10, 1995, documents concerning 

Cisneros.1382 In a subsequent FBI interview, on January 30, 1995, Hernandez said 

that the IRS had also served summonses on Rene Gonzalez, his predecessor as 

Cisneros’s accountant, and on Arce-Garcia, Cisneros’s trusted employee who later 

joined him at HUD.1383 

FBI San Antonio already knew that the IRS had interviewed Medlar and 

obtained copies of the tapes and other documents in December 1994, and FBIHQ had 

brought this fact to Public Integrity’s attention. Public Integrity had advised FBI San 

Antonio that the matter was discussed with the IRS and that Public Integrity would 

follow up on that discussion with a letter asking the IRS to discontinue further 

investigation.1384 Despite that representation, Public Integrity never sent the letter to 

the IRS.1385 

Upon hearing from Hernandez at his January 26, 1995 interview that the IRS 

investigation was still active, FBI San Antonio sent a teletype to FBIHQ advising that 

Hernandez, Arce-Garcia, and Gonzalez had all been served with IRS summonses.1386 

The teletype also informed FBIHQ that: 

San Antonio was recently advised by [Public Integrity] and 

FBIHQ that [Public Integrity] did not send a letter to IRS. 

1381 OIC Interview Notes Martin 6/14-15/01 at 4; OIC Interview Notes Parks 

6/14-15/01 at 6-7. 

1382 GJ 00-001 Ex. 367 at 3. 

1383 Id. 

1384 Id. at 1-2. 

1385 OIC Interview Notes Martin 6/14-15/01 at 5; GJ 00-001 Ex. 367 at 3. 

1386 GJ 00-001 Ex. 367 at 2-3. 

V-59 
San Antonio believes this issue has to be resolved without delay 

in order to prevent potential problems in this investigation, both current 

and future. 

San Antonio respectfully requests that FBIHQ contact [Public 

Integrity], resolve this issue, and notify San Antonio of status.1387 

Enderson then requested that Radek contact the IRS and ask it to suspend its 

investigation until the preliminary investigation was concluded. Radek informed 

Enderson that he would send a letter to the IRS requesting that they “stand down.”1388 

Shortly afterward, Radek told Enderson that the matter had been resolved.1389 When 

Enderson asked Radek how the matter had been taken care of, Radek informed him 

that he did not need to know the details.1390 Around the same time, Public Integrity 

attorney Susan Park told an FBI San Antonio agent that Radek had found “the right 

person” at the IRS to handle the problem.1391 

On February 6, 1995, Hernandez provided records concerning Cisneros to the 

FBI for copying. These records were also subjects of the IRS summons. The FBI 

reinterviewed Hernandez when it returned the records on February 8, 1995. 

Hernandez again advised the FBI that he was unaware of any checks that Cisneros 

had received but not deposited into his bank accounts. The agents confronted 

Hernandez with copies of checks payable to Cisneros that Cisneros had endorsed and 

deposited directly into Medlar’s account. Hernandez responded that, regardless of 

whether the checks had been deposited into Cisneros’s accounts or negotiated and 

deposited elsewhere, he believed taxes had been paid on the income they 

represented.1392 

1387 Id. at 2-4. 

1388 GJ 00-001 Tr. Enderson 8/9/01 at 66. 

1389 Id. at 66. 

1390 Id. at 67. 

1391 OIC Interview Notes Martin 6/14-15/01 at 5. 

1392 FBI-302 Hernandez 2/8/95 at 1-2. 

V-60 
On February 10, 1995, the return date on the IRS summons, Public Integrity 

attorney Park advised the FBI that there was no need to obtain any additional 

financial records for investigative purposes.1393 Then, on February 15, 1995, Park met 

again with an FBI agent working on the Cisneros preliminary investigation and stated 

that the FBI’s concerns about the IRS investigation had been “resolved”; that the IRS 

would be “in touch if they found anything warranting crim[inal] referral”; and that it 

looked as if the IRS were conducting a “full audit,” which differentiated the focus of 

the IRS investigation from that of Public Integrity’s preliminary investigation.1394 

On February 16, 1995, the FBI interviewed Arce-Garcia. Contrary to her 

statements in her December 31, 1992 FBI interview for the background investigation 

preceding Cisneros’s nomination, Arce-Garcia now admitted she had an intimate 

knowledge of and involvement in Cisneros’s payments to Medlar. She stated that she 

had learned about Cisneros’s payments to Medlar in early 1992 and had withdrawn 

cash from the CISCOM personal account and deposited it into Medlar’s account on 

behalf of Cisneros.1395 She stated that she usually made deposits to Medlar’s account 

monthly, but sometimes she made them more frequently.1396 The amount of the 

deposits ranged from $4,000 to $8,000.1397 Arce-Garcia said she made the deposits 

to Medlar’s account on instructions from Cisneros, who insisted that she make cash 

deposits instead of writing Medlar a check from the CISCOM account.1398 When 

asked whether any of Cisneros’s income checks had not been deposited into 

Cisneros’s accounts, Arce-Garcia advised that Cisneros would sometimes take 

undeposited checks from her, and that she did not know what he did with them.1399 

Arce-Garcia also stated that she had been responsible for preparing Cisneros’s 

daily calendar and had kept a log reflecting fees that were received and those that 

1393 GJ 00-001 Ex. 370 at 5. 

1394 GJ 00-001 Exs. 369, 371 at 1-2. 

1395 FBI-302 Arce-Garcia 2/16/95 at 4. 

1396 Id. at 4. 

1397 Id. at 4-5. 

1398 Id. at 5. 

1399 Id. at 4. 

V-61 
were outstanding. She claimed that she saw and made copies of every check that 

Cisneros received. She stated that she provided this log to Hernandez and that he was 

responsible for comparing the 1099 forms to the log. She said that she was not 

responsible for reviewing Cisneros’s bank statements but that they were provided to 

Hernandez. She claimed that Hernandez rarely had trouble matching her log entries 

with 1099s and bank statements, but that, if he did, he would contact her.1400 

Arce-Garcia also advised the FBI that, while Cisneros was HUD Secretary, 

Medlar threatened to go public with the information she had about him. According 

to Arce-Garcia, Medlar sent a facsimile to Cisneros, received by Cisneros’s 

confidante Frank Wing, that read: “What about the agreement we had, this is it, I’ve 

had enough of it, you won’t return my calls, you didn’t keep your promise like you 

said you would, you promised that once you took office, you wouldn’t forget about 

me and my finances.”1401 

On February 17, 1995, FBI San Antonio summarized the results of the 

investigation to date in a teletype to the FBI Director. On the tax issue, FBI San 

Antonio stated that “[i]t was not possible, based on the available records, to definitely 

state that taxes were paid on each of the check amounts that were received as speech 

fees regarding checks that were deposited into Medlar’s account.”1402 

Thus, the interviews conducted by the FBI during the 60-day extension of the 

preliminary investigation revealed that: 

•	 [REDACTED PURSUANT TO 11/4/05 SPECIAL DIVISION ORDER 

(“COURT ORDER”)] 

•	 some checks were not being deposited into Cisneros’s business accounts, and 

some of the money from the checks instead went to Medlar; 

1400 Id. at 1-3. 

1401 Id. at 7. 

1402 GJ 00-001 Ex. 370 at 4-5. Public Integrity was formally notified of this fact 

by early March. FBI Letterhead Memo 3/2/95 at 4. 

V-62 
•	 Arce-Garcia, who had earlier claimed that she had no knowledge of any 

payments to Medlar, now admitted her knowledge of and participation in the 

payments; 

•	 Arce-Garcia knew that Cisneros sometimes took undeposited checks from her; 

and 

•	 Medlar had threatened Cisneros while Cisneros was HUD Secretary. 

On February 24, 1995, the FBI General Counsel met with Assistant Attorney 

General Harris to discuss the Cisneros investigation. According to a memorandum 

documenting the meeting, much of the discussion centered on Public Integrity’s 

position that the FBI would not have done anything differently during the background 

investigation if Cisneros had disclosed the true amount of the payments, and that the 

Senate had available to it the approximate amount of the payments made and that 

Senators Riegle and D’Amato were unconcerned about the payments.1403 Cisneros’s 

attorney Namorato had made these same points in a December 1994 letter to 

Radek.1404 

4.	 Recommendations to the Attorney General 

In a February 27, 1995 memorandum to the Assistant Attorney General for the 

Criminal Division, Radek formally recommended that no aspect of the Cisneros 

matter be investigated by an independent counsel.1405 According to Enderson, the 

memorandum was very similar to Radek’s December 1994 draft recommendation that 

he had reviewed and with which the FBI had earlier taken issue.1406 

Like the late December 1994 draft, Radek’s final memorandum seemed to 

strain to reach the conclusion that no independent counsel should be appointed, to the 

point of misapplying the law and misstating certain facts. The result was a vigorous 

argument against the appointment of an independent counsel that raises questions 

about the author’s intent in focusing the analysis so narrowly. 

1403 GJ 00-001 Ex. 373 at 1. 

1404 Letter from Namorato to Radek 12/21/94 at 1-3. 

1405 GJ 00-001 Ex. 372. 

1406 OIC Interview Notes Enderson 6/20/01 at 5. 

V-63 
The statutory standard for requesting the appointment of an independent 

counsel was whether “there are reasonable grounds to believe that further 

investigation is warranted.”1407 However, the memorandum did not directly address 

this standard. Instead, it repeatedly argued against the appointment of an independent 

counsel on the ground that the preliminary investigation had uncovered absolutely no 

inculpatory evidence at all – an obvious exaggeration, in light of the evidence 

developed in the FBI investigation. The memorandum stated that “[t]here is no 

evidence of a prosecutable offense by Cisneros that would warrant further 

investigation”;1408 that “[g]iven the lack of any evidentiary support . . . any criminal 

prosecution based on [Cisneros’s] false statement would inevitably fail and as a 

result, no further investigation of this false statement is warranted”;1409 that “the 

conversations are too ambiguous to provide support for a conclusion that there was 

a criminal conspiracy”;1410 that “there is no evidence that Cisneros was motivated by 

anything other than real concern for Medlar’s and her daughter’s well-being in 

making the payments”;1411 that “[w]e developed no evidence that any decisionmaker 

involved in the confirmation process was ever aware of the false information 

communicated to the FBI”;1412 that “[g]iven the lack of any evidentiary support for a 

conclusion that Cisneros’s false statement had the potential to affect his confirmation, 

. . . any criminal prosecution based on this false statement would inevitably 

fail . . .”;1413 and that “we have no evidence of an unlawful objective” behind 

Cisneros’s statement to Medlar that he had intended to answer questions from the 

Senate “the way we agreed,” because what the two had agreed to say was not 

known.1414 

1407 28 U.S.C. § 592(c)(1)(A). 

1408 GJ 00-001 Ex. 372 at 1. 

1409 Id. at 3 (emphasis in original); see also id. at 27, 48. 

1410 Id. at 5. 

1411 Id. at 2 (emphasis in original). 

1412 Id. at 2. 

1413 Id. at 3. 

1414 Id. at 32. 

V-64 
Perhaps the best example of the extent to which the memorandum strains to 

avoid acknowledging inculpatory evidence as such can be found in its analysis of 

Cisneros’s statement to Medlar about the upcoming confirmation hearing: 

If [the subject comes up] I’ll tell [the Senate] what we agreed and the 

only person in the world who can sink me at that point, and I mean 

serious, I’m talking con, con, contempt of congress, jail, is you.1415 

The memorandum concludes that “[t]here is no evidence in this conversation of an 

agreement to accomplish an illegal end,” again because precisely what Cisneros and 

Medlar had agreed to tell the Senate was not known.1416 

In urging that absolutely no evidence of a criminal offense could be found, the 

memorandum also failed to note the strict limits Public Integrity placed on the FBI’s 

investigatory efforts. It did not consider whether a broader investigation – either 

before or after the appointment of an independent counsel – might in fact yield 

additional evidence, as the FBI repeatedly asserted. Thus, the memorandum did not 

justify the negative answer it gave to the only question before the Attorney General: 

whether “there are reasonable grounds to believe that further investigation is 

warranted.”1417 

In examining the central accusation that Cisneros had lied to the FBI in 

violation of 18 U.S.C. § 1001, the memorandum recognized, although with apparent 

reluctance, that Cisneros might be charged with knowingly or willfully making false 

statements in a matter within the jurisdiction of a federal department or agency.1418 

It therefore focused on the remaining question under § 1001 – whether Cisneros’s 

false statements were material.1419 On its face, a series of significantly false 

statements given to the FBI while it is investigating a candidate’s fitness for high 

office would appear to be potentially material to every official involved in the 

selection process, but the memorandum argued that the materiality question tipped 

1415 Id. at 29. 

1416 Id. at 30. 

1417 28 U.S.C. § 592(c)(1)(A). 

1418 GJ 00-001 Ex. 372 at 20-23. 

1419 GJ 00-001 Ex. 372 at 23-27. 

V-65 
so decisively in Cisneros’s favor that it precluded even the possibility of prosecuting 

him.1420 

Radek’s memorandum notes correctly that, under § 1001, it is the substance of 

the false statement, and not the falsity of the statement, that must be material.1421 

Thus, in assessing the materiality of Cisneros’s statements concerning his payments 

to Medlar, the relevant question was whether the governmental decisionmaker at 

whom the statement was aimed could have been influenced by the fact of the 

payments, not whether he or she could have been influenced by the fact that Cisneros 

lied. Therefore, the memorandum focused exclusively on whether the actual amounts 

of Cisneros’s payments could have had any effect on the FBI, the Transition Team, 

or the Senate. 

This approach, however, ignored the fact that Cisneros’s false statements were 

not confined to the amount of the payments to Medlar. By its very nature, the 

appointment inquiry was designed to determine not the amount of money that 

Cisneros gave to Medlar, but whether Cisneros was honest, trustworthy, and reliable 

enough to be a Cabinet officer.1422 Cisneros falsely represented that he was being 

candid when, in fact, he was not. 

Indeed, Cisneros made specific false statements about whether he had been 

truthful to the government about his relationship with Medlar, thus bringing his 

veracity directly into question under § 1001. Cisneros had stated on the Supplement 

to the SF-86 he had completed for the appointment process that there was nothing in 

his personal life that anyone could use to coerce or blackmail him1423 – an obvious 

misrepresentation in light of the conversations he was then having with Medlar. 

Then, in his December 30, 1992 interview with the FBI, Cisneros had advised the 

1420 Ultimately, when Cisneros was prosecuted, the court did find that his 

alleged false statements were material. United States v. Cisneros, 26 F. Supp. 2d 24, 

40, 56. 

1421 GJ 00-001 Ex. 372 at 24. 

1422OIC Depo. Tr. Christopher 9/17/97 at 38-39; GJ 97-1 Tr. Calamaro 9/9/97 

at 26-30, 36-38; GJ 97-1 Tr. Hamilton 11/12/97 at 204-05. 

1423 Cisneros Supp. to SF-86 12/14/92 at Question 10-S. 

V-66 
agents that his answers on the form were accurate and complete to the best of his 

knowledge and recollection.1424 

When the FBI became concerned about Cisneros’s apparent lack of candor in 

his initial background investigation interview, the supervisory agent had ordered a 

second interview of Cisneros and directed the interviewing agents to: 

Advise Mr. Cisneros that he should be completely candid during this 

interview, that he should provide any information not previously 

provided, and that if there is any other information such as other affairs, 

payments made to any other individuals, etc., that it would be in his best 

interest to come forth with that information now.1425 

Cisneros did not take this opportunity to identify or correct his previous omissions 

and false statements. 

Nevertheless, the memorandum did not consider whether Cisneros’s false 

representations of honesty and candor could have been material to the governmental 

decisionmakers at whom they were aimed. Instead, it incorrectly asserted that 

Cisneros “was never asked and never made a false statement concerning his 

truthfulness.”1426 

Focusing exclusively on Cisneros’s false statements about the Medlar 

payments, Radek’s memorandum insisted that these statements “were not material to 

any of [the] decisionmakers.”1427 Identifying the relevant decisionmakers as the FBI, 

the Transition Team, and the Senate Banking Committee, the memorandum asserted 

that none of them actually cared about the amount of Cisneros’s payments. The 

memorandum did not identify DOJ-PSO as a relevant decisionmaker, and it did not 

address the possible effect of Cisneros’s false statements on security determinations 

by DOJ-PSO. 

1424 FBI-302 Cisneros 12/30/92 at 1. 

1425 OIC Interview Report Gray 11/5/96 and 11/7/96 at 7-9, 12; FBI Routing 

Slip 1/7/93 at 1. 

1426 GJ 00-001 Ex. 372 at 2. 

1427 GJ 00-001 Ex. 372 at 26. 

V-67 
The memorandum stated that “[t]he false statements about the amounts paid to 

Medlar simply were not material to any of these decisionmakers. The Transition 

Team and the Senate were both concerned only with the purpose of the payments.”1428 

But the memorandum did not consider whether the decisionmakers might have further 

examined the purpose behind Cisneros’s payments if they had known their true 

amount. 

Regarding the FBI, the memorandum simply viewed that agency’s task as 

recording information and passing it on to others – “[t]he FBI’s job was to report to 

the Transition Team the information it gathered.”1429 The memorandum paraphrased 

an FBI official who supposedly had said that “it did not matter whether the payments 

were $1,000 or $100,000 per month; the [FBI]’s summary memorandum would have 

reflected only what Cisneros had stated.”1430 However, the memorandum did not 

specifically address what the FBI might have done differently in its investigation if 

Cisneros had honestly disclosed to it that he had paid Medlar hundreds of thousands 

of dollars. One agent later confirmed to the OIC that “the amount of the payments 

was a problem, but was not a ‘big problem,’ and the overall truthfulness of Cisneros 

was an important issue.”1431 Another agent indicated that further investigation would 

have been conducted if the FBI had received contradictory facts and figures.1432 

Ultimately, Radek’s memorandum emphasized that Cisneros’s accountant had 

told the FBI that Cisneros had paid Medlar as much as $60,000 per year, and that the 

FBI had simply passed on the information without remarking on the fact that Cisneros 

had claimed in his FBI interview to have given her no more than $10,000 per year.1433 

The memorandum concluded that “[t]he plain reason for this course of action is that 

Cisneros’s false statements did not matter – they had no effect on the FBI’s approach 

1428 GJ 00-001 Ex. 372 at 26. 

1429 GJ 00-001 Ex. 372 at 27. 

1430 Id. at 16. 

1431 OIC Interview Report Rodrique 2/6/97 at 3. 

1432 FBI-302 Bourke 12/21/94 at 4. 

1433 GJ 00-001 Ex. 372 at 27. 

V-68 
to its [background investigation] duties.”1434 The memorandum’s clear implication 

was that the FBI was unconcerned about Cisneros’s lies. 

However, the FBI in fact believed that Cisneros’s lies had greatly impeded its 

work. The reason the FBI did not comment on the discrepancy between Cisneros’s 

low estimate of the payments and the much higher figure his accountant had given 

was not that the FBI found it unimportant, but that none of the interviewing agents 

involved in the Cisneros background investigation had been in a position to notice 

the discrepancy, and the official who compiled the report failed to flag it – a 

possibility the memorandum did not even consider.1435 Moreover, the FBI felt that 

“the purpose of the background investigation was to report the facts as they were 

related . . . [as opposed to] completely resolv[ing] all discrepancies to arrive at the 

truth.”1436 Consequently, when Cisneros informed the FBI that the payments had 

already been discussed with “the highest levels of the Transition Team,” the FBI did 

not consider it necessary to follow up on the issue.1437 

Similarly, the memorandum asserted that the amount of the payments was not 

material to the Senate, citing statements by Senators Riegle and D’Amato that the true 

amount of Cisneros’s payments to Medlar would not have affected how they would 

have voted on his appointment.1438 However, D’Amato later informed the OIC that 

he would not have supported Cisneros’s nomination if he had known that Cisneros 

had lied during the confirmation process.1439 Other Senators expressed similar 

concerns to the OIC1440 and the FBI.1441 

1434 GJ 00-001 Ex. 372 at 27. 

1435 FBI-302 Bourke 3/8/95; OIC Interview Report Bourke 3/6/97 at 6. 

1436 FBI-302 Bourke 12/21/94 at 2-3, 4. 

1437 GJ 00-001 Ex. 372 at 2; OIC Interview Report Gray 11/5/96 and 11/7/96 

at 12. 

1438 GJ 00-001 Ex. 372 at 26. 

1439 OIC Interview Report D’Amato 12/1/97 at 1. 

1440 See OIC Interview Report Shelby 11/6/97. 

1441 GJ 00-001 Ex. 351. 

V-69 
Radek’s memorandum did not analyze the reaction of any Senator other than 

Riegle and D’Amato. It noted that “Riegle would not suggest that other members of 

the committee review the summary [FBI] memorandum unless something in the 

memorandum was of such extraordinary importance that he believed it should be 

reviewed individually by other committee members,”1442 but it did not consider 

whether Riegle would have shared the correct information about the payments with 

other members of the Committee if it had been stated in the FBI Report. Instead, the 

memorandum proceeded on the assumption that the Senators did not care about the 

true facts regarding Cisneros’s payments because the Senate, acting in ignorance of 

those facts, took no action on them. 

The memorandum dismissed the possibility of a conspiracy offense on the 

ground that sufficient evidence to convict had not yet been gathered. In discussing 

passages of the Medlar tapes that clearly identified agreements between Medlar and 

Cisneros about what to tell the Senate, the memorandum asserts: 

•	 “it is impossible to tell exactly what it was that they agreed”;1443 

•	 “there is no indication of either what the subject was or what was agreed”;1444 

and 

•	 “[t]he ominous tone to Cisneros’s remarks here does not obviate the lack of 

information as to what was agreed.”1445 

The memorandum does not consider the possibility that a full-scale investigation 

could fill the gaps in the concededly “ominous” information already available. 

Most of the other key conclusions in the memorandum were built solely on the 

foundation of the materiality analysis. After discussing a potential conspiracy 

offense, because it was not known what had been agreed to, the memorandum 

claimed that “even if Cisneros and Medlar agreed to provide specific false 

information to the FBI, that was not a crime, because the false information they 

1442 GJ 00-001 Ex. 372 at 17. 

1443 GJ 00-001 Ex. 372 at 29. 

1444 GJ 00-001 Ex. 372 at 29. 

1445 GJ 00-001 Ex. 372 at 29. 

V-70 
agreed to provide was not material,”1446 and that “it is difficult to articulate a way in 

which providing immaterial false information to the FBI during a background 

investigation could impair, obstruct or defeat a government function . . . .”1447 The 

memorandum did not explain how the unknown agreement could unquestionably be 

immaterial. 

The memorandum acknowledged that Cisneros’s direct and indirect payments 

continued well past his confirmation.1448 It did not consider the possibility that the 

continuing payments were intended to buy Medlar’s silence – a silence that ended 

when the payments stopped in 1994. 

Radek’s memorandum also looked at the question of whether Cisneros might 

be prosecuted for obstruction of agency proceedings.1449 It rejected this possibility, 

and the analysis in support of this rejection “again turns on the materiality issue.”1450 

With respect to possible tax violations, Radek’s memorandum stated that, 

based on Public Integrity’s investigation of possible skimming, and tax evasion, “the 

evidence clearly established that taxes were paid on the income” from the checks 

endorsed over to Medlar.1451 However, the memorandum admitted that during the 90­

day preliminary investigation Public Integrity had only “briefly considered” the 

possibility that Cisneros had been skimming income and viewed this as an “unlikely 

1446 GJ 00-001 Ex. 372 at 33. 

1447 Id. at 34. 

1448 GJ 00-001 Ex. 372 at 18-19. 

1449 Id. at 35-36. 

1450 Id. at 36. 

1451 Id. at 5. The memorandum’s conclusion that the evidence “clearly 

established” that Cisneros paid taxes on all income he had received from speaking 

engagements was in stark contrast to the information provided to Public Integrity by 

the FBI that it “was not possible, based on the available records to definitively state 

that taxes were paid.” GJ 00-001 Ex. 370 at 4-5; 3/2/95 FBI Letterhead Memo at 4. 

V-71

scenario.”1452 Likewise, during the 60-day extension, Public Integrity “focused” on 

eight checks that Cisneros had received for speaking engagements and had deposited 

into Medlar’s bank account.1453 These eight checks spanned a seven-month period in 

1991 to 1992, totaled less than $15,000, and represented only a fraction of the 

evidence then available. Nevertheless, the memorandum asserted that Public Integrity 

had investigated the tax matter “in much greater detail” during the extension, only to 

determine again that Cisneros had not committed the tax violation of underreporting 

his income.1454 

In contrast to FBI Director Freeh’s January 5, 1995 memorandum to DOJ 

concerning Radek’s draft declination memorandum, in which Freeh had told DOJ that 

it was “inconceivable” that a review of Cisneros’s tax returns was sufficient to 

conclude that Cisneros had not skimmed money to pay Medlar,1455 Radek’s 

memorandum claimed that, “the payments [to Medlar] were well within [Cisneros’s] 

means, given his income as disclosed on his tax returns.”1456 Radek’s memorandum 

did not describe how this conclusion was reached. In fact, this conclusion was 

demonstrably wrong and contrary to evidence then available to Public Integrity. 

In 1991, Cisneros’s Net Disposable Income (Taxable Income less Total Tax) 

was $75,358.1457 Public Integrity determined that Cisneros paid Medlar $56,000 that 

year.1458 This left Cisneros $19,358 with which to care for his family of five. Public 

Integrity had information available to it – obtained by the FBI from Hernandez – 

which indicated that Cisneros had almost $71,000 in household expenses that year.1459 

1452 GJ 00-001 Ex. 372 at 43. 

1453 Id. at 44. 

1454 Id. at 44. 

1455 GJ 00-001 Ex. 362 at 10. 

1456 GJ 00-001 Ex. 372 at 2. 

1457 Cisneros’s 1991 Form 1040 reflected $105,509 of taxable income (Line 37) 

and a total tax of $30,151 (Line 53). 

1458 GJ 00-001 Ex. 372 at 8. 

1459 1991 Cisneros 1 p. profit and loss statement. (Obtained by FBI from 

(continued...) 

V-72 
This means that Cisneros spent $50,462 more on Medlar and his family than his 1991 

return indicated he had available to him. 

In 1992, Cisneros’s Net Disposable Income was $45,138.1460 Public Integrity 

determined that Cisneros paid Medlar $60,700 that year.1461 Without even taking into 

account any household expenses, Cisneros spent $14,562 more on Medlar than his 

1992 return reflected he had available to him. 

Cisneros clearly was spending more on Medlar and his family in 1991 and 

1992 than, according to his returns, he had available to spend. At the least, this 

discrepancy merited further inquiry. Radek’s memorandum instead simply concludes 

that no further investigation was warranted because Cisneros was supposedly living 

within his means. 

Overall, Radek’s February 27, 1995 memorandum recommending against the 

appointment of an independent counsel gave a very one-sided assessment of whether 

further investigation was warranted. It did not attempt to address the substantial 

nature of Cisneros’s false statements, the breadth of the available evidence 

(particularly the Medlar tapes), the strong contrary position taken by the FBI 

throughout the preliminary investigation, or the evidence that suggested tax 

violations. 

In a brief February 28, 1995 memorandum to Assistant Attorney General Jo 

Ann Harris, Deputy Assistant Attorney General John Keeney also recommended that 

no independent counsel be appointed to investigate Cisneros.1462 Keeney’s 

memorandum concluded that “the false statements are not material. Therefore, we do 

not have proof of a crime.”1463 However, the memorandum did note that “if this were 

not an independent counsel matter, many of us would put some witnesses before a 

1459(...continued) 

Hernandez on February 6, 1995. FBI-302 Hernandez 2/8/95.) 

1460 Cisneros’s 1992 Form 1040 reflected $68,599 of taxable income (Line 37) 

and a total tax of $23,461 (Line 53). 

1461 GJ 00-001 Ex. 372 at 8. 

1462 Memorandum from Keeney to Harris 2/28/95. 

1463 Id. at 2. 

V-73 
grand jury realizing that the grand jury testimony would most likely not change the 

result.”1464 Keeney’s memorandum made no mention of the tax issue. 

On March 1, 1995 FBI General Counsel Howard Shapiro directed a 

memorandum to Assistant Attorney General Jo Ann Harris, supporting the FBI’s 

position that an independent counsel should be appointed to investigate Cisneros.1465 

The memorandum vigorously argued against the recommendation in Radek’s 

February 27, 1995 memorandum that no independent counsel be requested, and 

focused on how evidence of Cisneros’s false statements during the confirmation and 

appointment process required further investigation by an independent counsel.1466 

The memorandum did not raise specific objections to other issues discussed in the 

February 27, 1995 Public Integrity memorandum, such as tax questions, although the 

FBI had previously asserted that an independent counsel was required to resolve such 

matters.1467 

Shapiro’s memorandum specifically took issue with Radek’s analysis of the 

Independent Counsel Act and the law of materiality, as well as some of his assertions 

concerning the FBI and the Senate decisionmaking process. As to the threshold for 

the appointment of an independent counsel, Shapiro stated that “[t]he issue here . . . 

is not whether Cisneros would prevail at trial, or even whether an indictment should 

be returned, but rather, whether it is appropriate for the Department of Justice to 

determine, as a matter of law, that the false statements were immaterial.”1468 

Shapiro’s memorandum went on to argue that proper test for materiality “is not 

whether the false statement actually influenced a government decision or even 

whether is [sic] probably influenced the decision; the standard is whether the 

misrepresentation was capable of influencing the decision.”1469 Applying that test 

to the Cisneros case, the memorandum concluded that “[i]t cannot be said with 

1464 Id. 

1465 GJ 00-001 Ex. 373. 

1466 GJ 00-001 Ex. 373. 

1467 GJ 00-001 Ex. 373. 

1468 GJ 00-001 Ex. 373 at 6. 

1469 Id. at 5 (emphasis in original); quoting United States v. Puente, 982 F.2d 

156, 159 (5th Cir. 1993). 

V-74 
certainty that these statements did not have the capacity to influence the FBI in 

conducting the background investigation or the membership of the Senate in 

determining the fitness of Cisneros to serve as Secretary of HUD.”1470 

As for Public Integrity’s assertion that the FBI did not find Cisneros’s 

statements to be material, Shapiro’s memorandum stated that: 

The fact that the FBI had short deadlines to complete background 

investigations, and that under these circumstances [a single agent] would 

not have caused greater investigation to be conducted, does not mean 

that under more ideal circumstances additional investigation would not 

have been conducted . . . . More importantly, the fact that one particular 

FBI agent would not have conducted further investigation does not bind 

the FBI to this position. Many crucial investigative decisions are made 

by the agents assigned to the case, without any consultation with the 

[supervisory agent in charge].1471 

Likewise, as to the Senate, Shapiro’s memorandum asserted that: 

[I]f the Senate had been advised of this criminal conduct, at least some 

of the Senators may have wanted to conduct further inquiry into the 

circumstances surrounding it prior to the confirmation vote. . . . It is not 

at all clear that if a diligent Senator had discovered that Cisneros had 

failed to file a required gift tax return, this would not have affected the 

decision-making process. Neither Senator Riegle nor Senate [sic] 

D’Amato was specifically questioned on the gift tax return issue, and 

none of the other Senators, including those on the Committee, were 

interviewed in connection with this investigation. Since the statements 

at issue are not clearly immaterial, we believe that appointment of an 

Independent Counsel to evaluate the matter is mandated.1472 

1470 GJ 00-001 Ex. 373 at 6 (emphasis in original). 

1471 GJ 00-001 Ex. 373 at 6. 

1472 GJ 00-001 Ex. 373 at 6-7. 

V-75 
Assistant Attorney General Harris wrote her own memorandum to the Attorney 

General on March 3, 1995.1473 Like the Shapiro memorandum, Harris’s submission 

disagreed with Public Integrity’s recommendation that no independent counsel was 

required and recommended that the Attorney General seek the appointment of an 

independent counsel to investigate Cisneros’s false statements to the FBI.1474 

However, Harris’s memorandum indicated that further investigation was required 

only to resolve the materiality issue: 

Because of [Public Integrity’s] hard work, I think it is fair to say that we 

have all narrowed the matter to be decided down to the question of 

whether further investigation is necessary to inform the materiality 

analysis, or whether we can and should conclude on the basis of the 

record we have developed to date, that Cisneros’ lies to the FBI were not 

material.1475 

The memorandum further urged that the evidence of a potential conspiracy was strong 

enough to warrant further investigation.1476 Harris accepted Public Integrity’s 

conclusion that no independent counsel need be sought on the tax and Jaffe 

allegations.1477 

The Attorney General and FBI General Counsel Shapiro met on March 8, 1995 

to discuss the Cisneros investigation, and Shapiro prepared a memorandum 

addressing the Attorney General’s concerns the next day. In that memorandum, he 

reiterated, among other things, that a truthful answer by Cisneros to questions 

regarding his payments to Medlar would have influenced the actions of the Senate 

during the confirmation process.1478 Shapiro’s memorandum also argued that it would 

be prudent to appoint an independent counsel who could subpoena bank records, 

1473 Memorandum from Harris to Attorney General Reno 3/3/95. 

1474 Id. at 5. 

1475 Id. at 4. 

1476 Id. at 8. 

1477 Id. at 5 n. 2. 

1478 GJ 00-001 Ex. 375 at 5. 

V-76 
interview more Senators, and call Medlar, Cisneros’s accountant, and members of the 

Transition Team for questioning before a grand jury.1479 

Radek responded to Shapiro’s March 9, 1995 memorandum with a 

memorandum to the Attorney General on the same day. He reiterated Public 

Integrity’s recommendation that no independent counsel was needed. He stated, 

among other things, that Cisneros’s false statements were not material to the 

Senate,1480 that it was “impossible to fathom that Medlar would have any information 

which could shed light on the nomination and confirmation process,”1481 that Cisneros 

paid taxes on the funds he paid to Medlar,1482 and that “[t]here is no reason to go any 

further.”1483 

5.	 The Attorney General’s Application and the Appointment of 

the Independent Counsel 

On March 13, 1995, notwithstanding Public Integrity’s recommendation, the 

Attorney General filed an Application for the Appointment of an Independent 

Counsel (“Application”) with the Special Division. Regarding the false statement 

allegations, the Attorney General agreed with the recommendations of Harris and the 

FBI and concluded that “‘there are reasonable grounds to believe that further 

investigation is warranted’ into whether Secretary Cisneros may have violated a 

federal criminal law . . . when he made false statements to the FBI during his 

background investigation.”1484 Regarding tax allegations, the Attorney General 

accepted Public Integrity’s position, stating that “[o]ur investigation developed no 

evidence that Secretary Cisneros failed to pay any income or gift taxes due in 

connection with his payments to Medlar.”1485 Therefore, the Attorney General did not 

1479 Id. at 6. 

1480 GJ 00-001 Ex. 376 at 3. 

1481 Id. at 4 (emphasis in original). 

1482 Id. at 5. 

1483 Id. at 6. 

1484 GJ 00-001 Ex. 3 at 2. 

1485 GJ 00-001 Ex. 3 at 4. 

V-77 
request that an independent counsel be given jurisdiction over tax matters.1486 

Similarly, the Attorney General concluded that no further investigation of the Jaffe 

issue was warranted.1487 

On May 19, 1995, Cisneros agreed to pay Medlar $49,000 to settle her civil 

lawsuit against him. In exchange, Medlar agreed not to make any more financial 

claims against Cisneros.1488 She also agreed to allow Cisneros’s criminal attorneys 

to debrief her.1489 

On May 24, 1995, the Special Division appointed David M. Barrett as 

Independent Counsel to investigate the false statement allegations against 

Cisneros.1490 In accordance with the Attorney General’s Application, the tax and Jaffe 

issues were not included in the Independent Counsel’s jurisdiction.1491 

The IRS interviewed Medlar on May 31, 1995, at which time Medlar, pursuant 

to an IRS summons, gave the IRS 88 tapes of her conversations with Cisneros.1492 

Shortly thereafter, Cisneros’s criminal attorneys debriefed Medlar.1493 

6. The OIC’s Initial Encounter with Public Integrity 

In mid-Summer 1995, the Independent Counsel and members of his staff went 

to Public Integrity’s office to pick up DOJ files concerning its investigation of 

1486 Id. 

1487 Id. at 4-5. 

1488 Washington Post, “Cisneros to pay $49,000 to settle suit by former 

mistress” 5/20/95. 

1489 GJ 97-1 Tr. Holder 8/20/97 at 133, 149. 

1490 GJ 00-001 Ex. 4. 

1491 Id. 

1492 IRS Interview Report Medlar 5/31/95 at 5. 

1493 GJ 97-1 Tr. Holder 8/20/97 at 133, 149. 

V-78 
Cisneros.1494 They were invited into a conference room to meet with Public Integrity 

Chief Lee Radek, who was accompanied by Public Integrity Deputy Chief Jo Ann 

Farrington and Trial Attorney Susan Park. 

Park asserted that Public Integrity had conducted a complete, intensive, and 

thorough preliminary investigation of the Cisneros matter, and that it viewed the 

appointment of an independent counsel as completely unnecessary. She stated that 

the Independent Counsel would find Cisneros innocent of any wrongdoing. Park 

further indicated that Public Integrity had reviewed all aspects of tax allegations 

involving Cisneros and had concluded that no further investigation of any tax issues 

was needed. From her statements and the tone of her voice, the Independent Counsel 

inferred that Park intended her assertions to be taken as directives. 

The Independent Counsel regarded Park’s statements as an improper attempt 

by DOJ to direct the conduct and the outcome of his investigation and viewed them 

as an infringement on his independence. For these reasons, as Park was speaking, he 

asked to have a private conversation with Radek. 

The Independent Counsel and Radek spoke outside the conference room. The 

Independent Counsel asked Radek the purpose of Park’s statements; the Independent 

Counsel had anticipated that the only purpose of visiting Public Integrity was to 

receive DOJ files. Radek replied that Public Integrity was merely giving the OIC its 

view, which was that “you will find nothing here.” The Independent Counsel replied 

that he would find what he would find, and not what he was told to find.

 The tone and content of Radek’s and Park’s comments led the Independent 

Counsel to conclude that further contact with Public Integrity likely would not be 

productive. 

I.	 Findings with Respect to the OIC’s Requests for Jurisdiction over 

Tax Matters

 Almost immediately after Medlar’s September 1994 public disclosure that 

Cisneros had been making payments to her, the IRS’s Criminal Investigative Division 

(“CID”) in San Antonio, Texas began to investigate possible tax offenses by 

Cisneros, in light of his concealment of the relatively large sums of money he had 

1494 OIC memorandum of meeting with Public Integrity. This document is the 

source for the entirety of the following discussion of the meeting. 

V-79 
redirected to Medlar. The investigation yielded what CID viewed as significant 

evidence of criminal tax offenses, and the case was forwarded with a prosecution 

recommendation to the IRS’s Austin District Counsel’s Office (“District Counsel”). 

However, before District Counsel could complete its review of the case, the IRS’s 

Assistant Chief Counsel’s Office for Criminal Tax (“ACC”) in Washington, D.C. 

took control of it. 

Like DOJ, which struggled to determine whether an independent counsel 

should be appointed to investigate Cisneros in the first place for tax and non-tax 

matters, the IRS engaged in a heated internal debate over whether the tax allegations 

should be pursued as a criminal matter. This controversy was played out at the same 

time that the Independent Counsel was asking the Attorney General and the Special 

Division for an expansion of its authority to allow it to investigate Cisneros for tax 

offenses in four tax years. After consulting with the IRS, DOJ rejected the 

Independent Counsel’s request for all but one tax year and opposed his application 

to the court for referral of the tax matters. 

After consulting with DOJ, ACC ultimately elected not to refer the Cisneros 

case to DOJ for prosecution or grand jury investigation, despite substantial evidence 

that led CID and District Counsel to conclude that there was a strong criminal case 

to be made. Such a referral to DOJ almost certainly would have required that an 

independent counsel be appointed to investigate the Cisneros tax matter in multiple 

years, notwithstanding DOJ’s earlier rejection of most of the OIC’s expansion 

request. 

1. IRS Criminal Investigation and Review 

The IRS’s criminal tax investigation of Cisneros deviated significantly from 

the agency’s normal procedure. The following discussion describes the IRS’s usual 

procedures, and its underlying organization, at the time of the Cisneros 

investigation.1495 

IRS Criminal Investigation was responsible for investigating potential criminal 

violations of the Internal Revenue Code relative to tax administration and related 

1495 In July 1998, the structure of the IRS was reorganized pursuant to the IRS 

Restructuring and Reform Act. Pub. Law 105-206 (1998). Therefore, many of these 

descriptions are no longer current. 

V-80 
financial crimes.1496 Criminal Investigation’s national office in Washington, D.C. 

supervised four regional offices,1497 which in turn oversaw local field offices.1498 Each 

field office conducted criminal investigations within that office’s local area of 

responsibility.1499 

The field office that investigated the Cisneros case was the San Antonio CID, 

headed by Chief John Filan. Group Manager Sheila Colbenson, who reported 

indirectly to Filan, oversaw the Cisneros investigation. Colbenson assigned CID 

agents Kesha Lange and Dorman Barrows to conduct the Cisneros investigation.1500 

The IRS’s Office of Chief Counsel was responsible for providing legal 

guidance and interpretive advice to the IRS.1501 At the time of the Cisneros case, the 

structure of the Chief Counsel’s Office was similar to that of IRS Criminal 

Investigation, with offices on the national, regional, and local levels. The IRS 

divided the country into four regions, each under the supervision of a Regional 

Counsel.1502 The Regional Counsel directed and supervised a staff of attorneys 

furnishing legal advice and performing legal services for IRS Criminal 

Investigation.1503 The duties of the Regional Counsel relating to criminal 

investigations were generally redelegated to Assistant Regional Counsel (Criminal 

1496 GJ 00-001 Ex. 308 (Ch. 1 at 4).


1497 Id. (Ch. 1 at 5).


1498 Id. (Ch. 1 at 5).


1499 Id. (Ch. 1 at 5).


1500 GJ 00-001 Ex. 18.


1501 GJ 00-001 Ex. 76.


1502 GJ 00-001 Ex. 187.


1503 Id. 

V-81 
Tax) and the appropriate District Counsel office.1504 District Counsel served as the 

in-house counsel for local CID personnel.1505 

The Chief Counsel’s Office in Washington, D.C. had several components, 

including ACC.1506 ACC was supervised by the Associate Chief Counsel 

(Enforcement Litigation).1507 ACC was headed by the Assistant Chief Counsel 

(Criminal Tax), who served as a principal legal advisor to the Assistant 

Commissioner Criminal Investigation.1508 

At the time of the Cisneros investigation, Eliot Fielding was the Associate 

Chief Counsel (Enforcement Litigation) and Dominic Paris was his deputy.1509 Barry 

Finkelstein was the Assistant Chief Counsel (Criminal Tax) and therefore head of 

ACC.1510 Finkelstein reported directly to Fielding and Paris.1511 At the time of the 

Cisneros review, ACC was a small office,1512 staffed by no more than nine attorneys, 

including Finkelstein.1513 

The Assistant Regional Counsel (Criminal Tax) with jurisdiction over the 

Cisneros case was Carleton Knechtel. The Cisneros case fell within the jurisdiction 

of District Counsel in Austin, headed by District Counsel Lewis “Willie” Hubbard 

1504 Id. 

1505 GJ 00-001 Ex. 76. 

1506 GJ 00-001 Ex. 76. 

1507 Id. 

1508 Id. 

1509 GJ 00-001 Tr. Finkelstein 5/23/00 at 42. 

1510 GJ 00-001 Tr. Finkelstein 5/23/00 at 14-16. 

1511 GJ 00-001 Tr. Finkelstein 5/23/00 at 42. 

1512 GJ 00-001 Tr. Finkelstein 5/23/00 at 50. 

1513 GJ 00-001 Tr. Finkelstein 7/18/00 at 86-87. 

V-82 
and Assistant District Counsel James Macdonald, who had the primary responsibility 

over criminal matters.1514 

A Criminal Investigation Division field office typically initiated a criminal tax 

investigation. On the basis of a preliminary investigation, the field office could 

recommend that the case be investigated either administratively or through a federal 

grand jury.1515 

If a case was pursued administratively, Criminal Investigation conducted the 

investigation and could issue IRS summonses to obtain evidence. At the conclusion 

of an administrative investigation, Criminal Investigation generated a Special Agent’s 

Report (“SAR”) analyzing, among other things, the evidence, proposed charges, and 

any defenses offered by the taxpayer. The SAR included, as exhibits, testimonial and 

documentary evidence.1516 Any evidence obtained in an administrative criminal tax 

investigation could also be used in a civil tax proceeding.1517 

District Counsel was responsible for reviewing prosecution recommendations 

in criminal cases and, where appropriate, referring such cases to DOJ for prosecution 

at DOJ’s election.1518 Normally, upon receipt from CID of an SAR in a complex 

administrative tax case, the IRS’s District Counsel office for the locale in which the 

case was investigated conducted a complete, independent review of the SAR.1519 

From the day it received the SAR for a complex matter like the Cisneros case, District 

Counsel had 90 days to complete its review.1520 District Counsel could refer the case 

to DOJ for prosecution, refer the case to DOJ for further investigation before a grand 

jury, put the case in “supplemental” status so that CID could gather more evidence, 

1514 GJ 00-001 Tr. Finkelstein 5/23/00 at 36-38. 

1515 See GJ 00-001 Ex. 308 (Chap. 12 at 10) (citing IRM 9267.21). 

1516 GJ 00-001 Tr. Finkelstein 6/6/00 at 27-28; GJ 00-001 Ex. 20. 

1517 GJ 00-001 Tr. Finkelstein 5/23/00 at 43-44. 

1518 GJ 00-001 Ex. 187. 

1519 GJ 00-001 Tr. Klotz 3/27/01 at 115; GJ 00-001 Tr. Finkelstein 6/6/00 at 27­

28. 

1520 GJ 00-001 Ex. 308 at 17. 

V-83 
or decline to refer the case.1521 The applicable standard for referring a case to DOJ 

for prosecution was that there had to be evidence sufficient to establish guilt beyond 

a reasonable doubt and a reasonable probability of conviction.1522 If this standard was 

met, District Counsel prepared and signed a Criminal Reference Letter (“CRL”) 

recommending prosecution.1523 It sent the CRL to the DOJ Tax Division with the 

SAR and the exhibits for further review and a determination of whether to prosecute 

the case.1524 

CID could refer certain types of cases directly to the appropriate federal 

prosecutor for grand jury investigation.1525 Other types of cases, which included the 

Cisneros case, had to be forwarded to the Assistant Regional Counsel or the Assistant 

Chief Counsel, who would in turn refer them to the appropriate prosecutor for grand 

jury investigation.1526 

If Criminal Investigation recommended that a case be investigated by a grand 

jury instead of administratively, the Assistant Regional Counsel would decide 

whether to refer the case to DOJ to conduct the inquiry.1527 At the conclusion of the 

inquiry, Criminal Investigation would prepare a criminal evaluation letter to analyze 

the results of the grand jury investigation.1528 Evidence obtained by a grand jury is 

protected by the secrecy provisions of Federal Rule of Criminal Procedure 6(e) and 

1521 GJ 00-001 Exs. 76 (CCDM (31)110); 171 (CCDM (31)440); 173 (CCDM 

(31)550); CCDM (31)430; CCDM (31)580. 

1522 GJ 00-001 Ex. 166 (CCDM (31)310). 

1523 GJ 00-001 Ex. 187. 

1524 GJ 00-001 Ex. 187; GJ 00-001 Ex. 308 at 18. 

1525 GJ 00-001 Ex. 308 at 24-25; see also GJ 00-001 Ex. 173 (CCDM 

(31)550(2)). 

1526 GJ 00-001 Ex. 173. 

1527 GJ 00-001 Tr. Finkelstein 6/6/00 at 36-37. 

1528 GJ 00-001 Tr. Finkelstein 6/6/00 at 36. 

V-84 
can be disclosed only under certain exceptions to the Rule.1529 Thus, such evidence 

cannot be readily used in a civil tax proceeding.1530

 CID chose to pursue the Cisneros case administratively rather than before a 

grand jury.1531 

2. The Amendment of CCDM(31)440 

The Chief Counsel’s Directives Manual (“CCDM”) contained the policies, 

procedures, instructions, guidelines, and delegations of authority that directed the 

operation and administration of Chief Counsel’s Office and its subsidiaries.1532 At the 

time the IRS was reviewing the Cisneros case, Finkelstein was responsible for 

initiating, authoring, and supervising changes relating to criminal tax matters in the 

CCDM.1533 Paris from time to time performed this function as well.1534 

In May 1996, as CID was conducting its investigation of Cisneros, ACC 

revised the CCDM to obtain for itself a regular role in administrative cases involving 

“politically sensitive individuals,” such as Cabinet officers. Finkelstein directed that 

a CCDM provision be amended to require District Counsel offices to “coordinate” 

certain “high profile” cases with ACC. In a May 23, 1996, e-mail directing the 

change, Finkelstein stated: 

As you know, there are certain high profile cases that require 

coordination with the National Office. This revision extends the same 

level of review that exists in the grand jury and search warrant 

environment to administrative cases.[1535]

 The change is being 

1529 Fed. R. Crim. P. 6(e)(3). 

1530 Id.; Fed. R. Crim. P. 6(e)(6). 

1531 GJ 00-001 Ex. 18. 

1532 GJ 00-001 Tr. Finkelstein 5/25/00 at 144-45, 154. 

1533 GJ 00-001 Tr. Finkelstein 5/25/00 at 145-47, 155-61. 

1534 Id. at 144-45, 147-48, 153-61. 

1535 GJ 00-001 Ex. 173 at 3 (CCDM (31)550). All CCDM citations are to the 

(continued...) 

V-85 
• • • 

recommended since many of the same policy concerns that pervade the 

grand jury and search warrant arena with respect to these individuals 

also exist in the administrative arena.1536 

Finkelstein assigned ACC attorney Martin Needle, who later worked on the Cisneros 

case, to draft the amendment.1537 

On July 25, 1996, the revised version of CCDM (31)440, “Cases Presenting 

Special Problems or Processing,” went into effect.1538 It established procedures for 

the administrative investigation of “politically sensitive individuals,” which expressly 

included Cabinet officers.1539 It provided in pertinent part: 

(a) Immediately upon receipt of a Special Agent’s Report 

concerning [a politically sensitive individual], District Counsel should 

telephonically notify the Assistant Regional Counsel (Criminal Tax) of 

the existence of said administrative case. The Assistant Regional 

Counsel (Criminal Tax) should then coordinate the matter with the 

Assistant Chief Counsel (Criminal Tax). 

(b) The administrative case will be reviewed by the Assistant 

Regional Counsel (Criminal Tax), or designee. The criminal reference 

letter referring the case to the Tax Division or the Department of Justice 

shall be prepared for signature of the Assistant Chief Counsel (Criminal 

Tax). 

1535(...continued) 

version in effect at the time of the Cisneros case review from December 1996 to 

March 1997. 

1536 GJ 00-001 Ex. 176 at P 242 00098. 

1537 GJ 00-001 Ex. 248. 

1538 GJ 00-001 Ex. 248. 

1539 GJ 00-001 Ex. 248 at 24000009. 

V-86 
(c) The Assistant Chief Counsel (Criminal Tax) may, at his/her 

discretion, authorize the Assistant Regional Counsel (Criminal Tax), or 

designee, to sign the criminal reference letter. 

Thus, by virtue of the amended provision, the review path for cases involving 

“politically sensitive individuals” like Cisneros changed. Before the amendment, the 

District Counsel performed the review and signed the CRL; after the amendment, the 

Assistant Regional Counsel had the responsibility for conducting the review, 

although he or she could still delegate the authority to the District Counsel. But the 

case now had to be “coordinate[d]” with Assistant Chief Counsel in Washington, 

D.C., who had the responsibility for signing any CRL, and therefore made the 

ultimate determination of whether to refer the matter to DOJ for criminal prosecution 

of these individuals. 

The reason this amendment to CCDM (31)440 was promulgated in the Summer 

of 1996 is unclear. Finkelstein, who ordered the change, testified that the reason for 

the change was to eliminate confusion in the IRS as to whether certain administrative 

cases should be reviewed by ACC; however, he said that he did not remember if the 

confusion related to a specific case.1540 He also testified that suggestions for changes 

to the CCDM could come from any source, including private practitioners and 

DOJ,1541 but that he had no idea who suggested the (31)440 revision, when the 

suggestion was first made, when the suggestion first came to his attention, or who had 

input in making the decision to amend the provision.1542 Needle, who was assigned 

to make the revision,1543 likewise testified that he did not know whose idea it was to 

amend the CCDM provision or why it was amended.1544 

1540 Id. at 68-69.


1541 GJ 00-001 Tr. Finkelstein 5/25/00 at 156-57.


1542 GJ 00-001 Tr. Finkelstein 6/20/00 at 65-66.


1543 GJ 00-001 Tr. Needle 7/10/01 at 32-43.


1544 Id. at 42-43.


V-87 
3. The IRS Investigation of the Cisneros Criminal Tax Case 

After its unsuccessful attempt to set up a joint investigation of Cisneros with 

the FBI in September 1994, CID initiated an investigation of its own into Cisneros’s 

potential tax violations. 

In January 1995, CID notified Cisneros by telephone that he was under 

criminal investigation for tax years 1989 through 1993. Cisneros told the agents that 

he was “always very careful to review his tax records.”1545 Later the same month, 

CID interviewed Cisneros, with his counsel present. He was represented by Cono 

Namorato, Scott Michel, and Chad Muller, all well-respected tax attorneys.1546 

During the interview, Cisneros stated that he was “meticulous, scrupulous and 

uncompromising in making sure everything was reported for taxes,” and that to the 

best of his knowledge all of his income had been reported on his income tax returns 

for 1989 to 1993.1547 

However, CID’s investigation developed compelling evidence that Cisneros 

had failed to declare substantial amounts of income on his 1991, 1992, and 1993 

federal income tax returns. By early November 1996, CID was preparing an SAR 

recommending that Cisneros be prosecuted.1548 

At the same time, the OIC investigation of Cisneros’s false statements was 

progressing. In a December 18, 1996 letter to CID Chief John Filan, the OIC 

requested that he assign the two CID Special Agents who had worked on the Cisneros 

investigation to the OIC.1549 The letter made clear that the agents would assist in the 

grand jury investigation of possible false statements and conspiracy, and that their 

tasks would not include the investigation of tax crimes.1550 

1545 GJ 00-001 Ex. 20 at 14; see also GJ 00-001 Ex. 28. 

1546 GJ 00-001 Ex. 20; GJ 00-001 Tr. Hubbard 9/7/00 at 31-32. 

1547 GJ 00-001 Ex. 20 at 14; GJ 00-001 Ex. 29 at 6. 

1548 IRS District Director Briefing 11/5/96. 

1549 Letter from OIC to Filan 12/18/96. 

1550 Letter from OIC to Filan 12/18/96 at 1. 

V-88 
By December 19, 1996, CID had completed the SAR, recommending that 

Cisneros be prosecuted for making and subscribing false tax returns for the years 

1991, 1992, and 1993 in violation of 26 U.S.C. § 7206(1).1551 Under that section of 

the Tax Code, it is a felony to “[w]illfully make[] and subscribe[] any return, 

statement, or other document, which contains or is verified by a written declaration 

that it is made under the penalties of perjury, and which [the maker] does not believe 

to be true and correct as to every material matter.” The tax returns signed by Cisneros 

in 1991, 1992, and 1993 contained the following standard declaration: “Under 

penalties of perjury, I declare that I have examined this return and accompanying 

schedules and statements, and to the best of my knowledge and belief, they are true, 

correct, and complete.”1552 

The SAR summarized the evidence CID developed during its investigation of 

Cisneros. That evidence included, among other things, the following: Cisneros’s 

filing history; his personal, educational, political, and business background; his 

demonstrated knowledge of tax matters; his bookkeeping and record keeping 

practices; and the accounting system he used in having his tax returns prepared and 

filed.1553 

The SAR compared Cisneros’s books and records to his filed returns, 

demonstrating Cisneros’s failure to declare significant income. For the 1991 and 

1992 returns, CID used a hybrid of the specific items and the bank deposits methods 

of proof. The bank deposits method computes a taxpayer’s taxable income by 

1551 GJ 00-001 Ex. 20 at 57.


1552 IRS Form 1040, U.S. Individual Income Tax Return.


1553 See GJ 00-001 Ex. 20 at 2-27.


V-89 
analyzing total bank deposits and expenditures.1554 The specific items method, in 

contrast, uses direct evidence, such as 1099 forms and canceled checks, to calculate 

an income total to compare with the reported income.1555 CID used the specific items 

method of proof alone to calculate Cisneros’s 1993 income. According to CID’s 

investigation and computations, Cisneros underreported his income by $107,052.66 

in 1991, $141,290.78 in 1992, and $37,136.93 in 1993.1556 

The SAR also detailed evidence indicating that Cisneros had acted willfully in 

underreporting his income. It noted that Cisneros knew that absolutely all income 

had to be deposited into his business accounts for his accountants to file accurate 

1554 The bank deposits method is commonly used when the taxpayer’s books 

and records are not complete and do not adequately reflect income. The formula is 

as follows: 

Total bank deposits 

PLUS: Currency expenditures 

= Total bank deposits plus currency expenditures (total receipts) 

MINUS: Non-income deposits and items (transfers, checks to cash, gifts, 

loans, inheritances, etc.) 

= Gross income 

MINUS: Total business expenses and statutory deductions 

= Adjusted gross income 

MINUS: Deductions and exemptions 

= Taxable income 

MINUS: Reported taxable income 

= Understated taxable income. 

See GJ 00-001 Ex. 308 (Ch. 7 at 48). 

1555 CID was able to use the specific items method for 1993 because Cisneros, 

as HUD Secretary, was a salaried employee receiving income from a smaller number 

of sources, making it easier to trace his taxable income. Since specific items is the 

only method of proof that uses direct evidence of the taxpayer’s income, it is the 

preferred method of proof, when feasible. See id. at (Ch. 7 at 7). 

1556 See GJ 00-001 Ex. 20 at 29-49. 

V-90 
returns.1557 However, CID determined that “Cisneros knowingly and willfully 

bypassed every accounting system which had been specifically set up to insure all 

income was deposited, recorded, and reported.”1558 The SAR specified how Cisneros 

had deposited income into a number of personal accounts and had intentionally 

concealed those deposits and incoming money from his accountants.1559 For example, 

according to the SAR, Cisneros had told his accountant, Luis Hernandez, that any 

income that he received from October 1992 to December 1992 had been de 

minimis.

1560 In reality, Cisneros had received but not reported over $75,000 of income 

during this period, of which more than $28,000 went to Medlar.1561 Hernandez had 

asked Cisneros for, but never received, bank statements from this period.1562 

The SAR also explained that Hernandez had prepared Cisneros’s 1991 tax 

return on the basis of a one-page profit and loss statement that Cisneros had 

provided,1563 but that, according to Hernandez, Cisneros had never provided any 

records to substantiate the figures on the statement.1564 The SAR further showed that 

Cisneros had improperly claimed a $30,000 deduction on his 1992 tax return for 

contributions he had made to an annuity he owned through Lincoln Benefit Life.1565 

Moreover, according to the SAR, after he became HUD Secretary in 1993, 

Cisneros had also cashed in two IRA accounts he maintained through Massachusetts 

Mutual IRA (“Mass Mutual”). The SAR stated: 

1557 GJ 00-001 Ex. 20 at 9, 13, 21-27, 29. 

1558 Id. at 50. 

1559 See id. at 22, 26. 

1560 Id. at 16, 29, 54. 

1561 Id. at 50, 54. 

1562 Id. at 54. 

1563 Id. at 24. 

1564 Id. at 24-26. 

1565 Id. at 27, 29-30, 36, 55. 

V-91 
[Cisneros’s insurance representative Anna Marie] Ornelas advised 

Cisneros not to divest himself of his Mass Mutual annuities because 

they were IRA accounts, and the distributions would be taxable to 

Cisneros with a 10 percent penalty for early withdrawal.1566 

However, according to the SAR, Cisneros had never informed Hernandez about this 

additional income and, therefore, it was not reported on his 1993 tax return.1567 

Cisneros and other employees loyal to him had also, the SAR said, failed to give 

Cisneros’s accountants certain deposit slips that would have revealed that Cisneros 

was not depositing all of his income into the proper accounts.1568 

The SAR noted that the totals of Cisneros’s 1991 and 1992 payments to Medlar 

were close to or in excess of his declared income,1569 and that he did not provide an 

explanation or a statement of his defense to CID.1570 

4.	 The “Partnership” for Counsel Review of the Cisneros Tax 

Case 

District Counsel received the SAR on Friday, December 20, 1996. It then 

began its review of the case pursuant to what came to be called a “partnership” with 

ACC. 

Finkelstein testified that the first information he had about the Cisneros case 

came in a conversation with Cisneros’s attorney, Scott Michel, who said that he 

represented a client whose case was going to “end up” in ACC. Finkelstein said that 

Michel had made this remark to him in passing at a tax law conference in 

Washington, D.C. in either May, October, or November of 1996, where he and 

1566 Id. at 35. 

1567 See id. at 35, 55, 73. The IRS sent Cisneros two Forms 1099 for the 

distributions. According to his accountant Luis Hernandez, Cisneros, never turned 

over the 1099s and kept the distributions a secret, despite Ornelas’s instructions. GJ 

00-001 Ex. 20 at 36. 

1568 See id. at 47-48, 53-54. 

1569 GJ 00-001 Ex. 20 at 15, 50-51. 

1570 Id. at 55. 

V-92 
Michel gave a presentation.1571 According to Finkelstein, Michel did not identify the 

client, but he did claim that the client was innocent.1572 

Finkelstein further testified that during the Fall of 1996, approximately one to 

two months before December 20, 1996, he received a “heads up” about the Cisneros 

case from Carleton Knechtel, Assistant Regional Counsel for criminal tax matters in 

the region including Texas.1573 Finkelstein said that Knechtel informed him that 

because the case concerned a Cabinet-level official it would “probably have to come 

into Washington,”1574 and that Cono Namorato and Scott Michel represented 

Cisneros.1575 

However, Knechtel denied that this conversation ever took place.1576 Rather, 

Knechtel testified that he first learned about the Cisneros case on January 13, 

1997.1577 According to Knechtel, he most likely had learned about the case from 

Macdonald and had decided that, since it was a case on Cisneros, he needed to inform 

1571 Records Finkelstein produced to the grand jury reflected that he was not 

listed as a presenter at an ABA tax conference in Washington, D.C. on May 10 to 11, 

1996. GJ 00-001 Exs. 159 and 162A, 162B, and 162C. According to other records 

Finkelstein produced, both he and Michel were scheduled to make a presentation at 

a Georgetown University Law Center tax conference during the afternoon of October 

18, 1996. GJ 00-001 Exs. 157 and 160. Finkelstein also produced records to the 

grand jury reflecting that he made a presentation to an ABA tax conference the 

morning of November 14, 1996. GJ 00-001 Exs. 158 and 161. These records list 

Finkelstein, Namorato, and Muller as faculty, but not Michel. 

1572 GJ 00-001 Tr. Finkelstein 6/6/00 at 75-77. 

1573 GJ 00-001 Tr. Finkelstein 6/6/00 at 60-61. 

1574 Id. at 61. 

1575 Id. at 75-76. 

1576 GJ 00-001 Tr. Knechtel 8/8/00 at 69-70. 

1577 Id. at 69-73, 151-52; GJ 00-001 Ex. 153 (Knechtel timesheet for week 

ending 1/16/97, reflecting 1/13/97 as first day that Knechtel logged time on the 

Cisneros case). 

V-93 
Finkelstein about it.1578 After a telephone conversation with Finkelstein, Knechtel 

called Macdonald and told him that Finkelstein had decided that ACC would handle 

the Cisneros case.1579 

Finkelstein testified that he put the purported conversation with Knechtel 

together with the earlier conversation he had had with Michel and concluded that the 

case to which Michel had referred at the tax conference involved Cisneros.1580 

Finkelstein further said that he had no preexisting knowledge of the Cisneros case at 

the time of his conversations with Michel and Knechtel.1581 

Finkelstein said that he and Knechtel discussed how the case would be 

reviewed. Finkelstein testified that he and Knechtel agreed that, because District 

Counsel had been involved during the investigation of the case, it would be 

“untoward” to have ACC alone review the case; rather, District Counsel was to 

perform the review of the case and draft a CRL for Finkelstein’s signature.1582 

Although he did not recall this conversation, Knechtel was emphatic in his 

testimony that, far from agreeing to the idea of a partnership as Finkelstein claimed, 

he could not conceive of such an arrangement: 

In fact, that would shock me because you see, to me, if that was taking 

place, I would have thought that Barry would have made it clear up front 

that when this case came in, he would be the one handling it, so it would 

really be a total shock to me if that was the case.1583 

However, by mid-November 1996, Finkelstein had expressed a desire to 

conduct the entire review of the Cisneros case at ACC, thereby removing District 

1578 GJ 00-001 Tr. Knechtel 8/8/00 at 82-83. 

1579 Id. at 49, 129. 

1580 GJ 00-001 Tr. Finkelstein 6/6/00 at 75-76. 

1581 Id. at 77. 

1582 Id. at 61-62, 64. 

1583 GJ 00-001 Tr. Knechtel 8/8/00 at 177. 

V-94 
Counsel in Texas from the process. According to an internal CID e-mail sent in the 

afternoon of November 14, 1996: 

The Cisneros (sp) case is complete and ready for District Counsel 

review, the district informed me today that the local Counsel 

attorney . . . was informed that Barry Finkelstein wants to pull the 

review of the case into his office due to sensitivity. I have contacted the 

Deputy Regional Counsel-C/Tax [Carl Knechtel] who did not know this, 

and asked him to talk to Barry before I got involved. The issue is that 

the local District Counsel has been very involved in this case from the 

beginning and is aware of all the issues – this is not the time to cut 

District Counsel out of the process. If Barry wants to review it after 

District Counsel has looked at it, fine. Will keep you informed.1584 

Nevertheless, despite Finkelstein’s apparent desire to pull the entire review of 

the Cisneros case into ACC immediately, he and District Counsel agreed to work in 

what Finkelstein later characterized as a “partnership.”1585 According to District 

Counsel Hubbard, shortly after District Counsel received the SAR on December 20, 

1996, he and Macdonald called either Knechtel or Finkelstein to confirm the 

partnership.1586 However, District Counsel and ACC seem to have had different 

perceptions of what the partnership entailed from the outset. 

District Counsel apparently understood the partnership to be nothing more than 

the procedure outlined by CCDM (31)440, as modified at Finkelstein’s direction in 

the Summer of 1996 to give ACC more control over administrative investigations of 

politically sensitive persons. That regulation contemplated that the Assistant 

Regional Counsel or his designee District Counsel would conduct the review of the 

Cisneros case and then prepare a CRL for Finkelstein’s signature. This is apparently 

the framework that District Counsel initially contemplated for their interaction in the 

Cisneros case. 

Thus, Hubbard testified that District Counsel was going to do what it normally 

did – that is, review the SAR and determine if CID’s investigation had resulted in a 

1584 GJ 00-001 Ex. 148. 

1585 GJ 00-001 Finkelstein 6/6/00 at 62. 

1586 GJ 00-001 Tr. Hubbard 9/7/00 at 44. 

V-95 
case for “which we believe that there’s a reasonable likelihood of prosecution.”1587 

Hubbard and Macdonald believed that District Counsel was responsible for holding 

the taxpayer conference,1588 also commonly known as the defense conference, and that 

it would be in Texas.

1589 Similarly, Finkelstein testified that, after his Fall 1996 

conversation with Knechtel, he had a conversation with District Counsel Hubbard and 

Assistant District Counsel Macdonald, confirming with them the agreement he had 

reached with Knechtel – that District Counsel would review the case and prepare any 

CRL for Finkelstein’s signature.1590 

However, Finkelstein’s view of the partnership apparently went beyond ACC’s 

determining whether to sign a CRL prepared by District Counsel; it included ACC’s 

simultaneous review of the case from the outset. According to Finkelstein, District 

Counsel was to provide ACC with a copy of the SAR and key exhibits so that ACC 

could start “looking” at the case and make sure “we’re all heading in the same 

direction.”1591 Finkelstein said that the partnership entailed District Counsel doing 

“some of the review” and then sending a CRL to ACC where it would be reviewed 

along with the exhibits and other relevant documents.1592 Finkelstein told the grand 

jury that there was a question as to whether the defense conference would be held in 

1587 Id. at 42. 

1588 “The purpose of the conference is to provide the taxpayer and/or 

representative an opportunity to supply information which may be relevant to 

Counsel’s ultimate determination of whether to refer the case to the Tax Division, 

Department of Justice.” CCDM (31)420(1)(b). 

1589 GJ 00-001 Ex. 149; GJ 00-001 Tr. Hubbard 9/7/00 at 43; GJ 00-001 Tr. 

Macdonald 8/10/00 at 138-39, 142. 

1590 GJ 00-001 Tr. Finkelstein 6/6/00 at 61-62, 95, 99; GJ 00-001 Ex. 339B at 

3. 

1591 GJ 00-001 Tr. Finkelstein 6/6/00 at 99; see also GJ 00-001 Tr. Hubbard 

9/7/00 at 44 (stating he had a conversation confirming the partnership with either 

ACC or Knechtel); GJ 00-001 Ex. 339B at 3 (with Hubbard referencing “when we 

talked” in a discussion about the partnership with Finkelstein). 

1592 GJ 00-001 Tr. Finkelstein 6/6/00 at 61-62, 95. 

V-96 
Texas or Washington, D.C., as well as how much involvement ACC would have in 

the conference.1593 

Klotz testified that, even though the authority for ACC to review administrative 

tax cases was not found in the CCDM, it was something that occurred as a matter of 

“custom and practice.”1594 Finkelstein similarly testified that, while the CCDM does 

not specify who will review cases like the Cisneros case, it was ACC’s “practice” to 

review the cases for which Finkelstein was responsible for signing the CRL.1595 

However, Finkelstein also told the grand jury that, during his tenure, the Cisneros 

case was the only administrative tax case for which the entire review was conducted 

by ACC.1596 

Finkelstein indicated that he confirmed with Hubbard, “head of office to head 

of office,” that they were on the “same page” and that the offices would work the case 

together but that the “logistics” would be left to their respective subordinates, Klotz 

and Macdonald.1597 District Counsel mailed ACC a copy of the SAR, without the 

supporting exhibits, shortly after receiving it on December 20, 1996.1598 

District Counsel included a memorandum from CID Chief Filan that had 

accompanied the transmittal of the SAR from CID to District Counsel.1599 Among 

other things, the memorandum stated: 

The Office of Independent Counsel, David M. Barrett, is conducting a 

related investigation on whether Cisneros lied to the FBI regarding 

payments Cisneros made to Linda D. Jones Medlar. Independent 

Counsel obtained an Ex Parte Order to gain access to the information 

collected by the IRS in this investigation. After a lengthy process, the 

1593 Id. at 95-96, 103-04. 

1594 GJ 00-001 Tr. Klotz at 137-43. 

1595 GJ 00-001 Tr. Finkelstein 6/6/00 at 65-66. 

1596 GJ 00-001 Tr. Finkelstein 7/18/00 at 56-57. 

1597 GJ 00-001 Tr. Finkelstein 6/6/00 at 102-09. 

1598 GJ 00-001 Tr. Macdonald 8/10/00 at 125-26. 

1599 Id.; GJ 00-001 Ex. 23. 

V-97 
Ex Parte has nearly been met. As part of the Ex Parte, Independent 

Counsel has questioned Special Agents Barrows and Lange on 

numerous occasions. Independent Counsel has not directed this 

investigation and has not disclosed the specific nature, breadth, or scope 

of their investigation to IRS.1600 

District Counsel and ACC then began their simultaneous reviews. At District 

Counsel, Macdonald assigned the case to attorney Thomas Eagan.1601 Eagan, who had 

an advanced legal degree in tax, had been with the IRS since 1974 and had extensive 

experience providing pre-referral advice and reviewing SARs and exhibits in 

administrative tax cases.1602 On Monday, December 23, 1996, ACC opened its own 

Cisneros case file.1603 Finkelstein assigned the case to ACC attorney Martin Klotz.1604 

That same day, although he had already implemented the July 25, 1996 revision 

of CCDM (31)440, Finkelstein instructed Klotz and another ACC attorney to amend 

the CCDM to provide for the coordination of “highly sensitive” administrative cases 

with ACC. The e-mail directing the change stated: 

In CCDM (31)550(3) and 760(5) the field is required to coordinate 

highly sensitive grand jury cases here. Although I remember discussing 

the need for a CCDM revision, I cannot find any requiring coordination 

of highly sensitive administrative cases. There should be one. Please 

work it out and have one prepared.1605 

The CCDM was not actually revised again, presumably because it had just been 

amended to the same effect five months earlier at Finkelstein’s direction. 

1600 GJ 00-001 Ex. 23 at 2-3. 

1601 GJ 00-001 Tr. Macdonald 8/10/00 at 103-04. 

1602 GJ 00-001 Tr. Eagan 6/28/01 at 7, 9-10. 

1603 GJ 00-001 Ex. 24. 

1604 Id. (Cover Sheet). 

1605 GJ 00-001 Ex. 251. 

V-98 
On January 2, 1997, CID sent a certified letter to Cisneros at his Washington, 

D.C. residence.1606 The letter informed Cisneros that CID had forwarded to Austin 

District Counsel’s office a report recommending that criminal proceedings be 

initiated against him. A copy of the letter went to his Washington lawyers, Namorato 

and Michel, and to his San Antonio lawyer Muller. 

In the meantime, pursuant to its understanding of the partnership agreement 

with ACC, District Counsel continued to review the case. On January 6, 1997 

District Counsel sent a letter to Cisneros’s San Antonio attorney, Muller, notifying 

him that a report of the Cisneros investigation had been referred to District Counsel 

with a recommendation that Cisneros be prosecuted for willfully filing false tax 

returns for tax years 1991 to 1993, in violation of 26 U.S.C. § 7206(1). The letter 

tentatively scheduled a conference between defense counsel and District Counsel for 

January 22, 1997 in Austin.1607 

At ACC, from Monday, January 6 to Friday, January 10, 1997, Klotz logged 

16 hours of time on the Cisneros case.1608 During that same time period, Finkelstein 

logged 15 hours on the case.1609 By Wednesday, January 8, 1997, Finkelstein had 

assigned another ACC attorney, Martin Needle, to work on the Cisneros matter.1610 

Needle logged his first time – three hours – on that day and another 12 hours by 

Friday, January 10, 1997.1611 

On January 8, 1997, Muller called CID Group Manager Colbenson. 

According to Colbenson’s notes of the conversation, Muller complained that CID had 

forwarded the case to District Counsel without giving Cisneros an opportunity for a 

1606 GJ 00-001 Ex. 31A. 

1607 GJ 00-001 Ex. 149. 

1608 GJ 00-001 Ex. 153 (Klotz time sheet for week ending 1/10/97). 

1609 Id. (Finkelstein timesheet for week ending 1/10/97). 

1610 GJ 00-001 Tr. Finkelstein 6/6/00 at 110-12; GJ 00-001 Ex. 153 (Needle 

timesheet for week ending 1/11/97). 

1611 GJ 00-001 Ex. 153 (Needle timesheet for week ending 1/11/97). 

V-99 
conference with CID.1612 She also noted that Muller said the defense counsel had 

wanted the CID conference so that they could point out problems with the case and 

persuade CID not to forward the case to District Counsel.1613 

As its review commenced, ACC immediately began expressing reservations 

about the case to District Counsel. At this point, the two offices were no longer, as 

Finkelstein earlier had said, “heading in the same direction,”1614 and their differences 

soon led to a dissolution of the partnership and ACC’s assumption of sole control 

over the review. 

By January 9, 1997, Macdonald and Klotz had a telephone conversation, during 

which Klotz stated that ACC had some problems with the Cisneros case.1615 

Macdonald relayed ACC’s concerns to Colbenson. According to Colbenson, 

Macdonald informed her that ACC had concerns about double-counting of income,1616 

the method of proof, willfulness, and witness problems.1617 Colbenson questioned 

how ACC could have come to any conclusions about the case without the case 

1612 GJ 97-1 Ex. 15. 

1613 GJ 97-1 Ex. 15. 

1614 GJ 00-001 Tr. Finkelstein 6/6/00 at 99. 

1615 GJ 97-1 Tr. Colbenson 3/24/98 at 112-14; GJ 00-001 Tr. Macdonald 

8/10/00 at 132-39; OIC Phone Chart 1/8/97 call from Macdonald to Klotz. 

1616 Double-counting is the “error of counting something twice: a statistical 

accounting error in which an item is taken into account more than once, for example, 

as part of two separate categories to which it belongs.” <http://encarta.msn.com/ 

dictionary_561546920/double-counting.html> For example, in this context, ACC’s 

stated concerns included the possibility that CID, in using a hybrid of the bank 

deposits and specific items methods, might have counted a specific item as income 

when it was earned, and then counted the same funds as income again when they were 

deposited in the bank. GJ 00-001 Tr. Finkelstein 7/20/00 at 146-47. See GJ 00-001 

Ex. 168 (ACC’s Cisneros Legal File, which included a copy of Handbook for Special 

Agents at §§ 426.4-426.5). 

1617 GJ 97-1 Tr. Colbenson 3/24/98 at 112-14. 

V-100 
exhibits, but Macdonald told her that he was not very concerned and that District 

Counsel’s review was proceeding.1618 

The next day, January 10, 1997, Macdonald informed Colbenson that he had 

learned from Finkelstein that it was unlikely that the case was going to be forwarded 

for prosecution.1619 Indeed, Klotz and Needle testified that, from their first contact 

with the Cisneros case, they understood that ACC would be conducting the entire 

review. Klotz said that as of December 23, 1996 – which was the day that ACC 

opened its Cisneros case file, the day that Finkelstein began billing time on the case, 

and the day Finkelstein ordered a (redundant) change to the CCDM to increase ACC 

involvement in cases like Cisneros’s – “the case was going to be centralized and was 

coming in . . . . . It was no longer their case, it was now a national office case.”1620 

Needle testified that “early on” Finkelstein or Klotz told him that ACC was going to 

“evaluate the case from start to finish, looking at every aspect of it, to determine 

whether we should refer the case or decline the case.”1621 

In a January 10, 1997 letter to the OIC, CID Chief John Filan in Austin 

authorized the detail of the two Special Agents who had worked on CID’s Cisneros 

investigation to assist the OIC in its non-tax grand jury investigation.1622 

5. Dissolution of the Partnership 

According to Paris, at the time Finkelstein was deciding whether to take the 

case away from District Counsel, he was having regular conversations with Deputy 

Attorney General Mark Matthews, his peer at DOJ.1623 Finkelstein recalled that, in 

the “early” stages of the case, which he assumed was when it was in “partnership 

mode,” he called Matthews and told him that he had a case involving Cisneros, whom 

1618 Id. at 115-17. 

1619 Id. at 128-30. 

1620 GJ 00-001 Ex. 165 at 148. 

1621 GJ 00-001 Ex. 174 at 46-47. 

1622 Letter from Filan to OIC 1/10/97. 

1623 OIC Interview Notes Paris 7/18/01 at 2, 10. 

V-101 
he understood an independent counsel was investigating.1624 Finkelstein testified that 

he did not in this conversation discuss with Matthews the fact that the case was being 

reviewed in “partnership” with District Counsel.1625 Nor was there any discussion 

with Matthews concerning whether the case should be reviewed by District Counsel 

or ACC.1626 Finkelstein said he made the call to determine, in the event he decided 

to refer the case for prosecution, whether he should make the referral to the Tax 

Division or to the Independent Counsel.1627 

On January 13, 1997, ACC received a faxed copy of the OIC’s mandate from 

DOJ’s Public Integrity Section.1628 Finkelstein, Klotz, and Needle all testified that 

they did not ask Public Integrity to send the mandate, that they did not know who if 

anyone had asked for it, and that they were not in contact with anyone at Public 

Integrity at the time.1629 The OIC was unable to determine who faxed the Independent 

Counsel’s mandate to ACC, or why this was done. 

At about the same time, District Counsel learned that ACC had decided to 

dissolve the partnership by terminating District Counsel’s involvement in the review 

and assuming sole control. On Monday, January 13, 1997, Knechtel and Finkelstein 

spoke by phone about the Cisneros case.1630 In the course of the conversation, 

Finkelstein determined to conduct the complete review of the Cisneros case in 

Washington, D.C.1631 Knechtel called Macdonald and told him that Finkelstein had 

1624 GJ 00-001 Tr. Finkelstein 10/26/00 at 47-48, 60. 

1625 GJ 00-001 Tr. Finkelstein 10/26/00 at 61-62. 

1626 GJ 00-001 Tr. Finkelstein 10/26/00 at 61-62. 

1627 GJ 00-001 Tr. Finkelstein 10/26/00 at 47-48, 60-61. 

1628 GJ 00-001 Ex. 35. 

1629 GJ 00-001 Tr. Finkelstein 8/1/00 at 42-48; GJ 00-001 Tr. Klotz 12/12/00 

at 57-59, 70-73; GJ 00-001 Tr. Needle 5/3/01 at 98-99. 

1630 GJ 00-001 Tr. Knechtel 8/8/00 at 127-28, 152; see also GJ 00-001 Ex. 153. 

1631 GJ 00-001 Tr. Finkelstein 6/6/00 at 21-22; GJ 00-001 Tr. Knechtel 8/8/00 

at 177. 

V-102 
decided that ACC would handle the Cisneros case.1632 On January 13, 1997, after 

unsuccessfully attempting to reach Macdonald on the telephone, Klotz sent him an 

e-mail requesting that he call ACC to “discuss the latest development in and the status 

of the case.”1633 On January 14, 1997, Klotz informed Macdonald that Finkelstein had 

decided that ACC was going to conduct the review of the Cisneros matter and that 

District Counsel would no longer have a role in the case.1634 

Macdonald probed Klotz about the meaning of this decision. Macdonald asked 

Klotz to put in writing ACC’s specific concerns with the case so that ACC would not 

be able to suggest later that District Counsel had not addressed ACC’s concerns.1635 

According to Macdonald, Klotz was “vague” in describing ACC’s concerns with the 

case and declined to document them. Macdonald also discussed with Klotz whether 

the Cisneros case could be put in “supplemental” status so that ACC’s concerns could 

be addressed.1636 

Macdonald informed Hubbard of his conversation with Klotz.1637 Hubbard in 

turn decided to contact Finkelstein.1638 Hubbard wanted to ascertain from Finkelstein 

the mechanics of transferring the case to ACC; he also wanted to learn the nature of 

ACC’s specific concerns so that District Counsel could discuss them with CID and 

enable CID to address them with ACC.1639 Hubbard further wanted to ascertain 

whether the decision diminished District Counsel’s reputation in Washington, D.C.1640 

1632 GJ 00-001 Tr. Knechtel 8/8/00 at 48-49, 129. 

1633 GJ 00-001 Ex. 34. 

1634 GJ 00-001 Tr. Macdonald 8/10/00 at 128-29, 143-44; GJ 00-001 Ex. 339B 

at 2. 

1635 GJ 00-001 Tr. Macdonald 8/10/00 at 156. 

1636 GJ 00-001 Tr. Macdonald 8/10/00 at 155-56; GJ 00-001 Ex. 339B at 3. 

1637 GJ 00-001 Tr. Macdonald 8/10/00 at 143. 

1638 Id. at 148. 

1639 Id. at 148-49. 

1640 Id. at 144-45. 

V-103 
Either that day or the next – January 15, 1997 – District Counsel attorneys, 

including Hubbard and Macdonald, telephoned Finkelstein.1641 Klotz was also on the 

phone at ACC’s end. Hubbard recorded the call. Hubbard told the grand jury that he 

did so because he did not trust Finkelstein after an earlier, unrelated incident in which 

Finkelstein had accused District Counsel of mishandling a case, only to deny later 

that he had made the accusations.1642 Hubbard also said that he wanted to have a 

record of ACC’s problems with the case.1643 Neither Finkelstein nor Klotz knew that 

the call was being recorded.1644 

Hubbard began the conversation by restating his view of the partnership: “[I]t 

was agreed that this office would make the initial review, prepare the referral, and put 

your signature . . . block on it and forward it to your office for . . . final review and 

disposition.” Finkelstein concurred.1645 

Finkelstein continued, though, that “we have some difficulties with the method 

of proof and all that, and our concern was that we need to focus in where we think the 

1641 GJ 00-001 Ex. 339B. 

1642 GJ 00-001 Tr. Hubbard 9/7/00 at 54-55. In this earlier incident, Knechtel 

forwarded Hubbard a voice-mail from Finkelstein in which Finkelstein had made 

certain accusations against District Counsel. Hubbard transcribed the voice-mail and, 

when Finkelstein later denied that he had made the accusations, read it to Finkelstein. 

Thereafter, Finkelstein’s calls to District Counsel were very infrequent, if not nonexistent. Id. at 54-56. Hubbard also told the OIC grand jury that he concluded that 

Finkelstein was a liar and that Knechtel knew that he distrusted Finkelstein. Id. at 56. 

1643 GJ 00-001 Tr. Hubbard 9/7/00 at 54-55. After learning of the existence of 

this tape, the OIC tried to secure it. The OIC was informed by several District 

Counsel employees that the tape had been discarded. However, in June 2001, the tape 

was located by former District Counsel attorney Thomas Eagan and delivered to the 

OIC. GJ 00-001 Ex. 330A; GJ 00-001 Tr. Eagan 6/28/01 at 46-47. 

1644 GJ 00-001 Tr. Macdonald 8/10/00 at 178. Under Texas law, it is not illegal 

to tape a telephone conversation so long as one party consents to the taping. Id.; GJ 

00-001 Ex. 39. 

1645 GJ 00-001 Ex. 339B at 3. 

V-104 
case is deficient to either repair it or, ah, address it.”1646 Finkelstein further indicated 

that, after ACC had the opportunity to review the exhibits to the SAR, which it had 

not yet received, he wanted the CID agents to fly to Washington for a meeting with 

ACC.1647 The purpose of the meeting would be to “find out . . . is our reading of the 

SAR correct and if so, we have some deficiencies, and if so let’s not be writing a CRL 

. . . .”1648 

Finkelstein then attributed to Knechtel his decision to move control of the case 

to ACC in Washington: 

And I broached that with Carlton and Carlton before I even finished the 

sentence said “Barry, why don’t you just centralize it completely?” And 

that just seems to be a way to kind of get everything together.1649 

Hubbard asked Finkelstein what his specific problems with the case were; he 

answered that “the specific problem we have is some of the numbers from one table 

to the next just don’t ring true, they change.”1650 Finkelstein elaborated that the 

problem was that the numbers might be inconsistent and that “maybe the concept and 

how this thing was set up . . . I’m not sure they’re not double counting things 

. . . .”1651 

Macdonald responded that he did not think there was double-counting in the 

SAR.1652 Finkelstein replied, “God forbid we are correct . . . and that there is some 

1646 Id. 

1647 Id. 

1648 Id. 

1649 Id. 

1650 Id. at 4. 

1651 Id. at 4. Double-counting is defined above at footnote 1616. 

1652 Id. at 4. 

V-105 
double counting of some order in here, then I think your, the agent has to re-work this 

case and we may be at the supplemental point.”1653 

Additionally, Finkelstein suggested that there was a problem in identifying the 

items that were not reported as income on Cisneros’s returns because Cisneros did not 

make the information available to his accountants: 

Secondly, I can’t help but wonder out loud that in final analysis if 

something was deposited, then I think that Cisneros set up a mechanism 

that it should have been reported because he told his accountants that all 

income is deposited. Now we all know that not everything was 

deposited. However, some of the non-deposited items, there are 1099’s 

issued on it, and thus since, the accountants resorted to the 1099 

methodology, it would be inaccurate to say that non-deposited items 

were not reported. So I’m curious as to if we took each specific item of 

money, and said was it (a) deposited?, was it (b) 1099’d?, and (c) none 

of the above? What is the number that would be in the none or above 

category? And that may be your cleanest case if there’s any volume to 

that.1654 

Consequently, Finkelstein advocated that the agents attempt a specific items 

analysis instead of a bank deposits analysis: 

So I’d like the agent to go back through . . . the underlying documents, 

and see where is this case if we simplify it. If we have something of 

meat remaining, it’s a much cleaner case than going through a bank 

deposits analysis where you have to have a lot of agent determinations 

as to adjustments such as the transfers and the cash and all these other 

good things. So I’m thinking of, maybe this is a, a neater specific item 

case if you’re left with a lot of meat.1655 

Finkelstein then specifically asked for Eagan’s input: 

1653 Id. at 5. 

1654 Id. 

1655 Id. at 5. 

V-106 
Tom Eagan has things that he’s come across, hey to be sure, share ‘em 

with us, . . . we’re far from perfect on these things, and if he’s come up 

with either pluses or minuses in his review, for example, if he’s come up 

with things that seem a little screwy to him, please share it.1656 

Hubbard confirmed that Eagan’s recommendations would be included with the 

transfer of the case to ACC.1657 

Finkelstein went on to state that “even if the case is totally clean,” he thought 

that a recommendation to a prosecutor: 

has to be that the four or five key witnesses such as Medlar and 

Gonzalez and Hernandez [Cisneros’s accountants] and Garcia, and 

. . . Ramirez, . . . they need to be locked in in the grand jury because, boy 

they could really take the dive for this guy and I’m not sure that Q & A’s 

or statements lock them in near as nice as a grand jury questioning.1658 

Finkelstein concluded by justifying his termination of the partnership as 

follows: 

[O]nce we got into the meat of it the logistics seemed to scream out to 

us that since we’re going to be signing this letter we need to focus in on 

this thing . . . . This has a lot of numbers, a lot of number crunching, a 

lot of maneuvering of numbers, that’s it, it’s a whole different ball game, 

and I think we’d be poorly served by bifurcating the review.1659 

Macdonald told the grand jury that this taped conversation led him to conclude 

that Finkelstein was predisposed to kill the Cisneros case and not to forward it for 

prosecution.1660 Finkelstein, testifying about whether he could have led District 

Counsel to believe that the Cisneros case could not be prosecuted, stated: “The 

1656 Id. at 6. 

1657 Id. at 6. 

1658 Id. at 7. 

1659 Id. 

1660 GJ 00-001 Tr. Macdonald 8/10/00 at 165, 169. 

V-107 
hearer – I think it would be a wrong assumption, but the hearer could have walked 

away with that sense, is my sense.”1661 

Macdonald testified that the concerns expressed by Finkelstein (which were the 

same Klotz had previously relayed) were “just not true,”1662 and therefore he felt that 

CID would be able to resolve them once CID met with ACC.1663 Macdonald also 

considered Finkelstein’s desire to recommend that the key witnesses testify in the 

grand jury to be a positive sign.1664 

In the taped conversation, Finkelstein indicated that the idea of dissolving the 

partnership and giving ACC total control of the review of the case originated with 

Knechtel, and that his principal reasons for doing so were the logistical problems of 

dealing with a complicated case in two offices. However, neither assertion appears 

to withstand scrutiny. Rather, the principal reason for the decision appears to be 

ACC’s concern that District Counsel was on track to prepare a CRL in a case that 

ACC did not want to refer for prosecution. 

Regarding Knechtel’s role, Finkelstein reiterated before the grand jury that the 

suggestion to pull the review of the case to ACC came from Knechtel.1665 

Specifically, Finkelstein testified: 

Carl [Knechtel] then asked how the case was going to proceed and I said 

it was my goal that we could work it in unison. Carl said he doesn’t 

think that’s going to work well; why don’t we just centralize it in 

1661 GJ 00-001 Tr. Finkelstein 7/25/00 at 107. 

1662 GJ 00-001 T. Macdonald 8/10/00 at 164-65, 172-73. 

1663 Id.


1664 Id.


1665 GJ 00-001 Ex. 339B at 3; GJ 00-001 Tr. Finkelstein 6/6/00 at 21, 117; GJ 

00-001 Tr. Finkelstein 6/22/00 at 74; GJ 00-001 Tr. Finkelstein 6/29/00 at 71, 80, 

101, 102. 

V-108 
Washington. I said that’s my sense but it’s a tough pill to swallow for 

the folks in the district, and he said that’s his recommendation.1666 

Finkelstein further told the grand jury: 

I am 100 percent certain that it’s a conversation between me and 

Knechtel, with Klotz in my office, and at the end of the conversation, 

Knechtel says this is silly, you ought to centralize it . . . .1667 

However, Knechtel testified with “absolute certainty” that it was both 

Finkelstein’s idea and decision that ACC take the Cisneros case from District Counsel 

and conduct the review.1668 Klotz likewise testified that the decision to review the 

case at ACC was Finkelstein’s idea and that Knechtel either agreed or did not object 

to it.1669 

Regarding logistics, Klotz testified that ACC pulled the case in part because 

Finkelstein “had not timely received the materials that [District Counsel] said they 

were sending him.”1670 Paris told the OIC that Finkelstein said he was looking for the 

SAR and that it was taking too long to get it from District Counsel.1671 

It was clear, however, that there was never any insurmountable difficulty in 

getting a copy of the document from one office to the other. District Counsel 

received the SAR on December 20, 1996, and sent a copy to ACC immediately.1672 

Klotz phoned Macdonald around January 6, 1997, and told him that ACC had never 

1666 GJ 00-001 Tr. Finkelstein 6/6/00 at 21. 

1667 GJ 00-001 Tr. Finkelstein 6/29/00 at 80. 

1668 GJ 00-001 Tr. Knechtel 8/8/00 at 145. 

1669 GJ 00-001 Tr. Klotz 12/12/00 at 139-40. 

1670 GJ 00-001 Tr. Klotz 12/19/00 at 91. 

1671 OIC Interview Notes Paris 7/18/01 at 5. 

1672 GJ 00-001 Tr. Macdonald 8/10/00 at 125-26. 

V-109 
received the SAR.1673 Macdonald had another copy sent to ACC by overnight 

delivery.1674 Some time before Needle began working on the case on January 8, 1997, 

ACC located the original copy of the SAR from District Counsel; it had been 

mistakenly delivered to another ACC attorney not assigned to the Cisneros case.1675 

Klotz also testified that Finkelstein decided to review the case at ACC so that 

the defense conference could be conducted in Washington, D.C.1676 Klotz further 

testified that Cisneros’s counsel had asked Finkelstein to hold the conference in 

Washington, D.C. and that this request was a factor in pulling the case from District 

Counsel.1677 Colbenson testified that Klotz told her Finkelstein had agreed with 

Namorato before the case was transferred that the conference would occur in 

Washington, D.C.1678 Paris similarly told the OIC that Cisneros’s counsel’s 

expectation that the case would be reviewed in Washington, D.C. prompted 

Finkelstein’s decision.1679 

Finkelstein testified that the scheduling of the conference had nothing to do 

with the transfer of the case,1680 although he did state that bringing the case to 

Washington, D.C. resolved some logistical considerations, including where to have 

the conference and who would attend the conference.1681 Finkelstein also testified 

that he was unable to recall whether he spoke with Cisneros’s defense counsel before 

1673 GJ 00-001 Tr. Macdonald 8/10/00 at 129; OIC Phone Chart 1/6/97 call 

from Macdonald to Klotz. 

1674 GJ 00-001 Tr. Macdonald 8/10/00 at 129-30. 

1675 GJ 00-001 Tr. Finkelstein 6/29/00 at 68-69; GJ 00-001 Tr. Macdonald 

8/10/00 at 130-32. 

1676 GJ 00-001 Tr. Klotz 12/12/00 at 123-29. 

1677 Id. at 128-29. 

1678 GJ 97-1 Tr. Colbenson 3/24/98 at 159-60, 177-78; GJ 97-1 Ex. 22. 

1679 OIC Interview Notes Paris 7/18/01 at 10. 

1680 GJ 00-001 Tr. Finkelstein 6/29/00 at 102-03. 

1681 GJ 00-001 Tr. Finkelstein 6/29/00 at 103-04. 

V-110 
the case was transferred and agreed to hold the defense conference in Washington, 

D.C.1682 

The real reason behind ACC’s dissolution of the partnership and its taking 

control over the case from District Counsel appears to be their respective views of its 

merits. District Counsel believed the Cisneros case was prosecutable.1683 But Klotz 

testified that, shortly after the case was transferred to ACC, Finkelstein claimed that 

District Counsel didn’t “understand” the case.1684 Finkelstein told Fielding that ACC 

was bringing the case into his office in Washington, D.C. because it “sucks.”1685 

Finkelstein testified that he believed that District Counsel would be “more 

liberal” in its review than ACC, which was “more conservative,”1686 and that he 

believed it was likely District Counsel would have referred the Cisneros case.1687 

Knechtel likewise testified that ACC had a record of “killing matters.”1688 In contrast, 

the Austin District Counsel office had a reputation of being aggressive in referring 

cases for prosecution.1689 Finkelstein, however, claimed that his belief that District 

Counsel would be more liberal than ACC in reviewing the case was not a factor that 

1682 GJ 00-001 Tr. Finkelstein 7/25/00 at 133-34. 

1683 GJ 00-001 Tr. Macdonald 8/10/00 at 182. 

1684 GJ 00-001 Tr. Klotz 3/27/01 at 71. 

1685 OIC Interview Notes Fielding at 4. 

1686 GJ 00-001 Tr. Finkelstein 7/20/00 at 89-90. 

1687 GJ 00-001 Tr. Finkelstein 7/20/00 at 86-89. 

1688 GJ 00-001 Tr. Knechtel 8/8/00 at 161-64. 

1689 GJ 00-001 Tr. Hubbard 9/7/00 at 15, 16, 40. Furthermore, District Counsel 

had a history with Cisneros’s lead attorney, Cono Namorato. According to 

Macdonald, during the Fall of 1996, CID recommended that another of Namorato’s 

clients be prosecuted for a misdemeanor. However, after a meeting with Namorato 

in which this recommendation was discussed, District Counsel reassessed the case 

and recommended that the charges be enlarged to a felony. Macdonald told the OIC 

grand jury that, at a second conference with Namorato to discuss the felony 

recommendation, Namorato was so upset with District Counsel that he walked out of 

the meeting after five minutes. GJ 00-001 Tr. Macdonald 8/10/00 at 115-20. 

V-111 
he considered in deciding that ACC should conduct the entire Cisneros review.1690 

Finkelstein testified that he focused instead solely on logistics.1691 

Paris, in contrast, told the OIC that Finkelstein knew that District Counsel was 

favorable to referring the case for prosecution and that Finkelstein disagreed.1692 

Paris informed the OIC that Finkelstein, in telling him that ACC was going to 

conduct the entire review, mentioned that he disagreed with District Counsel’s 

inclination to refer.1693 

The fact that the Cisneros tax matter was already under scrutiny by the OIC and 

DOJ also appear to have influenced Finkelstein’s determination to centralize review. 

Finkelstein told Paris that the fact that the OIC was also investigating Cisneros 

affected his decision to take over the case.1694 Paris also stated that Finkelstein 

decided to conduct the review as a result of discussions Finkelstein had with DOJ.1695 

Thus, if the partnership had continued as it began, District Counsel acting as 

Assistant Regional Counsel’s designee would have completed the review of the SAR. 

It would likely have recommended referral for criminal prosecution and drafted a 

CRL that Finkelstein did not want to sign and that, possibly, DOJ did not want him 

to sign. By taking the case into Washington before District Counsel completed its 

review, Finkelstein short-circuited the process before a CRL could be drafted. 

6. ACC Reviews the SAR

 On January 16, 1997, District Counsel transferred to ACC the entire Cisneros 

case file, including the SAR and the exhibits, as instructed.1696 In accordance with 

Finkelstein’s request, Eagan’s memorandum analyzing the case accompanied the case 

1690 GJ 00-001 Tr. Finkelstein 7/20/00 at 84-85. 

1691 Id. at 85. 

1692 OIC Interview Notes Paris 7/18/01 at 10. 

1693 OIC Interview Notes Paris 7/18/01 at 10-11. 

1694 OIC Interview Notes Paris 7/18/01 at 9-10. 

1695 OIC Interview Notes Paris 7/18/01 at 10. 

1696 GJ 00-001 Ex. 38. 

V-112 
file.1697 The memorandum stated, on the basis of his review of the case, that there was 

a “probability of conviction with respect to . . . the unreported gross receipts 

attributable to checks which were cashed or endorsed to Medlar without deposit to 

the business account.”1698 The memorandum also noted: 

Cisneros paid Medlar $73,024 during 1991 . . . while reporting net 

Schedule C income of only $61,014 . . . and $67,580 during 1992 . . . 

while reporting a net Schedule income of $109,195 . . . . He gave his 

wife about $6,000 per month for household expenses, which would 

amount to about $72,000 per year. Between Medlar and his wife, he 

paid out more than he claimed to have earned. He could not have 

believed that those returns correctly reported his gross receipts.1699 

By January 17, 1997, ACC had received the exhibits to the SAR and Eagan’s 

memorandum. ACC, now with total control over the IRS’s investigation of Cisneros, 

continued the review it had begun before receiving these materials. 

Finkelstein charged his subordinates Klotz and Needle with conducting the 

review of the Cisneros case. Klotz, as the “lead attorney” on the case, was 

responsible for reading the exhibits and witness statements, and with drafting any 

documents relating to ACC’s review.1700 Klotz said that he was also the 

“communicator” on the case, meaning that he was responsible for making telephone 

calls and establishing contacts throughout ACC’s review.1701 Needle was assigned 

to perform the computational analyses on the figures in the SAR and the exhibits.1702 

1697 GJ 00-001 Ex. 38. 

1698 GJ 00-001 Ex. 38 at 1. 

1699GJ 00-001 Ex. 38 at 2. 

1700 GJ 00-001 Tr. Klotz 12/14/00 at 8; GJ 97-1 Tr. Klotz 4/23/98 at 97. 

1701 GJ 00-001 Tr. Klotz 12/14/00 at 8. 

1702 GJ 00-001 Tr. Needle 5/1/01 at 115-16; GJ 97-1 Tr. Klotz 4/23/98 at 97. 

V-113 
Finkelstein testified that he assigned Klotz and Needle to the case because of 

Klotz’s lengthy experience and Needle’s accounting background.1703 However, in his 

grand jury testimony, Klotz admitted that he had never before while at ACC reviewed 

a request for prosecution based on an SAR.1704 He had been employed by the IRS as 

an attorney since 1972. From 1972 until 1987, he had worked in IRS field offices 

reviewing SARs, among other things.1705 From 1987 to 1991, he had been 

Finkelstein’s Deputy at ACC1706 and then had become a “Technical Assistant” in 

ACC.1707 However, before the Cisneros case, Klotz had not reviewed a request for 

prosecution predicated on an SAR since arriving in Washington, D.C. in 1987.1708 He 

also testified that he considered himself to be “math challenged”1709 and did not have 

the ability to do the type of computational analysis that the review required.1710 

When he conducted the Cisneros review in 1997, Needle had less than five 

years of experience at ACC.1711 He was not a Certified Public Accountant and his 

formal training in accounting was limited to two courses in undergraduate school and 

one at law school.1712 Needle admitted to being “inexperienced” in terms of the 

hands-on review of a case.1713 Needle also testified that he had never reviewed any 

1703 GJ 00-001 Tr. Finkelstein 5/23/00 at 83; GJ 00-001 Tr. Finkelstein 6/6/00 

at 111-12. 

1704 GJ 00-001 Tr. Klotz 12/14/00 at 80. 

1705 GJ 97-1 Tr. Klotz 4/21/98 at 9-10; GJ 00-001 Tr. Klotz 12/19/00 at 19. 

1706 GJ 97-1 Tr. Klotz 4/21/98 at 12. 

1707 GJ 00-001 Tr. Klotz 12/12/00 at 15. 

1708 GJ 00-001 Tr. Klotz 12/14/00 at 80. 

1709 GJ 00-001 Tr. Klotz 3/27/01 at 119. 

1710 GJ 00-001 Tr. Klotz 4/24/01 at 22. 

1711 GJ 00-001 Tr. Needle 3/8/01 at 38. 

1712 GJ 00-001 Tr. Needle 3/8/01 at 59. 

1713 GJ 97-1 Tr. Needle 5/14/98 at 81-82. 

V-114 
case from scratch,1714 that his knowledge of the use of tape recordings as evidence in 

a criminal case was “minimal at best,”1715 and that it was “very, very infrequent” that 

anyone at ACC would review source documents and bank records as he was asked 

to do in evaluating the Cisneros case.1716 

Finkelstein did not tell his direct supervisor Paris that Cisneros was a bank 

deposits case but instead led him to believe that it was a specific items case.1717 Paris 

informed the OIC that Needle had no experience with bank deposits cases.1718 

According to Paris, if he had known that Cisneros was a bank deposits case, he would 

have obtained personnel from CID to assist Needle in the review.1719 

Finkelstein testified that, in light of Klotz’s experience, he was not going to tell 

Klotz how to review the Cisneros case.1720 According to Finkelstein, Klotz was not 

a “guy that you bring in and tell him okay, make sure you do this and make sure you 

do this and then do this and then do that. You assign him the case and you kind of 

just get out of the way.”1721 

Finkelstein claimed that he did not steer the review. He testified that he did not 

review the case exhibits,1722 did not listen to the Medlar tapes,1723 and did not have any 

substantive conversations with Cisneros’s defense counsel regarding the Cisneros 

1714 GJ 00-001 Tr. Needle 3/8/01 at 40. 

1715 GJ 97-1 Tr. Needle 5/14/98 at 77-78. 

1716 GJ 00-001 Tr. Needle 5/10/01 at 104-05. 

1717 OIC Interview Notes Paris 7/27/01 at 10. 

1718 Id. at 10. 

1719 OIC Interview Notes Paris 7/18/01 at 7. 

1720 GJ 00-001 Tr. Finkelstein 6/6/00 at 114. 

1721 Id. at 113. 

1722 GJ 00-001 Tr. Finkelstein 9/21/00 at 51. 

1723 Id. at 62. 

V-115 
case.1724 He said that Klotz championed the specific items analysis as ACC’s 

preferred method of proof, and said that he had not had a strong view one way or 

another about the method of proof to be used.1725 Finkelstein also said that Klotz 

probably first raised the issue of Cisneros’s willfulness.1726 

In contrast, Klotz said Finkelstein controlled the review of the case. Klotz 

testified that “[t]here was nothing, or very little, if anything that was done on this case 

that Mr. Finkelstein didn’t know about.”1727 Klotz said that Finkelstein had problems 

with the case from the very beginning1728 and that Finkelstein was the first to raise 

concerns regarding CID’s computations1729 and the bank deposits method of proof 

predominantly used in the SAR.1730 Klotz also denied raising the issue of doublecounting, attributing the initiation of that issue to Finkelstein or Needle.1731 

Klotz testified that Finkelstein determined the types of analysis to be conducted 

and then tasked Needle to perform it: 

He assigned Mr. Needle to do it and then he was present when the 

results of that were forthcoming and given over to him. . . . I don’t know 

whether [Needle] had discretion in what he did or not.1732 

Needle testified that Finkelstein’s pervasive involvement influenced the 

outcome of the Cisneros case review: 

1724 GJ 00-001 Tr. Finkelstein 7/20/00 at 23-25. 

1725 GJ 00-001 Tr. Finkelstein 8/29/00 at 26. 

1726 GJ 00-001 Tr. Finkelstein 7/20/00 at 142-44. 

1727 GJ 00-001 Tr. Klotz 12/14/00 at 33. 

1728 GJ 00-001 Tr. Klotz 2/27/01 at 99-100. 

1729 GJ 97-1 Tr. Klotz 4/23/98 at 103-04. 

1730 Id. at 171. 

1731 Id. at 105. 

1732 GJ 00-001 Tr. Klotz 4/24/01 at 6-7. 

V-116 
Mr. Finkelstein to my knowledge, I mean he played an active role in this 

case. He was always one to make his opinions known and positions 

known and take a leadership role. And I mean clearly by his issue 

statements and other active involvement in the case and to my 

knowledge, comprehensive review of SAR and being updated and I 

mean playing a role in formulating our office’s position, I mean that he 

did play a vital role and more or less oversaw or directed the case.1733 

According to Needle, from early on in ACC’s review, Finkelstein “was on a 

specific course,” and did not waver in his belief that the case had problems.1734 

Needle testified that he did not raise any issues early in the case and that it was 

Finkelstein or Klotz who first raised the issue of willfulness.1735 Needle further 

testified that Finkelstein or Klotz told him “what [he] was supposed to look for”1736 

and that he did not act on his own initiative.1737 According to Needle, to a large 

extent Finkelstein directed his activities reviewing the SAR, in terms of what he did 

and did not do.1738 

Klotz and sometimes Needle were in regular telephone contact with CID Group 

Manager Colbenson in the period leading up to a late January meeting between ACC 

and CID. 

On January 17, 1997, Colbenson spoke by phone with Klotz. Klotz told 

Colbenson that Finkelstein had agreed with defense counsel that the defense 

conference would occur in Washington, D.C.1739 Colbenson told Klotz that she and 

1733 GJ 00-001 Tr. Needle 6/19/01 at 104. 

1734 Id. at 7-8. 

1735 GJ 97-1 Tr. Needle 5/14/98 at 77. 

1736 GJ 00-001 Tr. Needle 5/1/01 at 137-38. 

1737 Id. at 115-16. 

1738 Id. at 115-16. 

1739 GJ 97-1 Tr. Colbenson 3/24/98 at 159-60. 

V-117 
the CID agents wanted to meet with ACC before the defense conference.1740 Klotz 

agreed to a meeting and represented that ACC would not make a final decision on the 

matter before the meeting occurred.1741 

On January 21, 1997, Colbenson and Klotz had two telephone conversations. 

In the first, Klotz told Colbenson that the Cisneros review had been transferred from 

District Counsel to ACC as a result of a decision made the prior week by Finkelstein 

and Knechtel.1742 Klotz informed Colbenson that Namorato was the defense attorney 

with whom Finkelstein had spoken about the defense conference and that Namorato 

wanted the conference to be in Washington, D.C. on February 12, 1997.1743 

Klotz informed Colbenson that he was going to recommend that key witnesses 

should be called to testify before the grand jury because they were close to Cisneros 

and would “take the fall for [him].”1744 Klotz stated that he wanted to reduce the case 

to a simpler form and questioned why CID had used the bank deposits method of 

proof instead of the specific items method.1745 Klotz told Colbenson that he believed 

CID had double-counted in calculating Cisneros’s income.1746 

In their second telephone conversation on January 21, 1997, Colbenson told 

Klotz that CID would be available to meet with him on January 29, 1997. Klotz told 

Colbenson that he had sent a letter to Namorato concerning the February 12, 1997 

Washington, D.C. defense conference, disclosing that CID had recommended that 

Cisneros be charged with filing false tax returns for tax years 1991, 1992, and 1993, 

and setting out the civil computations of Cisneros’s taxable income for these years.1747 

Klotz said that the letter made the following points: that Cisneros’s returns were false 

1740 GJ 97-1 Tr. Colbenson 3/24/98 at 159-60. 

1741 Letter from Colbenson to OIC 6/3/97; OIC Interview Notes Colbenson. 

1742 GJ 97-1 Ex. 22; GJ 97-1 Tr. Colbenson 3/24/98 at 168, 175-76. 

1743 GJ 97-1 Ex. 22; GJ 97-1 Tr. Colbenson 3/24/98 at 177-78. 

1744 GJ 97-1 Ex. 22; GJ 97-1 Tr. Colbenson 3/24/98 at 178-79. 

1745 GJ 97-1 Tr. Colbenson 3/24/98 at 178-80. 

1746 GJ 97-1 Ex. 22; GJ 97-1 Tr. Colbenson 3/24/98 at 168-69, 177. 

1747 GJ 97-1 Ex. 23; GJ 97-1 Tr. Colbenson 3/24/98 at 169-70. 

V-118 
because income had not been deposited into his business bank accounts and was 

undisclosed to his accountants; that the case was based on the bank deposits and 

specific items methods of proof; that Cisneros had claimed a false deduction for a 

1992 annuity contribution to Lincoln Benefit; and that in 1993 Cisneros had failed 

to report liquidation of Mass Mutual IRA accounts.1748 

Colbenson told Klotz that the letter disclosed critical information about CID’s 

case, and that CID believed defense counsel were previously unaware of the 

information. Colbenson was specifically concerned about the letter’s references to 

the 1992 Lincoln Benefit deduction and 1993 Mass Mutual liquidation.1749 These 

items were important to demonstrating that Cisneros had acted willfully, because he 

knew he was not entitled to the 1992 Lincoln Life deduction and knew that the 1993 

IRA liquidation he had failed to report was reportable income.1750 These actions thus 

could be used to show a pattern of conduct resulting in false returns.1751 Klotz 

responded that he thought it appropriate to make the disclosures to Cisneros and his 

lawyers.1752 

According to records the OIC obtained, Klotz had not, at the time of this 

conversation, actually sent the letter to Namorato. The letter bears a date of January 

23, 1997 and indicates that Klotz had finished drafting it and Finkelstein had 

reviewed it that same day.1753 It was faxed from Klotz to Namorato on January 27, 

1997, and included the content to which Colbenson had objected. The letter, signed 

1748 GJ 97-1 Ex. 23; GJ 97-1 Tr. Colbenson 3/24/98 at 170-72. 

1749 GJ 97-1 Ex. 23; GJ 97-1 Tr. Colbenson 3/24/98 at 170-73. 

1750 GJ 97-1 Tr. Colbenson 3/24/98 at 171-72. When interviewed during the 

IRS’s tax investigation of Cisneros, Cisneros’s insurance representative Annamaria 

Ornelas stated that Cisneros knew that money paid into the annuity did not qualify as 

a tax deduction and that any distributions from his policies would have a tax impact. 

IRS Interview Report Ornelas 10/3/96 at 3. 

1751 GJ 97-1 Tr. Colbenson 3/24/98 at 171-72. 

1752 Id. at 174-75; OIC Interview Report Colbenson 8/7/97 at 3. 

1753 GJ 00-001 Ex. 44A. 

V-119 
by Klotz, confirmed a conversation between Klotz and Namorato setting the 

conference for February 12, 1997.1754 

In their second January 21 conversation, Klotz also told Colbenson that 

Cisneros could defend the case by claiming CID’s investigation had failed to establish 

that Cisneros knew that all of his income was not being reported. According to 

Colbenson, Klotz said that Cisneros could say that he was a busy man, that he had set 

up internal systems for the recording of all income, and that it was his accountants’ 

or employees’ fault that all income had not been reported.1755 Colbenson disagreed, 

maintaining that the SAR established that the accountant had not been provided with 

information concerning all of Cisneros’s income, despite repeated requests made to 

Cisneros and his employees.1756 

According to Colbenson, Klotz then raised with her the OIC’s investigation of 

Cisneros. Klotz informed her that the OIC’s investigation did not encompass any tax 

violations and involved only whether Cisneros made false statements to the FBI.1757 

Klotz said that the Cisneros case would therefore be referred to the Tax Division, not 

to the OIC, if prosecution were recommended.1758 Klotz told Colbenson that in any 

event, the OIC had “just a 2 witness case.”1759 

On January 23, 1997, Colbenson spoke by phone with Klotz and Needle. 

According to Colbenson’s notes of the conversation, Klotz stated that Namorato had 

expressed the opinion that Medlar’s tapes were altered and would “never see the light 

of day.”1760 (However, Klotz, Needle, and Finkelstein all later claimed not to have 

1754 GJ 00-001 Exs. 44A at 2, 44B at 2. 

1755 GJ 97-1 Ex. 23; GJ 97-1 Tr. Colbenson 3/24/98 at 178-80. 

1756 GJ 97-1 Tr. Colbenson 3/24/98 at 179-181. 

1757 GJ 97-1 Ex. 23; GJ 97-1 Tr. Colbenson 3/24/98 at 183-86. 

1758 GJ 97-1 Ex. 23; GJ 97-1 Tr. Colbenson 3/24/98 at 183-86. 

1759 GJ 97-1 Ex. 23; GJ 97-1 Tr. Colbenson 3/24/98 at 183-86. 

1760 GJ 97-1 Ex. 26. 

V-120 
had substantive conversations with Cisneros’s defense attorneys by this time.1761) 

Klotz further told Colbenson that the meeting between CID and ACC in Washington, 

D.C. would focus on “computations.”1762 

On January 27, 1997, Colbenson spoke by phone with Klotz and Needle. Klotz 

told her that he was still concerned about the computations in the SAR and 

maintained that the bank deposits method of proof was inappropriate.1763 Klotz again 

raised the issue of whether Cisneros had acted willfully and suggested that it was the 

fault of Cisneros’s accountant or employees – not Cisneros – that his returns were 

inaccurate.1764 

Colbenson testified that, during her conversations with Klotz (sometimes 

including Needle) from January 17, 1997 to January 27, 1997, she consistently 

rebutted Klotz’s contentions concerning double-counting, method of proof, and 

willfulness, by referring him to the portions of the SAR that addressed each 

contention; Klotz, she said, did not accept her explanations.1765 According to 

Colbenson, she made clear to Klotz and Needle throughout these conversations that 

both CID and District Counsel believed that the Cisneros case was prosecutable.1766 

7. The OIC’s Requests for Expanded Tax Jurisdiction 

On January 28, 1997, the Independent Counsel asked the Attorney General, 

pursuant to 28 U.S.C. § 593(c)(2), to expand his jurisdiction to include Cisneros’s 

possible tax violations in 1989, 1991, 1992, and 1993.1767 On the same day, the 

Independent Counsel filed with the Special Division a “Sealed Application for the 

Referral of Related Matters,” pursuant to 28 U.S.C. § 594(e), requesting a referral of 

1761 GJ 97-1 Tr. Klotz 4/23/98 at 132; GJ 97-1 Tr. Needle 5/14/98 at 87; GJ 00­

001 Tr. Finkelstein 7/20/00 at 23-25. 

1762 GJ 97-1 Ex. 26; GJ 97-1 Tr. Colbenson 3/24/98 at 192-96. 

1763 GJ 97-1 Tr. Colbenson 4/9/98 at 13. 

1764 Id. at 13-16. 

1765 GJ 97-1 Tr. Colbenson 3/24/98 at 180-82. 

1766 Id. at 158-59. 

1767 GJ 00-001 Ex. 51A. 

V-121 
jurisdiction to include Cisneros’s possible tax offenses as matters related to his 

existing jurisdiction.1768 Neither request was made public and no notice was given to 

Cisneros or his counsel. 

The evidence submitted with these documents was detailed in an affidavit 

executed by FBI Agent T.J. Roberts (“Roberts Affidavit”), who was assigned to the 

OIC for the Cisneros investigation. It showed that Cisneros had underreported his 

income by approximately $16,000 for 1989, $126,000 for 1991, $158,000 for 1992, 

and $34,000 for 1993 – a total of more than $325,000. The evidence also showed that 

Cisneros had taken an improper $30,000 deduction in 1992. These showings were 

backed by Medlar’s taped conversations with Cisneros, statements made by 

Cisneros’s personal accountant, tax records, and bank documents. In light of this 

documentation of Cisneros’s failure to report substantial income, the only remaining 

issue of his criminal liability appeared to be whether Cisneros’s failure to report the 

income was “willful” under 26 U.S.C. § 7206(1). 

The requests also demonstrated how the tax investigation related to the 

independent counsel investigation already underway. The most substantial 

underreporting of income and the improper deductions were in returns filed when 

Cisneros was most in need of funds – in 1992 and 1993, when he was making 

substantial payments to Medlar. The requests demonstrated the overlap of witnesses 

and documentary evidence between the OIC’s ongoing false statement/conspiracy 

investigation and its proposed tax investigation of Cisneros. 

8. The IRS Debate over the Merits of the Cisneros Tax Case 

On January 29, 1997, the day the OIC submitted its requests for tax 

jurisdiction, Colbenson and CID agents Lange and Barrows met with ACC to review 

Finkelstein’s professed problems with the SAR. They first met briefly with 

Finkelstein, Klotz, and Needle, and then at length with only Klotz and Needle. 

Finkelstein reiterated his concerns about the case that Klotz and Needle had 

previously conveyed to Colbenson. Finkelstein contended that CID had doublecounted income and used the wrong method of proof – using the bank deposits 

1768 GJ 00-001 Ex. 50. 

V-122 
method where they should have used the specific items method.1769 (The SAR 

reported that CID actually used “a hybrid of bank deposits and specific items” method 

of proof to analyze 1991 and 1992. CID analyzed 1993 using the specific items 

method.1770) Finkelstein further maintained that Cisneros’s willfulness could not be 

proved.1771 

Finkelstein then told the agents that Klotz and Needle would review the case 

with them and go over these concerns. The agents told Finkelstein that CID could 

answer their questions and completely resolve ACC’s problems.1772 The agents met 

with Klotz and Needle for most of the day. 

The agents gave Klotz and Needle an overview of CID’s investigation of 

Cisneros. They mentioned that they had provided the OIC with records generated as 

a result of the CID investigation pursuant to the court orders the OIC had obtained.1773 

They further related that CID had agreed to assist the OIC in its investigation of 

Cisneros concerning non-tax matters and would cooperate with the OIC if it received 

jurisdiction over tax matters.1774 

At this point in the meeting, according to Colbenson, Klotz referred to a 

photocopy of an article that had appeared in the January 27, 1997 issue of the Legal 

Times, entitled “What’s Taking David Barrett So Long?”1775 The article questioned 

1769 Letter from Colbenson to OIC 6/3/97 at 4; GJ 97-1 Tr. Colbenson 4/9/98 

at 17-18. 

1770 GJ 00-001 Ex. 20 at 2. 

1771 Letter from Colbenson to OIC 6/3/97 at 4; GJ 97-1 Tr. Colbenson 4/9/98 

at 17-18. 

1772 OIC Interview Notes Colbenson at 6, 8. 

1773 GJ 97-1 Tr. Colbenson 4/9/98 at 25-26. 

1774 OIC Interview Notes Colbenson at 10. 

1775 GJ 97-1 Tr. Colbenson 4/9/98 at 25-26. Two different copies of the article 

were located in ACC’s files. GJ 00-001 Ex. 212 bore an “[illegible] Chief Counsel” 

stamped-in date of January 27, 1997. GJ 00-01 Ex. 213 bore a mailing label from 

Namorato’s law firm, Caplin & Drysdale. Finkelstein testified that, although ACC 

(continued...) 

V-123 
the progress of the OIC’s investigation. Klotz told the agents that they should not be 

eager to team up with the OIC, which he characterized as lacking the ability and 

expertise to handle tax matters.1776 He asserted that the OIC had just a “two-witness 

case” and had come up with nothing in its investigation.1777 

Klotz further represented that both ACC and the Tax Division had had 

problems with other independent counsels that had tax jurisdiction.1778 He noted that 

independent counsels did not have the experience of the DOJ Tax Division and 

asserted that independent counsels had usurped the Tax Division’s role.1779 

Discussion then turned to the SAR. The field agents responded to ACC’s 

criticism of their use of the bank deposits method, and they explained why the 

specific items method of proof was inappropriate for tax years 1991 and 1992. 

Specifically, although there were several systems of recordkeeping at Cisneros’s 

business, the sole method by which all income was to be recorded was by depositing 

it into Cisneros’s business bank accounts.1780 The agents pointed out that Cisneros, 

his employees, and Hernandez knew that this was how income was to be recorded.1781 

Thus, a principal reason why CID chose to use the bank deposits method of proof 

was that this was the system used by Cisneros’s accountants.1782 

1775(...continued) 

did not subscribe to Legal Times, someone within the Chief Counsel’s office, whom 

he could not identify, had sent a copy of the article to ACC. GJ 00-001 Tr. 

Finkelstein 8/29/00 at 88-94. 

1776 OIC Interview Notes Colbenson at 10. 

1777 OIC Interview Notes Colbenson at 10; GJ 97-1 Tr. Colbenson 4/9/98 at 25­

26. 

1778 OIC Interview Notes Colbenson at 11. 

1779 OIC Interview Notes Colbenson at 11. 

1780 GJ 97-1 Tr. Colbenson 4/9/98 at 27-34. 

1781 GJ 97-1 Tr. Colbenson 4/9/98 at 27-28, 32. 

1782 Id. at 32. 

V-124 
The agents also explained to Klotz and Needle that, although there were several 

systems of recordkeeping in place, most of these records were not maintained for the 

purpose of tracking income.1783 For example, Arce-Garcia maintained records known 

as the “green ledgers” to keep track of Cisneros’s smaller speech engagements, but 

these were not designed to be used for recording income.1784 The green ledgers did 

not show who paid Cisneros or the amounts he was paid; this could be determined 

only by directly contacting numerous individuals outside the Cisneros organization 

and comparing the information obtained from them with a reconstruction of items 

deposited into Cisneros’s bank accounts.1785 The agents explained that an effort to 

track income using systems other than the bank deposits would not capture all of the 

unreported income.1786 Thus, according to the CID agents, it was a very complicated 

process to track all the income using the specific items method.1787 

The field agents also demonstrated that they had not double-counted Cisneros’s 

income.1788 Klotz and Needle did not voice any disagreement with the agents’ 

explanations.1789 

The agents reviewed evidence of Cisneros’s willfulness, including his 

education, employment history, and financial acumen, as well as his involvement in 

the day-to-day operation of his business and his detailed knowledge of its financial 

condition with respect to the receipt of income and the payment of expenses.1790 They 

pointed out that Cisneros had failed to disclose to either Hernandez or Gonzalez that 

he was paying Medlar or that he had earned income from speaking engagements in 

1783 Id. at 29. 

1784 Id. at 27-31. 

1785 Id. at 30-31. 

1786 Id. at 29-30. 

1787 Id. at 29-31. 

1788 Id. at 32-33. 

1789 Id. at 33-34. 

1790 Id. at 34-37. 

V-125 
the last quarter of 1992, and that he had failed to disclose the existence of bank 

accounts into which he was depositing income checks.1791 

According to Colbenson, the January 29, 1997 meeting ended at approximately 

4:00 p.m. Colbenson and the agents left the meeting with the understanding that the 

issues reviewed with Klotz and Needle had been resolved to their satisfaction.1792 

Klotz and Needle indicated that all of their questions had been answered and that they 

had no more questions.1793 According to Colbenson, Klotz and Needle appeared to 

understand and to be satisfied with CID’s presentation concerning the bank deposit 

method of proof, the lack of double-counting of income, Cisneros’s awareness of and 

involvement in the day-to-day operations of his business, and the fact that Cisneros 

had withheld information from and failed to be responsive to his accountant.1794 

According to Colbenson, at the conclusion of the meeting both attorneys 

appeared to be favorable to the case.1795 Klotz indicated that he was not the 

decisionmaker, Finkelstein was, and that he would have to convince Finkelstein that 

the case was prosecutable.1796 Klotz indicated that he would speak with Finkelstein 

the next morning.1797 Colbenson perceived that Klotz was reluctant to talk to 

Finkelstein and asked him why. She described the conversation as follows: 

1791 Id. at 37-38. 

1792 OIC Interview Notes Colbenson at 3; Letter from Colbenson to OIC 6/3/97 

at 4; Letter from Lange to OIC 5/30/97 at 3; GJ 97-1 Tr. Colbenson 4/9/98 at 33-34, 

38-40. 

1793 GJ 97-1 Tr. Colbenson 3/24/98 at 182-83; GJ 97-1 Tr. Colbenson 4/9/98 

at 32-34, 38-40. 

1794 Id. 

1795 Letter Colbenson to OIC 6/3/97 at 4. 

1796 GJ 97-1 Tr. Colbenson 4/9/98 at 39-40. 

1797 Letter from Lange to OIC 5/30/97 at 3. 

V-126 
. . . I actually said to him “If you would be honest with me as to what 

you’re up against, I won’t burn you.” . . . “He just said well, I’ll talk 

with him.”1798 

They agreed that the agents should return the next morning at 8:30 a.m. to 

answer any questions that Finkelstein might have.1799 Colbenson told Klotz that, if he 

was unable to convince Finkelstein that the case should go forward, then she and the 

agents would attempt to do so.1800 

While Klotz and Needle were meeting with the CID agents on January 29, 

1997, Finkelstein returned a telephone call made the day before by Michael Killfoil, 

the IRS’s Austin District Director.1801 According to a memorandum Finkelstein 

prepared of the return call, Killfoil expressed his concern that the Independent 

Counsel might be getting the Cisneros case to review.1802 Finkelstein’s memorandum 

stated that he had told Killfoil that he had reviewed the Independent Counsel’s 

appointment order and had determined that it was very limited in that it only covered 

matters relating to Cisneros’s false statements.1803 Therefore, according to 

Finkelstein, any IRS referral of the case for criminal prosecution would be made to 

the Tax Division, unless, as he expected would happen, the Independent Counsel’s 

jurisdiction were expanded to include tax matters.1804 The memorandum also stated 

Finkelstein’s view that the Independent Counsel had been in existence for two years 

1798 GJ 97-1 Colbenson Tr. 4/9/98 at 40-41. 

1799 Id. at 40, 42. 

1800 See OIC Interview Notes Colbenson at 23. 

1801 Killfoil supervised the CID office that investigated the Cisneros case. 

According to Killfoil, CID Chief Filan kept him informed and briefed him on 

sensitive matters in San Antonio CID, such as the Cisneros matter. OIC Interview 

Notes Killfoil 9/14/00 at 3. 

1802 GJ 00-001 Ex. 52. 

1803 Id. 

1804 Id. 

V-127 
“which suggested that he had either come up empty or had somehow expanded 

without authority into other areas.”1805 

According to the memorandum, Finkelstein also told Killfoil that the CID 

agents were in Washington, D.C. to discuss the case and that some “technical 

difficulties” with the case had to be overcome or addressed by putting the case in 

supplemental status.1806 The memorandum recorded Finkelstein’s observation that, 

if the case were put in supplemental status, it might not be worthy of prosecution.1807 

The memorandum also cited Finkelstein’s concern that Cisneros’s popularity would 

make it very difficult to convict him in San Antonio, and Killfoil’s opinion that 

conviction would be “almost impossible.”1808 

Finkelstein testified before the OIC grand jury regarding this conversation and 

added details that did not appear in his memorandum. Finkelstein testified that 

Killfoil had called him because Killfoil was “getting a lot of pressure from CI[D] and 

a lot of pressure from [the] Independent Counsel through CI[D] to approve the 

case.”1809 According to Finkelstein, Killfoil told him that Cisneros was a “hero” in 

San Antonio and that no jury would convict him.1810 Finkelstein testified that he 

chastised Killfoil for sending ACC the Cisneros case when Killfoil did not believe 

there was a reasonable probability of conviction,1811 and Killfoil answered by 

repeating that he was under a lot of pressure to refer the case.1812 

The OIC interviewed Killfoil, showed him Finkelstein’s memorandum of the 

conversation, and questioned him about the substance of Finkelstein’s testimony on 

the subject. Killfoil took great exception to Finkelstein’s accounts of the 

1805 Id. 

1806 Id. 

1807 Id. 

1808 Id. 

1809 GJ 00-001 Tr. Finkelstein 6/1/00 at 6, 16, 21. 

1810 Id. at 6, 19-20. 

1811 Id. at 7, 17-19, 21. 

1812 Id. at 7. 

V-128 
conversation and told the OIC that, contrary to Finkelstein’s claim, he had supported 

the case and had made efforts to allay Finkelstein’s concerns.1813 

Killfoil recalled two calls with Finkelstein – the first call concerning the merits 

of the case and the second call concerning ACC’s request for the Medlar tapes.1814 

Killfoil told the OIC that the purpose of the first call was to push the case with 

Finkelstein to ensure that it was prosecuted.1815 Killfoil said that the Cisneros case 

“was a very good criminal case” and that he knew of cases weaker than the Cisneros 

case that had been prosecuted.1816 Killfoil told the OIC that he supported the case and 

thought it should go to trial to send a message to the public that, regardless of the 

status of the person involved, anyone caught cheating on his or her taxes would be 

prosecuted by the IRS.1817 

Killfoil denied that CID had been under pressure from the OIC to refer the 

Cisneros case for prosecution.

1818 He also denied that he was under pressure from 

District Counsel to refer the case for prosecution.1819 To the contrary, Killfoil told the 

OIC that he thought the Cisneros case was a good case that he wanted to move toward 

prosecution quickly.1820 Thus, according to Killfoil, his real concern was that the OIC 

would take the case and then not prosecute it.1821 

The OIC asked Killfoil about Finkelstein’s claim that Killfoil had indicated to 

him that he did not think the Cisneros case had a reasonable probability of conviction, 

1813 OIC Interview Report Killfoil 9/22/97 at 2. 

1814 Id. at 1; OIC Interview Notes Killfoil 9/14/00 at 10. 

1815 OIC Interview Notes Killfoil 9/14/00 at 10. 

1816 OIC Interview Report Killfoil 9/22/97 at 2. 

1817 OIC Interview Notes Killfoil 9/14/00 at 6. 

1818 Id. at 7. 

1819 Id. at 7-8. 

1820 Id. at 9. 

1821 Id. at 7, 9. 

V-129 
but that he was under pressure from CID and the OIC to refer it for prosecution.1822 

Killfoil emphatically disagreed.1823 He told the OIC that, while he felt that it would 

be a “challenge” to convict Cisneros in San Antonio, he did not believe and would 

not have said that it was impossible.1824 He also told the OIC that he still believed 

that Cisneros could have been convicted.1825 

On January 30, 1997, the CID agents returned to ACC’s offices to meet with 

Finkelstein. Klotz informed them that Finkelstein was not going to meet with them. 

Klotz advised that a referral for prosecution would be unlikely. He said that 

Finkelstein still had problems with the method of proof, believed that evidence of 

willfulness was weak, and did not understand why the specific items method of proof 

could not be used.1826 

The CID agents asked Klotz whether this was his position or Finkelstein’s; 

Klotz replied that this was Finkelstein’s position, and that he was highly unlikely to 

change his mind.1827 He further stated that, although ACC would take into account 

the information the CID agents had provided the day before, no additional 

investigative work would be performed.1828 He affirmed that all of his and Needle’s 

questions had been satisfactorily answered but noted that Finkelstein was his boss and 

had the final word on the case.1829 

The agents decided that they needed to tell CID Chief Filan and CID officials 

in the Washington, D.C. National Office what had occurred. As they left the room, 

1822 Id. at 7-9. 

1823 Id. at 7-9. 

1824 Id. at 6-7. 

1825 Id. at 9. 

1826 GJ 97-1 Tr. Colbenson 4/9/98 at 42-43. 

1827 Id. at 43-45. 

1828 Letter from Colbenson to OIC 6/3/97 at 4. 

1829 GJ 97-1 Tr. Colbenson 4/9/98 at 43-44. 

V-130 
according to the agents, Klotz said that he had two children in college and was 

unwilling to jeopardize his job by challenging Finkelstein, his boss.1830 

In his grand jury testimony, Klotz denied making some of the statements 

attributed to him at the January 29 and 30 meetings. He acknowledged that he had 

two sons in college and needed his job but did not recall telling the agents that he 

would not go against Finkelstein’s decision for this reason.1831 He denied telling the 

agents that he was not going to say anything about the case that would put his job in 

jeopardy or that his job would be in jeopardy if he contradicted Finkelstein.1832 

Klotz also testified that he did not recall making several comments attributed 

to him regarding the OIC during the meeting. He said he did not recall telling the 

agents that the OIC had little or no evidence;1833 that the OIC did not have the proper 

tax expertise to deal with tax issues, did not know what it was doing, and would 

screw up the Cisneros case;1834 or that the OIC was usurping DOJ’s role.1835 He also 

did not recall telling the CID agents that they should not be eager to work with the 

OIC or that it would be inappropriate for them to do so,1836 or that they should read 

the Legal Times article criticizing the progress of the OIC’s investigation.1837 He did 

not recall telling the agents that ACC had had problems with independent counsels 

in the past1838 or that DOJ did not care for independent counsels.1839 

1830 Letter from Barrows to OIC 5/5/97; GJ 97-1 Tr. Colbenson 4/9/98 at 43-44. 

1831 GJ 00-001 Tr. Klotz 2/27/01 at 101. 

1832 Id. at 102-03. 

1833 GJ 00-001 Tr. Klotz 1/11/01 at 97. 

1834 Id. at 98-99. 

1835 Id. at 119-20. 

1836 Id. at 97-98, 104-05. 

1837 Id. at 97. 

1838 Id. at 116. 

1839 Id. at 117. 

V-131 
Later on January 30, 1997, Colbenson and CID National Office officials met 

with Finkelstein, Klotz, and Needle to discuss the Cisneros case. Finkelstein 

reiterated the position that there were problems with the method of proof used to 

show underpayment and weak evidence of willfulness.1840 Finkelstein said that the 

defense position was that Hernandez was at fault if the returns were inaccurate 

because he had the 1099s.1841 Finkelstein represented that he wanted to “simplify” 

the case by using the specific items method of proof, thereby including as omitted 

income only speech payments for which 1099s had not been supplied.1842 He also 

said that he did not believe that a prosecution of the case was sustainable.1843 

Colbenson responded that the CID agents had met with Klotz and Needle, had 

discussed the bank deposit method of proof at length, and had answered all of Klotz 

and Needle’s questions to their satisfaction.1844 Neither Klotz nor Needle disagreed 

with Colbenson’s assessment of the preceding day’s meeting.1845 Colbenson told 

Finkelstein that, had he been present, all of the facts would have been reviewed with 

him.1846

 Finkelstein later conceded that double-counting and other technical issues 

“went away quickly” at the meeting.1847 

According to Colbenson, Finkelstein became angry at this point and claimed 

that he did not need to be instructed on the bank deposits method of proof.1848 

Finkelstein then said that what really concerned him was whether the agents had 

violated 26 U.S.C. § 6103 in making disclosures to the OIC about CID’s 

1840 GJ 97-1 Tr. Colbenson 4/9/98 at 45-47. 

1841 OIC Interview Notes Lange. 

1842 OIC Interview Notes Colbenson at 7; OIC Interview Notes Lange. 

1843 GJ 97-1 Tr. Colbenson 4/9/98 at 46-47. 

1844 GJ 97-1 Tr. Colbenson 4/9/98 at 46-47. 

1845 Id. at 49-50. 

1846 Id. at 46-47. 

1847 GJ 00-001 Tr. Finkelstein 8/29/00 at 115-17. 

1848 GJ 97-1 Tr. Colbenson 4/9/98 at 47. 

V-132 
investigation.1849 Finkelstein said that he viewed certain disclosures to the OIC as 

inappropriate because CID had made some of them to the OIC directly rather than 

through an IRS disclosure officer. Colbenson saw Finkelstein’s accusation as an 

attempt to intimidate the CID agents, because she knew that the IRS and the courts 

took disclosure violations seriously.1850 (When he was later questioned about the 

meeting, Finkelstein did not dispute that he told the agents that he hoped none of 

them went to jail over improper disclosures to the OIC.)1851 Colbenson told 

Finkelstein that disclosures of information by CID to the OIC had been approved by 

the Austin District’s Disclosure Officer and were proper.1852 

The discussion turned to CID joining the OIC’s investigation of Cisneros. 

Finkelstein stated that there had been problems with the OICs handling tax matters 

as far back as the Iran-Contra investigation. Finkelstein said that his experience was 

that OICs did not have the expertise of the Tax Division and did not have the 

requisite judgment or experience to recognize issues or problems in tax matters.1853 

According to Colbenson, as the meeting concluded, Finkelstein stated that 

ACC would take into consideration the information that CID had provided to Klotz 

and Needle.1854 He also said that ACC would review Gonzalez’s CID interview, 

which documented that Gonzalez had devised the system of income recordation that 

required that all income be deposited into Cisneros’s business bank accounts.1855 

Finkelstein represented that ACC would contact CID if they had any additional 

questions and that CID would receive ACC’s decision in writing.1856 However, 

according to Paris, CID had not changed Finkelstein’s mind about the case, and it was 

1849 Id. at 47-49. 

1850 Id. at 48-49. 

1851 GJ 00-001 Tr. Finkelstein 11/2/00 at 46-48. 

1852 GJ 97-1 Tr. Colbenson 4/9/98 at 47-48. 

1853 OIC Interview Notes Colbenson at 9. 

1854 GJ 97-1 Tr. Colbenson 4/9/98 at 49-50. 

1855 Id. 

1856 Id. at 50. 

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still going to be declined.1857 Finkelstein testified that he could not “exclude” the 

possibility that, at the end of January 1997, he had informed CID that the Cisneros 

case was “terrible, there is no way in hell this case is going to go forward.”1858 He 

added: “But, I was not there at that point.”1859 

Also on January 30, 1997, the Special Division entered an order directing DOJ 

to file its response to the OIC’s referral application by no later than February 6, 

1997.1860 

On February 5, 1997, Klotz and Colbenson spoke by phone. Klotz again 

agreed with Colbenson that the Cisneros matter should be investigated through a 

grand jury.1861 

9.	 The OIC and DOJ’s Initial Discussions Concerning the OIC’s 

Jurisdictional Requests 

While the IRS engaged in its internal debate over the merits of the Cisneros tax 

case, the OIC and DOJ entered into detailed discussions over whether the OIC should 

be allowed to investigate possible Cisneros tax offenses. On February 3, 1997, the 

Independent Counsel and members of his staff met with DOJ officials to discuss the 

OIC’s pending expansion and referral requests. The DOJ officials present included 

Radek, Farrington, Robert Litt (Deputy Assistant Attorney General, Criminal 

Division), Mark Matthews (Deputy Attorney General, Tax Division), and Stanley F. 

Krysa (Senior Division Counsel, Tax Division). 

One topic of discussion was whether the OIC could obtain from the Special 

Division the requested referral of jurisdiction to investigate possible tax offenses 

involving income Cisneros had not paid to Medlar and had not declared for tax 

purposes. The OIC told DOJ that it believed it would have authority under 26 U.S.C. 

§ 6103(h) to obtain tax information from the IRS if it first received from the Special 

1857 OIC Interview Notes Paris 7/18/01 at 11-12. 

1858 GJ 00-001 Tr. Finkelstein 8/31/00 at 79. 

1859 GJ 00-001 Tr. Finkelstein 8/31/00 at 79. 

1860 Special Division Order 1/30/97. 

1861 GJ 97-1 Ex. 33. 

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Division a referral of jurisdiction over Cisneros tax offenses relating to income not 

diverted to Medlar.1862 Section 6103(h) permits the IRS to disclose otherwise 

confidential tax information to certain federal officers under certain circumstances, 

solely for the purposes of tax administration. 

Radek responded that it was DOJ’s position that the Attorney General’s March 

13, 1995 request for appointment of an independent counsel had intentionally omitted 

tax jurisdiction. Therefore, according to Radek, the only way the OIC could obtain 

jurisdiction to investigate tax offenses involving income not paid to Medlar was 

through an expansion of jurisdiction requested by the Attorney General, and not 

through referral by the Special Division. Radek further stated that the OIC could not 

ask the IRS pursuant to 26 U.S.C. § 6103(h) for authority to use Cisneros’s income 

tax information in a tax investigation or prosecution unless it first obtained tax 

jurisdiction, pursuant to an expansion authorized by the Attorney General. 

The DOJ officials stated that they preferred to follow the process used in nonOIC tax matters – to wait for the IRS to make a referral to DOJ for prosecution before 

DOJ authorized prosecution. The OIC informed DOJ that it did not want to follow 

this procedure because there was already sufficient information in its expansion and 

referral requests for DOJ to make a decision without further input from the IRS. The 

meeting concluded with the OIC and DOJ agreeing that DOJ’s review of the OIC 

jurisdictional request could proceed without any resolution of the 26 U.S.C. § 6103 

issue.1863 

Later the same day, February 3, 1997, Litt spoke by phone with OIC staff. Litt 

advised the OIC that it would be in a better position to investigate Cisneros for tax 

crimes if the IRS first referred the matter to DOJ and the Attorney General, then 

requested that the Independent Counsel’s jurisdiction be expanded to encompass such 

a referral. An IRS referral to DOJ would put the OIC in a better posture, Litt 

suggested, than the alternative of the Attorney General enlarging the Independent 

Counsel’s jurisdiction without an IRS referral, followed by the IRS’s authorization 

for the OIC to use IRS material. 

Litt further stated that the OIC’s expansion request would be granted if there 

were no problems with the underlying factual basis for the investigation and if the 

1862 OIC staff notes of 2/3/97 meeting with DOJ. 

1863 OIC staff notes of 2/3/97 meeting with DOJ. 

V-135 
Tax Division had no legal objections. Litt said that he knew of no problems with the 

OIC’s factual basis and that the OIC had done excellent work. Litt indicated that the 

OIC had information available to it that Public Integrity Section had not had during 

its 1994-95 preliminary investigation.1864 

After Litt’s call, Krysa spoke by phone with OIC staff. Krysa informed the 

OIC that DOJ preferred for the OIC to obtain authorization to use IRS materials 

concerning Cisneros for a tax investigation as a result of the IRS referring the 

Cisneros matter to DOJ – as opposed to the OIC obtaining the materials following an 

Attorney General request for an expansion of the OIC’s jurisdiction without an IRS 

referral. Krysa then said that, if the Special Agent’s affidavit submitted with the 

expansion request was believed, there was substantial potential for a tax prosecution. 

Krysa noted that the affidavit had far more detail than 85% of the tax cases the Tax 

Division processed.1865 

On February 4, 1997, Krysa spoke again with OIC staff. Krysa informed the 

OIC that IRS’s District Counsel had reviewed CID’s prosecution recommendation but 

that Finkelstein had taken over the review because of the case’s sensitivity. Krysa 

said that Finkelstein would either “kill” the case or refer it to the Tax Division. 

Krysa further stated that Cisneros should be investigated if the affidavit submitted 

with the expansion request was accurate. Krysa observed that the tax matter was a 

potentially “bigger” case than a false statement prosecution. Krysa predicted that 

Finkelstein would “unload” the case to avoid having to wrestle with it.1866 

Also on February 4, 1997, Radek spoke by phone with OIC staff. Radek asked 

for additional time for DOJ to respond to the OIC’s referral request; the OIC declined. 

The OIC agreed, however, to make FBI Special Agent Roberts available to assist DOJ 

in its review of his affidavit. The OIC informed Radek that, if the OIC’s request for 

tax jurisdiction was granted, the OIC and not IRS would be controlling any resulting 

investigation, and that therefore the OIC did not want to be bound by any 

determination ACC might make with respect to CID’s prosecution referral request.1867 

1864 OIC staff notes of 2/3/97 Litt phone call. 

1865 OIC staff notes of 2/3/97 Krysa phone call. 

1866 OIC staff notes of 2/4/97 Krysa phone call. 

1867 OIC staff notes of 2/4/97 Radek phone call. 

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On February 5, 1997, Litt spoke by phone with OIC staff. Litt informed the 

OIC that DOJ had decided to oppose the OIC referral request then pending before the 

Special Division. Litt claimed that the OIC was making rather than avoiding 

problems by opposing any ACC involvement in DOJ’s review.1868 

On February 5, 1997, the Independent Counsel sent a letter to the Attorney 

General, asking to meet to discuss the OIC’s expansion and referral requests. The 

letter stated, in pertinent part: 

While the Department previously examined the subject matter of 

my request for expansion, it did so under time constraints, without the 

benefit of subpoena power and without the opportunity to acquire all of 

the facts. My Office has acquired additional information of which the 

Department of Justice was unaware when it, through your Application, 

sought the appointment of an Independent Counsel. This information 

is specific, credible and overwhelmingly supports the conclusion that an 

expansion is required. Moreover, the referral is also appropriate. 

The goal of appointing and fully empowering an independent 

counsel is not only to reach a fair outcome, but also to reassure the 

public that a full, complete and thorough investigation will be carried 

out, without regard to fear or favor. I will be unable to attain this goal 

without both the expansion and referral of a related matter.1869 

On February 6, 1997, the Independent Counsel and members of his staff met 

with the Attorney General and other DOJ officials, including Litt, Radek, and 

Farrington. The Attorney General was briefed on the substance of the OIC’s 

jurisdictional request.1870 

Following the meeting with the Attorney General, the Independent Counsel 

and his staff met with DOJ officials, including Litt, Matthews, and Radek. Litt stated 

that it would be “an act of lawlessness not to expand” the Independent Counsel’s 

jurisdiction, and that “absent [a] bombshell” his jurisdiction would be expanded. 

1868 OIC staff notes of 2/5/97 Litt phone call. 

1869 Letter from Independent Counsel to Attorney General Janet Reno 2/5/97. 

1870 OIC staff notes of 2/6/97 meeting with Attorney General Janet Reno. 

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Matthews stated that DOJ wanted to consult with the IRS about the OIC’s 

request. He claimed that DOJ could and did come to opposite conclusions from the 

IRS. Matthews predicted that the IRS’s likely reaction, given the politics involved 

in the Cisneros matter, would be to refer it to DOJ.1871 

Following this meeting, the Independent Counsel met with Litt. Litt asked the 

Independent Counsel to consent to a 15-day extension for DOJ to file its response to 

the pending referral request, due on that day. Litt stated that he was the Attorney 

General’s direct representative concerning this matter, and that he had personally 

briefed the Attorney General. The Independent Counsel expressed concern about the 

role of Public Integrity (due to its actions in the 1994-95 preliminary investigation) 

and about the role of the IRS. Litt responded that he had discussed the matter up and 

down within DOJ and that the Independent Counsel had “no cause for concern.” In 

light of Litt’s assurances, including his earlier representation that it would be an “act 

of lawlessness” not to grant the expansion, the Independent Counsel consented to 

DOJ’s extension request.1872 

After the Independent Counsel met with Litt, Matthews telephoned OIC staff. 

Matthews stated that DOJ intended to seek input from the IRS. Matthews said that 

DOJ wanted the IRS either to refer the case to DOJ or to tell DOJ why it did not want 

to do so. Matthews represented that, if IRS lawyers had thoughts about any 

“wrinkles” in the case, DOJ wanted to know what the “wrinkles” were. According 

to Matthews, DOJ normally consulted with the IRS, and 26 U.S.C. § 6103 permitted 

such a dialogue.1873 

On February 7, 1997, Matthews spoke by phone with OIC staff. The OIC 

informed Matthews that, in its view, DOJ was fully capable of deciding the OIC’s 

request without any input from the IRS. The OIC further informed Matthews that the 

Independent Counsel Act did not provide for any IRS role, and that DOJ’s decision 

to involve the IRS potentially gave it an implicit veto power over the OIC’s request 

not contemplated in the law.1874 The OIC told Matthews that the OIC was particularly 

1871 Id. 

1872 OIC staff notes of 2/6/97 meeting with DOJ. 

1873 OIC staff notes of 2/6/97 Matthews phone call. 

1874 28 U.S.C. § 593. 

V-138 
concerned about any IRS input because the IRS could be compromised and 

politicized.1875 

On February 10, 1997, OIC staff, including Special Agent Roberts, met with 

DOJ officials, including Matthews, Krysa, and Park. They reviewed the contents of 

Special Agent Roberts’s affidavit.1876 On the following day, February 11, 1997, 

Matthews informed the OIC that, notwithstanding the facts set forth in Roberts’s 

affidavit, Public Integrity wanted to conduct its own investigation of the facts 

underlying the OIC’s request. Matthews told the OIC that this investigation might 

include meeting with Cisneros’s counsel and interviewing his accountants.1877 

10. Allegations of Improper Disclosures to the OIC 

In the first weeks of February 1997, Colbenson received several telephone calls 

from ACC regarding the disclosures pursuant to 26 U.S.C. § 6103 that CID had made 

to the OIC; these had been a point of contention in her January 30 meeting with 

Finkelstein. On February 6, according to Colbenson’s notes, Klotz and Needle called 

Colbenson requesting the dates of the court orders that allowed the OIC access to tax 

information.1878 Colbenson returned the call on February 7, 1997 and gave them the 

dates (October 3, 1995 and February 6, 1996). Klotz then requested copies of the 

orders and an inventory of the items the IRS had turned over to the OIC.1879 

Colbenson expressly told Klotz that the SAR had not been provided to the OIC.1880 

(The OIC had not, in fact, been provided a copy of the SAR.)1881 

1875 OIC staff notes of 2/7/97 Matthews phone call. 

1876 OIC staff notes of 2/10/97 meeting with DOJ. 

1877 OIC staff notes of 2/11/97 Matthews phone call. 

1878 GJ 00-001 Ex. 63. 

1879 GJ 00-001 Ex. 65. 

1880 Id. 

1881 GJ 00-001 Ex. 65. 

V-139 
On February 10, 1997, Klotz called Colbenson and again requested an 

inventory of all items sent to the OIC.1882 According to Colbenson’s notes of the 

conversation, Klotz said he needed to make sure that CID had not violated the law by 

making disclosures to the OIC not authorized by the court orders.1883 Klotz also 

stated that ACC was required to transmit this information to DOJ as part of ACC’s 

write-up of the case.1884 

The CID agents brought the disclosure issue to the attention of Mitzi Eastman, 

the IRS Disclosure Officer for the South Texas District. On February 11, 1997, 

Eastman discovered that, due to a “technical error,” the IRS had mistakenly provided 

certain information to the OIC that was not covered by the court orders.1885 The error 

involved a misunderstanding on Eastman’s part of Internal Revenue Manual (“IRM”) 

1272(28)34.5(11), governing the time frame of the documents to be disclosed under 

court orders. Eastman had believed that the IRM called for the IRS to produce 

documents in existence at the time the IRS had completed its response to the order, 

plus an additional 30 days.1886 However, Eastman discovered that the IRM actually 

called for production of documents in existence on the date of the order itself, plus 

an additional 30 days.1887 As a result of the mistake, the OIC had received documents 

beyond the appropriate date range.1888 

Upon discovering the error on February 11, 1997, Eastman reported it to an 

IRS Inspector, who made a note of the event and advised Eastman that no further 

action was warranted.1889 The next day, February 12, 1997, Eastman informed the 

1882 GJ 00-001 Ex. 66. 

1883 Id. 

1884 Id. 

1885 GJ 00-001 Ex. 73A (Memorandum from Eastman to Filan 2/19/97) at 1. 

1886 Id. 

1887 Id. 

1888 Id. 

1889 Id. 

V-140 
OIC of the error. 1890 Eastman also assured the OIC that the matter could be corrected 

with an amended disclosure order.1891 

On February 13, 1997, the OIC secured an amended order from the United 

States District Court for the District of Columbia, permitting the IRS to disclose to 

the OIC all of the information it had earlier produced.1892 The time frame stated in the 

order for disclosure was “taxable period 1985 to the present” with the condition that 

the IRS was to “[d]isclose such return information described as comes into the 

possession of the Internal Revenue Service subsequent to the date of this Order; but 

for not longer than ninety (90) days thereafter . . . .”1893 

11. The Cisneros Defense Conference 

On February 12, 1997, Klotz and Needle held the defense conference in 

Washington, D.C. Representing Cisneros were Namorato, Michel, Muller, Caplin, 

and Charles Matthys, an investigator for Muller.1894 The IRS prepared a Conference 

Memorandum summarizing what had transpired, signed by Klotz and Needle and 

“noted” by Finkelstein.1895 

According to the memorandum, Klotz first gave a general description of the 

case against Cisneros.1896 Namorato began the defense presentation with a detailed 

overview of the OIC investigation, although he characterized it as not relevant to the 

1890 Id. 

1891 Id. 

1892 GJ 00-001 Ex. 72 at 5. 

1893 Id. 

1894 GJ 00–001 Ex. 60A at 2. 

1895 GJ 00-001 Ex. 75 at 9. 

1896 GJ 00-001 Ex. 75 at 1-2. 

V-141 
tax case.1897 He emphasized that DOJ had decided, at the time the Attorney General 

requested appointment of an independent counsel to investigate Cisneros, that there 

was no basis for the investigation to include tax matters.1898 He also represented that 

the Attorney General had sent the case to an independent counsel “in the face of 

contrary advice from career personnel.”1899 He argued that Medlar’s tapes were 

sanitized copies, implying that they presented serious evidentiary problems, and that 

Medlar, a target of the OIC investigation who had been institutionalized, was 

worthless as a witness.1900 

Namorato stated that his concern, in light of these facts, was that the 

Independent Counsel would try to use the tax case to save face, without regard for the 

IRS’s criteria for deciding whether to refer a case for prosecution.1901 He suggested 

that the IRS would not want to stake its case on the determination of an independent 

counsel with no experience in selecting tax cases for prosecution.1902 

For the remainder of the conference, according to the memorandum, defense 

counsel addressed the merits of the case against Cisneros. The thrust of the 

presentation was that any failure to declare income on Cisneros’s tax returns was due 

to Hernandez’s incompetence and not to a willful effort by Cisneros to evade taxes. 

Defense counsel’s basic argument was that information reflecting almost all of 

Cisneros’s income was available to Hernandez, and Cisneros as a busy public official 

had no way of knowing that Hernandez was not identifying it. Defense counsel 

1897 GJ 00-001 Ex. 75 at 2. 

1898 GJ 00-001 Ex. 75 at 2. 

1899 GJ 00-001 Ex. 75 at 2. 

1900 GJ 00-001 Ex. 75 at 2-3. 

1901 GJ 00-001 Ex. 75 at 3. 

1902 GJ 00-001 Ex. 75 at 3. 

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emphasized that Cisneros’s efforts to conceal his payments to Medlar were not tax 

motivated.1903 

Defense counsel characterized the “systems” in place for recording income as 

Arce-Garcia’s logs (the “green ledgers”), the 1099 forms that payers issued to 

Cisneros, and the bank deposits of his income.1904 They represented that Cisneros 

knew about these systems and that all of this information was available to 

Hernandez.1905 They argued that Hernandez had been hired to straighten out the 

accounting system at Cisneros’s company but did not avail himself of most of the 

information available when he prepared Cisneros’s tax returns.1906 

Defense counsel suggested that a proper examination of the sources available 

to Hernandez would have yielded correct income figures. They represented that they 

had found very few items that were not in one of the three sources they identified – 

the green ledgers, 1099 forms, or bank deposits.1907 They emphasized that Hernandez 

knew about the green ledgers but did not reconcile them with the other information 

available to him.1908

 They also suggested that all the payments to Medlar – either 

checks or cash – were documented in the green ledgers or the 1099s.1909 They 

referred to an affidavit executed by Hernandez on February 4, 1997, in which he took 

the blame for incorrectly deducting the Lincoln Benefit Life contributions in 1992; 

they characterized the failure to declare the Mass Mutual distribution as income as 

another example of Hernandez’s incompetence.1910 

1903 GJ 00-001 Ex. 75 at 3-4. 

1904 GJ 00-001 Ex. 75 at 3. 

1905 GJ 00-001 Ex. 75 at 3-4. 

1906 GJ 00-001 Ex. 75 at 4-5, 7. 

1907 GJ 00-001 Ex. 75 at 5. 

1908 GJ 00-001 Ex. 75 at 5, 7. 

1909 GJ 00-001 Ex. 75 at 5-6. 

1910 GJ 00-001 Ex. 75 at 6. 

V-143 
From all of this, defense counsel argued that the Government would not be able 

to prove Cisneros intended to cheat on his taxes. He had hired Hernandez, had given 

Hernandez free access to records, had relied on Hernandez, and had been the victim 

of Hernandez’s negligence.1911 They concluded by noting that the Medlar evidence 

would not be useful to the prosecution, that Cisneros would be a popular and 

sympathetic defendant, and that the prosecution case would be complicated by 

accusations of misconduct by the agents.1912 

Needle testified that, during the conference, defense counsel raised many of the 

same concerns with the case that ACC had.1913 He noted that the “legal theories” 

presented were similar to the problem areas ACC had identified – including the 

asserted need to prove that an income item could not be found in the green ledgers, 

1099 forms, or the bank deposits.1914 

Following the conference, Klotz and Needle briefed Finkelstein; Finkelstein 

said Klotz had been very impressed by the presentation.1915 Finkelstein testified that 

he would have expected Klotz to “push back” at the conference by demanding 

documentary support for some of defense counsel’s assertions.1916 Klotz said he had 

not given Finkelstein any reason to believe that he would “push back.”1917 According 

to Needle, Finkelstein had instructed him and Klotz before the conference that it was 

an opportunity for the defense to present its case, and that they were not to get in a 

debate or exchange with defense counsel over any issues brought up.1918 

1911 GJ 00-001 Ex. 75 at 8. 

1912 GJ 00-001 Ex. 75 at 8-9. 

1913 GJ 00-001 Tr. Needle 5/31/01 at 68-69. 

1914 GJ 00-001 Tr. Needle 5/15/01 at 26-30. 

1915 GJ 00-001 Tr. Finkelstein 11/2/00 at 90-91. 

1916 GJ 00-001 Tr. Finkelstein 9/21/00 at 118-20. 

1917 GJ 00-001 Tr. Klotz 1/9/01 76-79. 

1918 GJ 00-001 Tr. Needle 5/15/01 at 62-64. 

V-144 
 The following day, February 13, 1997, Klotz spoke by phone with Colbenson 

and gave her an overview of the prior day’s meeting with Cisneros’s attorneys, which 

he described as impressive.1919 Klotz told Colbenson that ACC had been “wrestling” 

with the same issues that the defense had raised in the conference.1920 Klotz indicated 

that Cisneros’s attorneys had claimed that there were various systems of 

recordkeeping in place that the accountant could have used to track income, and that 

ACC was concerned about the same problem as it related to showing Cisneros’s 

willfulness.1921 He had numerous questions about Arce-Garcia’s green ledgers.1922 

Klotz also informed Colbenson that Cisneros’s lawyers had provided ACC an 

affidavit executed by Hernandez, in which he took the blame for the improper 

deduction of the payments to Lincoln Benefit Life.1923 

Klotz promised Colbenson that he would send her a copy of the conference 

memorandum, giving her the impression that she would receive the copy that day.1924 

In fact, she received it on March 3, 1997, the same day Klotz told her ACC had 

declined to refer the matter to DOJ to prosecute.1925 

On February 12, 1997, the day of the IRS defense conference, Cisneros’s 

attorneys Namorato and Muller reportedly met with Public Integrity at the 

Department of Justice.1926 The meeting purportedly concerned the OIC’s then1919 GJ 97-1 Tr. Colbenson 4/9/98 at 83-84. 

1920 Id. at 88. 

1921 Id. 

1922 GJ 97-1 Tr. Colbenson 4/9/98 at 84. 

1923 Id. at 86. 

1924 Id. at 89-90. 

1925 GJ 97-1 Tr. Colbenson 4/9/98 at 90-91; see also GJ 00-001 Ex. 75. 

1926 GJ 00-001 Ex. 95. 

V-145
pending request for an expansion of its jurisdiction to include tax matters.1927 The 

OIC was unable to verify that this meeting actually took place. 

12.	 DOJ Consultation with the IRS Concerning the OIC’s 

Jurisdictional Requests 

On February 12, 1997, Matthews told the OIC that he believed the IRS counsel 

would not want to consult with DOJ about the Cisneros case before formally referring 

the matter to DOJ. Matthews stated that the triggering mechanism for consultation 

between DOJ and the IRS before a formal referral consultation was a decision by the 

IRS that it wanted DOJ’s input and not (as DOJ had previously represented to the 

OIC) a decision by DOJ that it wanted the IRS’s input. Nevertheless, Matthews 

suggested that the OIC agree to DOJ’s submitting Special Agent Roberts’s affidavit 

to IRS counsel for evaluation.1928 Later that day, the OIC informed Matthews that it 

would agree to submitting Roberts’s affidavit to the IRS.1929 

On February 12 and 13, 1997, DOJ officials, including Park and a DOJ 

criminal tax attorney, continued the review of Special Agent Roberts’s affidavit with 

Roberts that had begun on February 10. The OIC provided the officials underlying 

factual documents.1930 

On February 13, 1997, Matthews spoke by phone with OIC staff. Matthews 

informed the OIC that Finkelstein was not going to provide any input to DOJ unless 

DOJ made a request pursuant to 26 U.S.C. § 6103(h)(3)(B) for access to IRS records 

concerning Cisneros. Matthews stated that, if such a request were made, Finkelstein 

would stop his review of CID’s administrative tax case because no purpose would be 

served by any further review. Notwithstanding his statement that Finkelstein was not 

going to provide any input to DOJ absent a 26 U.S.C. § 6103(h) referral request, 

Matthews further stated that he believed the IRS would refer the case or provide prereferral consultation, and that Krysa believed the IRS would refer the case. 

1927 Id. 

1928 OIC staff notes of 2/12/97 Matthews phone call. 

1929 OIC staff notes of 2/12/97 Matthews phone call. 

1930 OIC staff notes of 2/12/97 and 2/13/97 meetings with DOJ. 

V-146 
Matthews also explained that Radek wanted the IRS’s input because, if the 

expansion request were granted absent the input and DOJ later found out that the IRS 

thought it was not a good case, it would make DOJ look “stupid.” Alternatively, if 

the expansion request were denied without IRS input, DOJ could be asked why it did 

not ask the IRS for its views. 

Matthews represented that DOJ intended to submit Special Agent Roberts’s 

affidavit to Finkelstein for his review, to learn whether he was going to refer CID’s 

administrative case or provide pre-referral advice to DOJ. Matthews said that, if 

Finkelstein responded that he was not going to provide advice before a formal referral 

because he was conducting his own administrative review, then DOJ would have to 

decide whether to make a disclosure request to the IRS pursuant to 26 U.S.C. 

§ 6103(h). Matthews stated that the letter to Finkelstein had to be sent to the IRS that 

day. 

The OIC pointed out to Matthews that the substantial factual basis underlying 

the OIC’s request was functionally equivalent to the results of a long-term 

administrative CID investigation. Consequently, the OIC asserted, DOJ did not need 

any IRS input to make its determination. Matthews responded that, since CID had 

conducted its own investigation, Radek wanted ACC’s input.1931 

That same day, following this conversation, DOJ hand-delivered to Finkelstein 

a letter requesting ACC’s input on the OIC’s expansion request. The letter, signed 

by Krysa and Radek, sought Finkelstein’s assistance in evaluating the OIC’s request 

for an expansion of its jurisdiction to include tax matters. As part of this request, 

DOJ provided Finkelstein with the Roberts affidavit, which had accompanied the 

OIC’s expansion and referral requests and which contained grand jury material. 

Finkelstein claimed to have called Matthews immediately after receiving and 

opening the materials from DOJ on February 13, 1997.1932 According to a Finkelstein 

memorandum discussing the incident and the conversation, Finkelstein told Matthews 

that he had not read the Roberts Affidavit and could not do so without tainting ACC’s 

1931 OIC staff notes of 2/13/97 Matthews phone call. 

1932 GJ 00-001 Ex. 79. 

V-147 
review of the Cisneros administrative tax case.1933 Finkelstein testified that, since the 

Cisneros case was brought as an administrative tax case, ACC was precluded from 

considering grand jury material during its review.1934 Furthermore, he testified that 

he was permitted to review grand jury material pursuant to an exception to Rule 6(e)’s 

general rule of secrecy only to assist an attorney for the government in enforcing the 

federal criminal law.1935 According to Finkelstein, this exception to Rule 6(e) would 

not have come into play unless ACC completed its independent review of the 

Cisneros case and referred it to DOJ for prosecution.1936 Finkelstein testified that if 

he had seen grand jury material relating to Cisneros, absent a prior referral to DOJ, 

he would have been required to recuse himself from ACC’s review of the Cisneros 

case,1937 and “it just didn’t seem like a price I wanted to pay.”1938 

Finkelstein testified that DOJ could have gone to his supervisors and sought 

assistance from ACC.1939 According to Finkelstein, if his supervisors agreed to such 

a request, he would have been required to render the assistance and recuse himself 

from ACC’s review.1940 However, DOJ never made such a request,1941 and Finkelstein 

never informed his boss Paris about the meeting with DOJ.1942 

1933 Id. at 1-2. 

1934 GJ 00-001 Tr. Finkelstein 9/28/00 at 28. 

1935 Id. at 29; see also Fed. R. Crim. P. 6(e)(2), 6(e)(3)(A)(ii). 

1936 GJ 00-001 Tr. Finkelstein 9/28/00 at 29-30. 

1937 Id. at 43. 

1938 Id. 

1939 GJ 00-001 Tr. Finkelstein 10/19/00 at 45. 

1940 GJ 00-001 Tr. Finkelstein 9/28/00 at 73. 

1941 GJ 00-001 Tr. Finkelstein 10/29/00 at 46. 

1942 OIC Interview Notes Paris 7/18/01 at 12. 

V-148 
Finkelstein also testified that ACC was precluded from sharing certain 

information with DOJ.1943 According to Finkelstein, 26 U.S.C. § 6103 barred ACC 

from turning over its Cisneros case file to DOJ, because ACC was not asking for 

DOJ’s assistance1944 by referring the case to DOJ.1945 

Finkelstein asserted that these constraints on sharing information made it 

inappropriate for ACC and DOJ to discuss the details of the Cisneros case and the 

OIC’s expansion application.1946 Finkelstein testified that ACC would not have 

relayed “the ins and outs of the case” to DOJ, including anything that ACC thought 

“kills the case.”1947 

Despite these constraints, Finkelstein, Klotz, and Needle1948 met with 

Matthews, Krysa, and Radek, on February 14, 1997,1949 although Finkelstein asserted 

that he had already made it clear to Matthews that ACC could not assist DOJ.1950 

Klotz testified that the ACC officials “went as sponges, because we were not 

authorized to disclose any information to [DOJ], but they wanted us to attend a 

1943 GJ 00-001 Tr. Finkelstein 5/23/00 at 66-67. 

1944 GJ 00-001 Tr. Finkelstein 10/19/00 at 38-39. 

1945 GJ 00-001 Tr. Finkelstein 9/28/00 at 67; GJ 00-001 Tr. Finkelstein 5/23/00 

at 66-67. 

1946 GJ 00-001 Tr. Finkelstein 9/28/00 at 67. 

1947 GJ 00-001 Tr. Finkelstein 5/23/00 at 67. 

1948 Needle took notes of the meeting. GJ 00-001 Ex. 81; GJ 00-001 Tr. Needle 

7/10/01 at 65-66. However, during his grand jury testimony, Needle claimed to have 

no independent recollection of attending the meeting or of what transpired during the 

meeting. GJ 00-001 Tr. Needle 7/10/01 at 68. He testified that if he was there it 

would have been in a notetaking or “passive listening” capacity. Id. at 68-69. 

1949 GJ 00-001 Ex. 81; see GJ 00-001 Tr. Finkelstein 10/26/00 at 10. 

1950 GJ 00-001 Tr. Finkelstein 9/28/00 at 71-73. 

V-149 
meeting.”1951 Finkelstein testified that one of the purposes of the meeting was to 

“educate” Radek on the tax process.1952 

However, Finkelstein also testified that DOJ invited him to consult only when 

it had problems with a case.1953 According to Finkelstein, because DOJ had 

requested the meeting, he sensed that it had problems with the OIC’s expansion 

request.1954 

Finkelstein testified that he felt that DOJ was trying to use him as “cover” or 

as a “scapegoat” for their impending decision to recommend that the OIC’s 

jurisdiction not be expanded to include tax matters.1955 He said that since the 

Cisneros case was not technical and was not the type of case for which DOJ would 

need IRS expertise.1956 According to Finkelstein: 

You’ve got a whole room full of Krysa with 40 some odd years of 

experience . . . Mark Matthews with varying experience, not as long, but 

certainly pretty high-level experience and now suddenly they need you 

to tell them what the right answer is? Sometimes you get a sense it’s a 

set up.1957 

Finkelstein also testified that DOJ’s request for ACC’s advice on an independent 

counsel expansion request for tax jurisdiction was unique: 

1951 GJ 00-001 Tr. Klotz 12/12/00 at 29. 

1952 GJ 00-001 Tr. Finkelstein 9/28/00 at 67-68; see also GJ 00-001 Tr. 

Finkelstein 10/19/00 25-26. 

1953 GJ 00-001 Tr. Finkelstein 10/19/00 at 21-23; GJ 00-001 Tr. Finkelstein 

9/28/00 at 77-79. 

1954 GJ 00-001 Tr. Finkelstein 10/19/00 at 22-24. 

1955 GJ 00-001 Tr. Finkelstein 9/28/00 at 75-77. 

1956 GJ 00-001 Tr. Finkelstein 9/28/00 114-15. 

1957 GJ 00-001 Tr. Finkelstein 9/28/00 at 79. 

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They have had requests for expansions of Independent Counsel on God 

knows how many occasions, they never seem to have needed my advice 

before, I don’t know why they needed my advice on this one. It was 

never articulated to me why suddenly I was a necessary ingredient to 

this thing.1958 

Needle’s notes of the meeting indicated that the participants discussed 26 

U.S.C. § 7401, which allows DOJ to prosecute a criminal tax case without first 

getting a concurrence or a referral from the IRS.1959 Finkelstein testified that, while 

he did not recall why this statutory provision was raised, the reference to it in the 

notes of the meeting indicated that ACC had conveyed to DOJ that ACC had 

problems with the case and might not refer it.1960 According to Finkelstein, he 

informed DOJ that § 7401 permitted DOJ to prosecute a tax case without a referral 

from the IRS.1961 He testified that: 

[W]e have this thing under review, but it makes no difference what we 

do, because the Attorney General or the Independent Counsel, if given 

the tax jurisdiction can go on their own, they don’t need us. . . . So that 

our referral, non-referral is not particularly binding as such.1962 

Nevertheless, Finkelstein testified that at the meeting the ACC attendees told 

DOJ that they were struggling with the Cisneros case,1963 and that he might have told 

1958 Id. at 115. 

1959 GJ 00-001 Ex. 81 at 2; see also GJ 00-001 Tr. Finkelstein 10/19/00 at 26­

27. 

1960 GJ 00-001 Tr. Finkelstein 10/26/00 at 44-45. 

1961 Id. at 43-45. 

1962 GJ 00-001 Tr. Finkelstein 10/19/00 at 30-31. 

1963 Id. at 33-35. 

V-151 
DOJ that the problems related to proof.1964 Furthermore, according to Finkelstein, if 

the DOJ officials stated that they had a problem with the case, the ACC officials 

probably expressed similar concerns.1965 Finkelstein testified that the DOJ officials 

might have raised the difficulty of pinning the failure to declare income on the 

taxpayer instead of the return preparer as a problem and that, if they had, the ACC 

officials might have said they had similar problems.1966 According to Finkelstein, 

“[a]t one point the fact that we both were hung up on the same issue was known to 

each other.”1967 

At the meeting, DOJ and ACC also discussed potential § 6103 violations by 

CID and the OIC.1968 According to Finkelstein, Krysa had told Klotz before the 

meeting that the OIC must have received a copy of the SAR from CID because the 

Roberts Affidavit resembled the SAR too closely.1969 Finkelstein testified that, since 

the OIC’s § 6103(i) orders were entered before the date of the SAR, ACC and DOJ 

had a “tremendous concern” that giving the SAR to the OIC constituted a criminal 

violation.1970 He also testified that ACC and DOJ discussed the fact that some of the 

IRS witness interviews cited in the Roberts Affidavit were outside of the scope of the 

§ 6103(i) orders.1971 

1964 Id. at 35-36. 

1965 Id.; GJ 00-001 Tr. Finkelstein 10/26/00 at 11-12. 

1966 GJ 00-001 Tr. Finkelstein 11/19/00 at 35-36; GJ 00-001 Tr. Finkelstein 

10/26/00 at 11-12. 

1967 GJ 00-001 Tr. Finkelstein 11/2/00 at 91-92. 

1968 GJ 00-001 Ex. 81 at 1-2; GJ 00-001 Tr. Finkelstein 10/5/00 at 121-22, 127­

30. 

1969 GJ 00-001 Tr. Finkelstein 11/2/00 at 34-37, 80-81. 

1970 GJ 00-001 Tr. Finkelstein 10/5/00 at 128-30; GJ 00-001 Ex. 81 at 2. 

1971 GJ 00-001 Tr. Finkelstein 11/2/00 at 82. 

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Finkelstein also testified that Klotz had told him he thought CID had turned the 

SAR over to the OIC.1972 However, in a telephone call on February 7, 1997, one week 

before the meeting between ACC and DOJ, Colbenson had expressly told Klotz that 

CID never provided the SAR to the OIC.1973 At Klotz’s request, CID also provided 

ACC with an inventory of the materials that were turned over to the OIC; the 

inventory did not list the SAR.1974 In fact, CID had not given the OIC the SAR as of 

this time.1975 

Klotz testified that Finkelstein had first brought the § 6103 issue to his 

attention,1976 but Klotz did not recall the issue being discussed at the February 14, 

1997 meeting.1977 In fact, Klotz was unable to explain how such a conversation 

between ACC and DOJ could have taken place, if DOJ did not have the SAR or the 

§ 6103(i) orders, and given that Finkelstein claimed he did not read the Roberts 

Affidavit.1978 

Despite DOJ’s reluctance to obtain the materials the IRS had developed 

regarding Cisneros, Matthews and Finkelstein appear to have given each other clear 

signals of their respective agencies’ intended actions. Finkelstein testified that, in the 

February 14, 1997 meeting with DOJ, he had given the impression that there was a 

“possibility, maybe even a likelihood” that ACC was not going to refer the Cisneros 

case for prosecution.1979 Finkelstein also testified that ACC was conveying the 

1972 GJ 00-001 Tr. Finkelstein 10/5/00 at 134-35. 

1973 GJ 00-001 Ex. 65. 

1974 GJ 00-001 Ex. 65; see Letter from Eastman to Barrett 4/3/97; GJ 97-1 Tr. 

Colbenson 4/9/98 at 73-75. 

1975 GJ 00-001 Ex. 65. 

1976 GJ 00-001 Tr. Klotz 2/1/01 at 99-100. 

1977 Id. at 98-99. 

1978 GJ 00-001 Tr. Klotz 2/6/01 at 34-36. 

1979 GJ 00-001 Tr. Finkelstein 10/26/00 at 45-46. 

V-153 
message that it had “problems” with the case but that DOJ had the power to prosecute 

it without his referral, if it wanted to.1980 

Furthermore, Finkelstein testified that, in the days leading up to a presentation 

by Cisneros’s defense team to DOJ,1981 Matthews had informed him that DOJ was 

going to recommend that the OIC receive jurisdiction for only a single tax year.1982 

Finkelstein said that Matthews had told him this so that Finkelstein would know 

where to send the case if ACC decided to refer it for prosecution.1983 According to 

Finkelstein, he then told Matthews “I don’t think we’re there yet. I think this case is 

not going to reach that threshold.”1984 

Also on February 14, 1997, Matthews discussed with OIC staff DOJ’s meeting 

with Finkelstein. According to Matthews, Finkelstein had declined DOJ’s request for 

consultation before a formal referral and had refused to read Roberts’s affidavit 

because it contained grand jury information subject to Rule 6(e).1985 Matthews also 

said Finkelstein had informed DOJ that, if DOJ asked the IRS to refer its case to DOJ, 

Finkelstein would stop the administrative review of the case, put the IRS documents 

relative to Cisneros “in a truck,” and give them to DOJ.1986 Finkelstein also allegedly 

had told DOJ that during the defense conference Namorato had made a submission 

to ACC the “size of the Manhattan phone book,”1987 and that Namorato had given the 

IRS a road map to the tax case. Matthews said that DOJ wanted to contact Namorato 

1980 GJ 00-001 Tr. Finkelstein 10/26/00 at 45-47. 

1981 This meeting occurred on February 20, 1997, a week before the Attorney 

General was to file her response to the OIC’s referral application. OIC staff notes of 

2/21/97 phone call with Litt. 

1982 GJ 00-001 Tr. Finkelstein 8/1/00 at 82-92. 

1983 GJ 00-001 Tr. Finkelstein 5/23/00 at 163. 

1984 Id. 

1985 OIC staff notes of 2/14/97 Matthews phone call. 

1986OIC staff notes of 2/14/97 Matthews phone call. 

1987 See GJ 00-001 Ex. 75 at 3. 

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to get from him what he had presented to ACC, so that DOJ would not have to request 

if from the IRS.1988 

Matthews further stated that he “presumed” Namorato had provided a new 

affidavit from Cisneros’s accountant, although Finkelstein had not said so. Matthews 

related that DOJ was worried about Cisneros’s accountants, who could “completely 

protect” Cisneros. OIC staff pointed out to Matthews that, if Namorato had provided 

an affidavit from Cisneros’s accountant contradicting what the accountant had 

previously said, such conflicting statements should be sorted out through the OIC’s 

investigation. The OIC informed Matthews that DOJ appeared to be proceeding as 

if it were deciding whether the case should be prosecuted, not whether reasonable 

grounds existed to warrant further investigation.1989 

On February 14, 1997, the Independent Counsel sent a letter to the Attorney 

General opposing the proposal that DOJ obtain materials from Namorato: 

Th[e] focus on potential inconsistencies in the statements of 

[Cisneros’s employees’ and accountants’] is, at the least, troubling. It 

appears that the Department misapprehends its role in this process. The 

only finding the Department is supposed to undertake is to determine 

whether reasonable grounds exist to believe further investigation is 

warranted. 28 U.S.C. § 593(c)(2)(A). The Roberts Affidavit, let alone 

materials this Office supplied to the Department representatives on 

February 12 and 13, 1997, more than satisfy that standard. The 

Department is not being asked to determine whether Cisneros is guilty 

beyond a reasonable doubt, whether there is a reasonable probability of 

conviction, or whether probable cause exists to believe he committed tax 

crimes. Those determinations are beyond the Department’s purview: 

they belong to an Independent Counsel and if circumstances warrant, to 

a jury. I view the Department’s focus in its review as a wrongful 

attempt to usurp the prerogatives of an Independent Counsel and the 

judiciary. If defenses exist, it is the Independent Counsel’s obligation 

to deal with them with respect to charging decisions and the judge and 

1988 OIC staff notes of 2/14/97 Matthews phone call. 

1989 OIC staff notes of 2/14/97 Matthews phone call. 

V-155 
jury’s function to do so at trial. This Office has determined that further 

investigation is warranted and as provided in the statute the Department 

is obligated to give that determination great weight. 28 U.S.C. 

§ 593(c)(2)(A). It is the Independent Counsel’s function to resolve, if 

necessary, inconsistencies, if any, in the statements of witnesses. 

In any event, the Department is free to obtain these materials 

[from the IRS] pursuant to 26 U.S.C. § 6103(h)(3)(B). Nevertheless, if 

the Department believes that it needs Namorato’s submission, the 

Department should obtain leave of the Special Division to involve 

Namorato in this process. This Office will oppose that application. If 

the Department decides not to obtain leave from the Special Division 

before contacting Namorato, please inform us before such contact is 

made so that we may seek such further relief as is appropriate. 

In conclusion, it is clear that the Department’s sole function in 

this process is to determine only whether there are grounds for further 

investigation by an independent counsel, and not to make a 

determination of prosecutorial merit. I urge you to take no action 

deviating from the applicable standard.1990 

Thus, as of mid-February 1997, the OIC had highlighted for DOJ the 

availability of the Cisneros tax material – which included the SAR – from the IRS. 

Had DOJ obtained those materials, it almost certainly would have been compelled to 

conclude that reasonable grounds existed to believe that further investigation was 

warranted, and therefore would have been compelled to request that an independent 

counsel investigate the entire Cisneros tax matter. DOJ did not request these 

materials. 

1990 GJ 00-001 Ex. 80 (Letter from Independent Counsel to Attorney General 

Janet Reno 2/14/97) (emphasis in original). 

V-156 
13.	 DOJ Consultation with Cisneros’s Attorneys Concerning the 

OIC’s Jurisdictional Requests 

On February 18, 1997, Litt spoke by phone with OIC staff concerning the 

Independent Counsel’s February 14, 1997 letter to the Attorney General and DOJ’s 

desire to contact Namorato. Litt related that it was “normal” or “routine” practice for 

DOJ to contact a potential target of an investigation and get his version of events 

before DOJ decided whether to conduct an investigation. The OIC pointed out to Litt 

that it was neither normal nor routine for DOJ to contact targets before making a 

decision to investigate them. Litt responded that Cisneros was being treated 

differently because it was a tax case. Litt stated that DOJ had no doubts that its 

responsibility was to determine if there was “no case” or if further investigation was 

warranted. The OIC informed Litt that, in light of Public Integrity’s handling of the 

1994-95 preliminary investigation and the manner in which it had been interacting 

with Special Agent Roberts, it was apparent that Public Integrity was examining the 

OIC’s request under the incorrect standard of whether the case could be proved at 

trial, and not under the correct standard of whether further investigation was 

warranted. Litt stated that, although the correct standard would be applied, Public 

Integrity looked at cases “differently than the rest of us.” 

The OIC informed Litt that, in its view, Public Integrity had inappropriately 

relied on information Namorato supplied as it conducted its 1994-95 preliminary 

investigation, and that the OIC was concerned that the same thing might happen 

again. Nevertheless, Litt said Namorato’s information would be critical to questions 

that he had. Litt further stated that the Independent Counsel’s request would be 

granted unless Namorato’s presentation conclusively demonstrated that Cisneros had 

not violated any law; if the presentation left any doubts, the doubts would be resolved 

in favor of the Independent Counsel.1991 

On February 19, 1997, Litt spoke by phone with OIC staff. The OIC agreed 

that DOJ could contact Namorato and ask him to provide DOJ the information he had 

provided to ACC. DOJ agreed that, in making the request, it would not disclose to 

1991 OIC staff notes of 2/18/97 Litt phone calls. 

V-157 
Namorato any information concerning the OIC’s expansion or referral requests, 

including Special Agent Roberts’s affidavit.1992 

Later that day, Radek and Litt telephoned OIC staff and informed them that 

Radek had contacted Namorato and asked for the submission that he had provided to 

ACC. Namorato informed Radek that he had not made a written submission but that 

he had made an oral presentation and had provided documents and a statement from 

Cisneros’s tax preparer. Namorato asked why DOJ wanted this information and 

alleged that DOJ’s request indicated that “disclosure violations” (i.e., violations of 

26 U.S.C. § 6103) had occurred. Litt and Radek wanted the OIC’s approval to tell 

Namorato that DOJ wanted the information because it had received information, not 

from the IRS, but from the OIC pursuant to the Independent Counsel Act.1993 

Radek and Litt spoke with OIC staff a third time that day. Litt agreed to 

provide to the OIC any written information he received from Namorato. Despite 

Radek’s resistance, Litt also agreed to provide to the OIC the substance of 

Namorato’s oral presentation.1994 

Later in the day, Litt and Radek had another telephone conversation with OIC 

staff. They informed the OIC that they had spoken with Namorato and had scheduled 

a meeting for the following day, February 20, 1997. Litt reported that Namorato was 

focusing on disclosure issues and looking for disclosure violations, which could later 

pose legal issues in any prosecution. 

Also, according to Litt and Radek, Namorato had told DOJ that he had figured 

out what was going on – that he had made a presentation to ACC that killed the case, 

and CID then went to the Independent Counsel and got him “ginned up.” Litt said 

he had informed Namorato that CID had not “ginned up” the Independent Counsel.1995 

1992 OIC staff notes of 2/19/97 Litt phone call. 

1993 OIC staff notes of 2/19/97 Radek and Litt phone call. 

1994 OIC staff notes of 2/19/97 Radek and Litt phone call. 

1995 Id. 

V-158 
Finkelstein, however, claimed that Namorato had no way of knowing, at that 

time, that ACC had decided to kill the case. Finkelstein also testified that, in the 

conversations he had with Namorato and Michel shortly after the defense conference, 

he did not disclose that ACC intended to decline to refer the case for prosecution.1996 

On February 20, 1997, Cisneros’s attorneys met with DOJ officials concerning 

the Cisneros matter. At the meeting, Namorato conceded that Cisneros’s tax returns 

were inaccurate, but asserted (as he had at the IRS defense conference) that Cisneros 

should not be prosecuted for understating his taxable income because he had relied 

on his accountant to prepare his returns accurately.1997 

In a February 21, 1997 phone conversation with OIC staff, Litt discussed 

Namorato’s February 20, 1997 meeting with DOJ. Litt said that he, Matthews, 

Radek, Farrington, Krysa, Park, and a DOJ Criminal Tax attorney had attended the 

meeting. Litt related that Cisneros’s defense was that he had relied totally on his taxreturn preparer, Hernandez. Litt said that he had asked Namorato whether the returns 

that Hernandez had prepared were accurate or not. Namorato had admitted that the 

returns were inaccurate but claimed it was Hernandez’s fault. Namorato had 

represented that all information had been made available to Hernandez but that he did 

not use it. Namorato had also stated that Hernandez had prepared the returns in a 

“slipshod” fashion. 

Litt also said that Namorato had provided various materials to DOJ, including 

statements made by Hernandez, excerpts of IRS interviews of Cisneros’s employees 

and the tax preparer who had preceded Hernandez, and analytical and legal materials. 

Litt stated that DOJ wanted time to digest the materials Namorato had provided and 

would recontact the OIC after doing so.1998 

On February 21, 1997, Radek spoke by phone with OIC staff. Radek informed 

the OIC that DOJ would be providing the OIC with a copy of the documents 

Namorato had given DOJ. The OIC confirmed with Radek that, according to 

1996 GJ 00-001 Tr. Finkelstein 7/27/00 at 62, 65-66. 

1997 OIC staff notes of 2/21/97 Litt phone call. 

1998 OIC staff notes of 2/21/97 Litt phone call. 

V-159 
Namorato, Cisneros had totally relied on Hernandez to prepare his returns and that 

Cisneros’s defense was that he lacked criminal intent.1999 

On February 24, 1997, the OIC hand-delivered a letter to the Attorney General. 

The letter set forth evidence demonstrating Cisneros’s willfulness, analyzed 

Cisneros’s “reliance-on-accountant” defense, and reviewed the Attorney General’s 

limited authority to decline to expand an independent counsel’s jurisdiction where 

there was an issue concerning “state of mind.” By this time the OIC believed, despite 

Litt’s representation that it would be an “act of lawlessness” to deny the OIC’s 

request, that Public Integrity was not going to recommend to the Attorney General 

that the OIC be given jurisdiction to investigate Cisneros for tax offenses. The OIC 

pointed out to the Attorney General that, because Namorato had admitted Cisneros’s 

returns were inaccurate2000 and was asserting a reliance-on-accountant defense, the 

sole issue before her on the OIC’s expansion request was whether Cisneros had acted 

willfully2001 – i.e., his state of mind. 

The OIC’s letter also noted that, pursuant to the Independent Counsel Act, at 

28 U.S.C. § 592(a)(2)(B)(ii), the Attorney General could not deny the expansion 

request on the ground that Cisneros lacked the requisite state of mind unless there 

was clear and convincing evidence of this fact. The letter stated that: 

Since there is conflicting evidence of Cisneros’ willfulness, there cannot 

be “clear and convincing evidence” that he lacked the requisite “state of 

mind” with respect to the potential tax violations.2002 

Thus, the letter urged, DOJ could not find that there were “no reasonable grounds to 

believe that further investigation is warranted.”2003 The OIC’s letter further argued 

1999 OIC staff notes of 2/21/97 Radek phone call. 

2000 GJ 00-001 Ex. 85 at 2. 

2001 Id. at 2-4. 

2002 Id. at 4. 

2003 Id. 

V-160 
that, given the abundant evidence of Cisneros’s willfulness, the reliance-onaccountant defense could be resolved only through further investigation.2004 

An exhibit to the letter detailed evidence of the following factors demonstrating 

Cisneros’s willfulness: 

•	 his advanced education and financial sophistication; 

•	 his pattern of underreporting substantial income in several successive years; 

•	 his motivation to underreport his income due to cash flow problems; 

•	 the fact that Cisneros signed his returns with the knowledge that the income 

figures were inaccurate; 

•	 his failure to supply his accountant with accurate and complete information 

regarding his income; 

•	 his use of structured transactions and nominees to conceal transfers of funds 

to Medlar; 

•	 his use of cash transactions to conceal the source of the payments to Medlar; 

and 

•	 his false statements to government agents about his finances.2005 

The same day, February 24, 1997, at DOJ’s request, OIC staff met with DOJ 

officials, including Radek and Krysa. DOJ informed the OIC that it wanted to 

interview Cisneros’s accountants and employees. This proposal came four days 

2004 Id. at 4.


2005 Id. at Exhibit B.


V-161

before the end of the statutory 30-day deadline for the Attorney General to act on the 

Independent Counsel’s expansion request.2006 

The OIC objected to this course of action. Following the meeting, the OIC 

immediately sent a letter to Litt detailing its objections. The letter pointed out, among 

other things, that Cisneros’s accountant had now contradicted, under oath, earlier 

statements he had made to the IRS.2007 “[B]y means of illustration and not limitation, 

when Hernandez swore in his affidavit that he ‘did not speak with Mr. Cisneros,’ he 

contradicted an earlier statement to IRS agent Lange on April 6, 1996 wherein he 

claimed to have spoken about the payments to Lincoln Benefit with Cisneros, ArceGarcia and Alfred Ramirez.”2008 Consequently, the letter urged, his statements could 

not possibly exculpate Cisneros at this stage of the investigation.2009 

The OIC’s letter emphasized that the proposed interviews would not be 

productive at such a late date: “It is impossible to resolve the open factual issues 

within the next four days.” 

14.	 ACC Reaction to Revelations about [REDACTED 

PURSUANT TO COURT ORDER] 

On February 24, 1997, CID informed ACC in writing that [REDACTED 

PURSUANT TO COURT ORDER]2010[REDACTED PURSUANT TO COURT 

ORDER]. CID had not opened a case as a result of [REDACTED PURSUANT TO 

COURT ORDER], but it did refer the matter to the FBI, who questioned 

2011 [REDACTED PURSUANT TO COURT ORDER]. CID advised ACC that 

[REDACTED PURSUANT TO COURT ORDER] had come to its attention in mid2006 28 U.S.C. § 593(c)(2). 

2007 Letter from OIC to Litt 2/24/97. 

2008 Id. at 1. 

2009 Id. 

2010 [REDACTED PURSUANT TO COURT ORDER]. 

2011 [REDACTED PURSUANT TO COURT ORDER]. 

V-162 
February 1997 and acknowledged that this information should have been included in 

the December 20, 1996 memorandum transmitting the Cisneros case to District 

Counsel.2012 

The ACC officials later attributed the decision not to prosecute Cisneros in 

1997 largely to the discovery of [REDACTED PURSUANT TO COURT ORDER]. 

Finkelstein called the fact that [REDACTED PURSUANT TO COURT ORDER] 

a “bombshell” that changed the status of the Cisneros case from a “fence-sitter” to 

“dead.”2013 Klotz testified that the information about [REDACTED PURSUANT 

TO COURT ORDER] was “fatal” to the 1997 Cisneros case and could not be 

overcome.2014 He also stated that “[i]f [REDACTED PURSUANT TO COURT 

ORDER] had not been in that capacity that he was, this case probably would have 

gone forward.”2015 

Despite Finkelstein’s testimony that the discovery that [REDACTED 

PURSUANT TO COURT ORDER] was the death-knell of the case2016 and Klotz’s 

testimony that it was “fatal” to the case,2017 they gave different accounts to the grand 

jury about when and how this information first came to their attention. 

In his initial grand jury testimony, Klotz said that ACC learned about the 

[REDACTED PURSUANT TO COURT ORDER] issue from Cisneros’s counsel 

during the February 12, 1997 defense conference and that the information was 

confirmed by CID.2018 Finkelstein testified that he first learned from Klotz that 

2012 GJ 00-001 Ex. 147 at 1. 

2013 GJ 00-001 Tr. Finkelstein 8/3/00 at 87-91. 

2014 GJ 00-001 Tr. Klotz 2/27/01 at 96-97. 

2015 GJ 00-001 Tr. Klotz 3/27/01 at 111. 

2016 GJ 00-001 Tr. Finkelstein 8/3/00 at 87-91. 

2017 GJ 00-001 Tr. Klotz 2/27/01 at 96-97. 

2018 GJ 97-1 Tr. Klotz 4/23/98 at 172. 

V-163 
[REDACTED PURSUANT TO COURT ORDER]2019 and that he had discussed 

this with Klotz before the defense conference.2020 According to Finkelstein, he and 

Klotz believed that there was no way Cisneros’s counsel would know this “pivotal” 

information.2021 Finkelstein said he did not know how Klotz knew this but assumed 

that it was as a result of conversations with CID.2022 Finkelstein said he did not 

communicate this “pivotal” information to DOJ because once he learned it he had 

decided not to refer the case to DOJ and therefore there would be no purpose to 

conveying the information to DOJ.2023 

After Finkelstein testified on this subject, Finkelstein and Klotz discussed 

Finkelstein’s grand jury testimony. Finkelstein told Klotz that he thought Klotz had 

told him that [REDACTED PURSUANT TO COURT ORDER] before the defense 

conference. Klotz told Finkelstein that he did not know if he told Finkelstein this 

“before the conference, 

after the conference, whether [Klotz] learned that before or after.”2024 According to 

Finkelstein, Klotz went on to say that he (Klotz) may not have known about it until 

after the conference.2025 

In subsequent grand jury testimony, Klotz again said that he learned for the 

first time that [REDACTED PURSUANT TO COURT ORDER] from Cisneros’s 

counsel at the defense conference.2026 Klotz testified that he also learned at the 

conference that [REDACTED PURSUANT TO COURT ORDER] had a 

2019 GJ 00-001 Tr. Finkelstein 5/23/00 at 55. 

2020 Id. at 77. 

2021 Id. 

2022 Id. at 56. 

2023 Id. at 66-67. 

2024 GJ 00-001 Tr. Finkelstein 5/25/00 at 9, 20-21. 

2025 Id. at 23. 

2026 GJ 00-001 Tr. Klotz 1/9/01 at 10-16. 

V-164 
relationship with the FBI as well.2027 Klotz said that he was “surprised” to first learn 

this during the conference because it was the type of information that CID should 

have revealed in the SAR.2028 Klotz did not recall asking Cisneros’s counsel how they 

knew this but did not find it “unusual” that they did.2029 Klotz testified [REDACTED 

PURSUANT TO COURT ORDER] was the “primary thing” on his mind after the 

conference and that he informed Finkelstein about defense counsel’s disclosure.2030 

Then, after being shown his and Needle’s notes of the defense conference2031 and the 

conference memorandum,2032 none of which contains any reference to the 

[REDACTED PURSUANT TO COURT ORDER], Klotz testified that he was 

wrong about getting the information 

from the defense during the defense conference.2033 Klotz was thereafter unable to 

explain when and how he first learned this.2034 

Needle testified that he was confident that the [REDACTED PURSUANT TO 

COURT ORDER] was not raised by Cisneros’s attorneys at the defense 

2027 Id. at 11-12.


2028 Id. at 17.


2029 Id. at 20.


2030 Id. at 81.


2031 GJ 00-001 Exs. 254, 255.


2032 GJ 00-001 Ex. 75.


2033 GJ 00-001 Tr. Klotz 1/9/01 at 98-102.


2034 Id. at 102-10.


V-165 
conference.2035 He testified that he did not know the source of the information2036 and 

that it was possible that ACC knew the information before the defense conference.2037 

In any event, according to Needle, the [REDACTED PURSUANT TO 

COURT ORDER] was never “a determinative or linchpin or most important factor 

in the case.”2038 Furthermore, Klotz admitted that ACC never took any steps to 

understand or ascertain whether [REDACTED PURSUANT TO COURT 

ORDER].

2039 [REDACTED PURSUANT TO COURT ORDER][REDACTED 

PURSUANT TO COURT ORDER].

2040 [REDACTED PURSUANT TO COURT 

ORDER]. 

Fielding told the OIC that Finkelstein had led him to believe that 

[REDACTED PURSUANT TO COURT ORDER].

2041 [REDACTED PURSUANT 

TO COURT ORDER] 

[REDACTED PURSUANT TO COURT ORDER].

2042 [REDACTED PURSUANT 

2043 TO COURT ORDER]. 

2035 GJ 00-001 Tr. Needle 5/15/01 at 91-92. 

2036 Id. at 90. 

2037 Id. at 92. 

2038 GJ 00-001 Tr. Needle 5/15/01 at 88-89. 

2039 GJ 00-001 Tr. Klotz 4/24/01 at 117. 

2040 [REDACTED PURSUANT TO COURT ORDER].


2041 [REDACTED PURSUANT TO COURT ORDER].


2042 [REDACTED PURSUANT TO COURT ORDER].


2043 [REDACTED PURSUANT TO COURT ORDER].


V-166 
15. The Limited Grant of Tax Jurisdiction to the OIC 

On February 25, 1997, OIC staff met again with DOJ officials at DOJ. The 

discussion focused on what type of information Cisneros’s employees had provided 

to Hernandez and how Hernandez had prepared Cisneros’s returns. DOJ again 

informed the OIC that it intended to interview Cisneros’s employees and tax 

preparers. In a phone conversation with Litt, Radek, and Matthews after the meeting, 

OIC staff again objected to DOJ conducting these interviews.2044 

On that same day, February 25, 1997, DOJ interviewed Gonzalez, the tax 

preparer for Cisneros who had preceded Hernandez, and other persons affiliated with 

Cisneros.2045 DOJ arranged its interviews through Namorato.2046 

On February 26, 1997, Litt spoke by phone with OIC staff. He informed the 

OIC that DOJ needed to interview other witnesses, including, at a minimum, 

Hernandez. Litt said that DOJ was making arrangements for these interviews but that 

he did not know who else they would interview.2047 

Also on February 26, 1997, the OIC transmitted to Park interview reports and 

other materials for the persons Public Integrity said it wanted to interview – 

Hernandez, Gonzalez, Arce-Garcia, and Ramirez.2048 On February 26, 1997, DOJ 

interviewed Hernandez and Ramirez, and on February 27, 1997 they interviewed 

Arce-Garcia.2049 

On February 27, 1997, the OIC hand-delivered a letter to Litt. The letter 

detailed evidence of Cisneros’s willfulness in failing to declare a substantial portion 

2044 OIC staff notes of 2/25/97 meeting with DOJ. 

2045 Public Integrity Memoranda of 2/25/97 Gonzalez telephone interviews. 

2046 OIC Memo 4/30/97 re 4/21/97 meeting with Namorato. 

2047 OIC staff notes of 2/26/97 Litt phone call. 

2048 Letter from OIC to Park 2/26/97. 

2049 Fax from DOJ to OIC 3/27/97. 

V-167 
of his income on his tax returns and evidence that the failure to declare began before 

Hernandez became Cisneros’s accountant.2050 Later the same day, Litt informed OIC 

staff that the OIC’s expansion request was not going to be approved with respect to 

tax year 1993.2051 Then on February 28, 1997, Litt told OIC staff that it had been a 

“difficult and close decision” but that it appeared that the OIC’s expansion request 

would be granted only for tax year 1992.2052 

On February 28, 1997, the Attorney General filed an application for the 

expansion of the OIC’s jurisdiction with the Special Division, stating, in part: 

I have concluded that an expansion of Mr. Barrett’s jurisdiction is 

appropriate for tax year 1992. I further have determined that there are 

no reasonable grounds to believe that further investigation is warranted 

for tax years 1989, 1991, and 1993.2053 

With respect to 1991, the Attorney General stated: 

The Federal Bureau of Investigation (FBI) Special Agent who 

prepared the affidavit in support of the request for expansion did not 

provide any substantiation for the conclusion that income went 

unreported. The Special Agent informed the Department that his sworn 

affidavit was based entirely upon the interim findings of the IRS agents’ 

administrative investigation. Attempts to verify limited information 

provided by the IRS agents to the Independent Counsel in support of 

this figure demonstrates that the figures provided are not reliable. 

[Footnote: We were provided a chart of approximately $50,000 in 

allegedly unreported income, but review of the chart quickly 

demonstrated that most or all of this income was actually reported.] 

Even giving great weight to the views of the Independent Counsel, I 

cannot recommend expansion of his jurisdiction to include purported tax 

2050 Letter from OIC to Litt 2/27/97. 

2051 OIC staff notes of 2/27/97 voice-mail from Litt. 

2052 OIC staff notes of 2/28/97 Litt phone call. 

2053 GJ 00-001 Ex. 87 at 1-2. 

V-168 
violations when I have no facts to support a conclusion that income was 

not reported. I, therefore, at this point, possess no specific or credible 

evidence of the violation of a federal criminal law in Mr. Cisneros’s 

submission of his 1991 tax return.2054 

At the time of the Attorney General’s application, however, as in 1994 and 

1995 when it conducted its preliminary investigation, DOJ was in possession of 

evidence which not only indicated that Cisneros had underreported his 1991 income, 

but also should have raised questions as to whether he could have believed that his 

tax returns were accurate as filed. Cisneros’s 1991 tax return shows that his net 

disposable income2055 was $75,358,2056 but evidence available to DOJ indicated that 

Cisneros had paid Medlar at least $56,000 in 1991.2057 Information that Namorato 

presented to DOJ at their meeting on February 20, 1997 indicated that Cisneros spent 

$70,769.41 on non-Medlar, non-deductible personal expenses in 1991.2058 Thus, 

Cisneros’s expenditures would have left him with a shortfall of over $50,000 in 1991. 

These figures strongly indicate that further investigation of the tax issue was needed 

since, absent an alternate, major source of funds or the running of a substantial deficit 

in multiple years, Cisneros’s returns were obviously inaccurate as filed. 

DOJ could have pursued these discrepancies by seeking more information from 

the IRS, and it then would have gained immediate access to the SAR. DOJ knew that 

CID had presented a prosecution recommendation that was pending before 

Finkelstein.2059 But it chose not to exercise its power under 26 U.S.C. 

§ 6103(h)(3)(B) to obtain the recommendation and the evidence that supported it. 

Had it done so, it would then have had in its possession more than sufficient evidence 

to indicate that further investigation of possible Cisneros tax offenses was 

2054 Id. at 9-10. 

2055 Net disposable income is reported taxable income minus total tax. 

2056 GJ 00-001 Ex. 241. 

2057 GJ 00-001 Ex. 372 at 8. 

2058 GJ 97-1 Ex. 60B at Tab 2. 

2059 OIC staff notes of 2/3/97 Krysa phone call. 

V-169 
warranted – compelling expansion of the Independent Counsel’s jurisdiction to 

include tax offenses in 1991 to 1993. 

The Attorney General’s application acknowledged that the Cisneros tax matter 

was “now under administrative review by the Chief Counsel’s office of the IRS, 

pursuant to the standard procedures followed in any tax matter.”2060 It also stated that 

she had decided not to terminate the IRS’s administrative review by asking that the 

matter be referred to her, and noted that: 

[I]t is possible that through the normal course of the IRS’s 

administrative procedures, additional information will become available 

in the future to the Department of Justice that might alter this 

conclusion. That possibility is expressly contemplated in the 

Independent Counsel Act, 28 U.S.C. § 592(c)(2), and should it occur, I 

will reassess my current conclusions at that time. 

The Attorney General’s application also stated “I recognize that . . . it may be 

necessary for me to reconsider my conclusions reached here at some point in the 

future, should the IRS conclude that referral of this matter to the Department of 

Justice for consideration of criminal prosecution is warranted.”2061 Thus, even though 

DOJ was unwilling to ask the IRS for the information it had developed about the 

Cisneros case (including the SAR), the Attorney General represented that she was 

willing to wait and see whether the IRS decided to send such information on its own 

in a referral of the case. However, Finkelstein had by that time told certain DOJ 

officials that ACC was going to decline to refer the Cisneros tax case for prosecution 

or grand jury investigation.2062 

The Attorney General thereby tied her decision of whether to allow expansion 

of the Independent Counsel’s jurisdiction directly to the IRS’s decision whether to 

refer the Cisneros case to DOJ for prosecution – a decision that Finkelstein had 

2060 GJ 00-001 Ex. 87 at 4. 

2061 Id. at 6. 

2062 GJ 00-001 Tr. Finkelstein 5/23/00 at 163. 

V-170 
already telegraphed to DOJ.2063 However, the standard for an IRS referral to DOJ for 

prosecution – whether there was evidence sufficient to establish guilt beyond a 

reasonable doubt and a reasonable probability of conviction2064 – was much more 

stringent than the Attorney General’s standard for expanding the Independent 

Counsel’s jurisdiction – “that there are reasonable grounds to believe that further 

investigation is warranted.”2065 She decided, in other words, that she would examine 

the evidence in the IRS’s possession to determine whether it reasonably indicated the 

need for further investigation only if the IRS first determined that the same evidence 

in and of itself was sufficient to establish guilt beyond a reasonable doubt in a 

criminal trial. 

In the same document, the Attorney General opposed the OIC’s application to 

the Special Division for a referral of the tax offenses involving unreported income not 

diverted to Medlar as a matter related to the OIC’s existing jurisdiction. The Attorney 

General noted that she had already, in her 1995 application for the appointment of an 

independent counsel, informed the court that no further investigation of the tax matter 

was warranted.2066 According to the Attorney General, that conclusion created an 

“absolute bar” that prevented the court from referring the tax matter to the OIC.2067 

16.	 ACC’s Decision Not to Refer the Cisneros Case for 

Prosecution or Grand Jury Investigation 

On Monday, March 3, 1997 – the next business day after the Attorney General 

filed her application with the Special Division asking for only a limited expansion of 

the Independent Counsel’s jurisdiction – Klotz and Colbenson spoke on the phone, 

and Klotz said that ACC had decided not to refer the Cisneros matter to DOJ for 

2063 GJ 00-001 Tr. Finkelstein 8/1/00 at 82-98. 

2064 GJ 00-001 Ex. 187. 

2065 28 U.S.C. § 593(c)(2)(C)(i). 

2066 GJ 00-001 Ex. 87 at 15-22. 

2067 Id. at 17. 

V-171 
prosecution.2068 Klotz provided a list of reasons for the decision that closely mirrored 

the assertions made by Cisneros’s counsel at the February 12, 1997 defense 

conference with ACC. According to Colbenson’s contemporaneous notes of the 

conversation and Colbenson’s subsequent grand jury testimony, Klotz stated that: 

•	 even though there was substantial unreported income and an understatement 

of income could be proven, there was insufficient evidence to prove that the 

unreported income was Cisneros’s fault;2069 

•	 Hernandez had taken full blame for the improper 1992 deduction;2070 

•	 ACC thought that willfulness could not be proven beyond a reasonable doubt 

and that there was not a reasonable possibility of conviction;2071 

•	 the 1099s for Cisneros’s Mass Mutual distributions were mailed to Cisneros’s 

home and business in San Antonio, but he never received them because he had 

moved to Washington, D.C.;2072 

•	 Hernandez was negligent in not reporting the Mass Mutual distributions on 

Cisneros’s 1993 tax return;2073 

•	 much of the specific unreported income was recorded in Arce-Garcia’s logs 

and the 1099s;2074 

2068 GJ 97-1 Ex. 44; GJ 97-1 Tr. Colbenson 4/9/98 at 105-06. 

2069 GJ 97-1 Ex. 44 at 1; GJ 97-1 Tr. Colbenson 4/9/98 at 106-07. 

2070 GJ 97-1 Ex. 44 at 1-2; GJ 97-1 Tr. Colbenson 4/9/98 at 107. 

2071 GJ 97-1 Ex. 44 at 1; GJ 97-1 Tr. Colbenson 4/9/98 at 116-17. 

2072 GJ 97-1 Ex. 44 at 1; GJ 97-1 Tr. Colbenson 4/9/98 at 117. 

2073 GJ 97-1 Ex. 44 at 1-2; GJ 97-1 Tr. Colbenson 4/9/98 at 117. 

2074 GJ 97-1 Ex. 44 at 2; GJ 97-1 Tr. Colbenson 4/9/98 at 119. 

V-172 
•	 the fact that Hernandez was a CPA who had an MBA, but had not thoroughly 

reviewed the 1991 tax return with Cisneros, suggested accountant negligence 

and a reliance-on-accountant defense;2075 

•	 Hernandez had committed errors with respect to the reporting of estimated tax 

payments;2076 

•	 the first accountant, Gonzalez, was not being paid to prepare Cisneros’s tax 

returns, and Hernandez was hired with the expectation that he would provide 

more services to Cisneros;2077 

•	 Hernandez never contacted Gonzalez to get all of the information regarding the 

accounting system;2078 

2079 •	 [REDACTED PURSUANT TO COURT ORDER];

•	 the case could not be won;2080 

•	 at least one of the Medlar tapes could not be entered into evidence;2081 

•	 Cisneros and Medlar were lying just to the FBI;2082 

2075 GJ 97-1 Ex. 44 at 2; GJ 97-1 Tr. Colbenson 4/9/98 at 119.


2076 GJ 97-1 Ex. 44 at 2.


2077 GJ 97-1 Ex. 44 at 2; GJ 97-1 Tr. Colbenson 4/9/98 at 120.


2078 GJ 97-1 Ex. 44 at 3; GJ 97-1 Tr. Colbenson 4/9/98 at 120.


2079 [REDACTED PURSUANT TO COURT ORDER]. 

2080 GJ 97-1 Ex. 44 at 3; GJ 97-1 Tr. Colbenson 4/9/98 at 121.


2081 GJ 97-1 Ex. 44 at 3; GJ 97-1 Tr. Colbenson 4/9/98 at 121.


2082 GJ 97-1 Ex. 44 at 4; GJ 97-1 Tr. Colbenson 4/9/98 at 121.


V-173 
•	 on one of the tapes, Cisneros told Medlar that what he did with his money was 

a personal matter and that he had paid his taxes;2083 

•	 there was no real evidence of willfulness and nothing to rebut an assertion that 

the unreported income was the fault of Cisneros’s accountants and 

employees;2084 

•	 there were too many accounting systems for Cisneros to keep track of;2085 

•	 Cisneros was wearing himself thin trying to take care of Medlar;2086 

•	 Cisneros would produce a lot of good character witnesses at trial;2087 

•	 the evidence was not sufficient for conviction;2088 

•	 the case should not have been investigated;2089 and 

•	 CID had committed possible § 6103 disclosure violations, and one of the CID 

agents had misrepresented herself as a collection agent to Hernandez during an 

interview.2090 

Colbenson testified that she had disagreed with Klotz’s contentions and told 

him that CID had evidence that would rebut every issue raised by him in the 

2083 GJ 97-1 Ex. 44 at 4; GJ 97-1 Tr. Colbenson 4/9/98 at 122. 

2084 GJ 97-1 Ex. 44 at 4; GJ 97-1 Tr. Colbenson 4/9/98 at 122-23. 

2085 GJ 97-1 Ex. 44 at 4; GJ 97-1 Tr. Colbenson 4/9/98 at 123. 

2086 GJ 97-1 Ex. 44 at 5; GJ 97-1 Tr. Colbenson 4/9/98 at 123. 

2087 GJ 97-1 Ex. 44 at 5; GJ 97-1 Tr. Colbenson 4/9/98 at 123. 

2088 GJ 97-1 Ex. 44 at 5; GJ 97-1 Tr. Colbenson 4/9/98 at 123. 

2089 GJ 97-1 Ex. 44 at 6; GJ 97-1 Tr. Colbenson 4/9/98 at 124. 

2090 GJ 97-1 Ex. 44 at 6-7; GJ 97-1 Tr. Colbenson 4/9/98 at 124-27. 

V-174 
telephone conversation.2091 However, according to Colbenson, Klotz told her that 

ACC would be sending CID a declination memorandum and that both he and Needle 

agreed with the decision to decline the case.2092 She testified that she had considered 

this to be a significant change from Klotz’s earlier statements that the Cisneros case 

needed to be investigated by a grand jury.2093 

Colbenson testified that she requested a conference with ACC, so that CID 

could rebut ACC’s problems with the case.2094 According to Colbenson, Klotz said 

that the telephone call was sufficient and that it was not necessary to have a 

conference, but she insisted on a meeting.2095 It was subsequently agreed that a 

meeting would be conducted on March 18, 1997 in ACC’s offices in Washington, 

D.C. 

Klotz testified that the Cisneros case was subsequently put in supplemental 

status to accommodate CID’s request for a meeting.2096 According to Colbenson, 

Klotz told her that the case would be put in supplemental status only to hold a 

meeting and that, contrary to the standard reasons for granting a supplemental,2097 

CID could not conduct further investigation or perform additional computations.2098 

2091 GJ 97-1 Tr. Colbenson 4/9/98 at 128-29. 

2092 Id. at 127. 

2093 Id. at 128. 

2094 Id. at 129-30. 

2095 Id. 

2096 GJ 00-001 Tr. Klotz 12/14/00 at 5-6. 

2097 GJ 00-001 Ex 89A; see GJ 00-001 Ex. 165 at 20-21. 

2098 Letter from Colbenson to OIC 6/3/97 at 6-7. 

V-175 
On March 11, 1997, Macdonald and Krysa spoke by phone regarding the 

Cisneros case, and Macdonald memorialized the conversation in writing.2099 

According to the memorandum, Krysa maintained that the case against Cisneros 

could not be proved because Cisneros’s accountant had access to all books, records, 

and income information for Cisneros’s businesses.2100 

Macdonald disagreed. He pointed out to Krysa that payments to Medlar had 

been diverted from Cisneros’s accounting system and were unaccounted for, resulting 

in the discrepancy between Cisneros’s in-house records and bank deposits, and that 

Cisneros and his office employees knew but did not tell Hernandez that income being 

paid to Medlar had not been deposited.2101 Macdonald asserted that defense counsel 

had made “bald-faced allegations that flew in the face of considerable evidence 

compiled by CID” and argued that it was inappropriate for ACC not to refer the case 

for prosecution on the basis of defense counsel’s unsubstantiated allegations.2102 

Macdonald also pointed out that Finkelstein had agreed with District Counsel 

that key witnesses should be called to testify before the grand jury prior to any 

prosecution decision.2103 Macdonald suggested that Finkelstein’s position on the case 

would preclude even investigation by a grand jury.2104 

Macdonald told Krysa that his office was responding to ACC’s memorandum 

summarizing the defense conference but that it had not received this memorandum 

until several weeks after it was “done.”2105 Krysa responded that he had heard that 

CID was “dragging its feet” in responding to ACC’s memorandum so that the OIC 

2099 GJ 00-001 Ex. 95. 

2100 GJ 00-001 Ex. 95 at 2. 

2101 Id. at 2. 

2102 Id. at 2. 

2103 Id. at 2. 

2104 Id. at 2. 

2105 Id. at 2. 

V-176 
could get tax jurisdiction.2106 Macdonald asked Krysa who had told him this; Krysa 

claimed he could not remember.2107 

According to Macdonald’s memorandum, Krysa was concerned about possible 

disclosures of tax information in violation of 26 U.S.C. § 6103. Macdonald told 

Krysa that the District Disclosure Officer had misinterpreted a court order concerning 

such disclosures to the OIC and that a court order had been obtained to correct the 

matter.2108 Krysa said he did not know this and was “surprised” to hear that a 

disclosure officer had been involved.2109 Macdonald reminded Krysa that disclosure 

violations did not preclude an indictment of Cisneros.2110 

Krysa further asserted that the assignment of IRS case agents to the OIC was 

not a good move, that the Independent Counsel Act was not a good law, and that tax 

administration was not well served by independent counsel prosecutions because 

independent counsels could not distinguish a good tax case from a poor one.2111 

These statements echoed concerns that Klotz and subsequently Finkelstein had 

previously raised with Colbenson.2112 

17. The Supplemental Status Memorandum 

On March 13, 1997, Klotz faxed a memorandum dated March 7, 1997 to CID 

Chief John Filan, reviewed by Finkelstein, placing the case in supplemental status 

(“Supplemental Status Memorandum”) and reiterating the concerns that prompted 

2106 Id. at 2. 

2107 Id. at 2. 

2108 Id at 3. 

2109 Id. at 3. 

2110 Id. at 3. 

2111 Id. at 3. 

2112 OIC Interview Notes Colbenson at 11. 

V-177 
ACC’s preliminary decision to decline to refer the case.2113 The memorandum noted 

that, although ACC had some “disagreement” with some of the SAR’s computations, 

those disagreements did not “rise” to the level of ACC’s concern with willfulness. 

Accordingly, the memorandum focused solely on willfulness.2114 

The memorandum laid out the four elements of 26 U.S.C. § 7206(1) that the 

prosecution had to prove beyond a reasonable doubt to establish that Cisneros had 

violated the law: 

1)	 that he had subscribed each return that was false as to a material matter; 

2) 	 that each return had contained a written declaration that it was made 

under the penalty of perjury; 

3)	 that he had not believed each return to be true and correct as to every 

material matter; and 

4)	 that he had falsely subscribed each return willfully with the specific 

intent to violate the law.2115 

The memorandum conceded that it was clear the first two elements could be 

proven.2116 However, as to the third element, the memorandum stated that “Cisneros 

also had no way of knowing that the complicated returns Hernandez prepared for him 

2113 GJ 00-001 Exs. 89; 89A; Filan notes at 4; Letter from Lange to OIC 5/30/97 

at 6. 

2114 GJ 00-001 Ex. 89 at 1 n. 1. 

2115 Id. at 1. 

2116 Id. 

V-178 
each year contained significant errors.”2117 Regarding the fourth element, the 

memorandum stated that “our major concern with this case turns on willfulness.”2118 

The memorandum repeated many of the problems that Klotz had outlined over 

the phone with Colbenson on March 3, 1997. Specifically, it reiterated Cisneros’s 

reliance on his accountants,2119 Gonzalez’s status as “free help,”2120 [REDACTED 

PURSUANT TO COURT ORDER]2121 Cisneros’s taped claim to Medlar that he 

was paying taxes,2122 Hernandez’s failure to utilize the information in the 1099s and 

green ledgers,2123 Hernandez’s errors with respect to the reporting of estimated tax 

payments,2124 and Cisneros’s ability to muster good character witnesses.2125 The 

memorandum also noted ACC’s concerns over possible disclosure violations2126 and 

an allegation by Cisneros’s defense counsel that a CID agent had misrepresented 

herself as a collection officer to Hernandez.2127 The memorandum did not address 

whether further investigation would be conducted to address any of these issues. 

On March 14, 1997, Filan, Colbenson, Lange, and Barrows met with 

Macdonald to prepare for CID’s scheduled March 18, 1997 meeting with ACC. 

2117 Id. at 2. 

2118 Id. at 1. 

2119 Id. at 2. 

2120 Id. 

2121 Id. 

2122 Id. at 3. 

2123 Id. 

2124 Id. at 2-3. 

2125 Id. at 3. 

2126 Id. at 3-4. 

2127 Id. at 4 n. 3. 

V-179 
During the meeting, Macdonald told the agents about his March 11, 1997 telephone 

conversation with Krysa. The agents discussed with Macdonald CID obtaining from 

ACC documentation concerning all of ACC’s contacts with DOJ and Cisneros’s 

defense counsel.2128 

Also on March 14, 1997, as the OIC was beginning its investigation of the 

1992 Cisneros tax case, it spoke with Klotz to inform the IRS it would soon make a 

§ 6103(h)(3)(B) request for relevant records.2129 Klotz claimed that ACC had not 

given DOJ any information about the Cisneros case when they met to discuss the 

matter and that he did not know what action the Attorney General had taken on the 

OIC’s expansion request.2130 He told the OIC that ACC had placed the Cisneros case 

in “sort of” supplemental status.2131 Klotz stated that Fielding or the Chief Counsel, 

not Finkelstein, would be making the ultimate decision to refer or decline the case.2132 

On March 18, 1997, the Special Division granted the Attorney General’s 

application, issuing an order expanding the Independent Counsel’s jurisdiction to 

include tax matters in the year 1992.2133 An Amending Order further defining the 

OIC’s jurisdiction followed on March 26, 1997.2134 

Also on March 18, 1997, Filan, Colbenson, Lange, and the CID Director for 

the region including Texas met with Klotz and Needle in Washington, D.C.2135 

2128 OIC Interview Filan 4/18/00 at 4-5. 

2129 OIC Memorandum re IRS Chief Counsel Contacts 3/13-14/97 at 2-4. 

2130 Id. at 1. 

2131 OIC staff notes re Chief Counsel Contacts 3/13-14/97 at 4. 

2132 Id. at 5. 

2133 GJ 00-001 Ex. 91. 

2134 GJ 00-001 Ex. 92. 

2135 GJ 97-1 Tr. Colbenson 4/9/98 at 136, 138. 

V-180 
Finkelstein did not attend the meeting.2136 In compliance with Klotz’s earlier 

instruction regarding the limited purpose for placing the case in supplemental status, 

CID did not conduct any further investigation on the Cisneros case before meeting. 

Filan led the discussion at the meeting and asserted that the Cisneros case was 

a very simple tax case.2137 He said that there was a significant understatement of 

income and that Cisneros, by virtue of his close, day-to-day involvement in his 

businesses, was aware of the unreported income.2138 Filan also pointed out that 

Cisneros had told the IRS that he was “meticulous, scrupulous, and uncompromising” 

in making sure everything was reported on his tax returns.2139 Filan reiterated that 

Cisneros could not have believed his returns were true and correct because, even 

without accounting for the Medlar money, Cisneros was paying out more to his wife, 

college tuition, and annuities than he was reporting as income.2140 

To refute the reliance-on-accountant defense, Lange noted that Cisneros had 

lied to Hernandez by leading him to believe that all income was being deposited.2141 

She also pointed out that the system of depositing all income was the only accounting 

system Cisneros used, and that the green ledgers were used only to forecast projected 

income.2142 CID further stated to Klotz and Needle that Cisneros had rebuffed 

2136 Id. at 138-39. 

2137 GJ 97-1 Tr. Colbenson 4/9/98 at 139; GJ 97-1 Ex. 47 at 1; GJ 00-001 Exs. 

97; 230 (Needle notes at 1). 

2138 GJ 97-1 Tr. Colbenson 4/9/98 at 139; GJ 97-1 Ex. 47 at 2; GJ 00-001 Exs. 

97; 230 (Needle notes at 1). 

2139 GJ 00-001 Exs. 97 at 3; 230 (Needle notes at 1). 

2140 GJ 97-1 Ex. 47 at 2; GJ 00-001 Ex. 97 at 3, 4; GJ 00-001 Tr. Needle 

6/19/01 at 113. 

2141 GJ 97-1 Ex. 47 at 4. 

2142 GJ 97-1 Ex. 47 at 4. 

V-181 
Hernandez’s efforts to straighten out Cisneros’s bookkeeping system.2143 Moreover, 

Filan cited portions of the Medlar tapes and other evidence that demonstrated 

Hernandez did not know about the money going to Medlar.2144 

Filan also told Klotz and Needle that Cisneros’s employees were complicit in 

hiding his payments to Medlar and that, consequently, it was important to bring some 

of his employees before the grand jury.2145 Furthermore, CID rebutted the allegation 

that one of the agents had misrepresented herself as a collection officer to 

Hernandez.2146 

CID also addressed ACC’s assertion that Cisneros overpaid his taxes in 1992 

as a result of Hernandez classifying estimated tax payments as a Schedule A itemized 

deduction.2147 In the March 7, 1997, Supplemental Status Memorandum, ACC had 

opined that Hernandez, in preparing Cisneros’s 1992 returns, had reported Cisneros’s 

substantial 1992 estimated tax payments as a “Schedule A itemized deduction 

(thereby causing Cisneros to grossly overpay his tax on the return as filed).”2148 At 

the March 18 meeting, CID pointed out to Klotz and Needle that this conclusion was 

wrong; the deduction actually represented payments Cisneros made in 1992 for his 

1990 and 1991 federal income taxes – not estimated tax payments.2149 

The subject of ACC’s contacts with DOJ was discussed at the March 18 

meeting. Filan asked Klotz and Needle to disclose any contacts that ACC previously 

2143 GJ 97-1 Ex. 47 at 4; GJ 00-001 Ex. 97 at 5. 

2144 GJ 97-1 Ex. 47 at 1; GJ 00-001 Exs. 97 at 5; 230 (Needle notes at 2). 

2145 GJ 97-1 Tr. Colbenson 4/9/98 at 139-40; GJ 97-1 Ex. 47 at 1, 6; GJ 00-001 

Exs. 97 at 3; 230 at 3 (Needle notes at 3). 

2146 GJ 97-1 Ex. 47 at 8; GJ 00-001 Ex. 230 (Needle notes at 4). 

2147 GJ 00-001 Ex. 230 (Needle notes at 3). 

2148 GJ 00-001 Ex. 89 at 2-3. 

2149 GJ 00-001 Ex. 230 (Needle notes at 3); Letter from Lange to OIC 5/30/97 

at 7; Lange notes 3/20/97. 

V-182 
had had with DOJ concerning the Cisneros case. Filan referred to Macdonald’s 

March 11, 1997 telephone conversation with Krysa, in which Krysa told Macdonald 

that CID was “dragging its feet” so that the OIC could get jurisdiction over the tax 

case.”2150 According to Colbenson, Klotz informed CID that he had initially talked 

with Krysa and that ACC had received a package from DOJ that Finkelstein, once he 

opened it, realized he should not look at;2151 in response, Klotz, Finkelstein, and 

Needle informed DOJ that ACC could not tell DOJ anything about the tax case.2152 

Klotz noted that ACC had “absolutely not” given any information to DOJ about the 

tax case and that Krysa had “nothing.”2153 

In addition to asking about ACC’s communications with DOJ during the 

Cisneros review, Filan pointed out to Klotz that it was normal procedure for IRS 

counsel to document any contacts with defense counsel. Filan asked Klotz to inform 

CID of any discussions with Cisneros’s counsel and to provide CID with the 

documentation of such discussions. Klotz told CID that, other than the February 12, 

1997 defense conference and the conversation setting that date, which CID already 

knew about, there had been no contacts with defense counsel.2154 

Filan’s notes of the meeting indicate that Klotz stated that he did not have a 

problem with CID’s income computations and acknowledged that there was evidence 

in the case.2155 According to Colbenson, Klotz admitted there was unreported 

income2156 and agreed that the witnesses in the case knew more and needed to be put 

2150 OIC Interview Report Filan 4/18/00 at 6. 

2151 GJ 97-1 Tr. Colbenson 4/9/98 at 142-43. 

2152 GJ 97-1 Ex. 47 at 7-8; OIC Interview Report Filan 4/18/00 at 6. 

2153 GJ 97-1 Ex. 47 at 7-8; OIC Interview Report Filan 4/18/00 at 6. 

2154 OIC Interview Filan 4/18/00 at 6; GJ 00-001 Ex. 96. 

2155 GJ 00-001 Ex. 97 at 7. 

2156 GJ 97-1 Ex. 47 at 2. 

V-183 
before a grand jury.2157 But Colbenson also testified that, although Klotz said that he 

would consider the information that CID provided him during the meeting, “he 

seemed very closed to any suggestions.”2158 

Colbenson further testified that Klotz was doubtful that Cisneros could be 

prosecuted and indicated that ACC was most likely going to decline the case.2159 CID 

then requested that, in the event that the case was declined, ACC not inform Cisneros 

of its decision until CID had a chance to protest.2160 According to Filan, Klotz 

agreed.2161 

Two days later, on March 20, 1997, Lange and Needle had a telephone 

conversation, during which Needle again claimed that the SAR did not give Cisneros 

credit for estimated tax payments in 1992.2162 Lange responded that the payments 

were for delinquent tax payments from prior years, as had been explained to ACC just 

two days before.2163 The same day, March 20, 1997, Lange faxed to Klotz and Needle 

copies of Cisneros’s checks for these payments.2164 

The information that CID conveyed to Klotz and Needle in the March 18 

meeting and the follow-up call had no effect on ACC’s ultimate decision. Klotz 

testified that, after the meeting ended, he spoke with Finkelstein.2165 Finkelstein 

2157 Id. at 6. 

2158 GJ 97-1 Tr. Colbenson 4/9/98 at 141. 

2159 Id. at 151. 

2160 GJ 97-1 Ex. 47 at 8; GJ 00-001 Ex. 230 (Needle notes at 4). 

2161 GJ 00-001 Ex. 96. 

2162 Letter from Lange to OIC 5/30/97 at 7. 

2163 Id. 

2164 GJ 00-001 Ex. 234. 

2165 GJ 00-001 Tr. Klotz 3/27/01 at 14. 

V-184 
asked Klotz if there was anything “new” had come up in the meeting.2166 Klotz told 

Finkelstein “not really.”2167 Finkelstein testified that Klotz told him that CID had 

presented no new information.2168 

Klotz did concede before the grand jury, though, that CID had presented 

information to ACC during the meeting that ACC “had not had previously,”2169 

concerning the erroneous 1992 Schedule A deduction and Lange’s alleged 

misrepresentation of herself as a revenue officer.2170 Klotz further conceded he was 

not in a position to dispute that, during the meeting, CID had presented evidence 

demonstrating that Cisneros could not have believed his returns were correct when 

he signed them, based on amounts he spent on his wife, his children’s tuition, and his 

Lincoln Benefit annuity before including the monies he paid to Medlar – independent 

of whether the inaccurate returns could be attributed to Hernandez.2171 

18. The Declination Memorandum 

On March 27, 1997, ACC issued a formal Declination Memorandum, declining 

to refer the Cisneros tax case for either prosecution or grand jury investigation.2172 

The memorandum bore Finkelstein’s signature stamp, but Finkelstein attributed the 

decision to Klotz. According to Finkelstein, after Klotz told him that no new 

information had come out of the March 18 meeting with CID, he responded, “if 

2166 Id. at 14. 

2167 Id. at 14. 

2168 GJ 00-001 Tr. Finkelstein 11/14/00 at 99, 108-10, 115. 

2169 GJ 00-001 Tr. Klotz 3/27/01 at 24-26. 

2170 Id. at 18-25. 

2171 Id. at 48-65. 

2172 GJ 00-001 Ex. 93. 

V-185 
• • • 

there’s nothing that’s changed your mind, if you’re still strong on decline, write it 

up.”2173 

Klotz, on the other hand, testified that Finkelstein “made his decision and I was 

just going to put it on paper.”2174 Klotz said that Finkelstein had editorial authority 

and control over the memorandum and that he made additions and deletions to the 

document “until it was what [Finkelstein] wanted.”2175 Needle testified that Klotz was 

only a “scribe,” putting Finkelstein’s ultimate determinations to paper.2176 

The Declination Memorandum concluded that: 

[T]he recommended offenses cannot be proven beyond a reasonable 

doubt and that there is no reasonable probability of conviction. 

Accordingly, we decline to refer this case to the Tax Division, 

Department of Justice, for criminal prosecution and instead, recommend 

that the criminal aspects of this case be closed.2177 

ACC deemed willfulness the “major concern” in the case.2178 [REDACTED 

PURSUANT TO COURT ORDER]2179 Cisneros’s ability 

2173 GJ 00-001 Tr. Finkelstein 11/14/00 at 115. 

2174 GJ 00-001 Tr. Klotz 4/24/01 at 97. 

2175 GJ 00-001 Tr. Klotz 2/6/01 at 88-90, 93. 

2176 GJ 00-001 Tr. Needle 6/19/01 at 117. 

2177 GJ 00-001 Ex. 93 at 10. 

2178 Id. at 3. 

2179 Id. at 4. 

V-186 
to muster character witnesses,2180 and the IRS’s disclosure of information to the OIC 

as additional problems that could further impede prosecution.2181 

Finkelstein also identified, as a factor favoring declination, DOJ’s decision to 

decline to expand the OIC’s jurisdiction to embrace tax offenses in two out of three 

years for which expansion was requested2182 – a decision for which, Finkelstein 

testified, DOJ might have used him as a “scapegoat” or “cover.”2183 The Declination 

Memorandum did not mention this factor. 

The Declination Memorandum also did not mention several points that had 

been flagged in the March 7, 1997 Supplemental Status Memorandum. These points 

included the following, all of which had been discussed at the March 18 meeting: 

•	 ACC’s conclusion that Cisneros had no way of knowing that the returns 

contained significant errors; 

•	 defense counsel’s claim that one of the CID agents, while misrepresenting 

herself as a collection officer to Hernandez, had obtained information from him 

concerning Cisneros’s 1993 return; and 

•	 the claim that Cisneros had overpaid his 1992 taxes because Hernandez had 

incorrectly reported Cisneros’s substantial 1992 estimated tax payments as a 

Schedule A itemized deduction on Cisneros’s 1992 return. (The Declination 

Memorandum characterized this deduction as a mistake by Hernandez that was 

“amateurish and totally inexcusable,” but did not note that it actually lowered 

Cisneros’s declared taxable income and tax bill.2184) 

2180 Id. at 9. 

2181 Id. at 9. 

2182 GJ 00-001 Ex. 216A; GJ 00-001 Tr. Finkelstein 11/30/00 at 47-48. 

2183 GJ 00-001 Tr. Finkelstein 9/28/00 at 71-77. 

2184 GJ 00-001 Ex. 93 at 6. 

V-187 
Like the Supplemental Status Memorandum, the Declination Memorandum laid 

out the four elements of 26 U.S.C. § 7206(1) that the Government would have to 

prove at trial: 

1)	 that he had subscribed each return that was false as to a material matter; 

2) 	 that each return had contained a written declaration that it was made 

under the penalties of perjury; 

3)	 that he had not believed each return to be true and correct as to every 

material matter; 

4)	 that he had falsely subscribed each return willfully with the specific 

intent to violate the law.2185 

The Declination Memorandum acknowledged that the Government could prove 

the first two elements and identified the fourth element, willfulness, as ACC’s major 

concern with the case.2186 The Declination Memorandum simply failed to address the 

third element – whether Cisneros knew his returns were false – and how this element 

influenced the element of willfulness. Klotz conceded to the grand jury that ACC did 

not analyze the third element of § 7206(1) and characterized this failure as “an 

oversight.”2187 

Thus, by the time it issued the Declination Memorandum, ACC (like Cisneros’s 

defense counsel) no longer maintained that the IRS could not prove that Cisneros had 

failed to declare income. ACC also no longer took the position that CID’s method 

of proving income – the bank deposits method instead of the specific items method, 

which had consumed so much of the debate between ACC and CID – was an 

impediment to prosecution. 

2185 GJ 00-001 Ex. 93 at 2. 

2186 Id. 

2187 GJ 00-001 Tr. Klotz 3/27/01 at 124-27. 

V-188 
Instead, ACC declined to refer the Cisneros case because it accepted the 

reliance-on-accountant defense advocated by Cisneros’s attorneys as disproving 

willfulness. This defense proceeded on the assumption that, if a non-deposited item 

of income could be “found” in Cisneros’s business records, either in a 1099 form or 

Arce-Garcia’s green ledgers, then Hernandez should have known about it and should 

have included it as income in Cisneros’s tax returns.2188 Thus, according to ACC, it 

was Hernandez’s fault – not Cisneros’s – that the returns were false.2189 

In accepting this defense, ACC did not address certain key evidentiary facts. 

It ignored evidence of the information that actually was available to Hernandez when 

he prepared Cisneros’s returns.2190 It overlooked evidence that Cisneros and his 

employees took steps to mislead Hernandez and failed to comply with his requests for 

information, thereby hindering him from setting up an effective accounting system.2191 

For example, the Declination Memorandum stated that all evidence of income 

had been available to Hernandez.2192 However, according to ACC’s notes of the case, 

ACC knew from CID that Hernandez did not have access to critical records, including 

the green ledgers and numerous 1099s, and did not know that Cisneros was 

depositing income directly into his household account.2193 

2188 GJ 00-001 Tr. Finkelstein 11/14/00 at 67; GJ 00-001 Tr. Finkelstein 

11/30/00 at 106-08. 

2189GJ 00-001 Ex. 93 at 7-10; GJ 00-001 Tr. Finkelstein 11/30/00 at 107-08. 

2190 GJ 00-001 Exs. 97; 20 at 24-25. 

2191 GJ 00-001 Exs. 20 at 15-16; 320. 

2192 GJ 00-001 Ex. 93 at 10. 

2193 GJ 00-001 Ex. 293 (Needle notes 9-14); GJ 00-001 Tr. Needle 6/5/01 at 71­

94. 

V-189 
Additionally, the Declination Memorandum claimed that Hernandez prepared 

Cisneros’s returns on the basis of 1099 forms.2194 However, evidence in the SAR as 

well as statements from Cisneros’s defense counsel to ACC indicated that Hernandez 

used a profit and loss statement – which he had derived from Cisneros’s bank 

statements – to prepare the 1992 return.2195 When asked about this in the grand jury, 

Needle could not explain how what he, Finkelstein, and Klotz should have recognized 

as an obvious error had made its way into the Declination Memorandum.2196 

The Declination Memorandum’s principal conclusion regarding willfulness 

was that “[Cisneros] entrusted his office management to a number of employees 

without realizing they were not fulfilling his obligation to prepare and file complete 

and accurate returns.”2197 This conclusion embraces the reliance-on-accountant 

defense; Macdonald explained the limits of this defense to the grand jury as follows: 

[W]hat the government tends to say in those cases is you have to one, 

prove that the taxpayer indeed gave access to all the books and records 

to the accountant, he has to talk to the accountant. If the accountant asks 

him questions, you have to be forthwith, you can’t mislead your 

accountant. 

And even if indeed you go through all that exercise and you get 

a return that you know on its face can’t be right and you sign it, it’s no 

defense to you that it was prepared by someone who might be an 

idiot.2198 

Finkelstein in his grand jury testimony similarly acknowledged that a taxpayer 

who knows that his returns are inaccurate cannot escape liability by saying that his 

2194 GJ 00-001 Ex. 93 at 7. 

2195 GJ 00-001 Tr. Needle 6/7/01 at 50-51; GJ 00-001 Exs. 20, 75. 

2196 GJ 00-001 Tr. Needle 6/19/01 at 122-24. 

2197 GJ 00-001 Ex. 97 at 3. 

2198 GJ 00-001 Tr. Macdonald 8/10/00 at 192. 

V-190 
accountant prepared the returns.2199 Before the grand jury, Klotz was asked if, 

knowing one’s returns were false, a taxpayer could sign the returns, claim reasonable 

reliance on the tax preparer, and thereby immunize oneself from criminal liability. 

He responded that “[t]here has to be a reasonable reliance and we felt that there was. 

We felt that we could not disprove that.”2200 

The Declination Memorandum notably failed to deal with the evidence 

indicating that Cisneros knew that his returns were false. There was in fact a 

substantial body of compelling evidence within the SAR and its exhibits that 

demonstrated Cisneros must have known that his returns were not correct. The 

Declination Memorandum ignored this evidence. 

District Counsel had informed ACC in Eagan’s memorandum accompanying 

the Cisneros case file that Cisneros “could not have believed that those returns 

correctly reported his gross receipts.”2201 The memorandum supported this contention 

by comparing the amounts Cisneros gave to Medlar and his wife in both 1991 and 

1992 to what he reported as Schedule C income (business income) on his tax 

returns.2202 All of the figures used were accompanied by citations to exhibits to the 

SAR.2203 The tax returns themselves were exhibits to the SAR.2204 

Likewise, the SAR explained that, when compared to his reported taxable 

income, Cisneros’s 1991 and 1992 payments to Medlar left him with little money for 

2199 GJ 00-001 Tr. Finkelstein 12/5/00 at 111-12.


2200 GJ 00-001 Tr. Klotz 3/27/01 at 120-21.


2201 GJ 00-001 Ex. 38 at 3.


2202 GJ 00-001 Ex. 38 at 1.


2203 GJ 00-001 Ex. 38 at 1.


2204 GJ 00-01 Ex. 20 at 58.


V-191 
other expenses.

2205 Klotz took note of this passage in the SAR as he reviewed the 

Cisneros case.2206 

During the March 18, 1997 meeting with Klotz and Needle, Filan specifically 

addressed the Supplemental Status Memorandum’s contention that Cisneros had no 

way of knowing that his tax returns contained significant errors. Specifically, Filan 

told ACC, “You draw the conclusion that he had no way of knowing that the returns 

were wrong. That’s a bunch of bunk.”2207 Filan also informed ACC that – without 

even considering Cisneros’s payments to Medlar – his payments to his wife, to 

schools for tuition, and to his Lincoln Benefit annuity together exceeded his taxable 

income.2208 Confronted with these statements during his grand jury testimony, Needle 

conceded that “based on that fact and that fact alone” someone could come to the 

conclusion that Cisneros could not have believed that his tax returns were 

accurate.2209 

With respect to whether Cisneros had any reason to believe that his returns 

were false, Finkelstein testified that Klotz either came to a contrary conclusion or 

“chose not to take this issue on.”2210 Finkelstein continued: “Could we have made a 

mistake? Maybe we did. I don’t think we did. . . . Did he mess up? I don’t know. . . . 

we may have made a mistake on that element, I don’t know.”2211 

Klotz admitted that, if one compared Cisneros’s expenditures on his wife and 

Medlar to his taxable income as declared on his returns, the expenditures far exceeded 

2205 GJ 00-001 Ex. 20 at 50-51. 

2206 GJ 00-001 Ex. 293 (Klotz notes at 26). 

2207 GJ 00-001 Ex. 97 at 3. 

2208 Id. at 4. 

2209 GJ 00-001 Tr. Needle 6/19/01 at 115-16. 

2210 GJ 00-001 Tr. Finkelstein 12/5/00 at 119. 

2211 Id. at 122-23. 

V-192 
his taxable income.2212 Klotz testified, however, that ACC chose to rely on Needle’s 

analysis, and that this analysis did not show that Cisneros’s expenditures on Medlar 

and his wife far exceeded his reported income.2213 

Klotz acknowledged that District Counsel had told ACC in Eagan’s 

memorandum that Cisneros could not have believed his returns to be true and 

accurate because his expenditures on Medlar and his family exceeded his taxable 

income for 1991 and 1992.2214 He also acknowledged that the SAR substantiated 

Eagan’s analysis.2215 However, he said he did not accept this analysis. He argued that 

District Counsel at that time “had not completely reviewed the case.”2216 In particular, 

he noted that CID was unaware of Hernandez’s role, which he characterized as “one 

of the most critical and in my opinion compelling and sort of determinative factor[s] 

as to why that would not have been correct . . . .”2217 

During their grand jury appearances, the OIC showed Finkelstein, Klotz, and 

Needle charts prepared by OIC that summarized declared income and expenditure 

figures taken from the SAR and its exhibits, showing that Cisneros’s expenditures 

greatly exceeded his declared income.2218 The charts made this showing on the basis 

of information provided or generated by Hernandez, and alternatively on the basis of 

information not attributable to Hernandez, such as third party records, witness 

statements, and testimony.2219 Information contained in the SAR and its exhibits 

demonstrated that Cisneros’s expenditures in 1991 and 1992 greatly exceeded the 

income he had reported in his tax returns. In 1991, Cisneros reported taxable income 

2212 GJ 00-001 Tr. Klotz 3/27/01 at 78-81. 

2213 Id. at 121-23. 

2214 GJ 00-001 Ex. 38 at 2; GJ 00-001 Tr. Klotz 3/27/01 at 73-74. 

2215 GJ 00-001 Ex. 20 at 15, 40; GJ 00-001 Tr. Klotz 3/27/01 at 78-81. 

2216 Id. at 77-78. 

2217 Id. at 77-78. 

2218 GJ 00-001 Exs. 241; 294. 

2219 GJ 00-001 Exs. 241; 294. 

V-193 
of $105,509, and his personal expenditures exceeded $143,000, of which about 

$73,000 he paid to Medlar.2220 In 1992, Cisneros reported taxable income of $68,599, 

and his personal expenditures exceeded $234,000, of which about $68,000 he paid 

to Medlar.2221 

Finkelstein testified that the figures were never presented to ACC “in this 

way,”2222 but that they gave him “a pause for concern” that would have caused him 

to raise the issue with Klotz: 

I would have said hey, this guy is in over his head, he’s spending 

$200,000 in one year and between $60,000 and $100,000, depending on 

how you analyze it, in another year, more than he’s reporting, get back 

to me. What do we say about that and I’d have to find out what he has 

to say about that. I don’t know. We’re saying what if on something that 

I didn’t have and maybe it was in [the] file and we were too foolish to 

find it, I don’t know.2223

 Finkelstein admitted to the grand jury that “a fair argument could be made” that there 

was no way that Cisneros could have believed that his returns were accurate as filed, 

and finally concluded that “[w]e could have been wrong.”2224 

When he was confronted with these figures, Klotz testified that he did not have 

the “technical acumen to do an accounting analysis” and claimed that he relied on 

Needle’s calculations.2225 Klotz also testified: 

2220 GJ 00-001 Exs. 241 at 1; 294 at 2-3. 

2221 GJ 00-001 Exs. 241 at 2-3; 294 at 2-3. 

2222 GJ 00-001 Tr. Finkelstein 12/5/00 at 144. Finkelstein was shown GJ 00­

001 Ex. 241. 

2223 Id. at 144-45. 

2224 Id. at 143, 146. 

2225 GJ 00-001 Tr. Klotz 3/27/01 at 118-19. Klotz was shown GJ 00-001 

(continued...) 

V-194 
This is a very nice chart. This chart was not made available to us. If it 

was, maybe – . . . Well, we didn’t do it.2226 

Nevertheless, Klotz acknowledged that all of the information needed to conduct this 

type of expenditures analysis had been available and, in some instances, reiterated to 

ACC during its review of the case.2227 

Needle testified that he had never compared Cisneros’s reported taxable 

income to his expenditures because no one at ACC had directed him to do so.2228 

However, when presented with these figures, Needle conceded that all the 

information necessary for an analysis comparing income and expenditures was 

contained in the SAR and its exhibits.2229 

The OIC showed the same information to Finkelstein’s boss Paris, who 

acknowledged that all of the information was available to ACC during its review and 

that Eagan had pointed it out in his transmittal memorandum.2230 Paris told the OIC 

that the expenditures analysis would have had an impact on the third and fourth 

elements of 26 U.S.C. § 7206(1) – Cisneros’s knowledge of the failure to declare 

income and his willfulness – and that ACC had performed poorly in not addressing 

whether Cisneros knew that his returns were false.2231 However, according to Paris, 

2225(...continued) 

Ex. 294. 

2226 Id. at 119. 

2227 Id. at 102-05. 

2228 GJ 00-001 Tr. Needle 6/19/01 at 79-81. 

2229 Id. at 88. Needle was shown GJ 00-001 Ex. 294. 

2230 OIC Interview Notes Paris 7/27/01 at 9. 

2231 Id. at 9. 

V-195 
Finkelstein never mentioned this analysis in his briefings and instead focused on the 

information that was contained in Cisneros’s various accounting systems.2232 

The Declination Memorandum thus ignored the evidence of Cisneros’s 

willfulness that had been presented to ACC on multiple occasions orally and in 

writing, including Eagan’s early analysis of the case that Finkelstein and Klotz had 

received back in mid-January 1997. Eagan’s transmittal memorandum demonstrated 

that Cisneros could not have believed that his tax returns were accurate as filed 

because he spent more on Medlar and his personal and household expenses than he 

reported as income.2233 Finkelstein had expressly solicited the results of Eagan’s 

review when he informed District Counsel that he was transferring the case to 

ACC.2234 However, when Finkelstein was asked how ACC had used Eagan’s 

analysis, he replied: “I’m sure I’ve seen it before, but did I read it, did I focus on it, 

did I think about it, did I debate it? I don’t think so.”2235 Finkelstein testified that he 

had “no idea” whether Eagan’s analysis was even considered by his office.2236 

Finkelstein appears to have dismissed Eagan’s analysis from the outset. Klotz 

testified that he and Finkelstein discussed Eagan’s memorandum when it arrived.2237 

According to Klotz, Finkelstein said it was not a complete analysis and that District 

Counsel didn’t really understand the case.2238 After this discussion, Klotz testified 

“the document just sort of – I guess it just sort of faded away. I don’t remember 

going back to the document.”2239 Needle, the ACC attorney Finkelstein had assigned 

2232 Id. at 9. 

2233 GJ 00-001 Ex. 38. 

2234 GJ 00-001 Ex. 339B at 6. 

2235 GJ 00-001 Tr. Finkelstein 12/5/00 at 118. 

2236 Id. at 119. 

2237 GJ 00-001 Tr. Klotz 3/27/01 at 81. 

2238 Id. at 69-71. 

2239 Id. at 70. 

V-196 
to perform the computation analysis, testified that Finkelstein and Klotz had never 

made Eagan’s analysis available to him.2240 

The Declination Memorandum also does not address the fact that the relianceon-accountant defense contradicted Cisneros’s prior statements to the IRS that he was 

“always very careful to review his tax records”2241 and that he was “meticulous, 

scrupulous, and uncompromising in making sure that everything was reported for 

taxes.”2242 

Some of the other rationales the Declination Memorandum gave for its 

conclusions do not seem to hold up under close scrutiny. The memorandum flagged 

CID’s disclosure of information to the OIC as a possible problem,2243 but Paris 

informed the OIC that accusations of improper disclosures do not warrant declining 

to refer a case for prosecution.2244 Although the memorandum also notes 

[REDACTED PURSUANT TO COURT ORDER] as a problem,2245 it does not 

assign to the [REDACTED PURSUANT TO COURT ORDER] the significance 

that Finkelstein and Klotz gave it in their grand jury testimony. In later grand jury 

testimony, none of the ACC officials could even pinpoint when they first learned 

2246 about the [REDACTED PURSUANT TO COURT ORDER]. 

As in other areas, the ACC officials could not agree as to who was responsible 

for the analysis found in the Declination Memorandum. In the taped conversation 

with District Counsel, Finkelstein had foreshadowed the analysis used in the 

Declination Memorandum when he expressed “curiosity” about whether a 1099 form 

2240 GJ 00-001 Tr. Needle 6/19/01 at 74-75, 109-11. 

2241 GJ 00-001 Exs. 20 at 14; 28. 

2242 GJ 00-001 Exs. 20 at 14; 29 at 6. 

2243 Id. at 9. 

2244 OIC Interview Notes Paris 7/18/01 at 11-12. 

2245 GJ 00-001 Ex. 93 at 4, 10. 

2246See text accompanying footnotes 2018 to 2037. 

V-197 
had been issued for Cisneros’s income checks that had not been deposited.2247 

However, Finkelstein attributed the formulation of the analysis to Klotz and Needle: 

Needle and Klotz, who were analyzing this thing, started to focus in on 

the non-deposited items, they came to me and said those non-deposited 

items you could find in the 1099s or the green books and I said oh, 

really . . . . I did not test [Needle]. I did not ask him to. He found them. 

I don’t know how he found them.2248 

In contrast, Needle testified that Finkelstein devised the analysis and directed him to 

compare the figures deemed as unreported income in the SAR against the 1099s 

issued to Cisneros and Arce-Garcia’s green ledgers – the same analysis suggested by 

Cisneros’s counsel at the defense conference.2249 

Finkelstein testified to the grand jury that ACC left unanswered a number of 

factual issues originally raised by defense counsel. Among those issues were the 

authenticity of the Medlar tapes,2250 Medlar’s competency and value as a witness,2251 

whether Cisneros knew that some of his payments to the IRS in 1992 were intended 

for tax liabilities in prior years,2252 the possibility that Hernandez’s errors could have 

been benign mistakes,2253 whether Cisneros knew the tax implications of his Lincoln 

Benefit Life contributions and the liquidation of his Mass Mutual account,2254 whether 

Cisneros knew what his true income was in 1991 and 1992 versus what he reported 

2247 GJ 00-001 Ex. 339B at 5. 

2248 GJ 00-001 Tr. Finkelstein 11/30/00 at 106-07. 

2249 GJ 00-001 Tr. Needle 5/1/01 at 107-15. 

2250 GJ 00-001 Tr. Finkelstein 11/28/00 at 51-52. 

2251 Id. at 61-62. 

2252 Id. at 105. 

2253 Id. at 106. 

2254 Id. at 110, 128, 134, 157-60. 

V-198 
on his tax returns,2255 and whether Hernandez had had access to all of Cisneros’s 

books and business records.2256 In fact, though, the conclusions of the Declination 

Memorandum were consistent with defense counsel’s positions on many of these 

issues.2257 

Needle also testified that a number of issues were left unresolved following 

ACC’s March 18, 1997 meeting with CID. He defined an “unresolved” issue as one 

that CID and ACC were “not able to reconcile . . . and that our office’s position goes 

forward, notwithstanding CI[D]’s position.”2258 Among the unresolved issues were 

whether the undeposited income could be tracked using the 1099s and green 

ledgers,2259 the credibility of the Medlar tapes,2260 and willfulness.2261 According to 

Needle, the only issue that ACC and CID agreed on after the March 18, 1997 meeting 

was that the computations in the SAR were accurate.2262 

However, Needle acknowledged that there ways to resolve such matters. 

Needle testified that one way to resolve the outstanding issues would have been to 

2255 GJ 00-001 Tr. Finkelstein 11/30/00 at 43-44. 

2256 GJ 00-001 Tr. Finkelstein 12/5/00 at 26. 

2257 See GJ 00-001 Ex. 75 at 2-3, 6; GJ 00-001 Ex. 93 at 8-9 (authenticity of 

tapes); GJ 00-001 Ex. 75 at 6; GJ 00-001 Ex. 93 at 6 (mistaken deduction of 

estimated tax payments); GJ 00-001 Ex. 75 at 7-8; GJ 00-001 Ex. 93 at 5-6 

(Hernandez’s errors as benign mistakes); GJ 00-001 Ex. 75 at 6; GJ 00-001 Ex. 93 at 

6-7 (Cisneros’s knowledge of tax implications of Lincoln Benefit and Mass Mutual 

transactions); GJ 00-001 Ex. 75 at 7; GJ 00-001 Ex. 93 at 10 (Hernandez’s access to 

Cisneros’s financial information). 

2258 GJ 00-001 Tr. Needle 6/7/01 at 81. 

2259 Id. at 82-84. 

2260 Id. at 85. 

2261 Id. at 84, 86, 95-98. 

2262 Id. at 87. 

V-199 
authorize a supplemental investigation during which CID could have gathered more 

information.2263 Another was to conduct a grand jury investigation.2264 

Finkelstein testified that he believed the Cisneros case should have been 

worked as a grand jury matter.2265 He cited the disconnect between the returns and 

Cisneros’s real income, Cisneros’s Cabinet status, the volume of bank records 

involved, and the fact that Cisneros’s employees had been interviewed with 

Cisneros’s defense counsel present as reasons the investigation would have been 

“neater” if pursued before a grand jury rather than administratively.2266 According to 

Finkelstein, the presence of a prosecutor, the more thorough nature of witness 

testimony, and the fact that a transcript is produced were just some of the 

“tremendous benefits” of using a grand jury.2267 

Other IRS officials outlined the same options. Paris told the OIC that the 

discrepancy between Cisneros’s income and his expenditures would have warranted 

further investigation, including talking to CID or referring the case for grand jury 

investigation.2268 Hubbard testified that “[y]ou don’t kill a case because there’s a 

problem, you try to resolve the problem.”2269 The common response to problems with 

an investigation that has reached the review stage, according to Hubbard, is to put it 

on supplemental status to resolve those problems, and in some cases to refer it for 

grand jury investigation.2270 

2263 Id. at 101-02. 

2264 Id. at 98-101. 

2265 GJ 00-001 Tr. Finkelstein 11/2/00 at 52. 

2266 Id. at 52-54. 

2267 Id. at 60-62. 

2268 OIC Interview Notes Paris 7/18/01 at 7. 

2269 GJ 00-001 Tr. Hubbard 9/7/00 at 97. 

2270 GJ 00-001 Tr. Hubbard 9/7/00 at 94-97; GJ 00-001 Ex. 173 (CCDM 

(31)550); CCDM (31)580. 

V-200 
The Declination Memorandum, unlike the Supplemental Status Memorandum, 

did address whether the case should be referred to DOJ with a recommendation that 

it be investigated in front of a grand jury before a prosecution decision was made. 

ACC declined to make a grand jury referral, stating: 

[W]e considered the possibility of forwarding this matter to the Tax 

Division with a prosecution recommendation predicated upon taking 

Hernandez, Arce-Garcia and Alfred Ramirez before the grand jury to 

ascertain whether their testimony would be different in that atmosphere 

as compared to the setting of their prior testimony before special agents 

and one of Cisneros’ attorney [sic]. We concluded there is no reason to 

believe that the witnesses will change their testimony to the extent that 

it will establish that Cisneros directed them to not record income or to 

conceal income from Hernandez.2271 

When asked about the grand jury option for the Cisneros case, Finkelstein 

testified that: 

[H]ad it come to us in its much earlier stages with a request to conduct 

a grand jury investigation, we would have said yes because there was 

clearly – you’ve got a false return. There is no doubt in my mind that 

that return was bad and it needed to be investigated. So a request for a 

grand jury would have gone through the system very quickly . . . . So 

we had many discussions about had this case come here a year earlier, 

we would have said yes to the investigation and then we would have 

been out of the way. The policy implications of that bothered us 

because in essence we’re telling the agents by doing it right you suffer 

and that’s a terrible result. . . . Because we tell our agents that it’s better 

for the organization if the investigation is done solely within the IRS 

where the IRS controls the investigation, but the reality is by going that 

way the agents thus are bound by [ACC’s] review.2272 

2271 GJ 00-001 Ex. 93 at 10. 

2272 GJ 00-001 Tr. Finkelstein 8/31/00 at 50-51. 

V-201 
Regarding the decision not to refer the matter to a grand jury, Finkelstein and 

Klotz again pointed to each other. Finkelstein testified that Klotz recommended that 

the case be declined and not forwarded to a grand jury,2273 and that he (Finkelstein) 

was just “along for the ride.”2274 Klotz, in contrast, testified that he had told 

Finkelstein that “one way we can do this is to sen[d] it forth for grand jury 

questioning of these individuals, with subsequent determination of whether 

prosecution would be warranted.”2275 He continued: 

I remember saying to [Finkelstein] that look, you’ve got to make up your 

mind. How do you want this case to come out, are we going to just kill 

it, are we going to send it forward with grand jury? What do you think, 

what are you going to do? You have to make the decision. It’s close, 

you can do anything you want. That’s when he decided that he didn’t 

think that it would do any good to go with grand jury. Then the decision 

was made and the document was written.2276 

Needle corroborated the fact that Klotz favored putting certain witnesses before a 

grand jury.2277 

Needle further acknowledged that, on the basis of an analysis of the disparity 

between Cisneros’s expenditures and his reported income, the Cisneros case would 

have “fall[en] within [the] realm” of matters requiring referral for grand jury 

investigation.

2278 However, Needle also testified that he did not personally 

recommend or promote using a grand jury because, at the time of ACC’s review of 

2273 GJ 00-001 Tr. Finkelstein 11/14/00 at 115, 122; GJ 00-001 Tr. Finkelstein 

9/12/00 at 66, 67. 

2274 GJ 00-001 Tr. Finkelstein 9/12/00 at 66. 

2275 GJ 00-001 Tr. Klotz 4/24/01 at 71. 

2276 Id. at 93-94. 

2277 GJ 00-001 Tr. Needle 6/19/01 at 64-66. 

2278 GJ 00-001 Tr. Needle 7/10/01 at 128-29. 

V-202 
the Cisneros case, he did not have a “working knowledge” of the grand jury 

process,2279 and therefore “defer[red] to the expertise of others.”2280 

19. Reactions to the Declination Memorandum 

On March 31, 1997, Filan submitted a memorandum to the IRS Office of Chief 

Inspector alleging improprieties by Finkelstein in his handling of the Cisneros case 

(“Improprieties Memorandum”). The Improprieties Memorandum noted that, in an 

unprecedented deviation from the normal review process, the case was taken from 

District Counsel because of its “sensitive nature” and given to ACC attorneys who 

did not review criminal tax cases on a regular basis and to whom Finkelstein had 

apparently given directions to kill the case.2281 It also alleged that the decision to 

decline the case apparently had been made without regard to the evidence or the 

facts,2282 and that Finkelstein had apparently disclosed to a high-ranking DOJ Tax 

Division official “inside” information about the decision to decline the case.2283 The 

memorandum also observed that the Attorney General’s language in declining to 

expand the OIC’s jurisdiction mirrored the language Finkelstein had given CID for 

declining the case, and that Finkelstein’s possible disclosure of his intention to 

decline the case had potentially influenced the Attorney General’s decision to deny 

most of the OIC’s request.2284 

The Improprieties Memorandum further represented that Finkelstein was 

reported to have had a “cozy” relationship with Cisneros’s defense counsel for a 

2279 GJ 00-001 Tr. Needle 6/7/01 at 103. 

2280 Id. at 103. 

2281 GJ 00-001 Ex. 94 at 2-3. 

2282 Id. at 3-5. 

2283 Id. at 6-7. 

2284 Id. at 7. 

V-203 
number of years.2285 The OIC developed no evidence of any improper relationship 

between Finkelstein and any of Cisneros’s defense counsel. 

On or about April 7, 1997, CID submitted a “Notification of Intent to Protest 

Declination” to ACC. It was signed by several CID officials, including Filan and 

Killfoil.2286 

On April 10, 1997, the Special Division issued a sealed order denying the 

OIC’s referral request. The court determined that “[b]ecause the proposed referrals 

are encompassed within matters which the Attorney General has already determined 

should not be pursued by the Independent Counsel, we do not have the authority 

under the statute to make [the referral].”2287 As a result, the Independent Counsel was 

left with jurisdiction over only one tax year. 

On April 25, 1997, CID sent a “Protest of Declination Memorandum” to the 

Assistant Commissioner for CID in its National Office in Washington, D.C. The 

protest stated that “[t]he evidence in this case clearly proves Cisneros knowingly and 

willfully signed and filed false and fraudulent tax returns for each of the years 1991, 

1992, and 1993, in violation of Title 26, United States Code 7206(1).”2288 The 

Assistant Commissioner submitted the protest to Paris.2289 

However, on April 28, 1997, Paris and CID Deputy Assistant Commissioner 

Edward Federico agreed that the protest would be returned to CID and held in 

abeyance pending the outcome of the OIC’s investigation.2290 Federico and Paris also 

agreed that ACC would not inform Cisneros’s defense counsel of the decision to 

2285 Id. at 5. 

2286 Memorandum from Filan to ACC 4/17/97. 

2287 GJ 00-001 Ex. 105 (Opinion) at 1. 

2288 GJ 00-001 Ex. 110 at 26. 

2289 GJ 00-001 Ex. 112. 

2290 GJ 00-001 Ex. 112. 

V-204 
decline prosecution.2291 On the same day, Finkelstein was informed that the protest 

was being sent back to CID.2292 

Although Finkelstein knew that CID contemplated protesting his declination 

decision, he maintained in his grand jury testimony that CID had never asserted that 

the decision was wrong. He testified: 

Everything that [Klotz and Needle] had was provided to CID – the 

affidavit, the thick book from the defense counsel, the memo of 

conference from the defense counsel, the memo of March 7th saying 

we’re having problems with the case, the decline memo of March 27th, 

and to this day we’ve received nothing in response to say that our 

decision was wrong and where they disagree with the facts. If we 

butchered the facts, that’s why it’s written down. CID could have said 

you’re wrong, here’s where you’re wrong.2293 

Finkelstein further testified that “CID was absolutely welcome to protest it up four 

levels of review.”2294 Klotz similarly stated that “we didn’t stop short of just begging 

CI[D] to formally protest our declination before it was submitted and put in writing, 

on a line-by-line basis, their disagreement with our Declination Memorandum. CI[D] 

declined to ever do that.”2295 

2291 Id. 

2292 GJ 00-001 Ex. 111. 

2293 GJ 00-001 Tr. Finkelstein 9/21/00 at 110; see also GJ 00-001 Tr. 

Finkelstein 8/3/00 at 91, 110-120, 124; GJ 00-001 Tr. Finkelstein 5/25/00 at 27-28; 

GJ 00-001 Tr. Finkelstein 5/23/00 at 145-47. 

2294 GJ 00-001 Tr. Finkelstein 12/5/00 at 122.


2295 GJ 00-001 Tr. Klotz 3/27/01 at 49-50. 


V-205

The OIC received a copy of the Improprieties Memorandum on May 5, 1997. 

On May 6, the OIC met with Klotz and Federico.2296 At the meeting, Klotz 

represented that “[i]f [CID] files a protest, [Chief Counsel’s Office] would most likely 

(99.9% likelihood), affirm its decision to disapprove the investigation and produce 

yet another declination with which the OIC would have to deal.”2297 CID postponed 

any filing of a protest pending completion of the OIC’s investigation.2298 

Klotz told the OIC that any protest would be reviewed by Fielding or Paris.2299 

Fielding subsequently told the OIC that it was his responsibility to review CID 

protests of ACC decisions and that he and Paris would have done so if a protest had 

been filed in the Cisneros case.2300 Fielding and Paris informed the OIC that they had 

not told Klotz that a CID protest would be declined, and that Klotz was not 

authorized to make such a statement.2301 

Klotz also testified that he and Finkelstein “many, many times” asked their 

superiors to look at the case.2302 Similarly, Finkelstein testified that he and Klotz 

were “screaming” at their superiors to review the case to determine whether ACC had 

made the right decision2303

 and that it was his intent for ACC to have nothing to do 

with a protest.2304 However, Finkelstein wrote a memorandum to Fielding dated May 

2296 GJ 00-001 Ex. 119. 

2297 Id. at 2. 

2298 Memorandum from Brown to Fielding 5/23/97 re request by OIC. 

2299 GJ 00-001 Ex. 119 at 2. 

2300 OIC Interview Notes Fielding 8/2/01 at 4, 6. 

2301 Id. at 6-7; OIC Interview Notes Paris 7/27/01 at 8. 

2302 GJ 00-001 Tr. Klotz 3/27/01 at 50. 

2303 GJ 00-001 Tr. Finkelstein 7/18/00 at 146-48. 

2304 GJ 00-001 Tr. Finkelstein 5/23/00 at 72-73. 

V-206 
30, 1997 stating, in part: “You have the authority to have me decide the protest after 

consultation with you.”2305 

During the May 6, 1997 meeting with the OIC, Klotz also expressed ACC’s 

desire to inform Cisneros’s defense counsel that ACC had declined the case.2306 Klotz 

stated that it was standard procedure for ACC to meet with defense counsel and 

advise them of the disposition of their case.2307 Klotz told the OIC that Namorato had 

called ACC on numerous occasions to inquire about the state of the Cisneros case, 

and Klotz presumed that defense counsel was already aware of the declination.2308 He 

was informed that the OIC had not so notified the defense counsel.2309 

Klotz also expressed a desire to inform defense counsel that the OIC had 

obtained jurisdiction for the 1992 tax year.2310 The OIC advised Klotz that ACC was 

barred from doing so by court order.2311 Klotz stated that he was “uncomfortable” 

withholding information from defense counsel.2312 

Paris told the OIC that it would have further complicated the OIC’s efforts to 

prosecute Cisneros for 1992 criminal tax violations if District Counsel was 

concurrently pursuing Cisneros for 1991 and 1993 civil tax violations.2313 

Specifically, Paris told the OIC that Cisneros’s defense counsel would attempt to 

2305 GJ 00-001 Ex. 131. 

2306 GJ 00-001 Ex. 119 at 3. 

2307 Id. at 3. 

2308 Id. at 3. 

2309 Id. at 3. 

2310 Id. at 3. 

2311 Id. at 3-4. 

2312 Id. at 3. 

2313 OIC Interview Notes Paris 7/27/01 at 8. 

V-207 
draw attention to the fact that some of the conduct was being treated as a civil 

administrative matter.2314 

Federico later informed Klotz that neither statute nor regulation required ACC 

to notify taxpayers or their counsel of the disposition of an administrative tax case.2315 

Klotz responded that he agreed with Federico’s assessment.2316 Klotz’s memorandum 

to the file regarding this conversation was later noted by Finkelstein on May 20 or 21, 

1997.2317 

On May 23, 1997, the OIC sent a letter to the IRS asking it not to give Cisneros 

or his counsel notification of the status of its administrative tax case.2318 The Acting 

Commissioner of the IRS directed Finkelstein not to give such notice.2319 

J.	 Conclusion 

Because the OIC was unable to complete its obstruction investigation, let alone 

prosecute possible offenses in court, the investigation left numerous questions 

unanswered. However, the following points appear to be reasonably well established, 

and they are at least suggestive of the fact that some officials of DOJ and the IRS 

acted with a predisposition not to allow an independent counsel investigation of 

possible Cisneros tax offenses to go forward: 

•	 DOJ’s Public Integrity Section was very resistant to any independent counsel 

investigation of Cisneros, including in particular an investigation for tax 

offenses; 

2314 Id. at 8. 

2315 GJ 00-001 Ex. 122. 

2316 Id. 

2317 Id. 

2318 Letter from OIC to Dolan 5/23/97. 

2319 Memorandum from Dolan to Finkelstein 6/2/97. 

V-208 
•	 Public Integrity strongly urged against giving tax jurisdiction to an 

independent counsel without conducting a serious inquiry and despite strong 

evidence of possible tax offenses; 

•	 acting on Public Integrity’s recommendations, the Attorney General gave the 

Independent Counsel limited tax jurisdiction that made a tax prosecution 

impractical, and made the granting of further tax jurisdiction dependent on an 

IRS referral of the matter for prosecution, even though such a referral had a 

much more exacting threshold than that for granting jurisdiction to an 

independent counsel; 

•	 the IRS’s Assistant Chief Counsel for criminal tax matters and the DOJ Tax 

Division Senior Counsel were opposed to independent counsels’ investigating 

and prosecuting tax matters; 

•	 the IRS’s Assistant Chief Counsel assumed control of the Cisneros matter in 

an unprecedented fashion, when it became apparent that the experienced line 

officials who normally would have reviewed the case were strongly disposed 

to refer it for prosecution; 

•	 the IRS’s Assistant Chief Counsel took an interest in the fact that the 

Independent Counsel’s request for tax jurisdiction was pending while he 

conducted his review of the Cisneros matter, and he consulted with DOJ about 

the Cisneros case while the Independent Counsel’s request for tax jurisdiction 

was pending before it; and 

•	 the IRS’s Assistant Chief Counsel declined to refer the Cisneros case for 

prosecution or grand jury investigation in the face of substantial evidence that 

objectively appears to indicate that the matter should have been prosecuted. 

V-209

VI. CONCLUSION 

This Final Report presents a multi-faceted story of persons who put their 

personal, political, or institutional interests before the public interest. The result was 

a time-consuming and expensive, but ultimately necessary, investigation and 

prosecution effort. In the end, many questions remain open, but there are definite 

conclusions to be drawn. 

The false statements investigation showed that Cisneros (in league with 

Medlar) and some of Cisneros’s employees deliberately lied to the Federal Bureau of 

Investigation and others to help Cisneros gain a Cabinet post. This phase of the 

investigation ended with a plea bargain, following Cisneros’s resignation from the 

Cabinet, but this Office is confident it would have proved in court that Cisneros and 

the others told such lies and that the lies were material to government decisionmaking. In the view of this Office, and of the court, the negotiated disposition of 

these charges was appropriate given the nature of the offenses, the available evidence, 

and the other consequences suffered by the participants. The evidence also indicated 

that certain members of the Transition Team and the Senate were remiss in their 

oversight role in their enthusiasm to see Cisneros appointed to his post, but this 

Office did not uncover a sufficient basis to state criminal charges against any of these 

persons. 

Unfortunately, a major part of this Office’s efforts were expended in dealing 

with the non-cooperation of Medlar, whose public revelations and lawsuit had 

launched the inquiry in the first place. She lied repeatedly, at times under oath, and 

seriously impeded this Office’s efforts. In the end, she suffered more severe 

consequences than anyone else, a regrettable result that she brought upon herself. 

This Office also had jurisdiction to investigate Cisneros for tax offenses in one 

year, 1992. In the end, it elected not to press any charges against him in this matter. 

This decision rested principally on the difficulty of proving a willful tax violation for 

a single year. This Office maintained, and still is of the view, that Cisneros’s tax 

filings for 1991, 1992, and 1993, merited a multi-year criminal investigation and, 

quite possibly, prosecution for willful tax evasion. There is no real question that he 

seriously underdeclared his income on his tax returns, and it is hard to escape the 

conclusion that these actions were willful, given that his expenses (including his 

payments to Medlar) far exceeded the income he declared. However, because of the 

VI-1

actions of the Department of Justice and the Internal Revenue Service, an 

independent counsel could never undertake a multi-year investigation. 

This Office’s inquiry into possible obstruction of justice within DOJ and the 

IRS was incomplete, but the limited record developed is sufficient to suggest that 

these agencies’ treatment of possible charges against Cisneros was at best 

questionable and at worst represented serious wrongdoing. There seems to be no 

question that Cisneros was given extra consideration and more limited scrutiny 

because of who he was – an important political appointee. It also appears likely that, 

if the responsible officials had properly applied the statutory standards they are 

obligated to uphold, the IRS would have referred the Cisneros case to DOJ for 

criminal prosecution, and the Attorney General would have asked that an independent 

counsel handle the matter. But this Office received little in the way of cooperation 

from DOJ, whose purpose should be to protect the public interest and not to circle the 

wagons in protection of government personnel. This non-cooperation, in conjunction 

with the lapsing of the Independent Counsel Act, brought this phase of this Office’s 

activities to an end without a definitive conclusion. 

The foregoing is not meant to be a criticism of these agencies as a whole. 

Numerous officials in each worked hard to make certain that Cisneros received no 

special treatment. But, in the end, enough high-ranking officials with enough power 

were able to blunt any effort to bring about a full and independent examination of 

Cisneros’s possible tax offenses, in the face of what seemed to many to be obvious 

grounds for such an inquiry. 

This Office at all times attempted to fulfill its mandates, often in the face of 

stiff resistance. It sought, and sometimes received, clarification or expansion of its 

powers and duties when this seemed appropriate. When circumstances made it 

apparent that further efforts would no longer serve the public interest, it halted 

operations and began the process of closing down. 

VI-2