By Micah Morrison, a Journal editorial page writer.

CHICAGO — Last week, the Federal Deposit Insurance Corp. issued a report criticizing Little Rock's Rose Law Firm for conflicts of interest in representing the government. It was harsh on convicted felon Webster Hubbell in one case, and in another laid much responsibility on the late Vincent Foster. But it minimized the role of a third partner, Hillary Rodham Clinton, on questions about her relationship with drug convict Dan Lasater and Rose's role in suing him on behalf of the government and First American Savings & Loan of Oak Brook, a Chicago suburb.

The FDIC didn't exactly say Mrs. Clinton had no conflict of interest, but it did say that in the First American case she billed for only two hours, reviewing some work in the absence of Mr. Foster, the lead attorney. It said Mrs. Clinton met Mr. Lasater only twice, though he had contributed $16,000 to her husband's gubernatorial campaigns and had a close friendship with Virginia Kelley, Mr. Clinton's mother, and Roger Clinton, Mr. Clinton's half brother. It said that in the end Mr. Foster got a settlement of $200,000 from Mr. Lasater, against a loss to the thrift of $361,000 -- not at all bad by the standards of bankrupt thrifts. There seems little reason to doubt that these facts are accurate, as far as they go.

TD Yet some time probing the affairs of First American here in Chicago suggests that the FDIC's bland recitation conceals a much more interesting story. First American of Oak Brook -- not to be confused with the First American Bank in Washington illicitly owned by the Bank of Credit and Commerce International -- happened to be owned by former Illinois Gov. Dan Walker, like Mr. Lasater now an ex-con. The $361,000 figure was established in a lawsuit by Mr. Walker against Mr. Lasater for unauthorized trading of Treasury bonds. Mr. Lasater's defense was that the trades were authorized and there was no breach of fiduciary relationship. But in a broader sense, given Mr. Lasater's financial relations with First American and Gov. Walker, he may have had reason to believe he owned the bank. Court records relating to Mr. Lasater's curious trades with First American also suggest that he may have taken more than the disputed $361,000 out of the thrift. And, to connect the Illinois affair with the probe of Little Rock's Madison Guaranty, the savings and loan at the heart of the Whitewater scandal being aired in congressional hearings this week, there's reason to wonder whether Mr. Lasater was doing the same thing with Madison, where he also held a trading account.

In short, who is Dan Lasater?

The FDIC is quite correct that he was not Hillary's friend; he was Bill's friend, and according to many Little Rock sources, partying companion. The FDIC's $16,000 in campaign contributions does not appear to include donations Mr. Lasater encouraged from associates, nor such favors as the use of the Lasater plane for campaign-related events. The FDIC says that "a full report of the investigation" will be made available to the public, but so far it has not elaborated on Mr. Lasater's other favors for the Clinton family.

In a 1986 interview with the FBI, for example, Mr. Lasater said that he gave Roger Clinton a job as a stablehand at the governor's request; later, Roger Clinton approached Mr. Lasater for help in paying off a $20,000 cocaine debt. Mr. Lasater told the FBI that he arranged an $8,000 "loan" to help the governor's brother. Copies of FBI interviews with Mr. Lasater and his associates were obtained by the Wall Street Journal. Mr. Lasater did not responded to interview requests.

Roger Clinton went to jail for connections to the same cocaine ring that ultimately put Mr. Lasater himself behind bars. Mr. Lasater was convicted of social distribution of cocaine and served six months; Gov. Clinton later pardoned him -- effecting his "relief from civil liabilities," as Senate Banking Committee Chairman Alfonse D'Amato (R., N.Y.) so delicately put it in hearings last week.

Also, Mr. Lasater for almost 10 years employed Patsy Thomasson, now a top White House aide and one of the three people to visit Mr. Foster's office the night of his death. When Sen. Lauch Faircloth (R., N.C.) sought to question Ms. Thomasson about her relations with Mr. Lasater and Madison Guaranty during her Banking Committee appearance, Sens. Paul Sarbanes and Christopher Dodd objected it was beyond the "scope" of the hearings; after several exchanges, Chairman D'Amato ultimately ruled, "I'd ask the senator to withhold at this time."

Mr. Lasater also did favors for a number of other former governors, including Dan Walker. Mr. Walker was the Democratic governor of Illinois from 1972 to 1976 and had been planning a late entry into the 1976 presidential race when a gubernatorial primary loss brought his political career to an abrupt end. Following a string of failed business ventures, Mr. Walker bought First American in 1983. The same year, Mr. Lasater sold Mr. Walker a 48-foot yacht. Mr. Lasater's partner David Collins handled the $350,000 sale, "and money was lost in the deal," Mr. Lasater told the FBI. Mr. Lasater also told the FBI that he had loaned Mr. Walker $200,000 and received stock in First American as collateral. (In the same FBI interview, Mr. Lasater said he delivered a $300,000 cash loan to a former Kentucky governor in a paper bag, and through an intermediary offered a former New Mexico governor a consulting job. At the time, Mr. Lasater owned Angel Fire, a New Mexico resort and air strip.)

Initially, First American enjoyed spectacular growth, with assets zooming from $13 million in 1983 to more than $80 million by late 1985. News reports have attributed the growth mainly to an inflow of brokered jumbo certificates of deposit. But in 1985, Mr. Walker sued Mr. Lasater for unauthorized T-bond trading through First American. In 1986, Mr. Walker's thrift was declared insolvent and placed in conservatorship. A year later, Mr. Walker pleaded guilty to looting the thrift of nearly $1.4 million. A federal judge sentenced him to seven years in prison, castigating him for using the S&L as "a personal piggy bank."

Mr. Walker had accused Mr. Lasater of "front-running" trades -- essentially, trading Lasater accounts "in front of" First American accounts. According to an analysis prepared by commodity trading expert Leslie Jordan for First American when it was represented by Mr. Foster, trading tickets linked to Lasater & Co. likely were doctored; "someone stuck the loser in First American's account," Ms. Jordan said in a deposition related to the case. She added that there were other "questionable trades" not listed in the First American suit and that "there may have been illegal practices that just weren't caught at the time."

First American and another failed Illinois thrift, Home Federal Savings & Loan of Centralia, also appear to figure into the mysterious case of Dennis Patrick, a Kentucky resident who discovered millions of dollars worth of unauthorized trades being run through his Lasater & Co. account. In an interview with Mr. Patrick's lawyer, two former Lasater traders claimed that repurchase agreements related to the Patrick account had been dumped in First American and Home Federal. In 1988 the Centralia thrift also sued Lasater & Co. for unauthorized trades. Ms. Jordan, the commodity trading expert, analyzed some of the Lasater trades done for Home Federal, noting "a lot of suspect activity." In 1989, Vincent Foster advised Home Federal's management to accept a $250,000 out-of-court settlement with Mr. Lasater.

At both thrifts, the suspect trades occurred between March and May of 1985, intersecting the spectacular fall of Bevill, Bresler & Schulman Asset Management Corp. in April. The New Jersey firm went under with $200 million in losses in an uncollateralized repurchase-agreement scandal that sent shock waves through the securities industry. The fall of Bevill is also mentioned in the interview with Lasater traders. According to bankruptcy notices filed in Chicago, both First American and Home Federal were listed as creditors of a Chicago securities firm that went under with Bevill. Another firm that did not survive was Collins Inc. of Little Rock, run by Mr. Lasater's former partner David Collins, who sold Mr. Walker the Lasater yacht at a loss.

The biggest apparent loser in the Bevill collapse, though, was Little Rock's Worthen Bank, which held $52 million in repos with Bevill on which it had failed to secure the collateral. The Worthen repos actually represented Arkansas state funds. Little Rock's investment giant Stephens Inc. recapitalized Worthen to cover the loss, assuming a much larger stock interest and placing a Stephens executive as CEO. Initially, this positioned Stephens as a hero, but after the Clinton presidential election it became controversial in light of the law against mixing investment banking and commercial banking. After Stephens sold its interest in Worthen last March, the Federal Reserve dropped a two-year investigation, declaring the issue "moot."

As for Mr. Lasater's relations with Madison, the thrift opened a trading account with him in 1984, but it's not known whether it was extensively used. Before Sen. Faircloth's questioning was cut off, Ms. Thomasson said her employment by Lasater involved only a short time at the bond house, and she did not know about the trading account. She did confirm, however, that Mr. Lasater was involved in Emerald Isle Resort, a Madison-financed real estate deal.

While no evidence has emerged linking drug money to Mr. Lasater's bond business, his cocaine conviction and links to troubled thrifts have raised questions about possible money laundering activities. Last month, Greg Hitt of Dow Jones News Service reported that Resolution Trust Corp. investigators had passed documents concerning Mr. Lasater and Madison Guaranty to then-Special Counsel Robert Fiske. Mr. Hitt quoted minutes from a high-level RTC meeting in June 1994: "Dan Lasater may have been establishing depository accounts at Madison and other financial institutions and laundering drug money through them via brokered deposits and bond issues."

Also last month, the American Spectator magazine reported the claim of an Arkansas state trooper, L.D. Brown, that when he told Gov. Clinton he'd seen drugs on flights from remote Mena airfield in western Arkansas, the governor replied, "that's Lasater's deal." While there is no way to substantiate Mr. Brown's account of the conversation, the time frame, at least, seems to fit. Barry Seal, the admitted drug smuggler with whom Mr. Brown said he flew, was active in the early to mid-1980s, and Mr. Lasater admittedly was involved with cocaine during the same time. So was Roger Clinton. In 1985, Roger Clinton was offered a deal at the end of a long drug probe centering around Mr. Lasater and his associates, including former partners George Locke, a former state senator, and David Collins. Roger Clinton pleaded guilty to reduced charges, testified against the Lasater circle -- most of whom were indicted -- and went to jail for 15 months.

The man who cut the deal was George Proctor, a former state legislator who had been named U.S. attorney for the Eastern District of Arkansas by President Jimmy Carter in 1979. Shortly after Roger Clinton's testimony, Mr. Lasater pleaded guilty to the minor social distribution charge and went briefly to prison. Mr. Proctor now heads the Justice Department's Office of International Affairs, which deals with, among other things, aspects of the BCCI case. Oddly enough, BCCI first attempted to enter the U.S. through Arkansas in the late 1970s, in a deal initially handled by Stephens Inc., which says it has had no contact with BCCI investors since 1978.

Early 1986 must have been a tough time for Bill Clinton. His brother was in jail. Mr. Lasater was on his way to jail. Federal regulators had removed James McDougal from the board of Madison Guaranty. Mr. Clinton was planning his fifth run for governor and thinking about a bid for the presidency. His GOP rival Frank White was making his association with Mr. Lasater an issue. Into this atmosphere drifted the threat of the Walker lawsuit, which had been taken over by the Federal Savings and Loan Insurance Corp.

FSLIC handed the Lasater suit to Hopkins & Sutter, a Chicago firm where former Gov. Walker had worked for 13 years prior to his political career. Hopkins & Sutter dismissed the previous Little Rock counsel, Hardin & Grace, and hired the Rose Law Firm; Vincent Foster took the case. Mr. Lasater hired Wright, Lindsey & Jennings -- Gov. Clinton's old firm. In less than a year, the case was settled under a seal of confidentiality, vanishing from public view. Even the fact that a settlement had been reached was put under seal, until revealed in a Chicago Tribune story last year. While the FDIC took a different view, the Tribune suggested Mrs. Clinton's participation in the suit may have constituted a "glaring conflict of interest."

Mr. Lasater, it seems, was of great interest to the overlapping circles of law enforcement, finance and legal representation in Little Rock and beyond. If who Dan Lasater is and what he was up to remain beyond the "scope" of Congressional hearings, the hearings probably won't reveal very much.