Castle Grande - David Hale

David Hale

Since 1979, David Hale ran the Small Business Investment Corporation, Capital Management Services, Inc., that was licensed to provide lending to minorities and the economically disadvantaged. The loans were matched and backed by the Small Business Administration. SBA. David Hale testified that he and Jim McDougal, with future-Governor Jim Guy Tucker, made the scheme that would use Hale's SBIC as a pass-through to generate additional loans from Madison. Dean Paul, a friend and business associate of Hale's, borrowed $825,000 from Madison to buy three properties from David Hale. But, Paul never used the money, it went to Hale, who used it to recapitalize his SBIC with matching funds from the SBA. Hale then loaned a $150,000 downpayment to Jim Guy Tucker and business partner, R.D. Randolph, who together bought out a portion of Ward's Castle Grande holdings for $1.2 million. Tucker and Randolph borrowed the additional $1.05 million from Madison.

McDougal then loaned his old friend and political mentor, Senator William Fulbright, $700,000 to buy out the bulk of Ward's remaining holdings. The net effect was to remove Ward's non-recourse loan from the Madison books and generate substantial sales profits and commissions for Madison. The transactions were designed to be confusing to keep the regulators from finding Ward's loan and Madison's full investment in Castle Grande. The federal thrift examiners arrived the first week of March, 1986. The Dean Paul loan done on February 28.

The loans did not miss the examiners. Jim Clark, the Federal Home Loan Bank Board Examiner-in-Charge at Madison, discovered that Seth Ward was behind the Castle Grande deal. The land was purchased illegally with Madison money. The Castle Grande loan like other loans were "pyramid scheme" intended to enrich institution insiders and bolster the net worth of the S&L. Clark said Madison was one of the 3 worst cases of insider dealing that he did ever seen in his 20 years as an examiner.