Clinton 2000 Race Under Investigation

Sen. Hillary Rodham Clinton's (search ) 2000 Senate campaign is the subject of an ongoing probe into possible fund-raising violations, FOX News has learned.

Legal sources suggest that the New York Democratic senator is not expected to be subject of the probe. Instead, David Rosen (search ), Clinton's chief fund-raiser, is subject of a criminal investigation and now in front of a grand jury, sources told FOX News.

According to the FBI, Rosen has been named by indicted businessman Peter Paul (search ), who alleges the former first lady's campaign deliberately understated its fund-raising costs so it would have more money to spend on elections.

Paul, a three-time convicted felon currently facing stock fraud charges in New York, hosted a Hollywood fund-raising event for Sen. Clinton before her election in 2000. He asserts he underwrote most of the costs of the event. Prosecutors say Paul was looking for a pardon from President Clinton at the time.

Paul's lawyers have met three times, most recently in May, with Noel Hillman, the Justice Department's top public corruption attorney and a career official, to discuss a plea deal if Paul can substantiate his allegations.

Lawyers for the senator and her aide say Clinton and Rosen did nothing wrong.

"New York Senate 2000 properly reported all donations in 2000," Clinton attorney David Kendell said.

"From my review of all the facts, I am convinced that Mr. Rosen has done nothing improper. To the contrary, he has done everything right," said Paul Mark Sandler, Rosen's attorney.

According to a 2002 FBI affidavit unsealed this summer, the Clinton campaign understated the amount it spent on the Aug. 12, 2000, Hollywood gala in order to make available cash for "federal campaign activities."

"The event's costs exceeded $1 million, but the required forms filed by New York Senate 2000 ... months after the event incorrectly disclosed that the cost of the event was only $523,000," the affidavit reads. "It appears that the true cost of the event was deliberately understated in order to increase the amount of funds available to New York Senate 2000 for federal campaign activities."

The document also said a $366,000 donation to the gala was incorrectly listed as coming from the company Paul co-founded, Stan Lee Media, when it really came from Paul personally.

New York prosecutors in the case against Paul wrote a memo last July that links Paul to illegal campaign contributions. U.S. Attorney Catherine Youssef of New York wrote that in August 2000, Paul borrowed about $225,000 from partner Stan Lee, saying he needed the money for a party for Bill and Hillary Clinton.

The memo reads that in the summer of that year, Paul tried to bribe the former president in an attempt to win a pardon for his three felony convictions. Part of the alleged bribe was Paul's financing the bulk of fund-raising events for Mrs. Clinton's campaign, Youssef wrote.

Paul said in an interview recorded by the FBI in 2001 that Rosen worked in Paul's office for one month putting together the Hollywood party. According to Paul, Rosen watched him write checks totaling about $1.5 million to pay for the gala.

"Paul stated that none of the campaign reports list the names of the companies used by him to pay for the party," an FBI document said.

Another 2001 FBI document based on an interview with Paul said, "Paul advised that David Rosen sat in on every planning meeting (for) this event and met every supplier."

Attorney Robert Sticht of Los Angeles is working with Judicial Watch (search ), a government watchdog group, to represent Paul. Sticht said he has met three times with Hillman, chief of the Public Integrity Unit, to discuss a possible arrangement but no deal has been reached.

"Hillman was anxious to get moving," Sticht said in an interview with the Associated Press. Sticht said the public corruption prosecutor also told him, "If you think all of the evidence came from your client, let me assure you that it's not true."

Justice Department spokesman Mark Corallo said he had no comment on the investigation. The Federal Election Commission usually handles allegations of campaign finance irregularities, but the Justice Department does have a history of campaign investigations. In 1996, under a Democratic administration, the Justice Department launched a probe of more than two dozen people and two corporations over fund-raising abuses during that election year. Most of the people involved were part of Democratic fund-raising operations.

FOX News' Anna Persky and The Associated Press contributed to this report.