ASHINGTON, July 10 — President Bush received two low-interest loans to buy stock from an oil company where he served as a board member in the late 1980's. He then benefited from the company's relaxation of the terms of one loan in 1989 as he was engaged in the most important business deal of his career.
On Tuesday, Mr. Bush called for a halt to those types of insider transactions, challenging corporate directors to "put an end to all company loans to corporate officers."
The loans from Harken Energy allowed Mr. Bush to acquire 105,000 shares in the company — 80,000 in late 1986 and 25,000 in 1988 — through a stock option program that was available to top corporate officials. Harken did not require repayment of the principal for eight years and charged 5 percent annual interest. The prime rate in December 1986, when Mr. Bush received the initial loan, was 7.5 percent.
He ultimately returned the stock he acquired this way, canceling the loans. Such loans were not uncommon among companies seeking to promote long-term shareholding among executives and directors.
Dan Bartlett, the White House communications director, said Mr. Bush was not being hypocritical in calling for an end to loans of a kind he once got. He said that while such loans had been properly used by many companies to encourage long-term share ownership, they had in some cases recently been abused.
To finance the stock purchase in 1986, Mr. Bush originally had to assume personal liability for repayment. He pledged as collateral not only the 80,000 shares he got through the options program but also other Harken shares he had gotten for selling his struggling energy company to Harken earlier that year.
In 1989, Harken relaxed the terms of the 1986 loan to remove any "personal liability to yourself," the company's lawyer wrote to Mr. Bush on Oct. 5 of that year. The change had the effect of freeing Mr. Bush's original 212,000-share block of Harken stock, which he sold the next year.
That sale, in June 1990, brought him $848,000, which he used to pay off a $500,000 loan he had taken out to help him buy into the Texas Rangers baseball team, a deal that helped secure his own personal fortune and propel him into Texas politics.
Mr. Bartlett said Mr. Bush never profited from the Harken loans because after Harken changed its stock option program, Mr. Bush returned the shares in exchange for new options that he never exercised.
In view of the recent abuses, Mr. Bartlett said, "President Bush looked at these loans, and the president felt the best way to do it was to draw a bright line; the best way to handle these loans going forward is through a bank."
The June 1990 Harken stock sale led to an investigation by the Securities and Exchange Commission — during his father's administration — of whether Mr. Bush had knowingly sold the stock in advance of worse-than-expected financial results that temporarily drove down Harken's share price.
The S.E.C. took no action against Mr. Bush. But the issue has dogged him politically for almost a decade and has again come up in recent weeks as accounting and insider trading accusations have dominated the headlines. Democrats have seized on it again in an attempt to draw a contrast in the president's business record and his call for more ethical corporate behavior.
His demand in a speech to Wall Street on Tuesday for companies to stop making loans to insiders has raised the question of how his toughened standards today would have applied to his own corporate experience.
Harken publicly disclosed the $180,000 in loans to Mr. Bush, to exercise stock options, in its financial statements at the time, but did not publicly disclose the change in the terms of Mr. Bush's 1986 loan.
One issue that has come up again is why Mr. Bush was tardy in filing one of the S.E.C. forms disclosing his 1990 stock sale. The White House has said that it was Harken's responsibility to file the form. At a news conference on Monday, President Bush said, "I still haven't figured it out completely," after saying years ago that the S.E.C. had lost the form.
According to company documents, however, Harken's lawyers sent Mr. Bush two memos in the months before the 1990 stock sale setting out in detail new procedures for filing paperwork with the S.E.C. But one of the two required forms regarding Mr. Bush's sale of the 212,000 shares reached the S.E.C. 34 weeks late — and while Mr. Bush had signed it, he left the date blank.
Mr. Bartlett said the main point of the memos was to urge Mr. Bush to consult the company's lawyers about any sale of the stock. Mr. Bartlett said Mr. Bush did just that. In deciding not to take any action against Mr. Bush, the S.E.C.'s staff later cited Mr. Bush's consultations with the company's lawyers as an indication that he did not intend to profit from inside information.
Mr. Bartlett said he could not explain why the late form — known as a Form 4 — was left undated.
In the case of the sale of his Harken stock, Mr. Bush benefited from the action of an investor who remains unknown even today. The transaction began with a cold call from a broker in early June 1990. Mr. Bush, oldest son of the president of the United States, was then managing general partner of the Rangers.
The broker, Ralph D. Smith of Sutro & Company in Los Angeles, said he was offering to take off Mr. Bush's hands the now unencumbered 212,000 shares of Harken Energy, which had experienced a series of financial setbacks in previous months.
On the face of it, Harken did not seem to be a particularly attractive investment in mid-1990. The company's annual report for 1989, issued in April 1990, showed a loss of $3.3 million, mostly from trading losses. The reported loss for the first quarter of 1990 was $2.18 million, and the company was having trouble with its lenders. In the beginning of May, the stock was near $5. But in the weeks after May 22, when the first-quarter results were announced, the stock traded at $4.12 to $4.62.
Harken's internal analysis of its plight, which company documents show went to Mr. Bush in early June, reported that companies doing business with it were "nervous" about its annual report and cutting back their trade credits. Harken officials tried to soften the bad news by not distributing its disappointing first-quarter report filed with the S.E.C. in May "unless specifically requested," the analysis noted.
But out of the public eye, there was some good news developing. The company was completing an agreement with the wealthy Bass family of Fort Worth to back a venture to drill for oil off the coast of Bahrain, a big opportunity to break into international exploration. Mr. Bush had been briefed on the pending financing agreement, which had not yet been disclosed to investors.
At the time, Mr. Bush wanted to pay off the loan he had taken to finance his stake in the Rangers, and the Harken stock was his biggest asset. But Harken stock was thinly traded; its average daily volume on the New York Stock Exchange was only about 10,000 shares. Until he contacted Mr. Bush on behalf of an anonymous buyer, Mr. Smith said in an interview this week, he could not find anyone willing to sell, either.
So it was in many ways a perfect match of buyer and seller, and two weeks later, after checking with lawyers at Harken, where he was a consultant as well as a director, Mr. Bush completed the deal.
A dozen years later, it is still not known who bought Mr. Bush's shares, or why the buyer made the offer at that time. Mr. Smith said he would not disclose the buyer's identity except to say that it was an institutional investor. Mr. Smith also said that he was unaware of the pending Bass deal.
The White House said today that Mr. Bush never knew the identity of the buyer. Mr. Bartlett said it was "very far fetched" to assume that the buyer was knowingly helping Mr. Bush at a financially convenient moment for him.
Mr. Bartlett said Mr. Bush's awareness of the progress in securing a deal with the Basses was one reason he sought advice from Harken's lawyers about whether it was permissible for him to sell the stock at that time. Harken stock rose slightly after the announcement of the Bass brothers' investment, and then slid again.
Over the years, Mr. Bush's representatives have cited the likelihood that Harken would soon announce good news about the Bass deal to rebut the implication that Mr. Bush was selling ahead of bad news about the company's earnings. Harken announced the Bass deal on July 23, 1990, a month after Mr. Bush completed the stock sale. The Bahrain exploration venture ultimately ended up drilling nothing but dry holes.
Mr. Bush's involvement in Harken traces back to 1986, when it acquired an oil company he controlled, Spectrum 7 Energy. In return, Mr. Bush got more than 200,000 Harken shares and a seat on the board.
Soon after, Mr. Bush was given a chance to participate in a stock option program that the company's filings describe as being available to its "executive officers," even though Mr. Bush was technically a director and consultant rather than a member of management.
Mr. Bush, like some of the other Harken executives who received shares at the time, chose to pay for them through a promissory note.
According to a letter on April 27, 1987, from Harken's general counsel to Mr. Bush, the note was collateralized by the 80,000 shares he was buying plus the "shares due to you from Harken's acquisition of Spectrum 7 Energy Corporation."
But two years later, the arrangement was changed. No longer was Mr. Bush personally liable for repaying the loan. The only shares he had to pledge as collateral were the 80,000 the loan was allowing him to buy. In effect, Mr. Bush's risk was limited to not profiting on the deal, since he could simply return the shares should they decline in value to less than the loan amount.
In 1993, Harken changed the option plan. In exchange for returning the 105,000 shares he had received under the program, his loans were canceled and he received new options for 42,503 shares. But Mr. Bush left the company at the end of 1993 and never exercised the options.