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Bush Digs Himself Into A Hole And Keeps Digging

Pressure mounts over Bush and Cheney business deals

Growing Scrutiny Of Bush Business Record

The Christian Science Monitor
By Ron Scherer
July 12, 2002
Source

Actions as private citizen include taking a company loan, late reporting of stock sale.

In June 1990, oil prices were bumping along at $17 a barrel and there was so much crude sloshing around that inventories hit an eight-year high. As any Texan knew, it was not a good time to be in the oil and gas exploration business, but that's where George W. Bush had staked his future. He was a director and consultant to Harken Energy, a Dallas gasoline retailer and wildcatter struggling to stay afloat. Two months before the firm reported a big loss, Mr. Bush sold his shares, but it was 34 weeks – far longer than 31 days or less required by law – before regulators and other investors learned of the sale.

Now, even as the president puts new emphasis on corporate ethics, the administration itself is coming under close scrutiny. On Wednesday, Judicial Watch, a conservative group, sued Vice President Dick Cheney for what it claimed was past inflation of revenues by Halliburton, a company Mr. Cheney chaired from 1995 to 2000. Cheney and the company deny the charge. The White House insists there is nothing to the charge. Reporters are also now looking at Bush's own brush with the Securities and Exchange Commission (SEC) which apparently examined his Harken deals.

Bush, for his part,insists this ground has been covered, and nothing untoward found.

The media sleuthing comes only a few days after President Bush outlined a much tougher approach to wrong-doing by CEOs. The White House has shrugged off reports that show Bush himself engaged in some of the things for which he has castigated CEOs. For example, he took a company loan, a practice he is decrying. And he wants CEOs to disclose on a timely basis when they buy or sell their shares – which he did not do.

Private-citizen Bush had become an investor in Harken in the mid-1980s as his own oil company, Spectrum 7 Corp., was scraping along in debt. After investing $500,000 in Harken, Bush received $131,250 in stock options. By June of 1990, Bush had dumped most of his Harken stock, clearing $848,560. Just two months later, the firm reported a much larger loss than expected, and the stock dropped to $2 a share from where Bush sold it at $4.

After Harken's 1989 annual report came out in 1990, the SEC looked at it and saw a red flag. The firm had sold a subsidiary to its own management and booked it as a capital gain. "It's not an arms-length transaction when management is on both sides," says Chris Bebel, a former SEC attorney and federal prosecutor. "Related-party transactions are viewed with great suspicion," says Mr. Bebel, now at Shepherd, Smith & Bebel in Houston.

For Harken, this meant restating its earnings – similar to what WorldCom and Enron have had to do. Instead of reporting a loss of $4 million, the red ink swelled to several times that amount and the stock plunged. When he ran for governor of Texas, Bush was asked about the sale of the stock. Did he know in advance that the company was going to have a much larger loss? Was he trading on inside information? "I absolutely had no idea and would not have sold it had I known," he said during his 1994 campaign for governor.

If done today, such a sale would spark an SEC inquiry, prosecutors and attorneys say. "A large sale two to three months before very bad news ... will be looked at hard today by the SEC and the exchanges," says Christian Bartholomew, a former SEC senior trial counsel, now a litigator at Morgan Lewis in Miami.

When trying to decide if insider trading has occurred at a company, government attorneys look at what they call the "fact pattern." Are there memos that make passing reference to sensitive information that might lead a prosecutor to think a trader did more to find out what was in the memo? Was there a board meeting to discuss the information? What did the trader say to his or her broker?

"It's very much like a mosaic that you put together from small pieces of evidence from different sources," says Mr. Bartholomew. "There is very rarely a smoking gun. When there is, the cases are over very quickly."

To get this information, prosecutors go to all the sources, especially looking for discrepancies, says Tom Carlucci, a former assistant US attorney in San Francisco and now a white-collar crime specialist at Foley & Larnder. After all the interviews, the attorneys then go back to the person being investigated. "You confront them with the factual information you know – 'Look, these three people said you knew this. If you didn't, can you prove they are mistaken?' "

Shifting explanations

In Bush's case, he's changed his story about why he was so late in notifying the government about the sale of the Harken stock. In 1994, he said that the government had lost the information. More recently, he has said his lawyers had been late in making the filing.

The SEC apparently did look into Bush's stock sale, but the extent of the probe is unknown. The SEC's general counsel at the time was James Doty, who represented Bush in private practice. So far, the SEC has released only a few files relating to the investigation. "Inquiries into insider trading are kept secret," says Bartholomew.

But many attorneys in this field believe the event today would have resulted in a much more in-depth type of investigation. "It would have warranted serious review," says Kirby Behre, a former assistant US attorney, now with the Washington law firm Paul, Hastings. "Today is a different environment, a different level of inquiry."

From article above:

"After all the interviews, the attorneys then go back to the person being investigated. "You confront them with the factual information you know – 'Look, these three people said you knew this. If you didn't, can you prove they are mistaken?' "

Unless of course you're George W. Bush. Then the SEC doesn't even interview George, or, Harken president Mikel Faulkner, who by the way was a CPA for, yes, you guessed it, Arthur Andersen. The SEC didn't even interview any officers or directors of Harken. None. Zip, nada. When SEC enforcement official Bruce A. Hiler stated this "must in no way be construed as indicating that the party(George W. Bush) has been exonerated or that no action may ultimately result from the staff's investigation," he must of had a good chuckle, knowing that the SEC didn't even interview George W. Bush, the president of Harken, or any officers or directors of Harken. Not to mention that George W. Bush's dad is sitting in the White House looking at his watch. Not to mention that Richard C. Breeden was the SEC Chairman, nominated by George H.W. Bush and a special assistant to George H.W. Bush, and now a monitor to oversee WorldCom(chuckle, chuckle). Not to mention that Robert Jordan, George W. Bush's personal attorney who represented Bush during the SEC so-called investigation is now the ambassador to Saudi Arabia. Saudi Arabia is connected to the Harken deal. Ghaith Pharaon, Khalid bin Mahfouz and Jackson Stephens must be mumbling I had a dream. Oh, and Robert Jordan was a law partner with James R. Doty. James R. Doty was the SEC General Counsel for the SEC during the Harken fraud. You know, the guy that advises the SEC and its staff with respect to "interpretations" involving questions of law. I guess he couldn't find any interpretations. And of course James R. Doty was George W. Bush's attorney who represented Bush in the purchase of the Texas Rangers, of course made with the proceeds of his sale of Harken shares. Oh, and Harvey Pitt, the bulldog now heading the SEC. Yeah, well in January of 2002, he stated "There is nothing rotten in the accounting profession.". But, you know, at the White House, and here at FR, well, this is normal and above board, and there's no there there." Bill Clinton is a virgin.

As A Board Member Bush Ok's A Deal Like Enron's

Los Angeles Times
By WARREN VIETH, Times Staff Writer
July 12, 2002 Source

WASHINGTON -- In early 1989, George W. Bush and his fellow board members at Harken Energy Corp. were presiding over a company that was headed south in a hurry. The Dallas-based oil firm had lost millions of dollars placing bad bets on commodity futures. Debt was piling up; red ink was beginning to flow.

Harken's executives came up with a novel plan to ease the pain. They would sell a small chain of Hawaiian gas stations called Aloha Petroleum to a group of investors that included Harken's chairman and one of its directors. The buyers would pay $1 million up front, but the accountants would record an immediate $7.9-million profit, enough to erase most of Harken's losses for the year.

They made a point of seeking the approval of directors who were not participants in the investor group. Bush, a member of the board's audit committee, signed off on the deal, according to Harken documents. So did the company's outside auditor, Arthur Andersen & Co.

But the government challenged and ultimately overturned the accounting method used by Harken to post a gain on the sale. Aloha was sold a second time, and the new buyer extracted big concessions from the company. The initial profit recorded on the sale morphed into a big loss. In the midst of all the maneuvering, Bush sold most of his Harken stock in June 1990.

Based on a review of publicly released Securities and Exchange Commission filings, meeting minutes, memos and correspondence from that period, there is no evidence that Bush, or any of the other directors, raised objections or expressed concern about the Aloha deal.

Experts on corporate governance say that as an independent director and one of only three members of the audit committee, Bush was in a position to exercise an important oversight role but apparently failed to do so.

..Of the seven Harken directors who served on the board with Bush, five declined to discuss the deal or did not return calls seeking comment. Executives at Aloha, now a privately held company, also declined to comment. So did past and present officials at Harken, Arthur Andersen and the SEC.

Former director Talat M. Othman, who chaired the three-member audit committee, said he did not recall the details of the Aloha sale or the company's reasons for arranging it. "I'm not sure that our motivation was to create instant profits," said Othman, a Palestinian who represented Saudi investors who owned 13% of Harken's stock. "It was a normal part of the business to be buying and selling."

The third audit committee member, E. Stuart Watson, also said he didn't remember much about Aloha. "I don't know about that Hawaiian outfit because I was getting off the board about that time," Watson said.

Remaining Article

I don't recall

Now, try not to laugh:

Donald Evans on Fox News Sunday
SNOW: Right now Congress is considering various pieces of legislation dealing with the latest accounting fraud scandals. What are the president's principles on this one? What does he want, what does he not want in the bill?

EVANS: Well, the first thing he wants is truth. I mean, there's not anything more important and simpler than just telling the truth, Tony. I mean, you know, you can put all the rules and all the laws and all the regulations in place you want to, but if people don't tell the truth, it won't work.

SNOW: There's a lot of news coverage right now to the president's past career, working for Harken Oil -- Harken Energy, and concern about when he sold his stock.

Now, the White House has said, "He's been investigated, he's been exonerated, we're not going to release records."

This is a president who, during the investigation, the SEC investigation, said, "Look, I've waived my legal rights, you can take a look at anything." So why not open it up right now and get this thing done with?

EVANS: Tony, this is nothing but political garbage that the American people are sick and tired of. I mean, I think this is a perfect example of what Americans say, "Look, we've got a serious problem in America, and let's go solve that problem in a bipartisan way."

...SNOW: Harvey Pitt is under fire, the Securities and Exchange Commission chairman. John McCain has asked for his resignation. President said he supports him. Is Harvey Pitt going to remain the SEC chairman?

EVANS: Harvey is doing a terrific job. Let me tell you, what I pointed out earlier, people seem to, kind of, lose sight of. The president called members of his Cabinet into the Oval Office in early January.....

...Soon after the collapse of Enron, what he did -- look, I know this president well. And I know when he's angry. And I know when he's not happy with behavior out there of a few.

EVANS: And he called a number of us into the Oval Office, early in January, to discuss the issue. He put a task force together to focus on pension reform for the small investors and for the employees. He put a task force together to focus on disclosure of financial statements. By early March, he presented a 10-point plan to the American people and to the Congress: These are the principles that ought to drive reforms, to deal with this serious issue that we're dealing with right now. Harvey Pitt followed up with that -- to that letter and presented to the president responses to all 10 points. It's those principles that are driving the debate today.
[End of Transcript]

Now, notice that Evans states that Bush called them in a meeting in early January to start taking care of all these serious problems with accounting scandals. Early January. Early January. Maybe Harvey Pitt was sleeping and forgot to take notes. Or worse, maybe Harvey wasn't even invited.

"There is nothing rotten in the accounting profession."
Harvey Pitt, Chairman of the Securities and Exchange Commission - January, 2002 - SOURCE.

'Reformer' Not In Bush's Job Description

By PAUL KRUGMAN
SYNDICATED COLUMNIST
Copyright 2002 New York Times News Service
Monday, July 15, 2002
Source

The current crisis in American capitalism isn't just about the specific details -- about tricky accounting, stock options, loans to executives and so on. It's about the way the game has been rigged on behalf of insiders.

And the Bush administration is full of such insiders. That's why President Bush cannot get away with merely rhetorical opposition to executive wrongdoers. To give the most extreme example (so far), how can we take his moralizing seriously when Thomas White -- whose division of Enron generated $500 million in phony profits and who sold $12 million in stock just before the company collapsed -- is still secretary of the Army?

Yet everything Bush has said and done lately shows that he doesn't get it. Asked about the Aloha Petroleum deal at his former company Harken Energy -- in which big profits were recorded on a sale that was paid for by the company itself, a transaction that obviously had no meaning except as a way to inflate reported earnings -- he responded, "There was an honest difference of opinion ... sometimes things aren't exactly black and white when it comes to accounting procedures."

And he still opposes both reforms that would reduce the incentives for corporate scams, such as requiring companies to count executive stock options against profits, and reforms that would make it harder to carry out such scams, such as not allowing accountants to take consulting fees from the same firms they audit.

The closest thing to a substantive proposal in Bush's tough-talking, nearly content-free speech on Tuesday was his call for extra punishment for executives convicted of fraud. But that's an empty threat. In reality, top executives rarely get charged with crimes; not a single indictment has yet been brought in the Enron affair, and even "Chainsaw Al" Dunlap, a serial book-cooker, faces only a civil suit. And they almost never get convicted. Accounting issues are technical enough to confuse many juries; expensive lawyers make the most of that confusion; and if all else fails, big-name executives have friends in high places who protect them.

In this as in so much of the corporate governance issue, the current wave of scandal is prefigured by Bush's own history.

An aside: Some pundits have tried to dismiss questions about Bush's business career as unfair -- it was long ago, and hence irrelevant. Yet many of these same pundits thought it was perfectly appropriate to spend seven years and $70 million investigating a failed land deal that was even further in Bill Clinton's past. And if they want something more recent, how about reporting on the story of Bush's extraordinarily lucrative investment in the Texas Rangers, which became so profitable because of a highly incestuous web of public policy and private deals? As in the case of Harken, no hard work is necessary; Joe Conason laid it all out in Harper's almost two years ago.

But the Harken story still has more to teach us, because the SEC investigation into Bush's stock sale is a perfect illustration of why his tough talk won't scare well-connected malefactors.

Bush claims that he was "vetted" by the SEC. In fact, the agency's investigation was peculiarly perfunctory. It somehow decided that Bush's perfectly timed stock sale did not reflect inside information without interviewing him, or any other members of Harken's board. Maybe top officials at the SEC felt they already knew enough about Bush: His father, the president, had appointed a good friend as SEC chairman. And the general counsel, who would normally make decisions about legal action, had previously been George W. Bush's personal lawyer -- he negotiated the purchase of the Texas Rangers. I am not making this up.

Most corporate wrongdoers won't be quite as well connected as the young Bush; but like him, they will expect, and probably receive, kid-glove treatment. In an interesting parallel, today's SEC, which claims to be investigating the highly questionable accounting at Halliburton that turned a loss into a reported profit, has yet to interview the CEO at the time -- Dick Cheney.

The bottom line is that in the past week any hopes you might have had that Bush would make a break from his past and champion desperately needed corporate reform have been dashed. Bush is not a real reformer; he just plays one on TV.