Bush Is No Good Trade

According to U.S. Securities and Exchange Commission records, on four separate occasions Gov. George W. Bush disregarded federal statutes by failing to file insider stock trade reports on a timely basis, back-dating one trade by some four months. Moreover, one key trade just a few weeks before Iraq invaded Kuwait -- but reported some eight months late after the Gulf War was over -- netted Bush close to $1 million in profit as he sold stock in Harken Energy, an oil company doing business in the Middle East wherein some of his father's largest contributors also maintained substantial positions.

The SEC under President Bush carried out an incomplete investigation of the younger Bush's pre-Gulf War trade in 1991 after key presidential advisor George Jr. claimed that he filed a report, but that the SEC had most likely lost it. (No one has really asked whether the governor bothered to use registered mail to verify receipt of the documents.)

According to an Oct. 28, 1991, Time Magazine report, SEC spokesman John Heine said, "as far as I know, nobody ever found the 'lost' filing." And, strangely, Bush refused comment to Time regarding either the incident or his involvement with Harken.

The governor also did not reveal the blatant conflicts of interest involved, since the chairman of the SEC was Richard Breedon, former lawyer with Houston firm Baker and Botts and deputy counsel to Bush's father when he was vice president. Breedon received his SEC appointment after the elder Bush became president.

The SEC investigation of George W. was led by general counsel James R. Doty who, according to a UPI report, mysteriously neglected to interview any of the Harken directors. Moreover, Doty had previously served as George W. Bush's personal lawyer in the deal involving his Texas Rangers purchase. So, in the end, the younger Bush was cleared of insider trade wrongdoing by his personal attorney and by his father's vice-presidential counsel, a virtual impossibility for the average U.S. citizen.

That the mainstream media has refused to question Bush regarding what voters might consider a mockery of the criminal investigative process is a story in and of itself -- especially considering it concerns how a possible future president might enforce U.S. laws if he had also broken those statutes.

Consider that Americans who currently hold stocks or mutual funds would never -- by virtually no stretch of the imagination -- be able to obtain access to corporate insider information that could turn a million dollars profit. But reporters following Bush have not broached the subject during the campaign.

Most reports involving Bush's insider oil stock trades refer only to his highly controversial June 22, 1990, million dollar trade made six weeks before Gulf War hostilities broke out in Kuwait -- a trade which was reported eight months later. However, SEC documents between 1986 and 1993 show that Bush acquired 212,152 shares of Harken stock on Nov. 1, 1986, at the time he merged his Spectrum 7 company with Harken. But the future governor did not report the transaction until April 7, 1987 -- more than five months later.

When Bush filed late on April 7,1987, SEC filings show he had purchased another 80,000 shares on March 10, 1987. But strangely, two weeks later, an April 22 filing noted that the 80,000-share purchase was backdated to Dec. 10, 1986. When questioned by the media, Bush's attorney said it was the same 80,000 shares but he could not explain the discrepancy regarding the purchase dates or why Bush even reported the trade two times.

Another SEC filing, this from June 6, 1989, showed that Bush purchased another 25,000 shares of Harken but again waited more than four months to report the transaction.

The Houston Post, recognizing Bush's late SEC filings, noted that he "took eight months to notify the government of his sale of stock in a company on whose board he served" and "also missed the filing deadline for reporting other insider trades involving Harken Energy."

Documents obtained by the Post showed "additional instances in which Bush ... ran afoul of the SEC rule requiring notification." And George W. described himself as a "small, insignificant" Harken stockholder; but news reports examining SEC documents identified Bush as the third largest non-institutional investor.

In October 1991, Time Magazine questioned why the tiny country of Bahrain would stake so much of its financial future on Harken Energy, which it labeled an "obscure, money-losing company with no refineries and no experience in offshore oil exploration." But the magazine also noted that oil-insiders speculated that Bahrain's rulers saw the arrangement as a way to gain influence with the Bush administration.

Mysteriously, primary reporters have also ignored what could point to a nexus regarding foreign policy and personal financial interests. Interestingly, the Village Voice in January 1991 reported that in 1990 the Bush administration signed an agreement with Bahrain that chose the small country as the permanent principal allied base in the Middle East, although it was some 200 miles away from the hostilities in Iraq and Kuwait.

The military-base deal came after Harken announced its Jan. 30, 1990, joint oil-drilling venture with Bahrain. So President Bush's key contributors and his son George W. were carrying on personal financial business with Bahrain at the same time decisions were being made regarding the possibility of a war in the Gulf.

And neither the president nor his adviser, George Jr., let the press know that Bahrain had been permitted to infuse $7.7 million in foreign cash to hire U.S. public relations firm Hill & Knowlton to lobby Congress and the American people; a stunning variety of opinion-forming devices and techniques were employed to inflame U.S. patriotic passions of war while personal financial interests were on the line.

On May 21, 1990, less than ten weeks before Saddam Hussein's troops invaded Kuwait to initiate the Middle East hostilities -- but just four weeks before Bush unloaded the bulk of his Harken stock -- a renegotiated corporate loan agreement featured an unusually high interest rate of 12 percent, less credit for acquisitions, a $750,000 debt fee and even requirements by some of Harken's major stockholders to guarantee $22.5 million in debt, according to Associated Press.

Did Bush know of impending losses when he sold his stock on June 22, 1990, since Federal securities law prohibits corporate insiders from trading "on the basis of" material information that is not publicly known? Bush denied the charge in spite of his positions on the Harken Energy board of directors, audit committee and stock restructuring panel. He added that he had no idea Harken was going to get an audit report full of red ink until weeks after he had made his stock sale.

But U.S. News & World Report said, "there is substantial evidence to suggest that Bush knew Harken was in dire straits. ... Harken's SEC filings make it clear that the company's directors knew radical steps were necessary." The magazine added that "one informed source says Harken's creditors had threatened to foreclose on the company if substantial debt payments were not made." Shortly thereafter, Bush cashed out of Harken.

The April 4, 1991,Wall Street Journal added that "Mr. Bush didn't return their phone calls seeking comment, and the Bush White House said 'it doesn't comment on the activities of the president's children.'"

According to the Washington Post, Harken's audit committee, of which Bush was a member, met with Mikel Faulkner and

auditors from Arthur Andersen & Co.

, Harken's accountants, on June 11, 1990 -- just 11 days before Bush sold his stock on June 22. When asked for a copy of the June 11 minutes or permission to inspect them, the company declined to make the records available.

Bush's insider transaction yielding a profit of $848,560 -- some 250 percent profit on the stock's original value -- came a week prior to the end of a quarter in which the company lost $23 million. The quarterly report was released just a few days after Iraq invaded Kuwait and the Harken stock plummeted. However, as reported in a 1992 Mother Jones report, Bush attended a meeting regarding a revised stock offering in May 1990 working with Smith Barney's financial consultants concerning corporate restructuring.

In an Oct. 11, 1994, UPI report, Bush also claimed that he was not aware of Harken's poor financial condition when he sold the stock, but UPI said that the Dallas Morning News reported on the same day that a corporate official who served with Bush on the audit committee at Harken felt otherwise; Stuart Watson told the Dallas paper that he and Bush were constantly made aware of the company's finances. "You bet we were," said Watson. "We were both trying to keep that company on the straight and narrow."

On March 16, 1992, U.S. News echoed Watson's statement, reporting that "according to documents on file with the Securities and Exchange Commission, his position on the Harken (restructuring) committee gave Bush detailed knowledge of the company's deteriorating financial condition."

Chuck McDonald, spokesman for Texas Gov. Ann Richards' campaign, said that SEC chief counsel in the Bush investigation -- James Doty, George W.'s former attorney -- never talked to George W., Watson or other Harken officials in its 1991 probe. He said, "Was this a real investigation, or was it a whitewash of an insider stock sale by the son of the sitting president?" UPI, which reported McDonald's statement, went on to note that "while Bush claims the SEC investigation absolved him of illegal insider trading, he has refused to release the investigation files."

Harken founder, Phil Kendrick, noted that the company's "annual reports and press releases get me totally befuddled. There's been so much promotion, manipulation and inside deal making." And even Harken chief executive Mikel Faulkner, an accountant, offered advice for those trying to decipher the financial statements: "Good luck. They're a mess."

Press accounts note that Bush requested a letter from the SEC, issued in October 1993, The letter, signed by SEC Associate Director Bruce A. Hiler, said that "the investigation has been terminated as to the conduct of Mr. Bush and that, at this time, no enforcement is contemplated with respect to him." But the letter also stated that "it must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result."

On Oct. 18, 1993, the Bush administration SEC said it would not bring a case against George W. Bush.

Gov. Bush speaks about his outstanding business record on the campaign stump; however, in 1989, U.S. News & World Report said, "Harken Energy lost over $12 million against revenues of $1 billion." Harken President Mikel Faulkner said that in addition to Bush's position as a director at $2,000 per meeting, stock options worth $131,250, 5 percent loans and 40 percent discounts on stock purchases, he was also a consultant to Harken for "investor relations and equity placement" at a salary of $80,000 per year from 1986 until 1989, when his salary jumped to $120,000.

The board was equally generous to Bush in 1990 as "the company lost another $40 million and shareholder equity plunged to $3 million -- down from more than $70 million in 1988." Faulkner declined to say what services George W. has performed as a consultant.

In March 1992, U.S. News said that "Despite repeated requests for interviews, George W. declined to discuss Harken or the reason for his stock sale, saying through an assistant that he 'does not want to read about himself.'" But some might ask whether American voters have a right to know whether a possible president would strictly enforce federal statutes or appoint lenient attorneys with suspect ethical standards leading to fixed politically sensitive investigations.

Moreover, should Bush -- a director of the corporation -- be accountable when huge losses are reported over a period of time, especially as a presidential candidate purporting to have an outstanding entrepreneurial business record at every presidential campaign stop? The answers have real implications regarding presidential character, morality and personal ethics.

Author and commentator Kevin Phillips offered a perceptive look at the Texas governor in the February 2000 issue of Harpers magazine when he said, "We can fairly ask whether George W. Bush is anything more than another scion who has made a decent governor during a period of prosperity and easy growth, and whether the United States can afford nominees who are to presidential politics what legacies are to college fraternities."

I thought I saw him on TV just yesterday or the day before giving a speech about corporate governance

Figures.

Was Gorby there too?

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BUSINESS ETHICS, LEADERSHIP AND CORPORATE GOVERNANCE IN ACTION

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["Breakout" seminar 9/6/00]

Some scrapbook materials from the "Soviet Analyst's" attendance at the 2000 World State, er, "State of the World" forum.

Excellent, thanks.

Just Keep Snooping Regarding Harken To Prove There's There There

Amid scandals, Bush White House takes a risky path, placing loyalty over public duty

President Bush, President Kwasniewski Hold Joint Press Conference

Remarks by President Bush and President Kwasniewski of Poland in Press Conference

The East Room

For Immediate Release
Office of the Press Secretary
July 17, 2002
Source

12:03 P.M. EDT

Partial transcript:

PRESIDENT BUSH: We'll answer some questions. We'll alternate between the American press and the Polish press, three apiece --

Q Mr. President, even while you're calling for transparency in corporate America, you refuse to ask the SEC to turn over documents from its investigation into Harken Energy Corporation, your old company. And the Vice President has answered few questions about his role at Halliburton, his old company, which is now under investigation by the SEC. Why not just clear the air, ask the SEC to release those documents and ask the Vice President to talk about Halliburton in a public forum?

PRESIDENT BUSH: Well, first, the Vice President -- I've got great confidence in the Vice President, doing a heck of a good job. When I picked him, I knew he was a fine business leader and a fine experienced man. And he's doing a great job. That matter will take -- run its course, the Halliburton investigation, and the facts will come out at some point in time.

Secondly, as to a look at Harken, the SEC, as a result of Freedom of Information requests, has released documents, and the key document said there is no case. It was fully investigated by career investigators. Some of you, I think, have talked to the head career investigator, and he's made it clear there was no case.
[End of partial transcript]

"It 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." Bruce A. Hiler - associate director of the SEC's enforcement division."

James Doty is a senior partner at Baker Boggs. In the late 1980s, he was George W. Bush's personal lawyer, who helped arrange Bush's purchase of part-ownership of the Texas Rangers.

Doty was then named Securities and Exchange Commission General Counsel.

NPR's Bob Edwards just interview James Doty about all of this -- and Doty has stayed true to White House form, squirming and dissembling about Bush, especially when confronted with hard facts.

Doty told Edwards that, in the Harken deal, Bush "met not only the letter but the spirit of the law," and that he was and is "a compliant person."

Really, Mr. Doty? Then why, in a memo dated July 17, 1991, did SEC investigators complain that Bush and his lawyers were being evasive, hiding behind attorney-client privilege, and withholding crucial information?

When Doty tried to say that the SEC had, in fact, exonerated Bush, Edwards pressed him, asking if the letter has not in fact explicitly stated that Bush had not been exonerated.

Doty: "No, it [the SEC letter] simply says the agency reserved the right to reopen the file..."

Edwards: "Let me find it. Let me find it." Then he quoted directly from the SEC letter, about how Bush had not been exonerated. This caught the smooth velvet Doty off-guard somewhat.

Doty: "I think the release prohibits..the docu..th..the letter prohibits people representing it...as exoneration."

You can listen to the interview here.

NPR - Host Bob Edwards talks with James Doty

Bushbots for BakerBotts.

Note of interest
on Baker Botts L.L.P.:

Richard Breeden - Former SEC Chairman - Baker & Botts.
James R. Doty - SEC General Counsel of the United States - Baker & Botts.
Robert Jordan - Attorney representing Bush in Harken scandal - Baker & Botts.
Elder Bush in Big G.O.P. Cast Toiling for Top Equity Firm
"James A. Baker III is the current Baker in Baker Botts. Baker was Secretary of State under the first President Bush. He is currently senior counsel to The Carlyle Group."

The Bass Boys:
"In 1989, Congress finally came up with $157 billion to bail out the S&Ls. But by that time, the costs were over $200 billion (and they continue to rise to this day). To make up the difference, the Resolution Trust Corporation was formed; it sold off the assets of failed S&Ls, mostly at bargain-basement prices in sweetheart deals.
For example, Robert Bass, one of the richest men in America, bought American Savings and Loan for $350 million, then received $2 billion in government subsidies to help him resurrect it. (With that much money, you could probably raise the dead.) During one week in 1988, the government promised $8 billion in assistance to nine S&L purchasers; one of them put $20 million down, and the other eight paid nothing."
Take the Rich Off Welfare - by Mark Zepezauer and Arthur Naiman - Odonian Press, 1996.
"Which brings us to one of the interesting conundrums encountered in Bush finances. The contract with Bahrain would have been impossible to carry out by Harken alone; it needed big, big bucks. These were supplied by the Bass family of Fort Worth, a clan of billionaires. Was this a quid pro quo or just a happy coincidence? Of course, the Basses may have simply wanted to take a gamble, as they often did. On the other hand, they may have felt some obligation to help George W.’s company as a kind of payback; after all, his father’s administration had given $2 billion in tax-exempt subsidies to a group of “vultures” (to use Newsweek’s generic term) headed by Robert Bass, to help pick the carcass of the $16.3 billion American Savings and Loan, the biggest insolvent S&L in the country, but still very fleshy.
Robert Bass’ good fortune on that occasion may have had something to do with the fact that he was a member of Vice President Bush’s “Team 100,” a knot of rich men, each of whom contributed $100,000 or more to Bush’s 1988 presidential campaign. On the other hand, so much money, so many favors have been passed back and forth over the years between the Bushes and their incredibly wealthy backers, it is probably foolish to try to figure out all the quid pro quos that tie their daisy chain together."
SOURCE: The Bush Files
The Malefactors of Great Wealth
"When Bush was in the oil business, his failing company, Spectrum 7, was bought by Harken Energy. Bush and his two partners got $2 million in stock in exchange for a company that had lost $400,000 in the six months prior to the sale. Bush himself got stock worth about $500,000 and an annual consulting fee of $120,000, later reduced to $50,000.
In June 1990, Bush sold two-thirds of the Harken stock he had acquired in the Spectrum 7 deal at $4 a share-$318,430 more than it was worth when he got it. A month before Bush sold his stock, the Harken board appointed Bush and another company director, E. Stuart Watson, to a "fairness committee" to determine how restructuring would affect ordinary stockholders.
Smith, Barney, Harris, Upham & Co., the financial consultants hired by Harken, told Bush and Watson only drastic action could save the company. So Bush sold his stock before the news became public. According to U.S. News & World Report, there was "substantial evidence to suggest that Bush knew Harken was in dire straits." Insiders liquidating large blocks of stock are required to notify the Securities and Exchange Commission immediately. Bush reported the sale eight months after the federal deadline. Although the SEC does prosecute flagrant violators of insider-reporting rules, according to The Wall Street Journal, first-time violators usually get only a warning letter."
Beasts of the (Oil) Field
"Texas Wild! is Ramona Bass’s baby, and if oil looms large in her version of environmental history-and it does-perhaps that’s because oil made Ramona Bass who she is today. The daughter of rancher, oilman and avid hunter Arthur A. Seeligson, Ramona is the wife of Lee Bass-one of the billionaire Bass brothers and chairman of the Texas Parks and Wildlife Commission. The Bass empire was founded by Lee Bass’s great uncle, Sid Richardson, a wildcatter who struck it rich in the oilfields of West Texas. Bass and his three brothers inherited almost $3 million each from him. Investments in Texaco and Disney made them billionaires."

There are some good source quotes here:

George W. Bush - Harken Source Quotes

George W. Bush - Harken

The Color of Money

US News and World Report
by Stephen J. Hedges
March 16, 1992

The president’s eldest son and his ties to a troubled Texas firm

George W. Bush shares more than a name with his father. The president’s eldest son has followed closely in his father’s footsteps, trading Yale for Texas, working his way up from the dust and dry oil wells of West Texas to carve out his own piece of the Lone Start dream. Today he runs the Texas Rangers baseball team, sits on the boards of several companies and is rising start in the state’s Republican Party. As George Bush the president glides to victory in the Texas primary this week, George Bush the son will be a center stage with his father. Some say he the president’s most influential advisors. It was George W. Bush, after all, who was called upon to tell John Sununu that powerful Republicans wanted him to resign as the White House chief of staff. Sununu was gone soon afterward.

In one important respect, however, George W. Bush has less in common with his father than with his younger brother Neil, who sat on the board of Denver’s now infamous Silverado Savings & Loan. When the thrift failed in 1988, with $1 billion in losses, Neil Bush said he didn’t understand Silverado’s complex deals. George W. Bush has also benefited from some questionable but less well-known business associations. A U.S. News examination of one of his principal investments, in the Dallas-based Harken Energy Corp., found that:

Bush sold $828,560 worth of Harken stock just one week before the company stock posted unusually poor quarterly earnings and Harken stock plunged sharply. Shares lost more than 60% of their value over 6 months. When Bush sold his shares, he was a member of a company committee studying the effect of Harken’s restructuring, a move to appease anxious creditors. According to documents on file with the Securities and Exchange Commission, his position on the Harken committee gave Bush detailed knowledge of the company’s deteriorating financial condition. The SEC received word of Bush’s trade eight month’s late. Bush has said he filed the notice but that is was lost.
Despite Harken’s small size and poor performance in recent years, it continues to provide Bush and its other directors and executives with unusually generous pay and perquisites. In 1989, for instance, Harken suffered losses of more than $12 million against revenues of $1 billion. That same year Bush received $120,000 as a company consultant ans stock options worth $131,250; other Harken executives also drew six-figure salaries and five figure bonuses. The next year, Harken’s board was equally generous, even though the company lost $40 million and shareholder equity plunged to $3 million - down from more than $70 million in 1988.
Harken has been characterized by a pattern of financial deal making so burdened with debt and tangled stock swaps that its largest creditors threatened to shut the company down and oil-industry analysts have all but given up on tracking it. "It’s a lot of jiggery-pokery," says analyst Barry Sahgal. "I want to be an analyst, not a speculator."
Despite repeated requests for interviews, Bush declined to discuss Harken or the reason for his stock sale, saying through an assistant that he "does not wish to read about himself." Harken executives say the company’s practices are proper.
Harken Energy today is a very different company from the gutsy start-up outfits that President Bush and his father once ran. In 1983, Harken was purchased by a group of investors led by Alan Quasha, an aggressive young lawyer from New York. Quasha and his colleagues transformed Harken overnight, playing the oil game like high-stakes poker. They spent money, they made money - and most recently, they have lost money. The company’s annual reports now speak little of oil and gas production but volumes about share offerings and renegotiated debt.
George W. Bush arrived in the Texas oil fields in the mid-1970s. Within a few years, he had founded his own exploration company. His partner, Mike Conaway, says they "made some money and lost some money." But by 1983, the oil market was in trouble, and so was Bush Exploration. Relief came from two Cincinati investors who had their own small oil frim, Spectrum 7. William DeWitt was the son of the former owners of the Cincinnati Reds baseball team. Mercer Reynolds was his business partner. A DeWitt family relative and old oil hand, Paul Rea, ran Spectrum 7. Rea met Bush when he first arrived in Texas. The two became friends.
Enter Quahsa. The son of an affluent American lawyer in the Phillipines, Alan Quasha brought Harken some impressive financial backers. They included money manager George Soros, who would come to hold a 30.4 percent stake; Harvard Management Co., who would control another 30.4 percent share, and Abduliah Taha Bakhsh, a Saudi investor with 21.4 percent. Harken bought Spectrum out in 1986, trading stock for Spectrum assets. Bush received $600,000 in Harken shares, but his stake would actually be worth much more.
Harken is a small oil company, but it pays big league benefits. Estimates based on company documents show that Quasha and Harken President Mikel Faulkner each received compensation worth more than $400,000 a year between 1986 and 1990, including stock options. In addition, Faulkner has borrowed $1.1 million from Harken, using stock as collateral. Quasha has borrowed $631,270 from the company, and Harken has paid his law firm $1.3 million in fees since 1988. At least three other Harken executives had six-figure compensation when Harken posted its $40 million loss. Faulkner says the compensation is based on "incentives and performance." He does not consider Harken’s pay excessive.
In addition to his $600,000 stake in Harken, George W. Bush has profited handsomely. As a consultant to the company for "investor relations and equity placement," Bush was paid $80,000 a year until 1989, when his salary jumped to $120,000. With the company suffering, Bush received only $50,000 last year and $42,000 this year. He also receives $2,000 for each board committee meeting and in 1989 was granted, with other directors, options for 25,000 shares of Harken stock. Faulkner declines to say what services Bush has performed as a consultant.
Sweet Deals
As is the case with many executive compensation packages, the key to Harken’s is the stock options. But very few companies offer terms as sweet. For starters, Harken offers select executives, including Bush, eight year loans at 5% interest. The loans may be used by the company brass to exercise options to purchase Harken shares. Bush has borrowed $180,375. At Harken, loans are sometimes forgiven. The board forgave $72,000 in non-interest-bearing loans to employees in 1989, and $269,000 in 1990.
The deal gets sweater still. Harken allows select executives and directors like Bush, who exercise their options, to purchase stock at a 40 percent discount; most U.S. companies allow executives to purchase their companies stock at current market value. Harken says it is because the stock is not registered and therefore cannot be traded. But in March 1990, Harken registered 1.8 million option shares. "Unusual," says Paula Todd of Towers Perrin, a compensation consulting firm, when asked about Harken compensation. "This definitely is not a cookie-cutter plan." Graef Crystal, a vocal critic of excessive executive pay, has harsher words: "This is a tremendous package for a little tiny company. Their stock has been growing at 4.9% per year when the market is growing at 15 percent. That is rotten performance."
Given Harken’s troubles, it might appear that owning its stock isn’t much of a bargain. However, Harken’s liberal option program makes it profitable. On June 22, 1990, for instance, Bush sold $848,560 worth of stock, which was trading at $4 a share. Even with a $180,375 loan to pay back, Bush realized $668,185 on the sale. He still owns 105,012 Harken shares.
Harken has launched several deals involving its largest shareholders. The most complex was a major reorganization through the sale of two subsidiaries, E-Z Serve, a chain of gas stations, and Tejas Power, a natural-gas supplier.
First, companies tied to Alan Quasha and Harvard Management lent Harken $46 million. Harken used $15 million of that money to retire E-Z Serve debt. It spent $28 million more on capital improvements at E-Z Serve and Tejas stock. Harken kept the remaining $3 million. The company then gave its shareholders rights to buy E-Z Serve and Tejas stock. An agreement stipulated that any stock not purchased by the shareholders could be bought at a discount of at least 3 percent by two companies affiliated with Quasha and Harvard. But Quasha and Harvard controlled 55.6 percent of Harken stock. By not exercising the rights to buy it immediately, they effectively gave themselves the built-in discount. Harvard Management declines to discuss the deal.
There is substantial evidence to suggest that Bush knew Harken was in dire straits in the weeks before he sold the $848,560 of Harken stock. For one, Harken’s board has appointed Bush and another director, E. Stuart Watson, as a "fairness committee" to determine whether the restructuring would adversely affect ordinary shareholders. The committee, which first met in May 1990, worked closely with financial advisors form Smith Barney, Harris Upham & Co., which had concluded by that time that only drastic action could save Harken. Even before then, however, Harken’s SEC filings make it clear that the company’s directors knew radical steps were necessary. One informed source says Harken’s creditors had threatened to foreclose on the company if substantial debt payments were not made. Harken’s treasurer, Dale Brooks strenuously denies any suggestion that creditors were poised to seize the company.
Today, Harken is letting it all ride on one all-or-nothing bet. Two years ago, it won the rights to look for oil and gas off the coast of Bahrain, a coup that shocked the industry. The first of the wells came up dry last month, giving analysts new reason to wonder if Harken itself isn’t a dry hole.
For George W. Bush, however, Harken remains a good deal. He is still a director and consultant and has Harken shares worth about $400,000. A Bahrain gusher will mean all the more profit. If luck isn’t with him, he has still done well with Harken.
It may be, though, that Harken has benefited most from Bush’s board service. That’s the view of some Texas oil people and analysts, including founder Phil Kendrick, the oil man who founded Harken and sold out to Quasha a decade ago. "It’s obvious why they kept George Bush." Kendrick says, "Just the fact that he’s there gives them credibility. He’s worth $120,000 a year to them just for that."

WHAT DID HE DO?

The Economist
print edition
Jul 20th 2002| WASHINGTON, DC
Source

The whiff of cronyism surrounds the president's past business deals

THE Dow Jones Industrial Average is not the only thing looking like a punctured balloon. The air may be hissing out of George Bush's poll ratings, too.

Zogby International, a polling firm, says that only 62% of those it asked now think his performance “positive”, the lowest figure since September 11th. To be fair, another poll, for the Washington Post, shows his approval rating almost unchanged at 72%. But the omens are not good. Thomas Riehle, the president of another polling outfit, Ipsos-Reid, points out that the number of Americans saying things are on the wrong track outnumber, for the first time this year, those who think things are going the right way. Fewer than half say they would re-elect Mr Bush if a presidential election were held today.

The revelations about the president's involvement in unsavoury business practices a decade ago have aggravated this vulnerability. The most commonly mentioned name is Harken Energy, a Texan firm where Mr Bush was a director.

In 1990, Mr Bush failed to obey the letter of the law in not reporting on time the sale of Harken shares. His excuse is that the lawyers ate his paperwork. In 1989 Harken partly obscured its real financial position by selling a subsidiary at a healthy profit to a group of Harken executives who borrowed some of the money for the purchase from the company. The Securities and Exchange Commission required Harken to restate its earnings. Mr Bush also bought some Harken shares using “sweetheart” loans from the company itself, a practice he now says should be stopped. Lastly, it turns out that ten weeks before the 1990 sale of those shares he signed a “lock-up letter”, promising not to sell for six months after a proposed public offering. His spokesman says the promise did not stand when the public offering failed to go through.

None of this seems to be a WorldCom-class example of bilking the shareholders. There are two more worrying things for the White House. The first is an SEC investigation into what went on in the 1990s at Halliburton, an oil-services company, when Vice-President Dick Cheney was its boss. The firm used an accounting change to count as earnings a portion of income on some projects in dispute. Mr Bush has already been pushed into insisting that Mr Cheney will be exonerated. Whatever happens, Mr Cheney must regret his comments about his firm's accountants (wait for it), Andersen: “One of the things I like that they do for us is that...I get good advice...over and above the normal by-the-books audit arrangement.” Whoops.

The second problem for the White House is that Mr Bush seems to have benefited from what Americans excoriated during the Asian financial crisis as “crony capitalism”. Mr Bush's fortune came not from Harken but from his share in the sale of the Texas Rangers, a baseball team in which he invested using Harken shares as collateral. Three questions arise.

First, Mr Bush's stake in the team was 1.8%, which should have given him $4.5m from its sale. In fact he got $14.9m, because his partners gave up some of their share. As Paul Krugman, a columnist on the New York Times, points out, Mr Bush was then governor of Texas. Was this unethical?

Second, the price of the Texas Rangers soared partly because it got a new stadium built largely at taxpayers' expense. This was approved by local voters, but lawsuits allege that some of the land purchases involved were illegal. Is that true?

Third, the Rangers' buyer was Tom Hicks. As part of his “privatisation” of the management of the University of Texas's huge endowment, Mr Bush changed the rules so that the fund merely needed to report its overall performance, not the details of each deal. Mr Hicks was the head of the investment firm that managed UT's money. Was there any link between this and the purchase of the Rangers?

Without more evidence, one has to assume the answer to all these questions is no. Moreover, many other politicians, Democrats as well as Republicans, have equally questionable episodes in their pasts, and worse things have doubtless gone on in Texas. Still, Mr Bush is a special case. He came into office promising to “change the tone” of Washington. His business travails are undermining his promise, and may yet cause Americans to see him as “just another politician”.

Vote: Just another politician

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