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."

Harken Energy Corporation Internal Documents

In his July 8, 2002, press conference, President George W. Bush told reporters "to look back on the directors' minutes" for details of his knowledge of and involvement in the financial reporting of Harken Energy Corporation that was the subject of a Securities and Exchange Commission investigation in the early 1990s.

Bush, who was a director of Harken during the period in question and was himself investigated for insider trading (the SEC determined that there was insufficient evidence to bring charges against him), did not answer specific questions about his knowledge of the company's sale of Harken's Aloha Petroleum subsidiary. Harken reported the gain from the sale before it had received payment from the ultimate buyer, Advance Petroleum Marketing, Inc.

Yet Bush chaired a special committee of board members set up to review the terms of a $12 million note held by Intercontinental Mining and Resources Ltd., which was set up by Harken insiders to purchase Aloha, according to an internal Harken document dated March 14, 1990 that was obtained by the Center for Public Integrity.

The SEC ultimately determined that Harken inaccurately reported the sale, and made the company restate its earnings.

After Bush's press conference, the White House told reporters that it did not have the Harken directors' minutes, and would not ask Harken Energy to release them to the public.

The Center for Public Integrity has obtained internal Harken Energy documents that were part of the SEC investigation, including minutes of board meetings, meeting agendas, and memos, all of which cast more light on Harken's financial crisis in 1990. The documents are technical in nature, and are written for insiders who, presumably, would be well versed in the company's financial predicament and prospects. The documents the Center has obtained do not unambiguously resolve the question of what Bush knew about the sale of the Aloha subsidiary.

The March 14, 1990 Shareholders Notes and the March 14, 1990 minutes from the Board of Directors meeting suggest that Bush was aware of some of the details of the Aloha transaction; the decision to renegotiate the terms of the deal with Advanced Petroleum Marketing was unanimously approved by the board.

As a public service, the Center is making these documents available here.

PDF FORMAT

February 1, 1990 Letter From Mikel D. Faulkner, president of Harken Energy, to the Board of Directors. Faulkner wrote, in part, "It appears that our 1989 profitability will be in the range of $1.2 million. Although disappointing, this is consistent with the last projection which was made and provided to the Board… Although several accounting issues remain unresolved, it is anticipated that none of them should cause major changes either up or down in that projection."

March 6, 1990 Letter From Mikel D. Faulkner, president of Harken Energy, to the Board of Directors, regarding the March 14 board meeting. Faulkner refers to the newly formed special committee of the board of directors, which Bush chaired. "The Special Committee noted above should be appointed as an independent committee to approve any action taken with regard to the Shareholders' notes which originated in connection with the Soros transaction."

Public Common Stock Offering presented to the board of directors, March 14, 1990. "In working and planning toward the public offering which will be priced based on the market price for the Company's common stock established on or about Closing, it is appropriate for the Company to take reasonable steps and measures to avoid fluctuations in the market price," the document notes. Among those steps: "Exercise caution regarding insider and related party transactions."

Shareholders Notes presented to the board of directors, March 14, 1990. Bush is proposed as the chairman of a board committee to investigate $12 million in secured notes held by Intercontinental Mining & Resources Limited (IMR), Atherstone Corporation, N.V. and Galata Associates. The document advises the board to “appoint and empower a Special Independent Committee with full authority to review, negotiate, authorize and approve the terms and provisions” of a restructuring of the $12 million of debt. IMR was the group of Harken insiders who, in 1989, purchased the Aloha subsidiary from Harken. Harken’s treatment of that sale, and the subsequent sale of Aloha to Advanced Petroleum Marketing, was challenged by the SEC, which forced Harken to restate its earnings for 1989.

General Resolutions presented to the board of directors, March 14, 1990. Among the resolutions were various personnel and financial items, including one requesting approval of the sale of IMR's stake in Aloha to Advance Petroleum Marketing. "IMR has requested the Company's consent to this sale which will include an assumption and restructuring of the $11,000,000 seven year promissory note from IMR to Harken." The terms of the deal are summarized, among them: "IMR will guarantee payment of the restructured note."

Minutes of the Board of Directors Meeting, March 14, 1990 Faulkner presented "a summary concerning the preliminary financial statements of income and loss for the Company for the 1989 fiscal year." Talit Othman, chairman of the audit committee (on which Bush served) reported that Arthur Andersen, Harken's accountants, responded "to a request for review of affiliated party transactions which were completed by the Company during 1989 upon which review the auditors found no areas of concern or impropriety." The sale of Aloha to IMR in 1989 was an affiliated party transaction; the minutes do not note whether that transaction was reviewed by Arthur Andersen. The board also reviewed the sale of Aloha from IMR to Advance Petroleum. "The Board discussed the terms of this transaction in detail and with Mr. Quasha and Mr. Laikind [the two Harken directors who were also investors in IMR] upon motion being duly made and seconded, the Board unanimously authorized and empowered the President with full authority [to] approve or disapprove the terms and provisions of such transaction in his sole and reasonable discretion."

April 30, 1990 Letter to the Board of Directors from Faulkner. Cover letter sent with the companies February 1990 financial statements. Faulkner wrote, "Harken's February consolidated balance sheet does not reflect the reclassifications of the major shareholders' notes to equity or the reclassification of the IMR note to other assets based upon its March sale to Advance."

May 8, 1990 Minutes of a special meeting of the executive committee (Bush was not a member of the executive committee). The committee decided to abandon a plan to raise capital through a public offering of Harken stock. Instead, the committee favored a rights offering for two of Harken's subsidiaries, in effect splitting the company into three separate public companies with their own management and boards of directors.

May 11, 1990 Minutes of the Board of Directors This meeting followed an April 25 board meeting and a May 8 meeting of the Executive Committee (of which Bush was not a member). The Center does not have minutes from the April 25 meeting. The board discussed the rights offering - an attempt to raise capital by offering shares in two Harken subsidiaries, Harken Marketing Corporation and Tejas Power Corporation. Bush told the board that "the interests and preservation of value for the small shareholder of the Company" must be among the guiding principles of Harken's efforts to raise capital - one of the few comments attributed to him in the minutes. The board also reviewed the reasons for abandoning a proposed public stock offering of additional shares of Harken stock.

May 17, 1990 Minutes of a Special Committee Meeting The special committee, chaired by Bush, discussed the terms of the rights offering. Michael Eisenson, one of two representatives of Harvard Management Company on Harken's board of directors, offered the major shareholders' plan for a rights offering. The special committee decides that elements of the plan need to be further evaluated to determine whether they are fair to the company's other investors, and designates Smith Barney, the manager of the rights offering, to analyze the plan.

May 18, 1990 Letter to the Special Committee from Bruce Huff, senior vice president of Harken. One day after its first meeting, Huff called for another due to "several events which have occurred." "It is [sic] become evident that it will be necessary to reach a conclusion regarding the fairness of the proposal by the Major Shareholders" to help Harken obtain more favorable treatment from its creditors. "Such waivers and extensions [from the company's major banks] will allow the Company to properly report the substantial portion of its debt facilities as long-term and thereby avoid any negative repercussions that might otherwise occur if the Company remains in a state of non-compliance with regard to loan covenants."

May 25, 1990 Letter to the Board of Directors from Faulkner, with the agenda for the company's next board meeting. The agenda lists several objectives: "Improve consolidated and subsidiary financial information," "avoid default under existing bank lines," "monitize [sic] assets to raise cash," and "resolve open accounting issues."

June 11, 1990 Minutes of the Audit Committee The Audit Committee discussed the plan to split Harken into three publicly traded companies with representatives of Arthur Andersen, the firm's auditors. Talit Othman, the chair of the committee, "stressed the desire of the Audit Committee that the accounting practices of the Company reflect moderate policies and procedures compared to industry practices. He stressed this would avoid the use of extremely aggressive accounting policies in the presentation of financial statements of the Company and its subsidiaries."

July 11, 1990 Letter to the Board of Directors from Dale R. Valvo, president of Harken Marketing Company, a subsidiary of Harken Energy. Valvo describes terms of the deal struck with Advance Petroleum Marketing over the restructuring of the Aloha purchase. "The very significant disadvantage of this deal is that HMC will likely have to take a write down of approximately $1,000,000 to $7,000,000 in the second quarter of 1990…"

July 13, 1990 Letter to the Board of Directors from Faulkner. Updates the board on recent developments. "The Special Committee, Chaired by George Bush has received positive response from Smith Barney with regard to the fairness of the 'major Shareholder' transactions," Faulkner wrote. He also notes of the Aloha Petroleum deal, "Given the finalization of certain outstanding issues, this transaction holds significant benefit to HMC in that it provides cash during a much needed time in the Company's history."

July 26, 1990 Presentation to the Executive Committee Contains detailed information on how Harken attempted to cope with its financial crisis. The document includes information on savings from salary cuts and staff reductions, estimates and allocations of costs related to the company's rights offering, the terms of a loan agreement for Harken Marketing Company, and an analysis of the company's ownership structure after the proposed rights offering had been completed. Among the costs Harken incurred were legal fees and salary expenses of more than $930,000 owed to Quasha, Wessely & Schneider. Alan Quasha, a partner in the firm, sat on the board of directors; his North American Resources was one of major shareholders in Harken. Bush was not a member of the Executive Committee.

July 26, 1990 Minutes of the Executive Committee The committee discussed the terms of the Aloha sale to Advance Petroleum Marketing. "Mr. Valvo discussed the reasons for restructuring this transaction with Aloha and Advance was [sic] to create an incentive on their part to make a significant additional cash payment immediately, to encourage earlier payments of the remaining indebtedness and to relieve HMC and the Company from any further environmental obligations or liabilities for Aloha under the previous sale agreements. The Committee discussed the proposed transaction in great detail…" The committee was also briefed on "the current status regarding the Special Committee of the Board of Directors which had been established to review and consider the affiliated transactions related to the rights offering." Bush chaired the Special Committee.

August 27, 1990 Letter to the Board of Directors from Faulkner. "As you are aware, we released news on Monday, August 20, 1990, of our second quarter loss. The stock acted erratically but seems to have recovered from its immediate decline."

August 29, 1990 Minutes of the Board of Directors Meeting Reference was made to a change in the minutes of a May 21, 1990 board meeting. Quasha proposed the change, which was seconded by Bush. The Center does not have minutes of the May 21 meeting. The audit committee, of which Bush was a member, reported that it had met "earlier in the morning with the Company's auditors, Arthur Andersen & Co. It reviewed the items which had been discussed with the Company's auditors being the second quarter write-off and the Aloha Transaction and various accounting and auditing issues relating to it."

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