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."

Harkening Back To Texas

The market’s tumbling, confidence is soft and Bush is facing questions about what he did and when he did it long ago. The battle to calm investors, rein in CEOs—and keep the past at bay.

Newsweek
By Howard Fineman
July 22, 2002 Issue
Source

It was what they call in west Texas “a short-fuse deal,” George W. Bush’s accountant recalls. In Midland parlance, Robert McClesky explained, that meant Bush—a boyhood buddy and longtime client—needed a hunk of fast cash.

IN APRIL 1989, he’d found the last clear chance of his sputtering business career, becoming drummer and door opener for a syndicate of rich guys lining up to buy the Texas Rangers. The group wanted to reward him by making him a co-managing general partner. His father, after all, was president of the United States. But Bush would still need to put up $500,000 (out of a purchase price of $86 million) for his stake.

Where was he going to get that kind of scratch? He was not a rich man (at least not by Texan standards). Nor was he “liquid,” as they say on Wall Street. Bush’s chief asset—317,00 shares of Harken Energy stock—was tied up as collateral on existing loans. But Bush was able to quickly free up some of the stock without, apparently, immediately doing the required paperwork. In that way, he could use it to get a $500,000 loan from the United Bank of Midland, where Bush had served on the board, and where he still was an “advisory director.”

It was all conducted in the old-fashioned west Texas way: honorable enough (Bush seems to have done the paperwork some six months later), but with friendly terms for an inside player and a laissez-faire attitude toward regulatory detail. Or, as Joe O’Neill, another Midland buddy, puts it: “We don’t call in lawyers till we wrap up a deal. They’ll just screw it up. You don’t call a lawyer until you have to.”

COZY DEALINGS

Well, we aren’t in Midland anymore, and everybody in Washington is busy calling the lawyers. Cozy is OK in west Texas, where you can judge a man by his handshake and his daddy’s name. And it worked when share prices were rising like rockets at Cape Canaveral. But not now, not in Washington. Eighty million Americans are invested in the stock market. A two-year price decline and a year of boardroom scandal changed everything. Suddenly, everyone—including President Bush—is demanding strict compliance with the letter of the laws. Many leaders—though not primarily Bush—are rushing to propose sweeping new statutes and regulatory agencies. The goal: to restore faith in corporate America—and protect Congress from the voters’ wrath this fall.

Now Bush and others on his team have to reconfigure an old Republican adage. The new version: do what we say now, not what we did then. In the case of Bush’s 18-year career in business, no one has found any evidence of unethical conduct, let alone what he calls “malfee-ance.” Yet some of the rules he now propounds he ignored when they applied to him, and some of the reforms he now proposes would eliminate perks he once enjoyed. White House aides don’t think his history limits his ability to be a reformer. “That’s like saying you couldn’t be for campaign-finance reform if you took contributions,” says White House communications director Dan Bartlett. “People learn from experience.”

Can the first M.B.A. president crack down on the world he comes from? He filled his team with an unprecedented number of CEOs, executives and lobbyists. When the markets were up, it made sense enough to bring a profit-margin mind-set to the capital. Even now, his aides argue, Bush’s business background enables him to suture the market’s ethics wounds without killing the patient. But voters may wonder if this CEO White House has the interests of average investors, employees and retirees in mind. The president’s widely panned Wall Street speech—tough in tone but containing few legislative specifics—was kept cautious on the advice of business-world alumni, among them Vice President Dick Cheney (late of Halliburton) and domestic-policy chief Joshua Bolten (of Goldman Sachs).

For Bush, there’s a profound family question lurking in the market numbers: is he destined to repeat the pattern of his father’s presidency? Like “41,” this Bush is adept as commander in chief. But he has yet to prove he’s more attuned than his dad to the emotional politics of the economy. He and his team, consumed by the Middle East and other matters, were slow to adopt a sense of urgency about corporate reform. Now, just like Dad’s team a decade ago, they think each new speech (there’s one this week) or photo op (there was one last Friday) will finally vault them “ahead” of the issue. In fact, they’re on the defensive, reacting to events. That’s evidently the view on Wall Street, where traders fear a worst-case scenario: more regulation, less inspiration.

WHISPERING ABOUT WHITE

Even Republicans think that the president could inspire the country by getting rid of Army Secretary Thomas White, who cashed out as an Enron executive with $31 million just before the company collapsed. Federal investigators are combing through the wreckage of Enron, including trading strategies used by White’s Enron unit to hike electricity prices in California in 2000 and 2001. He is scheduled to testify this week before a Senate committee. The White House has continued to back White, but Republicans on the Hill, NEWSWEEK has learned, are quietly passing the word that they’d prefer White to resign. If he testifies, they say, he will be forced to invoke his constitutional right not to respond. “How is it going to look when one of the guys leading the war on terrorism takes the Fifth?” said a leading GOP source on the Hill. “We’re betting that he’ll quit.” (White did not respond to a request for comment.)

The larger challenge for the president and the Congress is to end corporate abuse without turning every CEO and CFO into a ward of the state. Bush focused on using existing law to track down business malefactors, and proposed doubling the jail time for clear-cut crimes. The Senate, with rear-covering Republicans joining their Democratic colleagues, immediately went Bush one better, voting without dissent to make any “scheme to defraud” the public a crime. It would, in essence, apply the sweeping theory of racketeering law to top executives.

Bush remains popular, but bad Wall Street news, falling consumer confidence and perhaps word of a larger-than-expected federal deficit is chipping away at his standing. In the new news-week Poll, his approval rating dipped to 68 percent, 20 points below its post-September 11 peak. Voters approve of his response to the business scandals, but by a relatively weak 51-32 margin. They think he is better able to clean up the mess than the Democrats—but by only a 38-31 percent margin.

White House strategists are convinced that there is no danger to Bush in questions about his business career, in which 50 percent of voters think he “behaved responsibly.” Still, Democrats seem determined to press the issue. And though most of the topics have been examined before—in his father’s 1992 campaign and in his own campaigns of 1994 and 2000—new details and questions keep surfacing, given added drama by the current scandals elsewhere.

NO EXCEPTIONS?

Last week, for example, new details surfaced about the stock-option awards Bush and other directors got from Harken. The company twice loaned him money at cheap rates so that he could buy bunches of bargain-priced Harken stock. On Wall Street, Bush suggested that corporations should ban that very type of loan. In the Oval Office two weeks ago, the president and his aides debated—and rejected—carving out any exceptions. Bush’s personal experience didn’t come up.

Bush also called for a renewed commitment to vigilance on the part of all corporate directors, but he didn’t always have the time to be that way himself. He joined the Harken board in 1986, when he sold the interest in his oil-exploration company for 212,000 Harken shares. (He left the Harken board in 1993 when he launched his campaign for governor.) He was a diligent director, but wasn’t always engaged, especially when he was helping run his father’s 1988 presidential campaign and, later, the Rangers baseball team. “You can only put so many hours in a day,” said Harken founder Phil Kendrick, “and he was doing a lot of other stuff.”

When it came time to find the $500,000 he needed for the Rangers deal, Bush couldn’t turn to Harken for help. The optioned stock couldn’t be used as collateral. And, apparently for tax reasons, he’d chosen in 1986 to pledge the rest of his stock (his original 212,000 shares) as extra collateral on one of his Harken loans. So Bush did what he’d done in the past: he went back to Midland. Bush contacted leaders of United Bank, which came through on April 17, 1989, agreeing to give him a one-year personal loan of $500,000, secured by 159,105 shares of his Harken stock. Four days later, he helped announce the Rangers purchase.

According to McClesky and Bartlett, Bush was able to pledge stock he’d previously chosen to use as collateral elsewhere by electing in April to change the terms of his first stock-purchase loan from Harken. (He narrowed the first loan’s terms to free the stock for use as collateral on the second.) As evidence that the terms of the first loan had changed, McClesky points out that United Bank took custody of Bush’s Harken stock certificates. If the certificates had contained notations that they were being used for collateral elsewhere, McClesky argues, the bank would not have accepted them. Still, by last weekend, no documents had surfaced to prove directly that Bush had, in fact, changed the terms of the loan before pledging the stock a second time. Indeed, the only document known to exist, a letter from Harken’s general counsel, indicates that Bush did not change the terms officially until Oct. 5, 1989—five months late.

Bush wasn’t done wheeling and dealing. In March 1990 his buddies at United Bank agreed to renew the loan on even more favorable terms: a two-year note with no collateral at all. That freed the stock for sale. And none too soon: Bush, like other shareholders and directors, was receiving repeated warnings that spring about the company’s precarious finances. He sold in June, to a still unidentified investor. With the proceeds, he paid off the bank. But, typically, Bush filed the proper notification of the stock sale eight months late (Bartlett blames the lawyers at Harken). When Bush finally filed the form, he was investigated (but not charged) by the SEC for insider trading. At the time, the SEC’s general counsel was an attorney named James Doty, who earlier had helped him on the Rangers deal. Doty recused himself, and later said he took no part in the case. But even though he was the subject of the probe, Bush never was interviewed. As they say in Midland, you don’t call a lawyer until you have to—and they don’t call you until they have to.

With Martha Brant and John Barry in Washington and Seth Mnookin in Dallas

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

"Pitt said he has no plans to release additional SEC documents involving Bush's sale of Harken Energy Co. stock in 1990."
Atlanta Journal-Constitution - By MARILYN GEEWAX -July 12, 2002 - Source.

SEC Chief Says He Opposes Release of Files on Bush

Reuters
By John Whitesides
July 14, 2002 03:27 PM ET
Source

WASHINGTON (Reuters) - Securities and Exchange Commission Chairman Harvey Pitt, under heavy fire as a wave of corporate scandals breaks, said on Sunday there was no need to release the files on a 1991 probe of President Bush's stock sales.

Appearing on two television talk shows to answer charges that he is too cozy with corporate America to effectively regulate it, Pitt vigorously defended his agency's performance and said he will not resign.

He accused Democrats of trying to score political points with calls for the release of the investigatory files on Bush's stock sales while he was a director of Texas-based Harken Energy Corp.

"Unless there's a reason to re-open ancient history, we should move on," Pitt said on NBC's "Meet the Press."

"Why can't we focus on WorldCom, on Enron, on Qwest, all these other companies where the American public is being injured? Why are we diverted for mere political gain?" he said, although he said he would release the files if Bush asked.

The SEC investigated Bush for being up to 34 weeks late in reporting stock sales worth more than $1 million but concluded he did not engage in illegal insider trading. Bush's father was president at the time.

"The matter is closed," Pitt said, but Democrats said Bush still needs to come clean about his past as a businessman.

"The only way to clear the air is full disclosure," Connecticut Sen. Joseph Lieberman, a potential Democratic presidential candidate in 2004, said on ABC's "This Week."

A bout of financial scandals have torpedoed investor confidence in publicly traded stocks and rocked financial markets, threatening to become a political liability for the president and Republicans heading into the November mid-term elections.

CENTER OF STORM

Pitt has been at the center of the Wall Street storm, with top lawmakers such as Senate Democratic Leader Tom Daschle and Arizona Republican Sen. John McCain calling for his resignation. Bush so far has backed Pitt.

"I have absolutely no intention of stepping down," Pitt said on CBS' "Face the Nation." He said the SEC was more aggressive now than it had ever been.

"Anybody who looks at what we've really done, what our record is, instead of these politically crass sound bites, will understand this is the most aggressive, most effective SEC that there has ever been in the 68 years of this agency," he said on NBC's "Meet the Press."

Republican Rep. Billy Tauzin of Louisiana said Sunday that accounting irregularities at fallen telecommunications giant WorldCom Inc stretched back at least one year earlier than previously believed.

Internal WorldCom documents show the company's then-chief financial officer rebuffed complaints from at least two employees that it was artificially inflating profits as far back as April 2000, Tauzin said on ABC's "This Week."

Tauzin is chairman of the House Energy and Commerce Committee looking into the WorldCom scandal.

Pitt said he supported the "thrust" of Democratic Sen. Paul Sarbanes' bill to create a tough, new oversight board for accountants and limits the consulting services accounting firms can provide their audit clients.

He also praised a more modest bill passed by the House in April that has been criticized as weak by some investor advocates.

Pitt, a former Wall Street lawyer with prominent clients including major accounting firms and corporations, finishes in August a one-year "cooling off period" in which he has recused himself from numerous cases involving former clients.

But he said he will "make a case-by-case decision" on whether to start participating. "If I think there is an appearance issue or some other problem, I may still recuse myself," he said.

He endorsed proposals to indict corporate chief executive officers whenever a corporation is indicted for a criminal matter under SEC jurisdiction.

"We're going after these people. I frankly think, every one of them who is responsible for any of these defaultations should do hard time for their hard crimes," Pitt said.

"The SEC fully looked into the matter, they looked at every aspect of it ... and the people who looked into it said they have no case,"
George W. Bush - July 8, 2002 - Source.

"How thorough the SEC inquiry was remains unclear. Jordan said Harken provided investigators with "thousands of pages" of documents, including the June 11 minutes and Faulkner's July 13 communique. Investigators interviewed Cummings, stockbroker Smith and a member of the Arthur Andersen auditing team, but they did not talk to Faulkner or any other officers or directors of Harken."
The Washington Post - Bush Name Helps Fuel Oil Dealings - By George Lardner Jr. and Lois Romano - Friday, July 30, 1999; Page A1.

George W's daddy, George H.W. Bush was President.
Richard C. Breeden - "who was SEC chairman under President Bush's father, former President George H.W. Bush"
Richard C. Breeden - "Serving as 'Assistant' to the President for President George H.W. Bush"
Ex-SEC chairman Richard Breeden named "WorldCom" monitor
Robert Jordan, a founding partner of the Dallas law office of Baker Botts, represented Mr. Bush during a Securities and Exchange Commission inquiry into the allegations involving Mr. Bush's lucrative sale of stock in Harken, where he had been a director. Robert Jordan, is now ambassador Saudi Arabia.
James R. Doty - "From May 1990 through December 1992, Mr. Doty was the General Counsel of the United States Securities and Exchange Commission, Washington, D.C."
"As General Counsel, Mr. Doty was the chief legal officer of the Commission, responsible for advising the Commission and its staff with respect to interpretations involving questions of law, the conduct of administrative proceedings, the preparation of Commission comments to Congress on pending legislation and the drafting, in conjunction with the appropriate divisions and offices, of legislative proposals sponsored by the Commission."
James R. Doty - "who earlier represented Bush in his purchase of the Texas Rangers, made with the proceeds of his sale of Harken shares"
James R. Doty was a law partner with Robert Jordan.
Harvey L. Pitt - Former Arthur Andersen Attorney

Hi, my name is Harvey Pitt, and you'll have to excuse me, I'm a recovering Arthur Andersen(AA) Attorney.

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

Papers Offer Info on Bush Knowledge

WHAT'S UP IN JAKARTA

Masters Head Wary of Media Stephens relieved to survive limelight PAT SULLIVAN The San Francisco Chronicle SPORTS; Pg. D3; PAT SULLIVAN ON GOLF APRIL 25, 1992, SATURDAY, FINAL EDITION

T WO WEEKS ago, in the Masters, a nervous man sat in front of about 100 members of the media. His name was Jackson Stephens, new chairman of Augusta National and the tournament.

After Stephens' news conference, all about golf, he openly expressed relief at surviving his minutes in front of the media. At the time, his uneasiness seemed unwarranted. But now it's clear that he had reason to be wary of questioning.

...the Wall Street Journal has reported that Stephens' Arkansas-based investment bank played a critical role in fund raising for Harken Energy, a small Texas company whose board of directors includes George W. Bush...

According to the PBS show ''Frontline,'' which aired Tuesday night, Stephens has been linked to past deals involving the Bank of Credit and Commerce International, a rogue bank on whose behalf a guilty plea was entered in January on a federal racketeering charge.

And the Wall Street Journal has reported that Stephens' Arkansas-based investment bank played a critical role in fund raising for Harken Energy, a small Texas company whose board of directors includes George W. Bush, the president's son, and which won a potential billion-dollar contract to drill for oil in Bahrain....

Go up and read through reply #167. And then read this:

"When Harken needed an infusion of cash, Bush turned to family friend and investment banker Jackson Stephens of Little Rock, AK. The firm of Stephens Inc. was at the time one of the largest investment banks outside Wall Street. (The Stephens family was also active in Republican circles: Jackson Stephens would later contribute at least $200,000 to the Bush for President campaign, and his wife would become the Arkansas campaign chair.) Stephens rescue plan was to obtain $25 million in investment capital from Union Bank of Switzerland -- a joint venture of BCCI and the Banque de Commerce et de Placements in Geneva. UBS did not normally invest in small U.S. companies, but it made an exception in this case.

As originally structured, the deal apparently did not comply with U.S. banking regulations, according to the Asian Wall Street Journal. In the course of restructuring the deal, UBS decided to sell its shares as soon as possible, and Stephens obligingly found a new buyer: Sheikh Abdullah Bakhsh, a Saudi Arabian real-estate magnate. Bakhsh's representative is Talat Othman, a Palestinian born Chicago investor.

For several years Bakhsh was chairman of Saudi Finance Co., a holding company based in Luxembourg that operated French and Swiss financial enterprises. Bakhsh sold his interest in Saudi Finance Co. in 1983, although it is not clear to whom. By 1989 the firm was under partial control of the Gokal family of Pakistan -- shipping magnates who were BCCI shareholders. Bakhsh conducted business with the most prominent people in Saudi Arabia, reportedly including two oil ministers and members of the Saudi royal family. Among his notable co-investors was Ghaith Pharaon; Khalid bin Mahfouz was Bakhsh's banker. Bakhsh's stake in Harken was 17.6% in 1991, making him the third largest shareholder. The first, with 24.5%, is a Harvard University investment fund.

Jackson Stephens was identified by the Kerry committee as possibly "BCCI's Principal U.S. Broker," having facilitated BCCI's first acquisitions of U.S. banking concerns National Bank of Georgia and its former parent, Financial General Bankshares.

Ghaith Pharaon is still wanted by the FBI for wire fraud and racketeering conspiracy, according to the Justice Department's Interagency International Fugitive Lookout. (Incidentally, the DOJ site lists him as 93 inches tall, although "of short stocky build….") Pharaon's own web site relates that he is the son of the personal physician and advisor to former King Ibn Saud of Saudi Arabia. He attended the Colorado School of Mines and Stanford University, graduating with a degree in petroleum engineering. In 1965 he received an MBA from Harvard Business School, as his web site says. "a degree and training which became common to a number of other Saudis and Middle Easterners who later rose to prominence in government, business and commerce in the area," -- not to mention George W. Bush."

The Hijackers of Harvard: Herbert S. (Pug) Winokur - By Catherine Austin Fitts

Hold the line: Harvard Watch's "Trading Truth: A Report on Harvard's Enron Entanglements" - By Catherine Austin Fitts

"Harvard would never be so irresponsible as to make multimillion investments based on a personal connection, Harvard would like every investment to come out ahead, but they don't."
Joe Wrinn, spokesman for the university. Boston Globe - By Richard Kindleberger - April 30, 1991.

"The head of Harvard University's $5 billion endowment defended yesterday one current and one former employee of Harvard Management Co. against suggestions of a conflict of interest. Jack R. Meyer, president of Harvard Management, said he is persuaded that partner Michael R. Eisenson behaved appropriately in owning stock in a company that is part of the university's portfolio. Meyer said he has no reason to believe that Donald D. Beane, formerly with Harvard Management, did anything wrong ... "

"Two Harvard University officials who manage the investment of Harvard's endowment have themselves owned stock in one of the companies in the university's portfolio, raising questions of conflict of interest. Michael R. Eisenson and Donald D. Beane, partners in the Harvard Management Company, each owned 10,000 shares of common stock in Harken Energy Corp., worth about $26,250 each, the Harvard Crimson reported. Harvard owns about $28 million of stock in Harken, a Texas oil and gas concern ... "
Anthony Flint, Boston Globe - April 29, 1991.

Richard C. Breeden Biography

Richard C. Breeden is chairman, president and CEO of Equivest Finance Inc., and is the past chairman of the U.S. Securities and Exchange Commission.

Equivest Finance Inc. is a publicly traded company in the travel and leisure industry with annual sales exceeding $160 million, approximately 2,000 employees and a compound annual growth in earnings per share of more than 40 percent per year over the past four years. Since 1996, Breeden also has been bankruptcy trustee of The Bennett Funding Group Inc., of Syracuse, N.Y., a leasing company that failed as a result of a multibillion-dollar fraud. Breeden also is president of Richard C. Breeden & Co., which handles turnarounds of troubled companies, as well as consulting on international capital markets.

A graduate of Stanford University and Harvard Law School, Breeden began his career practicing law in New York City specializing in acquisitions and corporate finance. For almost four years he served in the White House as a senior economics and financial adviser to George Bush (both as president and vice president), during which time he was responsible for defusing the savings and loan crisis and modernizing U.S. financial regulation. From 1989 to 1993 he served as chairman of the U.S. Securities and Exchange Commission, following appointment by former President Bush and unanimous confirmation by the U.S. Senate. During a portion of that time, Breeden also served as president of the International Organization of Securities Commissions and worked actively with many of the emerging markets around the world. After leaving government service in 1993, Breeden served until 1996 as the chairman of the worldwide financial services practice of Coopers and Lybrand LLP, where he consulted on risk management systems, internal controls and securities offerings in the United States by foreign companies.

Breeden serves as a director and member of the audit committee of eSpeed Inc., operator of the world's largest electronic trading network. ESpeed completed its Initial Public Offering in December 1999 and is one of the leading forces in creating a fully electronic, ultra-high speed, global trading network in securities, energy, telecommunications and other types of tradeable assets. Breeden also is a director and member of the audit committee of Claritybank.com, a startup retail Internet bank, and W.P. Stewart & Co. Ltd., one of the largest privately owned investment managers for high-net-worth individuals, as well as institutions in the United States, Europe and Asia. He is a frequent guest commentator on financial issues with Fox News.

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.

Speaking of manipulation, fraud, cooking the books and insider trading:

Plunge Protection Team

The Washington Post
By Brett D. Fromson
Washington Post Staff Writer
Sunday, February 23, 1997; Page H01

It is 2 o'clock on a hypothetical Monday afternoon, and the Dow Jones industrial average has plummeted 664 points, on top of a 847-point slide the previous week.

The chairman of the New York Stock Exchange has called the White House chief of staff and asked permission to close the world's most important stock market. By law, only the president can authorize a shutdown of U.S. financial markets.

In the Oval Office, the president confers with the members of his Working Group on Financial Markets -- the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The officials conclude that a presidential order to close the NYSE would only add to the market's panic, so they decide to ride out the storm. The Working Group struggles to keep financial markets open so that trading can continue. By the closing bell, a modest rally is underway.

This is one of the nightmare scenarios that Washington's top financial policymakers have reviewed since Oct. 19, 1987, when the Dow Jones industrial average dropped 508 points, or 22.6 percent, in the biggest one-day loss in history. Like defense planners in the Cold War period, central bankers and financial regulators have been thinking carefully about how they would respond to the unthinkable.

An outline of the government's plans emerges in interviews with more than a dozen current and former officials who have participated in meetings of the Working Group. The group, established after the 1987 stock drop, is the government's high-level forum for discussion of financial policy.

Just last Tuesday afternoon, for example, Working Group officials gathered in a conference room at the Treasury Building. They discussed, among other topics, the risks of a stock market decline in the wake of the Dow's sudden surge past 7000, according to sources familiar with the meeting. The officials pondered whether prices in the stock market reflect a greater appetite for risk-taking by investors. Some expressed concern that the higher the stock market goes, the closer it could be to a correction, according to the sources.

These quiet meetings of the Working Group are the financial world's equivalent of the war room. The officials gather regularly to discuss options and review crisis scenarios because they know that the government's reaction to a crumbling stock market would have a critical impact on investor confidence around the world.

"The government has a real role to play to make a 1987-style sudden market break less likely. That is an issue we all spent a lot of time thinking about and planning for," said a former government official who attended Working Group meetings. "You go through lots of fire drills and scenarios. You make sure you have thought ahead of time of what kind of information you will need and what you have the legal authority to do."

In the event of a financial crisis, each federal agency with a seat at the table of the Working Group has a confidential plan. At the SEC, for example, the plan is called the "red book" because of the color of its cover. It is officially known as the Executive Directory for Market Contingencies. The major U.S. stock markets have copies of the commission's plan as well as the CFTC's.
Click Here For Remaining Article

THE PLUNGE PROTECTION TEAM

Securities and Exchange Commission Approves New Circuit Breaker Levels

FOR IMMEDIATE RELEASE

April 10, 1998

Source

Washington, D.C., April 10, 1998 -- The Securities and Exchange Commission late yesterday approved new circuit breaker trigger levels for one-day declines in the Dow Jones Industrial Average (Dow) of 10%, 20% and 30%. The new levels, which go into effect April 15, 1998, were proposed by the securities exchanges and the NASD to modify their rules regarding coordinated, cross-market trading halts during periods of extraordinary market volatility.

The new trigger levels will be converted into point values at the beginning of each calendar quarter, using the average closing value of the Dow for the previous month. The new levels also better reflect the original intent of the circuit breakers: that they only be triggered during a severe one day decline of historic proportions. The Commodities Future Trading Commission also approved substantively identical rules for the stock index futures markets.

The rule changes also modify the late-in-the-day trading halt procedures for circuit breakers.

Ten Percent Decline: The halt for a 10% decline will be one hour if triggered before 2:00 p.m. EST. At or after 2:00 p.m. EST but before 2:30 p.m. EST, the halt will be for one-half hour. At or after 2:30 p.m. EST, the market will not halt at the 10% level and will continue trading.
Twenty Percent Decline: The halt for a 20% decline will be two hours if triggered before 1:00 p.m. EST. At or after 1:00 p.m. EST but before 2:00 p.m. EST, the halt will be for one hour. If the 20% trigger value is reached at or after 2:00 p.m. EST, trading will halt for the remainder of the day.
Thirty Percent Decline: If the market declines by 30%, at any time, trading will be halted for the remainder of the day.
Previously, the circuit breakers were triggered when the Dow Jones Industrial Average declined 350 points (thirty minute halt) and 550 points (one hour halt) from the previous day's close.

THE MOB ON WALL STREET

Something Is Rotten Behind Economic Scene
INSIGHT MAGAZINE
Jamie Dettmer
December 7, 2001
During the first week of December, Bush officials started briefing journalists to the effect that the White House was aware that it needed to focus more attention on America's blighted economy.
The underlying thrust of what they were saying was that this president wouldn't get caught out like his daddy did in 1992 and appear aloof from the everyday concerns of Americans struggling with harsh economic times. In short, there will be no embarrassing photo opportunities at supermarkets featuring a president apparently bewildered by checkout scanning technology. But the timing of the economy briefing from Bush aides was interesting, coming as it did on the back of the abrupt collapse of Enron Corp., the energy trader with close ties to Bush and whose executives were singled out to assist in developing the president's energy policy.
Of course, it doesn't take a political genius to see that the White House hardly can ignore the bleak economy. For all the debate about whether this is a Clinton recession or a Bush one, come 2004, if the good times aren't rolling, the buck is going to stop with the guy sitting in the Oval Office.
That isn't the only reason the Bush White House is feeling nervous about possible political fallout from the economy. There are signs ordinary Americans are beginning to get mad. Not so much because of the recession but because of the disturbing things the recession is throwing up about Wall Street, investment banks, the big auditing firms and the politicians they are close to, at least in terms of chucking campaign dollars at them and securing favorable legislation.
The evidence that a head of steam is building is coming in many forms. For one, the National Association of Securities Dealers is on track to receive a record number of formal complaints filed by investors against brokers and analysts: By the end of the year the total likely will exceed by a thousand the record of 6,058 set in 1995.
The current onslaught of complaints has Wall Street worried. And as more details emerge of dubious practices, ranging from conflicts of interests to bad investment advice, from lack of due diligence by brokerages and securities firms to churning by brokers determined to build up fees, Wall Street has cause for anxiety.
In 1998 Americans were taken aback at the revelations of crony capitalism in the Tiger economies of Asia: the kickbacks, nepotism, corruption and lack of transparency in banking and dealing. Now it's "physician cure thyself," as the recession is highlighting serious crony capitalism here.
The Enron bankruptcy is one example of the existence of something rotten. Why didn't auditors and investment banks raise an early alarm about the massive off-the-books debt of Enron? Where was the Securities and Exchange Commission?
The second example is the dot-com mania of the late 1990s and the cronyism and lack of due diligence that now is beginning to emerge in the allocation of shares in initial public offerings (IPOs). When the dot-com bubble burst investors faced huge portfolio losses. And up to a point they had only themselves to blame for taking risks and boosting the notion that the market would go up forever.
But did the securities firms and brokerages and underwriters talk up the market in 1998 and 1999 when they knew problems were looming? Did they in fact do even worse?
On Dec. 4, dozens of high-powered lawyers gathered on the 48th floor of One Penn Plaza in New York City to discuss how to deal with nearly 1,000 class-action lawsuits filed against the underwriters of IPOs. Virtually all the major securities firms are defendants in these suits: Morgan Stanley, Citibank, Merrill Lynch, Goldman Sachs, Credit Suisse First Boston, etc. Chairing the meeting was Mel Weiss, the New York attorney Wall Street fears the most. His New York law firm helped recover $800 million for investors in the investigation of junk-bond king Michael Milken.
Known for his tenacity and bare-knuckled approach, Weiss says the NASDAQ boom wasn't just the result of "irrational exuberance" but a glaring case of market manipulation and fraud by the underwriters, who used kickback schemes, secret profit-sharing agreements with selected clients and price-fixing to inflate the value of IPOs.
Weiss argues that the underwriters required select clients who wanted IPO share-allocations to buy a certain number of shares after launch at predetermined prices, "not for investment purposes but to generate momentum." That process is known as "laddering." The smell of gold was intense. "Greed has always been a growth industry, but it became a supergrowth industry," Weiss says.
He adds: "Investors were blinded by an illusion that was very carefully orchestrated by the investment banks. Our investigations are revealing that the securities firms knew there was a problem. People from the investment banks are telling us that they would sit around the table and ask, 'Why the hell are we bringing this or that company public? This looks like it is a dead-bang nothing.' And then they would walk into the next room to the analysts and they would give a glowing report."
Some Wall Street lawyers estimate that it will take $6 billion to $10 billion to settle the class-action lawsuits. The cost could be even higher in terms of the credibility of the investment banks and brokerages. And pressure is likely to grow for some major reforms to stop the cozy relationships that underpinned the dot-com mania.
Jamie Dettmer is a senior editor at Insight magazine.

Why P/E Matters for the Dow
"The market hasn't corrected at all for the sad truth that the New Economy's underlying assumptions turned out to be mistaken, and we're back in the same Old Economy with uniquely cruel business cycles, booms and busts. Just to give you an idea of how far out of historical whack the stock market is, consider this: Profits rise over the long term by about 4% a year, with immense deviations around the mean. If the earnings depression ends tomorrow and profits rise at 4% a year again, it will take roughly 14 years (not months, years) for the Dow's P/E to reach historical norms -- even if the Dow doesn't rise 1 point in those 14 years. Or, to look at it another way, the Dow would have to fall by about half for it to resume historical P/E behavior."

"One of the best bankers in this country, John Medlin, told me that these are the worst credit standards he had ever seen in 40 years of banking. If we have a downturn in the economy, these debt burdens could present a real crisis for us."
U.S. Senator Lauch Faircloth (R-NC) - Hearing on the Federal Reserve's First Monetary Policy Report to Congress for 1998 - February 25, 1998.

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