Associated Press
By Pete Yost
July 12, 2002
WASHINGTON (AP) -- It is a stock market whodunit that has withstood a decade of scrutiny. Who bought George W. Bush's problem-plagued oil company stock just before its value dropped?
The 1990 transaction involving shares of Harken Energy Corp. allowed the future president to pay off a bank loan for his now-famous stake in the Texas Rangers baseball team. The identity of the buyer of the stock has escaped public disclosure.
Federal regulators who examined the deal as a possible insider trade never asked. President Bush says he doesn't know and the White House declines to ask the broker who handled the transaction. Reporters have fared no better in getting to the bottom of the mystery.
Was Bush's sale of Harken stock another instance of a helping hand from family friends? Or was it a simple case of a buyer trying to make a killing in a high-risk investment?
Corporate scandals and failures that have rocked Wall Street in recent months have renewed questions about Bush's own business dealings when he was a Texas oilman. The White House was put on the defensive again Thursday, as it faced questions about the fact that Bush borrowed $180,000 from Harken to buy some of its stock. The loans are a type of transaction that Bush now wants to ban as part of a crackdown on corporate wrongdoing.
In the 1990 stock sale, Bush collected $848,560 when he sold 212,140 shares he had gotten in the merger of his struggling oil company with Harken in 1986.
By the time of the sale, Harken's finances also were in the red. Daily trading activity in the stock was as little as 1,300 shares on the New York Stock Exchange. If Bush had tried to sell such a large amount of Harken stock into the open market, it undoubtedly would have driven the price far below the $4 a share he was paid.
Bush's oil industry career is a history of being bailed out of money-losing ventures. Among the businessmen who came to his rescue before Harken were Cincinnati businessmen Mercer Reynolds III and William O. DeWitt. They eventually invested in the Rangers with Bush, raised more than $3 million for his presidential campaign and served as co-chairmen of Bush's inaugural committee. Reynolds is now U.S. ambassador to Switzerland and Liechtenstein.
Bush's sale on June 22, 1990, was handled by California stock broker Ralph D. Smith, who says he got a call on June 9 that year from an institutional client who wanted to buy a large block of Harken.
Smith said he then made a couple of "cold calls" to people who owned Harken stock, including Bush.
The broker said there wasn't any arrangement ahead of time to bail Bush out of Harken.
"If there was a rigged buyer, why would he come" to a West Coast brokerage firm? said Smith, who worked for Sutro & Co. in California until his retirement.
The broker said that "if you wanted to do a favor for Bush, you just go to him directly, say here's $800,000 and we'll get this stock transferred."
The 1990 sale triggered an insider trading probe of Bush because he was eight months late in disclosing it to the Securities and Exchange Commission. White House press secretary Ari Fleischer defended the sale by saying Bush had notified the SEC in a timely manner that he intended to sell his shares. However, Bush failed to notify the SEC once the stock actually was sold, as required by law.
On Thursday, a Washington group, the Center for Public Integrity, posted internal SEC documents on the Internet showing that Harken initially was uncooperative in the insider trading probe. The company subsequently provided extensive cooperation to the SEC.
Uncovering little evidence to support an insider trading case, the SEC chose not to interview Bush.
SEC investigators interviewed Smith in the probe, but, according to Smith, they never asked the broker who bought Bush's stock.
Over the past two years, news organizations have tried to persuade Smith to ask the buyer to waive the cloak of confidentiality that surrounds the transaction, but the retired broker has declined.
"They're not going to find out the name of the buyer; it's none of their business," Smith said, adding that he had a professional responsibility not to identify the buyer.
On Thursday, White House spokesman Dan Bartlett said that "it isn't our place" to urge that the buyer step forward.
While Smith declines to name the purchaser, his difficult-to-read handwritten notes turned over to the SEC in the insider trading probe of Bush supply a clue.
The notes for June 9 appear to state that "Geo Bush will sell 212,010 shares in about 2 weeks." The June 22 entry on the day of the sale appears to state, "s/212,140 at 4 to Lee for Bush."
Smith declines to say whether the apparent word "Lee" refers to a person or an entity.
Bush's lawyers have said his investment in the Texas Rangers -- not any inside information about Harken's deteriorating financial performance -- was the motivating factor in selling his shares.
The stock Bush sold for $4 was selling for $3 two months later and fell to around a dollar by the end of 1990. It rebounded to nearly $9 a year after Bush sold. Today it sells for 44 cents a share.
Despite financial losses in 1990 and 1991, Harken's stock price was propped up by the company's highly publicized deal to drill for oil off the coast of Bahrain. The project, which came together while Bush's father was president, never struck any oil. Little Harken beat out major oil companies, including Amoco, for what at the time was thought might be an extremely valuable concession.
Bush's lawyers told the SEC that before the sale, his financial adviser "was bugging him to get liquid" to meet a financial obligation of $600,000 in connection with the Texas Rangers and to pay a tax bill of a couple of hundred thousand dollars. Bush paid off a bank loan he'd taken out for a share of the baseball team.
Bush's $600,000 stake in the Rangers in 1998 brought him $14.9 million when the team was sold.
On the Net: Center for Public Integrity:
www.publicintegrity.org/dtaweb/home.asp
THE HARVARD BOYS DO RUSSIA
"Anne Williamson, a journalist who specializes in Soviet and Russian affairs, details these and other conflicts of interest between H.I.I.D.'s advisers and their supposed clients-the Russian people-in her forthcoming book, How America Built the New Russian Oligarchy. For example, in 1995, in Chubais-organized insider auctions of prime national properties, known as loans-for-shares, the Harvard Management Company (H.M.C.), which invests the university's endowment, and billionaire speculator George Soros were the only foreign entities allowed to participate. H.M.C. and Soros became significant shareholders in Novolipetsk, Russia's second-largest steel mill, and Sidanko Oil, whose reserves exceed those of Mobil. H.M.C. and Soros also invested in Russia's high-yielding, I.M.F.-subsidized domestic bond market.
Even more dubious, according to Williamson, was Soros's July 1997 purchase of 24 percent of Sviazinvest, the telecommunications giant, in partnership with Uneximbank's Vladimir Potanin. It was later learned that shortly before this purchase Soros had tided over Yeltsin's government with a backdoor loan of hundreds of millions of dollars while the government was awaiting proceeds of a Eurobond issue; the loan now appears to have been used by Uneximbank to purchase Norilsk Nickel in August 1997. According to Williamson, the U.S.assistance program in Russia was rife with such conflicts of interest involving H.I.I.D. advisers and their U.S.A.I.D.-funded Chubais allies, H.M.C. managers, favored Russian bankers, Soros and insider expatriates working in Russia's nascent markets."
NOTE: An Inconvenient History - The Russian Money Laundering Pyramid
The Buying Of The President
Indeed, once Bush signed on, business at Harken began to pick up.
"When Harken bought out Spectrum 7, the company was broke and desperately needed a cash infusion.. As the talks with Spectrum 7 progressed, Harken officials were lining up a major new financial backer: Harvard Management Company, Inc. The investment firm's only client is Harvard University; it manages the school's multi-billion dollar endowment.
A month after Bush came on board, Harvard Management agreed to invest at least $20MM in Harken. it would eventually come to own some ten millions shares of Harken's stock, making it one of the company's largest investors.
The Bush name may have helped seal the deal.
Michael Eisenson, a partner in Harvard Management Company, who sat on Harken's board of directors, said that he and other Harvard officials picked Harken after reviewing several proposals from energy companies. "Harken management seemed capable and honest," Eisenson said.
The Bush name certainly would have made an impression on Eisenson's boss, Robert Stone, Jr., who was one of Harvard Management's directors. Stone was the "driving force" behind Harvard's Southwest oil and gas investments, according to Scott Sperling, who worked with Eisenson at Harvard. Stone himself was a player in the Texas oil and gas industry; at the time, he was the chairman of Kirby Exploration, an oil and gas transportation company based in Houston. As a longtime resident of Greenwich, Connecticut, he also knew the Bushes. His father in law, Godfrey Rockefeller, had invested in George Bush's oil drilling ventures in the 1940's. Stone's brother, Galen L. Stone, was the US envoy to Cyprus during the first Reagan-Bush Administration. In 1980 and 1988 he contributed to the elder Bush's presidential campaign.
Harken was Harvard Management's first major investment in Texas wildcat operations, a part of the university's investment history it would rather forget. The investments in oil and gas would eventually generate nearly $200 million in loses for the endowment.
The university's commitment to Harken was suprising in view of the bad shape the company was in. "I took some time and looked at it and I went, God, I don't want to be anywhere near this," a prospective investor in Harken from the late 1980's told the Center. "This thing looks like a train wreck."
By Harken executives' own accounts, the company's financial statements were "a mess" and " a fast numbers game" But insiders insist that Harvard's money managers wouldn't have kept pumping money into Harken if they didn't thing it would become profitable.
For a time, they had reason to believe it would.
The Bahrain agreement, announced on January 30, 1990, seemed to justify Harvard's enthusiasm for Harken. (Note from Solari: See the book "False Profits" on the allegations surrounding the dropping of indictments by the Bush Administration against BCCI's Miami and Caribbean operations and Harken's first non domestic oil deal and alleged relations between the two investor groups).
One of the questions the SEC didn't answer was who bought Bush's stock.
In his statement of intent to sell, which Bush also had to file with the SEC, he said he was putting his 212,140 shares on the open market. That was nearly twenty times the daily volume of stock that traded on average during June 1990; without a buyer willing to absorb such a large block of stock, the share price would have plummeted.
Under questioning by SEC investigators, Ralph Smith, a Los Angeles broker with Sutro & Company, who handled the sale, said that he solicited the shares at the behest of an institutional investor, which he didn't name.
The available evidence suggests that the investor was Harvard. The university increased its holdings in Harken around the time. No new institutional investors appeared on the scene. At the bottom of a spreadsheet Smith used to record his calls to Bush was the name of Michael Eisenson, along with the telephone number of Harvard Management. (Eisenson did not return the Center's telephone calls).
Finally, nine years after its investment in Harken helped save Bush from financial ruin, Harvard Management Company got a deal on a piece of real estate it bought from the Texas Teachers Retirement System. In 1995 the Texas Teachers Retirement System sold the Anatole Hotel in Dallas to a partnership that included the Crow family, which owns a controlling interest in Trammell Crow Company, one of the nation's top real estate management companies, and Harvard Management. Without taking bids, the Texas Teachers Retirement reportedly sold the hotel for $27 million less than it had spent to make improvements on the structure."
Winokur to Join Harvard Corporation
Herbert S. Winokur Jr.
Born in Columbus, Ga., Winokur holds three degrees from Harvard: A.B. '65 ('64), A.M. '65, and Ph.D. '67. His doctoral degree is in applied mathematics (decision and control theory). Since 1987, Winokur has been chairman and chief executive officer of the investment firm Capricorn Holdings Inc., based in Greenwich, Conn. He is also managing general partner of three affiliated limited partnerships, Capricorn Investors, L.P., I, II, and III. The portfolio investments encompass companies with revenues of more than $2 billion and having more than 20,000 employees.
Winokur has maintained close ties to Harvard over the years. A member of the Committee on University Resources since 1989, he has also served since 1995 as a member of the board of directors of the Harvard Management Company. He serves on the advisory committee of Harvard's Mind/Brain/Behavior Initiative, as well as on the Technology and Education Planning Committee of the Faculty of Arts and Sciences. He is a member of the Committee to Visit the Weatherhead Center for International Affairs, and previously served on the FAS Planning Committee for Faculty Recruitment and Development. Co-chair of reunion fundraising efforts for the Class of 1965, he is a member of the New York Major Gifts Steering Committee.
An active board member in both the nonprofit and for-profit worlds, Winokur is an honorary director of the UCLA Medical Center, a former trustee of the Greenwich Academy, and a former co-chair of the New York Historical Society. He is on the board of Second Stage Theatre and until recently served on the board of Project 180, an organization that facilitates the restructuring of nonprofit institutions. He is a member of both the Council on Foreign Relations and the Woodrow Wilson International Center for Scholars Council, and he chaired the search for the Center's current director. His present and past corporate directorships span a wide range of industries, including information technology, energy, water management, and commercial real estate finance.
Before becoming chairman and CEO of Capricorn Holdings, Winokur served as senior executive vice president of the Penn Central Corp., and played a leading role in the corporation's major restructuring and cost reduction efforts. Previously, from 1974 to 1983, he held senior management positions at Pacific Holding Corp., Victor Palmieri and Co., and Pennsylvania Co., Penn Central's principal operating subsidiary.
From 1969 into the early 1970s, Winokur was co-founder and chairman of the Inner City Fund (later ICF Kaiser International), a management consulting firm specializing in policy planning for senior government and business officials, and which also focused on stimulating minority entrepreneurship. For the two preceding years, following the receipt of his Ph.D., he served as an officer in the U.S. Army, assigned to the Office of the Secretary of Defense.
Group Questions Harvard's Ties to Enron
Herbert "Pug" Winokur Jr. - Embattled Enron director to resign from Harvard Management Company
"There is nothing rotten in the accounting profession."
Harvey Pitt, chairman of the Securities and Exchange Commission - January, 2002 - SOURCE