For Bush, Enron Saga Is Reminiscent Of Harken TenureThe Wall Street Journal
By Jim Vandehei
April 3, 2002 Source
For President Bush, some parts of the Enron Corp. saga must seem uncomfortably familiar.
In the late 1980s and early 1990s, he was on the board of directors and audit committee for another Texas-based energy company, and was its well-paid consultant part of that time as well. Harken Energy Corp., in its 1989 public filings, greatly understated its financial losses. The Securities and Exchange Commission examined its accounting and contacts with an outside auditor -- then known as Arthur Andersen & Co. And the SEC also investigated Mr. Bush for insider trading, as it is investigating Enron officials now, based on his selling nearly $850,000 of Harken stock shortly before its mounting debt was made public.
"The parallels with Enron are slightly eerie," says Chuck Lewis of the nonpartisan watchdog Center for Public Integrity, which looked into Mr. Bush's Harken role during the 2000 campaign. "This president certainly has more familiarity with troubled energy companies and accounting irregularities than probably any previous chief executive."
Mr. Bush was found to have done nothing illegal or improper by the SEC. Democrats nonetheless tried to hang the episode around his neck during his 1994 run for Texas governor, and during the presidential campaign, with little success. Now that the Enron debacle is throwing a new light on his experience, they are recalling the story again. It "seems very Enron-esque, and shows that history is doomed to repeat itself unless Congress takes action," says Democratic National Committee Chairman Terry McAuliffe -- who himself has attracted attention recently for the millions in profit he made as an inside investor in Global Crossing Ltd., selling his stock before its slide.
Bush spokesman Daniel Bartlett said: "To draw any specific or general connections between Harken Energy and Enron is simply ludicrous." At Harken and elsewhere in business, Mr. Bartlett said, Mr. Bush "learned and valued the obligation and responsibility he had toward employees." A senior Bush aide boasts, in fact, that the president is well-equipped to deal with problems the Enron scandal has highlighted because of his familiarity with both corporations and SEC enforcement.
Mr. Bush staked a claim in West Texas's oil patch after graduating from Harvard Business School, but his business ventures went dry in the mid-1980s oil bust. He was forced to merge his first company to form a new one, Spectrum 7 Energy Corp., which in turn had to be rescued in 1986 by another company -- Harken -- that was happy to have the well-connected son of then-Vice President George H.W. Bush on its board.
Harken gave Mr. Bush 200,000 shares of stock and an annual $120,000 consulting fee. The job also gave him the time to become a behind-the-scenes player both in his father's 1988 presidential campaign and in the early days of the first Bush administration. For Harken, meanwhile, Mr. Bush helped raise cash to fuel its growth.
In 1989, company officials crafted a deal that would draw SEC scrutiny. Harken sold 80% of subsidiary Aloha Petroleum Ltd. to a partnership of Harken insiders called International Marketing & Resources for $12 million, according to SEC documents. Harken financed most of the loan the buyer needed.
The deal essentially allowed Harken to shield nearly $10 million in debt when it issued its 1989 annual report, by claiming the sale price as income, even though it held the outstanding note on the sale. After months of back-and-forth with the SEC, the company amended its report to show a much larger net loss, $12.6 million, than it had reported.
No evidence suggested Harken officials purposely tried to mislead investors -- as Enron insiders have charged that its executives did by creating outside partnerships to hide debt. Mr. Bush has been highly critical of Enron. "What I am outraged about is that shareholders and employees didn't know all the facts about Enron," he said on one occasion. He has endorsed investigations of Enron, and called on Congress to pass tougher accounting standards for companies and protections for employees' retirement savings.
The separate issue of Enron executives selling stock ahead of the company's meltdown holds another rough parallel to Mr. Bush's Harken experience. He sold 212,000 Harken shares, or 66% of his holdings in the company, on June 22, 1990, just months before it disclosed growing debt problems.
SEC documents show Mr. Bush knew of the financial crunch when he sold his shares at $4 each. After the company divulged its true debt, its stock price dropped to $2.27; by the end of the year, it had plummeted to $1. The SEC began investigating Mr. Bush's sale in April 1991, after The Wall Street Journal reported that he failed to report the transaction on time. Its focus: whether Mr. Bush knew the company planned to report a huge loss that would drag down its stock price.
He was cleared of any wrongdoing, but Democrats suggested he was getting favorable treatment from his father's administration. And so was Harken, they claimed. Their evidence: Shortly before Mr. Bush sold his stock, Harken won the rights to drill potentially lucrative offshore wells from the Middle East government of Bahrain -- even though the company had never drilled in water. Democrats claimed Bahrain picked Mr. Bush's company because of his White House ties.
Again, no evidence surfaced to show he or Harken received favors, and Bush aides chafe at accusations otherwise. "There is one constant," says an exasperated Bush aide now. "Politics is politics. And that remains the same."
Files: Bush Knew Firm's Plight Before Stock Sale
Bush Was Warned of Harken Company Troubles
Government records show that President George W. Bush while in private business had confidential information in 1990 about financial problems facing a Texas oil company just months before he sold stock in the firm."
BUSH TOLD OF HARKEN WOE AHEAD OF SALE
Dubya Knew Oil Company Was In Trouble - Capitol Hill Blue
"Government records show that President Bush while in private business had confidential information in 1990 about financial problems facing a Texas oil company just months before he sold stock in the firm."
Files: Bush Deluged With Confidential Harken Info Prior To Sale Of Stock
Papers Show Bush Played Active Role at Harken
Bush, Cheney: Cheshire cats of reform - As private citizens, did they do what they now disavow?
Papers indicate Bush active in Harken deals
"There is substantial evidence to suggest that Bush knew Harken was in dire straits in the weeks before he sold the $848,560 of Harken stock."
US News and World Report - by Stephen J. Hedges March 16, 1992 - The Color of Money.
Q "Mr. President, you've said that you didn't know, when you sold your Harken stock, that the company was going to restate its earnings. As a member of its audit committee, how could you not know that its earnings had not been properly accounted for?
THE PRESIDENT: Because that fact, that fact came up "after" I sold the stock."
Source
"My administration will do everything in our power to end the days of cooking the books, shading the truth and breaking our laws."
George W. Bush - New York Stock Exchange - July 9, 2002.
THE SEC Says: "Insider trading is illegal when a person trades a security while in possession of 'material nonpublic information' in violation of a duty to withhold the information or refrain from trading."
Severe economic downturn could bring 1930s-style reform - The Wall Street Journal
George Bush is losing control of the American political agenda - The Economist
THE DOW CONGRESS - The Weekly Standard
STOCK CRASH AFTERMATH - Thomas Sowell
Bush Blames Lawyers' 'Mix-Up'
For His Tardy Stock-Sale FilingThe Wall Street Journal
By Jeanne Cummings
Staff Reporter
July 5, 2002
Source
WASHINGTON -- As public discontent over the ethics of corporate executives grows, President Bush is offering a new explanation for why he failed to meet a federal time limit for disclosing a lucrative 1990 stock sale.![[George W. Bush]](http://online.wsj.com/public/resources/images/Bush_GeorgeW-FS32306182002214117.gif)
White House spokesman Ari Fleischer said Wednesday the president's sale of Harken Energy Corp. stock -- shortly before the company reported a sharp loss -- wasn't disclosed in a timely fashion because of a "mix-up" between Mr. Bush, then a Harken board member, and his attorneys. When questions about the stock sale were raised during Mr. Bush's 1994 race for Texas governor, he had claimed the reports were filed on time but that the Securities and Exchange Commission had lost them.
The renewed interest in the stock sale comes at a particularly sensitive time for Mr. Bush, who is gearing up for a major address on corporate responsibility Tuesday in New York. Democrats seized on the latest explanation for the tardy disclosure as evidence that Mr. Bush and the Republican Party aren't serious about cracking down on corporations that mislead investors and employees about earnings.
"The reality is that Bush and his administration have given the green light to unscrupulous CEOs by helping to foster a business environment that says: 'If it feels good, do it,' " said Democratic National Committee Chairman Terence McAuliffe, a wealthy businessman who also has been criticized for his stock sales.
The controversy centers on Mr. Bush's sale of 212,140 shares of Harken stock at $4 a share, or $848,560, on June 22, 1990. Mr. Bush used the money to pay off a $500,000 bank loan he took to buy into the Texas Rangers baseball team, a position he used to gain important populist credentials before entering politics.
After Mr. Bush sold the stock, Harken posted a $23.2 million second-quarter loss. When that loss was made public in August, the stock price fell to just over $2.
Before the sale, Mr. Bush had personally -- and properly -- filed a document disclosing his intent to sell the stock. But SEC investigators became suspicious about the transaction after The Wall Street Journal reported the late arrival of a second form required when corporate insiders sell stock. The second form, disclosing the actual sale, was filed in March 1991, nine months late. An investigation was launched a month later, but it later was dropped with no action taken.
The president has dismissed as politically motivated the recent interest in the 12-year-old stock sale. But Mr. Fleischer said Wednesday it wasn't until this week that Mr. Bush found out -- with certainty -- what actually transpired so long ago. This time, he placed the blame for the tardy document-filing on his lawyers.
"The president believed that all the forms were filled out properly by the attorneys and filed with the SEC because he knew that he filed his form with the SEC," Mr. Fleischer said. Apparently, that sense of confidence that all disclosure laws had been complied with is what led Mr. Bush, in the 1994 gubernatorial race, to blame the SEC for misplacing his document.
"Then, it turned out to be a mix-up with the attorneys" and the second document, in fact, hadn't been filed on time, Mr. Fleischer said. "We were able to ascertain that this week."
Write to Jeanne Cummings at jeanne.cummings@wsj.com