Why Investigation of Bush's Stock Sale 'Just Didn't Pan Out'

The Los Angeles Times ^ | July 14,2002 | MARK FINEMAN

[Lecie]

Why Investigation of Bush's Stock Sale 'Just Didn't Pan Out'

WASHINGTON -- What Lisa Meulbroek best remembers about the day in 1990 when she handed her four-page report to two young enforcement lawyers at the Securities and Exchange Commission was their disappointment.

Meulbroek was working in the SEC's Office of Economic Analysis at the time. Fresh out of MIT, she had just done her doctoral dissertation on insider stock trading. The SEC lawyers, excited about a hot insider-trading case they had been pursuing for several months, had asked her to analyze trading patterns in a small Texas oil-and-gas exploration company.

[Oldeconomybuyer]

The critical paragraphs of this article:  (hopefully staying within FR posting guidelines for LAT articles) ...

It was Meulbroek's report on what happened to Harken's stock when the company announced its big second-quarter losses on Aug. 20 [1990] that tipped the scale.

If investors didn't view that report as "materially" affecting the company, and show it by selling off shares and driving down the price, there would be no case, the SEC lawyers concluded. And Meulbroek found that, in the end, it didn't.

Harken's stock on the American Stock Exchange opened at $3 a share on Aug. 20, her report stated. The earnings report came out at 9:34 a.m. that day. For three hours, nothing happened. Then, as the SEC's initial investigative documents indicated, the stock nose-dived by 21% in the afternoon, closing at $2.37.

But Muelbroek, reasoning that Harken was a thinly traded stock, decided to analyze the stock's movement on the following day as well, which was standard practice at the time. She discovered that the stock rebounded to recover all its losses of the previous day, closing at $3 on Aug. 21.

"Unless another reason exists for the price rebound on Aug. 21, the most likely explanation for the increase is that investors overreacted to the earnings announcement, recognized their error, and corrected it," her report said. "Such price reversals are rare but not unheard of."

The bottom line: The announcement had no "material effect" on the stock. So, even if Bush knew it was coming two months before, that knowledge was worthless, Meulbroek's findings concluded, although she said Friday, "We still don't know what caused the stock to rebound that day."

[BlueAngel]

BTTT

[Lecie]

Thanks. I thought this a relatively important article considering the newspaper in which it is printed.

[Lecie]

You are correct, of course. When posting the article,I had a hard time deciding which paragraphs to insert. I'm very glad you picked up this one.

[rdavis84]

I understand that Bush's stock was sold as a block to another person. That person has been the subject of conjecture, and since the SEC refused then and now to identify that person, there is an important piece of info missing.

Before this will be considered a clean deal that mysterious buyer must be identified.

[Oldeconomybuyer]

Great article and thanks for the post. It will be interesting to see what happens to the Harken story in the coming days in view of this article (from the LAT no less!).

[EllaMinnow]

Big Bump for a great find!

[Oldeconomybuyer]

Before this will be considered a clean deal that mysterious buyer must be identified.

As far as I know it's not illegal to buy and sell stock in public companies in the United States of America and there are no laws that require the disclosure of all buyers and sellers of same. The real question is, as discussed in this article, did then-private citizen GW Bush use insider information to sell stock that harmed the buyer and avoided a loss for the seller. Since the stock rebounded to its pre-sale price the next trading day and doubled within 12 months of the transaction, it seems to me there ain't no reason to worry about who the buyer is unless one is interested solely in "the politics of personal destruction".

[Lecie]

I agree with you, but you can bet your bottom dollar that Bush will catch Hell if the stock buyer's name is ever revealed. It won't sink into the general population's conscience that Bush didn't know then who the buyer was, and still doesn't know.

[rdavis84]

"It won't sink into the general population's conscience that Bush didn't know then who the buyer was, and still doesn't know."

How do you or I KNOW that? I certainly don't. The only way that might be assuaged is by that buyer being known. The possible connection to Bush must be assessed. And since you note that the General Population is developing a perception on the matter, it IS a political matter, not necessarily a legal matter.

Sometimes hanging on technicalities and legal fine lines is more detrimental than disclosure. And causes a Political Hanging.

[liberallarry]

Here's a different reading of the same article.

The critical paragraphs of this article:

The SEC did not exculpate Bush. Rather, its investigating attorneys concluded only that they lacked sufficient evidence to prosecute him for illegality or fraud.

Until today, not even Meulbroek is certain just why the stock didn't tank--one of the enduring mysteries in the case.

Who stepped up to buy Bush's stock, at a time when Harken was bleeding red ink and Bush was trying to raise cash to pay off the loan he used to buy into the Texas Rangers baseball team?

The mystery over the buyer's identity raises the question of whether someone was doing Bush a favor, and why.

In the end, two months after Bush's sale, when the company released its second-quarter 1990 report, it showed the far worse $23.2-million loss, which reflected write-downs related to the accounting of Harken's sale of a chain of Hawaiian gas stations that the SEC had ordered Harken to restructure.

Bush was a member of the audit committee and present that day when a representative of Harken's outside auditing firm told the members that "there was a potential write-down that might occur" during the quarter. That write-down "could be potentially significant, but the amount is not identifiable at this time."

We still don't know what caused the stock to rebound that day."

By the end of that year, Harken's stock had indeed tanked, selling as low as $1 a share.

[liberallarry]

See post #12.

[Clara Lou]

rd, I know nothing about the buying and selling of stocks-- nothing. Please explain to me what difference it makes who bought the stock? The names of what purchasers would you find damning (and illegal)? Why?

[sarcasm]

Harken Papers Offer Details on Bush Knowledge

[mombonn]

I understand that Bush's stock was sold as a block to another person.

According to an interview with Bush's broker earlier this week, an insitutition approached him about buying a block of Harkern.

He went to several of the board members before approaching Bush. Bush told him he first had to determine whether the transaction was legal. Sorry I don't have the time to find a link for you, am getting ready for Church.

Do a search under "Bush broker", and you'll probably find a couple or three threads that ran earlier in the week.

[rdavis84]

From today's WP ---

"A confidential Harken chronology, obtained by the nonpartisan Center for Public Integrity, said that 16 days before he sold the stock, Bush was sent the company's "weekly flash report," giving "information provided by subsidiaries regarding estimated historical and projected earnings."

Asked about the document, a White House official said Bush thought the company was going to lose about $9 million in the quarter. That would have been four times as much as the company lost in the previous quarter but not nearly as much as it did lose. As it turned out, the company lost $23 million for the period, according to an earnings report made public two months after Bush sold."

http://www.washingtonpost.com/wp-dyn/articles/A1447-2002Jul13.html

[rdavis84]

"The mystery over the buyer's identity raises the question of whether someone was doing Bush a favor, and why."

That's the question, Clara. The Good ol' Boy networks that exist in both parties operate like that. Someone supportive of a particular recipiant will contend "So What? That's just business". Someone NOT suportive will yell "Inside Deal!". That is clarified by the "Cattle Futures" issue of the ex-First Witch. There was no proven Criminality in that either, but is that the way we want the entire Investment System in Our Nation to operate? I Don't.

[alnick]

By the end of that year, Harken's stock had indeed tanked, selling as low as $1 a share.

And the way I understand it, at some point after that, within a year of the sale, the stock rose to $8 per share.

[jimtorr]

What I hear you saying on this thread is, "Something bad must have occured. After all, GW was well-connected."

This whole thing is a political hack-job, the old "where there's smoke there must be fire" casting of doubt. The only reason it has legs is that the people who control big-media are desperate for an issue to "get" GW. If they can't come up with something in this stock transaction real quick, like this week perhaps, I think that this too will backfire against the democraps.