Posted on 07/14/2002 3:51:42 AM PDT by Lecie
Edited on 09/03/2002 4:50:45 AM PDT by Jim Robinson. [history]
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.
(Excerpt) Read more at latimes.com ...
THREE QUESTIONS
In the 1980s, Bush ran an energy company called Spectrum 7. By 1986, with the oil market in a deep slump, the firm was in serious financial trouble. That year, another company, Harken Energy, which specialized in buying distressed oil properties, purchased Spectrum 7. Harken's management wanted Bush on its team — his father was then vice-president, and he had extensive connections, as well as knowledge of the oil and gas business. But Harken's officers did not offer Bush an executive role, instead giving him a seat on the board, a chunk of stock worth at least $500,000 at the time, and a consulting contract.It was not a full-time job, and in 1987 and 1988 Bush devoted much of his energy to his father's presidential campaign. The next year, Bush got involved with a group of investors who were trying to buy the Texas Rangers baseball team. When the sale went through in March 1989, Bush borrowed $600,000 to purchase his stake in the team. At that time, his biggest single asset was his Harken stock, and he decided to sell the stock to pay off the baseball loan.
On June 22, 1990, Bush sold 212,140 shares of Harken at $4 a share, for a total sale of $848,560. Nearly two months later, on August 20, Harken announced a much larger than expected loss for the quarter that ended on June 30. In the months that followed, Harken's stock price drifted downward, hitting $1.25 per share by the end of 1990. When word of Bush's sale became public, Democrats charged that he had used inside information — he also served on the Harken board's audit committee — to sell the stock while he could still make a lot of money.
Bush denied any wrongdoing, but the allegations led to an SEC investigation. Commission experts looked into three questions: One, did Bush know in advance that Harken was going to post an abnormally large loss in August, 1990? Two, did Bush sell the stock with the intent of getting out while the getting was good? And three, did Harken's loss announcement lead to a stock downturn that hurt ordinary investors who had no inside knowledge of the company's workings?
According to several internal SEC memos written in 1991 and 1992 — they are available on the website of the public-interest group the Center for Public Integrity — investigators examined thousands of pages of documents given to them by Bush and Harken, interviewed several witnesses, and met with lawyers for Bush and the company (Bush waived attorney-client privilege to allow the SEC to interview the lawyers). On the first question, whether Bush knew in advance about the losses, the SEC investigators found that "the evidence establishes that Bush was not aware of the majority of the items that comprised the loss Harken announced on August 20." Most of that loss, according to the SEC, resulted from write-downs and expenses that occurred after Bush sold his stock — events that he did not know were coming. In addition, the investigators found that Bush played a "relatively limited role in Harken management." In that role, he usually did not receive what were called the Weekly Flash Reports on the company's financial condition; those reports were given only to the board of directors' executive committee. The result, according to an SEC investigative memo, was that Bush was not particularly up to date on the company's finances:
The staff's investigation indicates that, at most, Bush was aware that Harken was forecasted to lose approximately $4.2 million in the second quarter. [The actual loss eventually turned out to be more than five times that] Harken's financial reporting was on about a 45-day delay, so that in mid-June the numbers reflecting Harken's actual results in April would be available. Consequently, by June 22 (the date when Bush sold) no actual revenue or loss information was available for the second two months of the quarter ended June 30. Bush, however, did see the Weekly Flash Report for the week ended May 31, 1990, which reflected a projected net loss for April of $1,875,00, a loss for May of $2,029,000, and a loss for June of $327,000 (for a total of $4,231,000)....Flash reports for the first two weeks of June, which would have been in existence prior to June 22, were only circulated to the members of the Harken executive committee (of which Bush was not a member).
On the second question, whether Bush sold the stock deliberately to avoid losing money before bad news was made public, the SEC found that Bush made the sale after being contacted by a stockbroker who had an institutional client who wanted to buy a large block of Harken stock. When Bush decided to sell, he checked with Harken's in-house counsel, as well as the company's chairman, plus another director, and, finally, the company's outside counsel, to see whether there were any reasons the sale could not go through. No one raised any objections. "In light of the facts uncovered, it would be difficult to establish that, even assuming Bush possessed material nonpublic information, he acted with scienter or intent to defraud," the SEC concluded.
On the third question, whether the news of Harken's unexpectedly large loss hurt the company's investors, the SEC examined Harken's share price just before and just after news of the loss was made public. The announcement came at 9:34 A.M. on August 20, 1990. When the market opened that morning, according to the SEC, Harken's stock was selling at $3 per share. It stayed at that level until after noon, when it began a slow slide to $2.375 per share. The next day, however, it rebounded to $3 per share. If the loss announcement had been a bombshell, SEC investigators reasoned, the stock would most likely have fallen immediately and stayed down. "The conclusion of the Office of Economic Analysis is that, because the price of Harken did not immediately react to the earnings announcement and there is no news that explains Harken's return to its pre-announcement price of $3 on August 21, 1990, the earnings announcement did not provide investors with new material information," the SEC said. Furthermore, even though Harken stock moved down for the rest of 1990, it recovered its value — and more — the next year, when it hit $8 a share.
| Date | Open | High | Low | Close | Volume | Adj. Close* |
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Note that the stock has daily highs up in the $10 range.......
Today, Harken is letting it all ride on one all-or-nothing bet. Two years ago, it won the rights to look for oil and gas off the coast of Bahrain, a coup that shocked the industry. The first of those wells came up dry last month, giving analysts new reason to wonder if Harken itself isn't a dry hole.
So in 1990 and 1991 investors would've had good reason to hope for a better outcome.
I guess that's the so-called fact that many of us would like to see verified. Some of us accept that, some of us don't.
A statement to that effect by the buyer, along with WHY it was so important to buy that large block of Harken, would possibly put this to rest.
Until that happens, some of us with the more cynical nature will continue to mistrust that assertion.
What administration did we hear say that over and over and over again? LOL!
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.
Donald Evans on Fox News Sunday
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]
Granted, the Left is still looking for something for this November's election. But what about those on the Right? What's their angle? And why on earth would they want to appear to be even slightly aiding and abetting the enemy (the Left)?
That doesn't make sense.
Your DNC chairman, in my opinion, needs to be investigated for malignant corruption.
Keep it up pal, and heads will be rolling (only as Rats they'll be empty).
You're absolutely right. And it's a great question.
How are you this morning, Cartoon Boy? I got this from post #41:
According to several internal SEC memos written in 1991 and 1992 — they are available on the website of the public-interest group the Center for Public Integrity — investigators examined thousands of pages of documents given to them by Bush and Harken, interviewed several witnesses, and met with lawyers for Bush and the company (Bush waived attorney-client privilege to allow the SEC to interview the lawyers).
Sounds to me as if the information is out there for anyone who is really interested.
If Bush had something to hide, why would he waive attorney-client privilege? Most people - and corporations in many instances - use that to hide their skeletons!
I am a Crusader - i.e. Warrior for Good and Truth - all the way.
P.S. You've got a particularly moronic and transparently disruptive disposition, boy.
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