Mystery of Harvard's "rescue" of Harken Energy

The Boston Globe via SMH ^ | July 19 2002

[dead]

Washington: As a congressional candidate in the Texas oil patch in the late 1970s, the last thing George Bush wanted to mention to the rural electorate was his postgraduate degree from Harvard.

But when Mr Bush was later involved in the struggling company Harken Energy, it was his alma mater's endowment that came to the rescue. The Harvard Management Co poured about $US30million into Harken, keeping it afloat and helping to sustain Mr Bush's career.

Harvard Management's investment in Harken, which began in 1986, has received far less notice than the controversy about whether Mr Bush used inside knowledge in 1990 to sell shares in the firm at a profit. But the money from Harvard was crucial, at one point giving the endowment one-third control of Harken. That was such a large stake that a key member of Harvard Management's investment team acquired his own shares in Harken and joined Mr Bush on its board.

All these years later, the question remains: what did the most prestigious university in the United States see in a troubled little oil company from Texas that justified such attention and a $US30million investment?

Harvard Management officials, citing confidentiality and the difficulty of retrieving old documents, refused to release records about the purchase or discuss it in any detail. Its chief executive, Jack Meyer, discounted but did not entirely reject the suggestion that it made the investment because Mr Bush - then the son of the US vice-president - was on the board.

"I would be surprised that George Bush had anything to do with the investment decision, but I don't know that," said Mr Meyer, who was not at Harvard Management when the decision was made.

Still, questions linger because of the decision to keep the matter confidential.

Harvard Management is a famously profitable enterprise, where fund managers have made as much as $US10million a year. The endowment fund, which had $US18.3billion under management as of June 2001 and is one of the nation's largest, does not issue an annual report, although its holdings are disclosed in federal filings.

[aristeides]

Well, Harken stock rose the next year, so maybe Harvard ended up making money on the investment. If they held the stock, they would have ended up losing big.

[EBITDA]

Amazing how this is written as though there were some sort of illicit motive behind all of it.

You put people on your board who have connections. Connections to money. That, my friends, is good business. If George Bush had anything to do with bringing in an investment from Harvard, then more power to him. That is good business.

And, of course someone from Harvard wound up on Harvard's board. Would you give a group 30 mil and not want some direct oversight? It happens all the time for much less than $30 million.

But even at that, 30 mill is significantly less than a hundreth of a per cent of Harvard's overall endowment.
Big deal.

[OBAFGKM]

"...Its chief executive, Jack Meyer, discounted but did not entirely reject the suggestion that it made the investment because Mr Bush - then the son of the US vice-president - was on the board.

"'I would be surprised that George Bush had anything to do with the investment decision, but I don't know that,' said Mr Meyer, who was not at Harvard Management when the decision was made."

And I would be surprized that the Globe keeps a flock of sheep for the personal use of its editorial board, but I don't know that. Sheesh, that rag burns me!

[rdavis84]

FROM ---- (excerpted) courtesy of Uncle Bill  ---

The Color of Money

US News and World Report
by Stephen J. Hedges
March 16, 1992

"Enter Quahsa. The son of an affluent American lawyer in the Phillipines, Alan Quasha brought Harken some impressive financial backers. They included money manager George Soros, who would come to hold a 30.4 percent stake; Harvard Management Co., who would control another 30.4 percent share, and Abduliah Taha Bakhsh, a Saudi investor with 21.4 percent. Harken bought Spectrum out in 1986, trading stock for Spectrum assets. Bush received $600,000 in Harken shares, but his stake would actually be worth much more.

Sweet Deals

As is the case with many executive compensation packages, the key to Harken’s is the stock options. But very few companies offer terms as sweet. For starters, Harken offers select executives, including Bush, eight year loans at 5% interest. The loans may be used by the company brass to exercise options to purchase Harken shares. Bush has borrowed $180,375. At Harken, loans are sometimes forgiven. The board forgave $72,000 in non-interest-bearing loans to employees in 1989, and $269,000 in 1990.

The deal gets sweater still. Harken allows select executives and directors like Bush, who exercise their options, to purchase stock at a 40 percent discount; most U.S. companies allow executives to purchase their companies stock at current market value. Harken says it is because the stock is not registered and therefore cannot be traded. But in March 1990, Harken registered 1.8 million option shares. "Unusual," says Paula Todd of Towers Perrin, a compensation consulting firm, when asked about Harken compensation. "This definitely is not a cookie-cutter plan." Graef Crystal, a vocal critic of excessive executive pay, has harsher words: "This is a tremendous package for a little tiny company. Their stock has been growing at 4.9% per year when the market is growing at 15 percent. That is rotten performance."

Given Harken’s troubles, it might appear that owning its stock isn’t much of a bargain. However, Harken’s liberal option program makes it profitable. On June 22, 1990, for instance, Bush sold $848,560 worth of stock, which was trading at $4 a share. Even with a $180,375 loan to pay back, Bush realized $668,185 on the sale. He still owns 105,012 Harken shares.

Harken has launched several deals involving its largest shareholders. The most complex was a major reorganization through the sale of two subsidiaries, E-Z Serve, a chain of gas stations, and Tejas Power, a natural-gas supplier.

First, companies tied to Alan Quasha and Harvard Management lent Harken $46 million. Harken used $15 million of that money to retire E-Z Serve debt. It spent $28 million more on capital improvements at E-Z Serve and Tejas stock. Harken kept the remaining $3 million. The company then gave its shareholders rights to buy E-Z Serve and Tejas stock. An agreement stipulated that any stock not purchased by the shareholders could be bought at a discount of at least 3 percent by two companies affiliated with Quasha and Harvard. But Quasha and Harvard controlled 55.6 percent of Harken stock. By not exercising the rights to buy it immediately, they effectively gave themselves the built-in discount. Harvard Management declines to discuss the deal.

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. For one, Harken’s board has appointed Bush and another director, E. Stuart Watson, as a "fairness committee" to determine whether the restructuring would adversely affect ordinary shareholders. The committee, which first met in May 1990, worked closely with financial advisors form Smith Barney, Harris Upham & Co., which had concluded by that time that only drastic action could save Harken. Even before then, however, Harken’s SEC filings make it clear that the company’s directors knew radical steps were necessary. One informed source says Harken’s creditors had threatened to foreclose on the company if substantial debt payments were not made. Harken’s treasurer, Dale Brooks strenuously denies any suggestion that creditors were poised to seize the company."

[rdavis84]

"Harvard Management officials, citing confidentiality and the difficulty of retrieving old documents, refused to release records about the purchase or discuss it in any detail. Its chief executive, Jack Meyer, discounted but did not entirely reject the suggestion that it made the investment because Mr Bush - then the son of the US vice-president - was on the board."

Yep, lot of that goes on. They all do it.

[rdavis84]

What a NICE three way that is ---

.............Harken some impressive financial backers. They included money manager George Soros, who would come to hold a 30.4 percent stake; Harvard Management Co., who would control another 30.4 percent share, and Abduliah Taha Bakhsh, a Saudi investor with 21.4 percent.

[aristeides]

Harvard and Arabs. Reminiscent of Hybridon.

[rdavis84]

There are probably still a few who don't know who Soros is. I'm going to let them learn to Search and Read.

[steve50]

O'Reilly investigated this( no doubt by reading his teleprompter) and declared there was absolutely no wrong doing here. Now who ya gonna believe, Bill or your lying eyes

[habs4ever]

Certainly not believe you.What is unethical, or illegal about doing this? idiots like you need to grow up or grow a brain.

[rdavis84]

"Would you give a group 30 mil and not want some direct oversight? It happens all the time for much less than $30 million."

That also goes for Soros and the Arab, doesn't it?

[monday]

"Harvard Management is a famously profitable enterprise, where fund managers have made as much as $US10million a year. The endowment fund, which had $US18.3billion under management as of June 2001 "

Thats a less than 1% return. Sorry, guess I am not impressed. Harvard Management must be staffed with idiots to do so poorly.

[EBITDA]

I am not attempting to justify anything based on the idea that 'they all do it'. As I said in my first e-mail you put people on your board who are connec ted to money. If you don't you're an idiot.

And frankly, I don't see why Harvard has to justify to anyone except its own 'investors' what it does with its funds.

[EBITDA]

Gee, I guess I am totally wrong. It has become obvious that Bush and Soros and the Arab were simply using Harken to funnel money into Al-Quaida. They probably used the board meetings to plan the 9/11 hijackings. Bush left to run for president just for a cover if anyone ever traced the terrorism money trail back to Harken. And it is also obvious that O'Reilly is acting as a shill for Bush and Soros. Jeez.

For crying out loud. Frankly I think there is more evil in the suspicious hositility toward people with money than in the average corporate boardroom of US companies.

No doubt Bush and his Daddy are 'connected'. does that make them evil? I doubt it. Does it co-opt them? It's possible, but in this case I reallly don't think so. But what do I know, I certainly don't have the kind of insight into individual motivation that you might find on the editorial pages of the New York Times or the Washington Post.

[dead]

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… Harken’s SEC filings make it clear that the company’s directors knew radical steps were necessary.

So if the company’s dire financial situation was so obvious (and public via the SEC filings), Bush was right to sell.

The fact that the information was public makes the charge of “insider trading” asinine. To prove that, you need to have some evidence that Bush acted on priviledged information, not public knowledge.

[vooch]

not their returns on capital.......the wages of the employees.......

[dead]

Biiiiiiig difference.

A $10 million salary is nice work, if you can get it.

[liberallarry]

In 1986 Bush's name seemed valuable. In 1990 Harken's Bahrain oil lease seemed valuable. And then there's always the old-boy network in which members look out for each other. So what's the big deal?

But if you really want to dig dirt take a look at what Al Martin (Raw) has to say about it. Too much muck for me. But still - might have some truth to it.

[thinden]

...fund managers have made as much as $US10million a year

not a bad return for the fund managers' pocket books. I don't see anything about Harvard's ROA.

p.d. it would be interesting to know who the fund manager was that put Harvard into Harken (surely not former alex brown hand, buzzy k?)