We must have rules and laws that restore faith in the integrity of American business. The government will fully investigate reports of corporate fraud, and hold the guilty parties accountable for misleading shareholders and employees. Executives who commit fraud will face financial penalties, and, when they are guilty of criminal wrongdoing, they will face jail time. - President George W. Bush, national radio address 6/19/02
Harken Energy Corporation, an international oil and gas exploration company, is headquartered out of Houston, Texas. In 2002, Harken became the focal point for accusations of crony capitalism
, insider trading
, and hypocrisy levelled against President George W. Bush
In 1986, Harken Energy purchased Spectrum 7 Energy Corporation. The sale of one struggling oil company to another struggling oil company would have went unnoticed except for one fact - Spectrum 7's president was George W. Bush and George's father at the time was the Vice President of the United States.
George W. Bush originally started Arbusto Energy; which failed and was renamed Bush Exploration. Bush Exploration then failed and was sold to Spectrum 7 with George W. moving over to Spectrum 7. Now Spectrum 7 was failing. The company had accumulated mountains of debt and had lost over $400,000 in the months immediately preceding the sale. Anxious creditors were threatening foreclosure - then Harken arrived as a white knight to rescue George W. and Spectrum 7.
Despite the string of business failures, the oil business was becoming quite profitable for Dubya. With the sale of Spectrum 7, Bush was facing bankruptcy one day, and the next he had $600,000 worth of Harken Energy stock, a consulting deal that would pay him up to $120,000-a-year, a seat on Harken's Board of Directors, and a stock option arrangement that allowed him to buy Harken stock at 40% below market value. Over the next few years the deal would put over $1 million in his pocket -- even though Harken itself would lose millions during the same period. A pattern was emerging; every time one of his business ventures was on the brink of bankruptcy a group of his father's friends appeared to bail him out.
His name was George Bush. That was worth the money they paid him. -- Phil Kendrick, Harken Energy's founder
Kendrick, as the founder of Harken, would know, but even a casual observer had to realize that there was only one reason to buy Spectrum 7 - George W. Bush
was the son of the Vice President of the United States of America
. There really is no other explanation. Or, in the words of billionaire George Soros:
He was supposed to bring in the Gulf connection. But it didn't come to anything. We were buying political influence. That was it. He was not much of a businessman. - George Soros, formerly one of Harken's major investors
Actually, Soros gave up on Dubya too soon. In 1987, with Harken desperate for cash, Dubya arranged financing from the BCCI
-connected Union Bank of Switzerland
in a deal brokered by Jackson Stephens
. The financing was necessary when Bahrain
suddenly broke off talks with Amoco
and gave Harken Energy
a contract for offshore oil drilling - despite the fact that Harken had never drilled an overseas or underwater well. A minor detail: George W's father was by this time President of the United States
Insider Trading and Enronomics
It's a lot of jiggery-pokery - Wall Street analyst Barry Sahgal referring to Harken's accounting schemes and executive compensation packages
With the collapse of the financial markets in 2001-02, spurred by the large corporate failures/scandals at MCI Worldcom
, Global Crossing, Arthur Andersen
, et al, renewed attention was suddenly paid to the President's past business dealings. Specifically, his actions at Harken Energy.
In 1990 Bush was not only a member of Harken's Board of Directors, but also on Harken's audit committee. Additionally, he was tasked to work with the company's auditors to gauge the effects of Harken's restructuring (due to poor performance) on shareholders. Holding these positions, it was almost impossible for Bush not to know that Harken was in financial trouble, yet he unloaded his stock just two weeks before it plummetted in value as the company announced large quarterly losses.
Everything I do is fully disclosed, it's been fully vetted. - George W. Bush answering charges of improper insider trading
The President and his spokesmen have consistently rebutted charges of insider trading by pointing out that the S.E.C.
investigated the allegations in the early 1990's and found nothing wrong. This is, at best, a stretch of the truth.
The S.E.C. did open an investigation in 1991. Of course his father, the President, had appointed the head of the S.E.C. and the S.E.C. general counsel (James Doty) was a lawyer who'd previously represented Dubya and would go on to become one of his larger political campaign donors.
The S.E.C. investigators decided that George W. did break the law, but they could not prove that he had acted on non-public information that would materially affect the stock's price. Making the waters even murkier, the S.E.C. did not 'clear' George W. - they chose not to prosecute, and they explicitly said this should not be construed as exoneration. Despite the recent intense scrutiny surrounding the allegations, the President has chosen not to answer questions about the S.E.C. findings and the head of the S.E.C., Harvey Pitt, has said he will not release the S.E.C. documents pertaining to the investigation. Pitt was appointed to his position by George W. Bush
The explanation Bush has given for the stock sale is that his accountant had been pressuring him for months to "get liquid." Yet, just two months before the sale George W. signed a company request stating he would not sell any of his company stock for a six-month period. Why Dubya would agree to not sell the stock for six-months, and then sell 212,000 shares only two-months later has not been explained. Nor has it been disclosed who the buyer was. At the time, movement in Harken stock averaged less than 2000 shares per day. Placing 200,000 shares on the open market would have clearly decreased its price, but an unknown "institutional investor" bought them in a private transaction.
There was an honest difference of opinion as to how to account for a complicated transaction. -- George W. Bush
Causing additional controversy was Harken's attempt to hide losses a la ENRON
. In 1989, facing large quarterly losses, Harken created and sold a subsidiary
- Aloha Petroleum
- essentially to itself, then counted the proceeds of the sale as income. On paper this masked Harken's true losses. A group of company executives bought Aloha for $11 million with favorable credit terms, $1 million down, and three years before any further payments. Yet the company immediately booked the entire $11 million sale price as revenue. The S.E.C. eventually ruled this to be financial shenanigans
and forced Harken to restate its 1989 earnings. Though George W. Bush
was on the Board of Directors and the company's audit committee, he's referred questions about whether he knew of or approved the Aloha deal back to Harken. And Harken has refused to release the relevant meeting minutes that might shed light on Bush's knowledge.
I thought the captain was supposed to be the last one off the sinking ship, not the first one. -- George W. Bush on Ken Lay and stock sales by ENRON executives
The circumstance surrounding Bush's tenure with Harken and his recent proposals to tighten corporate financial accountability have also led many to charge the President with hypocrisy
. While the President has excoriated corporate officials, such as Ken Lay
, that jumped ship when waters got rough, many see little difference in his selling of Harken stock when that company's earnings went south.
In the aftermath of ENRON, President George W. Bush has proposed that corporate officers should notify the S.E.C. within two days of selling their stocks - a proposal aimed at lessening corrupt insider trading. The Securities and Exchange Commission defines insider trading as "Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments." Most company's have rules that prevent corporate officers buying or selling stock in the weeks immediately before or after major announcements that might affect stock prices - lessening the chance of insider trading. The S.E.C. requires these officers to notify the S.E.C. two weeks before any proposed stock transaction and to notify the S.E.C. within 10 days of completing the transaction.
I still haven't figured it out completely. - George W. Bush
Yet, what initially spurred the S.E.C.'s insider investigation of Bush was that he had failed to report his Harken stock sale in the required two-week time period - waiting 8 months before filing his paperwork. And this wasn't the first time that Bush had violated the notification rules. Early in his political career Bush tried to deflect criticism by claiming that the S.E.C. had lost his paperwork
. He stuck by this story even after becoming President. But as scrutiny of the deal grew, his story began to fall apart. Looking for a scapegoat
, Bush then blamed Harken's lawyers for failing to file the notification forms. But S.E.C. guidelines are clear on the subject - it is the individual's responsibility to make sure the forms are filed.
The financial crisis also highlighted the practice of corporations giving favorable loans to its officers - causing some observers to claim they were using company money like their own private piggy bank. President Bush has proposed banning these loans. Yet at Harken, Bush was the recipient of more than $180,000 in loans from the company - at interest rates well below the prime rate. The loans were used to buy Harken stock at a premium - a 60% discount - and the loans were eventually forgiven.
Harken Energy is listed on the American Stock Exchange with the initials HEC. Four of Harken's 7-person executive management team previously worked for Arthur Andersen. Today, Harken stock is worth just a fraction of its 1990 value. The stock has recently been trading in the 40 cent range.