As a Texas businessman, President Bush took two low-interest loans from an oil company where he was a member of the board of directors, engaging in a practice he condemned this week in his plan to stem corporate abuse and accounting fraud.
Bush accepted loans totaling $180,375 from Harken Energy Corp. in 1986 and 1988, according to Securities and Exchange Commission filings. Bush was a director of Harken from 1986 to 1993, after he sold his failed oil and gas exploration concern to the company. He used the loans to buy Harken stock.
Corporate loans to officers came under scrutiny after WorldCom Inc., the long-distance carrier that last month reported huge accounting irregularities, revealed it had lent nearly $400 million to Bernard J. Ebbers to buy the company's stock when he was chief executive. He resigned in April as the stock price tumbled.
Bush attacked corporate loans during his speech on Wall Street on Tuesday, when he offered proposals to tighten the accountability of corporate executives while stopping short of the tougher measures headed toward passage in the Senate. "I challenge compensation committees to put an end to all company loans to corporate officers," he said.
A senior administration official, briefing reporters on Bush's plan, said Tuesday that Bush wants public companies to ban loans to their officers, including directors. "Corporate officers should not be able to treat a public company like their own personal bank," the official said.
The contrast between Bush's record as a business executive and his rhetoric in the face of corporate scandals underscores the challenge his administration faces in trying to credibly foster what he calls "a new era of integrity in corporate America."
Bush was investigated by the SEC in 1991 for possible illegal insider trading, although the SEC did not take action against him, and he has admitted making several late disclosures to the agency, which regulates public companies.
Harken's loans to Bush -- at 5 percent interest, below the prime rate -- were reported several times in filings to the SEC in the years before the debt was retired in 1993 and were noted in news accounts at the time. The loans were for the purchase of Harken stock, which was then held as collateral.
Rajesh K. Aggarwal, a Dartmouth College professor who specializes in executive compensation and incentives, said such loans "are not unique, but are by no means widespread."
White House communications director Dan Bartlett said Harken offered the loans to directors to buy shares in the company as part of an incentive for board members "to have a long-term commitment with the company." Bartlett said the loans to Bush were "totally appropriate -- there was no wrongdoing there."
"This is a common practice in small, medium and large companies," Bartlett said. "These recent abuses of certain types of loans led the president to believe that the government should draw a bright line concerning loans going forward. This is one of the main things that undermined the confidence of investors and shareholders."
Bartlett said the loans were for $96,000 in 1986, for 80,000 shares, and $84,375 in 1988, for 25,000 shares. He said that in 1993, Harken changed its compensation policies and discontinued the loan program. He said Harken converted to a program giving directors stock options, allowing them to buy stock later at a fixed price.
Bartlett, asserting that Bush did not profit on the loans, said Bush traded the 105,000 shares being held as collateral for the loans, retiring his debt. Bush then received 42,503 options under the new compensation plan, Bartlett said. The options were never exercised and expired after Bush left the board, Bartlett said.
With administration officials privately expressing concern about the impact of so much fresh attention to old questions about Bush's career, the White House yesterday distributed talking points headlined "If you get asked about Harken" to Bush loyalists who might be contacted by reporters. Bartlett said the fact sheets were sent to members of Congress after they asked for them.
White House press secretary Ari Fleischer said aides to Bush have "talked to the private accountants and private counsels who are involved in the president's private transactions" while preparing answers to reporters' questions during the growing debate over corporate responsibility.
Vice President Cheney also is receiving unwanted attention to his corporate past. The SEC is investigating an accounting practice begun by Halliburton Co., the Dallas-based energy services company, when Cheney was chief executive before joining Bush's campaign ticket.
Also yesterday, the White House refused to release records of Bush's service on Harken's board. Bush had pointed to those records during a news conference on Monday when asked about his role in the sale of a subsidiary. The transaction later was used by Harken to mask losses.
"You need to look back on the director's minutes," Bush said.
Bartlett said the administration does not have the minutes and does not plan to ask Harken for them. "He personally would not have access to them," Bartlett said. "These are company documents. I can't release something I don't have."
Harken has declined to release board records ever since questions about Bush's record on the board were raised during his first campaign for Texas governor, in 1994.
Bartlett also said the White House would not accept a challenge by Senate Majority Leader Thomas A. Daschle (D-S.D.) on Sunday to ask the SEC to make public the records of its investigation into whether Bush had engaged in illegal insider trading of Harken stock.
Daschle said on CBS's "Face the Nation" that Bush would do well to ask the SEC to release the file. "We've had different explanations as to what actually occurred," Daschle said. "I think that would clarify the matter a good deal."
Bartlett said Bush will not do that. "Those are documents in the possession of an independent regulatory agency," Bartlett said. "I'm not in a position to call on them to do that. We've made available every relevant document we have in our possession."
Administration officials said they would take the same position about an SEC investigation that resulted in Harken's restating its earnings to show a $12.6 million loss for a quarter instead of an earlier reported loss of $3.3 million. Bush was a member of the board's audit committee.
Staff writer Dan Balz contributed to this report.
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