WASHINGTON - Harken Energy Corp. was in bad financial shape, facing a painful
liquidity crisis and restructuring when George W. Bush sold some $850,000 worth
of shares in the firm in June 1990. Evidence in government files indicates he
had at least partial knowledge of the company's troubles before he sold the stock.
Records from a Securities and Exchange Commission investigation indicate that
Bush, who served on Harken's board of directors and was a member of a special
committee to deal with the financial troubles, had been warned about the company's
financial crisis by its president, Mikel D. Faulkner, and other officers before
selling his stock.
On April 20, 1990, Faulkner wrote to the members of Harken's board that the
company was facing a liquidity crisis and that crucial plans to sell new shares
of stock were diminished, due to a slumping oil market. The firm was also facing
pressure from its lenders, especially the Bank of Boston, which ''greatly intensifies
our current liquidity problem,'' Faulkner wrote.
On May 18, 1990, according to the SEC files, Harken's senior vice president,
Bruce N. Huff, wrote to Harken's special committee - made up of Bush, Faulkner,
and director E. Stuart Watson - to alert them of the ''negative repercussions''
that could occur if they did not approve a series of waivers and extensions of
The Bank of Boston refused to renegotiate its loans, and the stock sale had
to be put off. ''The immediate focus of the company was at that time redirected
to raising cash,'' Huff acknowledged in a 1991 letter to the SEC. ''By June 1990,
the company was constrained by its worsening cash and credit situation. ... The
company was in the midst of the severe cash crisis.''
Bush sold 212,140 shares of Harken stock on June 22, 1990, two months before
Harken reported a $23.2 million quarterly loss that was tied, in part, to the
restructuring efforts. He was investigated by the US Securities and Exchange Commission
for possible insider trading when the SEC learned of the sale the following spring,
eight months after it was required to be reported. The SEC ultimately closed its
investigation, and Bush was never charged with any violation of securities laws.
His father was president of the United States at the time.
In its last public disclosure preceding Bush's sale, Harken had announced
only a $2 million operating loss for the first quarter. The public did not know,
and Bush says he did not know, that Harken was about to post the whopping second-quarter
loss that August, even though he had a seat on Harken's three-member special audit
committee, as well as its eight-member board of directors.
''I wouldn't have sold if I had,'' Bush told The Washington Post in 1999.
''I got clearance by the lawyer [Harken's general counsel] to sell this stock.''
When closing the probe in 1991, SEC investigators concluded that Bush was
not privy to the full extent of the financial problems facing Harken. They also
believed, records show, that proving a case that Bush acted with intent to defraud
would be difficult because he had openly consulted the firm's officers and lawyers
before selling his stock. Building a case would also be difficult because of the
challenge in showing that the information he knew was legally material to the
''This was done the regular way, and had there been conduct that warranted
recommendation for enforcement you can believe me the recommendation would have
been made,'' said William McLucas, the SEC's enforcement director at the time.
The proceeds of the Harken sale served as the bankroll that Bush used to pay
off a loan he took to buy his interest in the Texas Rangers baseball team. The
sale of his interest in the Rangers made him a multimillionaire. The SEC general
counsel at the time Bush was investigated was James R. Doty, the same lawyer who
represented Bush in the Rangers deal.
A slumping oil market and other setbacks had led Harken to take a series of
steps in 1989 to address its poor financial picture. The company seemed frank
about its red ink: In quarterly reports at the time it disclosed to potential
investors that it was losing several million dollars a quarter.
In 1989, Harken sold one of its assets, Aloha Petroleum Ltd., to a group of
investors that included Harken's chairman and another Harken director. The $8
million profit from the sale allowed Harken to report a mere $3.3 million loss
Harken's financial outlook got another quick fix when, in early 1990, the
Persian Gulf nation of Bahrain announced that it had granted the firm an exclusive
contract to drill for offshore oil. Investors, thinking perhaps that Bahrain was
delivering a plum for the president's son, looked on Harken favorably.
But on Aug. 20, 1990, Harken told the world that it had lost $23.2 million
for the quarter ending June 30, 1990. And, in 1991, the SEC stepped in and ordered
the firm to restate its 1989 report, canceling the profits from the Aloha deal
and listing its losses for that year at more than $12 million.
By then, Bush had sold 212,140 of the 317,152 shares he owned at $4 a share.
After selling his shares in Harken, Bush waited 36 weeks to report the sale on
the required SEC Form 4. When asked during his press conference Tuesday why it
took so long to report, Bush said, ''I still haven't figured it out completely.''
The Form 4 was filed on March 4, 1991, and the SEC staff launched an investigation.
On Aug. 21, 1991, according to SEC documents, the staff concluded ''that there
is insufficient evidence to recommend an enforcement action against Bush.'' The
staff said Bush did not have advance notice of most of the losses revealed in
the Aug. 20 announcement, because they were in the form of write-downs and restructuring
expenses that occurred after Bush completed the sale.
Though Bush was on the special audit committee, which was dealing with how
to restructure and present the firm's debts to the public and its shareholders,
the SEC investigators concluded that he was not part of the Harken executive committee
that found in August that the company was facing an imminent quarterly loss of
$6.7 million, a $7.2 million write down of the Aloha deal, and $4.4 million in
other expenses. ''It does not appear that he possessed material nonpublic information,''
the investigators said.
The Harken special audit committee ''met relatively infrequently and was concerned
with matters related to Harken's recently completed audit'' and not usually privy
to the weekly financial reports available to the Harken executives, the SEC investigators
said. In early June, Bush did receive one flash report along with the executive
committee, which projected that the quarterly operating loss for that quarter
would be approximately $4.2 million. But that, the SEC said, was ''consistent
with Harken's publicly reported trend of quarterly operating losses.''
The investigators interviewed the broker who represented the buyer of Bush's
stock. The broker told the investigators that he had solicited Bush on a cold
call on behalf of an interested client in early June.
After initially declining to do so, Bush and Harken waived the attorney-client
privilege, and the Harken firm's lawyer told the SEC that Bush had properly checked
with him and through him the firm's officers and its outside counsel, to make
sure there would be no legal problems in the sale. Bush sold the Harken stock
- and other investments in the same period - to pay off the bank loan of about
$600,000 that he had obtained to invest in the Rangers baseball team, a tax bill
of some $200,000, and because ''his financial adviser/accountant ... was bugging
him to get liquid,'' the corporate lawyer told the SEC.
The openness of those consultations would make it hard to prove that Bush
was scheming to evade the law, the investigators decided.
Given Bush's actions before selling, ''it would be difficult to establish
that, even assuming Bush possessed material nonpublic information, he acted with
... intent to defraud,'' the SEC investigators concluded.
Nor did the market react precipitously to the August announcement, the SEC
said. The stock dipped by almost a third from its $3-a-share price when Harken
anounced its losses, but rebounded the next day to its previous level.
Bush's failure to file the Form 4 when he sold the Harken stock was commonplace
in the 1980s, securities specialists say. Indeed, the SEC also found that Bush
was late in filing a Form 4 regarding Harken transactions on three other occasions.
The memos and correspondence from the SEC files were obtained by the Center
for Public Integrity, a nonprofit research group here, through a Freedom of Information
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