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 corporate loans.

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 case.

''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 for 1989.

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 Act request.

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