WASHINGTON - Harvard University's financial relationship with President Bush's
former oil company was deeper than previously understood, with the university's
management fund creating a separate ''off the books'' partnership with Harken
Energy Corp. that helped keep afloat the financially troubled company, according
to a report to be released today.
HarvardWatch, a student-alumni
group that monitors the school's investments, plans to issue the report and say
that it has analyzed documents showing that the Harvard fund, an independent entity
that manages the university's endowment, formed a partnership in 1990 with Bush's
oil firm called the Harken Anadarko Partnership. The partnership effectively removed
$20 million of debt from Harken's books, relieving the Texas company's short-term
About the same time, the Harvard fund invested about $30 million in Harken,
which also helped keep the firm afloat. The partnership has not been mentioned
in recent accounts of Bush's financial dealings in the oil business.
William K. Black, a former federal banking regulator, said in a telephone
interview that he has examined the Harken Anadarko Partnership and concluded the
arrangement was a significant expansion of the Harvard fund's involvement in the
company beyond the $30 million investment.
''Harvard had a dramatically larger financial stake and a much more interesting
financial stake'' than was previously understood, Black said. ''It all serves
as a partnership device to move money from Harvard to Harken. This is beyond nuts
from an institutional investor's standpoint.''
The creation of the partnership was approved in a motion made by Bush, who
was on the Harken board of directors and its audit committee, said Black, an assistant
professor at the LBJ School of Public Affairs at the University of Texas in Austin.
White House spokesman Scott McClellan said the idea of the partnership came
from the Harvard fund.
''This is something that Harvard proposed, and Harvard set the terms of the
partnership,'' McClellan said yesterday. ''Harvard proposed the partnership because
Harvard decided it wanted to get more involved in the energy sector and be more
directly involved in operational aspects.''
Representatives of Harvard Management and Houston-based Harken Energy did
not return phone calls seeking comment on the partnership.
In May 1990, Black said, the Harvard fund and another unnamed shareholder
loaned Harken a total of $46 million. But with Harken still having a debt load,
the fund and Harken formed the Harken Anadarko Partnership in December 1990. The
partnership was ''off the Harken books,'' Black said, which he said means that
Harken's stake in the partnership was reported but the financial details did not
need to be revealed to the Securities and Exchange Commission.
Such a partnership was legal, he said.
According to Black, the partnership was set up to help Harken avoid bankruptcy
and included $64.5 million worth of unrelated energy properties owned by the Harvard
fund and $26 million of drilling operations from Harken - along with $20 million
worth of Harken's debt and liabilities. Harken held a 16 percent stake in the
partnership while the Harvard fund owned 84 percent, according to HarvardWatch.
Nonetheless, the operation was run by Harken, which was paid $1 million per year
to operate the partnership's oil and gas ventures, the report said.
Harken ''transferred an enormous amount of liabilities to the partnership,''
Black said. ''You don't see the Harvards of the world doing things like this.''
With so much debt removed from Harken's own books, Harken's stock price rose
and the Harvard fund sold 1.6 million shares during this temporary stock bubble,
the report says.
The formation of the partnership, coupled with the fund's purchase of Harken
stock, kept the firm afloat financially, according to Black. Black's review of
the partnership may add weight to the findings of HarvardWatch.
Black, a registered Democrat, is a well-known specialist in reviewing financial
transactions; he was the deputy director of the Federal Savings and Loan Insurance
Corp. during the Reagan and first Bush administrations and played a key role in
investigating the ''Keating Five'' scandal that involved five senators. Black
also played a role in the investigation that helped lead to the resignation of
House Speaker Jim Wright, a Democrat. He said he has conducted financial reviews
that make him unpopular among Democrats and said he did not examine the Harken
partnership for political reasons.
It was 1986 when George W. Bush's struggling oil venture, Spectrum 7, was
purchased by Harken. Harken gave Bush a seat on the board of directors and an
annual paycheck of $120,000. At the time, Bush's father, George H. W. Bush, was
vice president. It was around this same time that the Harvard fund began investing
in Harken. The fund eventually poured $30 million into Harken and became the largest
shareholder. A Harvard Management official, Michael Eisenson, was given a seat
on the Harken board.
© Copyright 2002 Globe Newspaper Company