Friday, July 12, 2002

More on the amazing investment that Bush had in Harken Energy:

  1. Bush founded his first company, Arbusto Energy, in 1982, with the significant help of Bush family friends. After his father became Vice President, he changed the name to Bush Exploration Oil Co. The change of name didn't help, and the company was bailed out by being bought by Spectrum 7, owned by his friend from Yale, William DeWitt Jr. Spectrum 7 was another loser, and was bought out by Harken in 1986. Harken has had a colorful history of investors, including, at various times, Jackson Stephens, James Bath, George Soros, Arab investors linked to BCCI and the bin Laden family, and the investment arm of Harvard University.

  2. Although Bush has asserted that he hardly knew Kenneth Lay, Harken was developing oil wells with Lay's company Enron as early as 1986 or 1987.

  3. After Bush obtained his initial 212,000 shares in Harken, Harken granted him an option to purchase 80,000 more shares, an option which Bush exercised by borrowing $96,000 from Harken. He went through the same procedure to purchase more shares in 1988. He pledged the original Harken shares and the new option-granted shares as security for the loans. In 1989, Harken changed the terms of the loans so Bush was able to repay them by returning the shares, and released Bush's original shares from the pledge. Much is being made of this transaction, but it seems to me to be much less important than later Bush actions in Harken, and the issue may be a smoke screen to hide Bush's more serious problems. Although this kind of thing is one of the corporate abuses that Bush has recently spoken against, I think most people could rationalize it as merely another form of executive compensation.

  4. Here's where the accounting gets very interesting. With Arthur Andersen as auditor, and Bush a director on the audit committee, Harken arranged in 1989 to sell a subsidiary to a related company, and lent the purchaser the money to make the purchase. The purchase price was inflated, and the effect of the sham transaction was to improve the apparent financial position of Harken, thus supporting the share price. This fraudulent (for there is no other way to describe it) transaction eventually bought Bush sufficient time to dispose of his shares at a high price (Bush was smart enough to wait until 1990 to dispose of the shares, and in fact appeared to do so just in advance of other bad financial information being released, information which Bush knew couldn't be hidden). As he was a director of Harken and on the audit committee, he could not possibly be unaware of the fraudulent sale. In fact, the whole transaction seems custom-designed solely for the purpose of letting Bush sell his shares at a fraudulently high price. Unlike the forgiven loans made to Bush by Harken, I think anyone can see this as a real example of criminal behaviour (the SEC eventually made Harken restate its financials).

  5. The press has mostly ignored the main issue, and has reported Bush's problems as relating to his late (and undated) SEC filing. Bush was alerted by Harken's general counsel in early 1990 of stiffer SEC filing requirements for insiders. In June, before the share price fell, Bush sold 212,000 shares at $4 each (Martha Stewart is in massive trouble for about a quarter of the amount involved in the Bush sale). After Harken released bad financial information in August, the share price fell to $2.37. He filed the first SEC filing requirement in timely manner, but waited months before filing the second. He has recently blamed this delay on an SEC error, then on his lawyer's error. It strikes me that this is again a diversion to hide the real problem. Insider trading reports are so often filed late that most people don't see late filing as a serious problem (note the detailed New York Times chart, which notes the loans and the late insider-trading filing, but makes no mention of the really serious problem - to be fair, Krugman's article in the same newspaper makes the important point perfectly clear). The issue has been muddied by the fact that there were two troubling areas of Harken reporting. Bush is being blamed for selling before the August 1990 financial information was released. This may in fact be improper use of insider information, and there is reason to believe that Bush was well aware of the extremely serious problems at Harken (of course the improper use of insider information is a different crime than failing to file), but the serious fraudulent scam is selling the shares on a share price that Bush had to have known was inflated by the 1989 scam transaction.

  6. Almost certainly solely due to the fact that Bush was his father's son, Harken was granted offshore oil exploration rights in Bahrain by the Sheikh of Bahrain. This was announced one month after Bush sold his shares in Harken (and this fact is often used by Bush supporters to defend him against insider-trading allegations). Harken was so utterly incompetent to look for oil offshore that it engaged the Bass family to actually do the exploration work, and the work was financed by more money from the Bass family and from Harvard. The wells that were drilled were dry, and Harken never benefitted from the Bahrain deal, but it gave Bush a nice excuse. Of course, this excuse again is misleading as it points us to the June 1990 problem, when the real problem is probably the 1989 sham sale of a subsidiary of Harken. It is also another example of the mysterious ties of the Bush family to oily Sheikhs.

  7. One of the weirdest things in a very weird situation is that Bush is supposed to have gotten a cold call from a broker asking if Bush was prepared to sell his Harken shares. Bush sold "more than 2,000% times the average 1990 daily share volume on June 22, yet the share price never budged -- indicating that the insider stock sale was pre-arranged or pre-negotiated." The broker has never revealed who the purchaser was except to say it was an institutional investor. Speculation is that it was again the investment arm of Harvard University, Harvard Management. This was a mystifyingly bad investment, but may be explained by the fact that Robert Stone, Jr. was three things: 1) a director of Harvard Management; 2) a Connecticut neighbor of daddy Bush; and 3) former chairman of Kirby Corporation, a barge company owned in large part by the Murchison family, one of the most important of the Texas oil families (as a gratuitous JFK assassination aside, many feel that the final preparations for the assassination of JFK were at a party held on the evening of November 21, 1963, hosted by head of the family, Clint Murchison). The Reagan-Bush administration had radically reduced taxation of Texas oil wells and possibly was rewarded by oil family pull to get Harvard to invest. I quote the following without comment:

    "Finally, nine years after its investment in Harken helped save Bush from financial ruin, Harvard Management Company got a deal on a piece of real estate it bought from the Texas Teachers Retirement System. In 1995 the Texas Teachers Retirement System sold the Anatole Hotel in Dallas to a partnership that included the Crow family, which owns a controlling interest in Trammell Crow Company, one of the nation's top real estate management companies, and Harvard Management. Without taking bids, the Texas Teachers Retirement reportedly sold the hotel for $27 million less than it had spent to make improvements on the structure."

  8. The SEC began an insider trading investigation of the Bush sale. By this time, Bush's father was president, and the regulators were appointed by daddy Bush. Predictably, the SEC found nothing wrong. SEC Chairman Richard Breeden had been an economic policy adviser to daddy (and is now, in some sort of weird cosmic justice, the court-appointed monitor for WorldCom, where his experience in examining Bush for fraud will no doubt stand him in good stead). James Doty, general counsel to the SEC and the official in charge of any litigation that might have come out of the investigation, had represented Bush the son in matters related to his ownership of the Rangers (the whole Rangers story is another amazing example of how good things happen to well-connected people).

Besides the layers of various kinds of fraud, criminal conduct, and dishonesty in the story of Bush and Harken, we can also see the amazing connections that have been used by Bush and those of his ilk in order to make their way in the world. What is perhaps most striking is that George Bush had pulling for him, amongst many others, the large group of original investors in Arbusto, William DeWitt, Jr., the Vice President and later President of the United States, the Sheikh of Bahrain, Harvard University and its investment arm, Jackson Stephens, a motley crew of Arabs associated with BCCI and the bin Laden family, the Bass family, Robert Stone, Jr., the Murchinson family, and the Chairman and Counsel of the SEC. With all this help, Bush's involvement in Harken was still an utter failure. Should his complete incompetence as President of the United States be any surprise?