George W. Bush and Harken Energy

The Deal: When Harken Oil and Gas bought Bush’s failing oil company, both parties were better for it. Harken had been looking to buy failing companies when it happened upon Spectrum 7, a company that came with the bonus of the Bush name. The deal was done in September 1986, with Harken assuming $3.1 million in debt. Bush got a plum directorial post and a consultant’s salary on the side (a practice to which no one objected until the corporate scandals of 2002). With the new job Bush received 212,140 shares of Harken stock, worth $530,380, according to SEC filings. By 1989 Bush had accumulated 345,426 shares (Washington Post, July 30, 1999).

The Sale: In 1990, Bush needed money to pay off a $500,000 loan he had made to purchase shares in the Texas Rangers (an investment that made him a millionaire). On June 22, he sold his original 212,140 shares for $4.00 per, or $848,560. Just over a week later, Harken finished the second quarter with a $23 million loss, more than eight times its losses in the same quarter last year, and $14 million more than Bush acknowledged guessing the company would lose. After the loss became public, stock prices fell to $2.37 a share (New York Times May 8, 1999 and Washington Post July 14, 2002).

The Missing Forms: Bush’s actions seemed more suspicious given that the SEC could not locate a form that insiders must file when they sell stock, although Bush had filed a different form disclosing his intent to sell. Mr. Bush maintained that he had filed the missing form, claiming that the SEC lost it. Mr. Bush’s lawyer, Robert W. Jordan, argued that Bush did not know about the loss and, on the contrary, anticipated good news due to a deal in Bahrain. Bush did clear the deal with a Harken lawyer, and he did not solicit a buyer until approached—the broker, Ralph D Smith of Sutro and Company, confirmed the story (New York Times, May 8, 1999).

The SEC Investigation: The SEC seemed to believe Bush’s account and dropped the investigation in August 1991, before they received the letter from Harken’s outside lawyers, Haynes and Boone (Washington Post, November 1, 2002). When the issue arose in Bush’s gubernatorial campaign, his opponent, Ann Richards, suggested that George H.W. Bush’s appointees purposefully closed the investigation. The SEC denied any political pressure, saying that leaders with direct ties to the Bushes were not involved in the investigation. (New York Times, July 4, 2002) The SEC General Counsel then was James R. Doty, who represented Bush in his purchase of the Rangers, and who recused himself. The SEC Chairman was Richard C. Breeden, nominated by Bush Sr.

Did Bush Know? One week before Bush’s sale, the firm's outside lawyers cautioned Bush and other directors against selling shares if they had significant negative information about the company's prospects. The letter, dated June 15, 1990, wasn’t sent to the SEC by Bush’s lawyer until August 22, 1991. That was one day after SEC staff members investigating the stock sale concluded there was insufficient evidence to recommend an enforcement action against Bush for insider trading. (Washington Post, November 1, 2002) Sixteen days before the sale of the stock, Bush, as a director, received Harken’s “weekly flash report,” giving “information provided by subsidiaries regarding estimated historical and projected earnings.” Harken minutes also noted that Bush attended a March 14 meeting discussing accounting issues. An April 20 memo from Harken President Mikel D. Faulkner warned the board of a liquidity crisis (Washington Post, July 14, 2002).

Relatively Speaking: The Harken controversy became an issue again in 2002, when it led some to question whether the second Bush administration was capable of adequately castigating corrupt corporations like Enron (a major Bush campaign contributor, whose accounting firm, Arthur Anderson, was also serving Harken in 1990). The White House, changing Bush’s decade-old story, claimed that the missing form was delayed because of mistakes made by Harken’s lawyers—not the SEC. Dan Bartlett emphasized that Harken was small beans compared to the billion-dollar scandals of 2002. (Guardian, July 4, 2002) It is worth noting, however, that Bush’s scale was four times the amount of money that landed Martha Stewart in court. And Harken’s earlier method of hiding losses by creating a false profit—having a company borrow money and pay $10 million for a Harken subsidiary, Aloha Petroleum—involved a sum several dozen times the size of the Whitewater deal. The Whitewater investigation, however, cost seven times that (New York Times, July 7, 2002).