I have refrained until now from mentioning Dubya's corporate ethical woes. For an anti-capitalist anti-corporatist anti-statist anti-Administrationist like me, the news of George W. Bush's indiscretions during the time he was playing at being a business tycoon come not as a surprise, but rather as confirmation of things already known or reasonably suspected. The whole story was, frankly, too easy a target.
However, guilt or innocence is not the issue I want to raise here. Rather, it is the deafening silence from the Republican ranks (McCain always excepted.) We find ourselves in a situation where in other -- Democratically presidential -- circumstances, the Republicans have hysterically called for the appointment of Special Prosecutors and the establishment of multiple and competing Congressional investigations. As Molly Ivins, discussing Enron
, put it:
"If you want to know what this story is about, pretend Bill Clinton is still president. President Clinton's long-time, all-time biggest campaign contributor, a guy whom Clinton has carried water for over the years, a guy with unparalleled 'access,' a shaper of policy, a man with a veto on regulatory appointments affecting his business, with connections at every level of the administration, a political fixer beyond the wildest dreams of James Riady - imagine that this guy's worldwide empire has tumbled into bankruptcy in just three months amid cascading reports of lies, monumental accounting errors, evasions, iffy financial statements, insider deals, a board of directors rife with conflicts of interest, top executives bailing out with millions while regular employees see their life savings shrink to nothing - imagine all this back in the day of Bill Clinton. Holy moley, we'd have four congressional investigations, three special prosecutors, two impeachment inquiries and a partridge in a pear tree by now."
And what do we hear? Nothing at all, except that we should forget the past (in this case) and move on. As the Washington Post
has it: "Congress's focus must now be on preventing more corporate dishonesty, not on Harken."
The Republicans and the Post
's defence of Bush begins and ends with the disclaimer that Bush's actions in taking consulting fees from managers he was supposed to be supervising, taking low interest loans from the company, failing to file timely SEC documents, and inflating the share price through accounting tricks were OK because everyone was doing it. The same bunch said that the last President (a Democrat) had to be held to a higher standard than the average joe. Not so Bush, it seems.
also says that "there is no suggestion that Mr. Bush ... sold the stock because he realized a restatement was coming." Wrong! As Newsday reported it Friday
"Harken Energy Corp. was in the midst of a serious financial crisis in the spring of 1990, and George W. Bush had been fully apprised of it when he sold most of his stock in the company in June of that year."
Bush sold 212,140 shares of Harken stock on June 22, 1990, for $4 a share, grossing $848,560, according to SEC records. He did this just weeks after being advised in a confidential memo
from the company president that events had conspired to "drastically affect Harken's current strategic plan .. to reduce our debt." In fact, one of the company's bankers required repayment because the company had defaulted (which "greatly intensifies our current liquidity crisis") and the company's advisors were saying that a public offering for cash was likely to fail.
Moreover, as another letter
reveals, during April and May of 1990, Bush was a member of a Special Committee struck specifically to deal with problems caused by Harken's failure to meet its loan obligations. In a review of that period
, Bruce N. Huff, senior vice president of Harken Energy, stated that "by June, 1990, the company was constrained by its worsening cash and credit situation" (page 3.)
It was in the middle of this situation that George Bush sold his shares. Less than two months later, Harken reported an unexpectedly large second-quarter loss of $23.2 million, triggering an immediate 20 percent decline in its share price. Bush has repeatedly claimed to have sold his shares into "good news." The facts clearly do not support him. If this doesn't count as trading on insider information what on earth ever could?
But this isn't all. The share price that Bush sold at was overpriced not only because of the confidential liquidity crisis and the unexpected losses of 1990 Q2. They were massively overpriced due to the acounting irregularities involved in Harken's sale of Aloha Petroleum in 1989. The SEC obliged Harken to restate its financials for that period, with losses quadrupling in the process. It is highly unlikely that a strike price of $4 could have been had for Harken shares in June 1990 had the truth been known outside the company at that time. The Los Angeles Times
has a good summary
of what had happened.
"In early 1989, George W. Bush and his fellow board members at Harken Energy Corp. were presiding over a company that was headed south in a hurry. The Dallas-based oil firm had lost millions of dollars placing bad bets on commodity futures. Debt was piling up; red ink was beginning to flow.
Harken's executives came up with a novel plan to ease the pain. They would sell a small chain of Hawaiian gas stations called Aloha Petroleum to a group of investors that included Harken's chairman and one of its directors. The buyers would pay $1 million up front, but the accountants would record an immediate $7.9-million profit, enough to erase most of Harken's losses for the year.
They made a point of seeking the approval of directors who were not participants in the investor group. Bush, a member of the board's audit committee, signed off on the deal, according to Harken documents. So did the company's outside auditor, Arthur Andersen & Co."
The appearance of Andersen as auditors is not the only echo of a much more famous failure a decade later.
"The Aloha sale was so similar to what Enron Corp. did to hide its losses that Harken could have served as a model for the now-disgraced company, one accounting expert said. 'The people at Enron could have gone to school on this thing,' said Alfred King, former managing director of the Institute of Management Accountants, vice chairman of Milwaukee-based Valuation Research Corp. and former advisor to the Financial Accounting Standards Board.
'They sold to themselves and recorded a profit,' King said. 'That's exactly what Enron did on a number of those off-balance-sheet transactions. On this one transaction at least, it's almost identical' ...
'Hiding losses in partnerships, playing games with accounting, not reporting forthrightly transactions as a potential inside trader—it's all eerily reminiscent of Enron,' said Charles Lewis, executive director of the Center for Public Integrity, a Washington research group. 'This is not a corporate executive who laid awake at night worrying about complying with federal laws, from all appearances,' said Lewis"
Bush and his people deny any similarities to Enron. Surprise, surprise.
And the story keeps spawning questions. How well did
the SEC investigate Bush and Harken? Why didn't they interview Bush
? Why did Bush file his SEC documents so late? Why did Lee Bass bail out Bush?
And none of this (except perhaps the last question) even touches the issue of possibly corrupt dealings between Harken and the U.S. goverment -- which I will attempt to deal with in a later piece.
So, how does this compare with, say, Hilary Clinton's issue with a couple of White House employees, which led to Congressional hearings on Travelgate? How does this compare with, say, the $50,000 profit on a real estate transaction that caused the multi-million dollar cost of Whitewater? If they
deserved Congressional hearings and Special Prosecutors, why not this?