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Gold9472
08-19-2005, 06:48 PM
Bush and Harken Energy

http://www.guardian.co.uk/bush/story/0,7369,752706,00.html

As George Bush announces a crackdown on corporate fraud, the president's own financial dealings from 10 years ago have come under renewed scrutiny, as Mark Tran explains

Wednesday July 10, 2002

What is the fuss over Mr Bush's financial transactions?
On June 22 1990, George Bush, then a director with a company called Harken Energy, sold 212,140 shares for $848,000 (£548,100). Almost exactly two months later, on August 20, Harken announced a $23.2m loss, which caused its shares to drop to $2.375 from $3. The next day, Harken returned to $3, but fell to $1 at the end of 1990.

Did Mr Bush do anything wrong?
Although the law requires prompt disclosure of what are called insider sales, or sales by senior executives, Mr Bush did not inform the securities and exchange commission (SEC), the US market regulator, until 34 weeks later. So technically Mr Bush was at fault. Bush supporters say that he did fully disclose the transaction, and that "half of corporate America was filing forms late at that time".

How does Mr Bush explain the episode?
A decade ago, Mr Bush blamed the SEC, which he said had lost the forms he had filed. When the story resurfaced last week, the White House admitted that this had not been the case. Instead, White House spokesman Ari Fleischer blamed the delay on "a mix-up with the attorneys", but could not shed light on how the confusion arose.

Why is this coming to light now?
Someone leaked the SEC report on the incident, presumably to embarrass Mr Bush. He has been thrown on the defensive because of his close business ties at a time when corporate America is in the dock for dodgy accounting and bloated executive salaries.

What did the SEC report say?
The SEC report, dated August 21 1991, said that staff had reviewed thousands of pages of documents, interviewed witnesses and met lawyers for Harken and Mr Bush. It concluded that there was insufficient evidence to determine that Mr Bush had any inside information or advance knowledge of Harken's losses. The SEC recommended that the matter be closed.

Are there other questions about Harken?
Quite apart from Mr Bush's share dealings, the company came under scrutiny for a 1989 deal. In that transaction, Harken sold 80% of a subsidiary, Aloha Petroleum, to a partnership formed by Harken executives, who got most of the money for the deal by borrowing from Harken itself. The transaction allowed Harken to reduce the amount of debt on its balance sheet and to claim the proceeds of the sale as income.

How did that go down with the SEC?
The SEC thought that the income should have been deferred to future years. After months of discussions with the SEC, Harken in January 1991 restated its financial reports to add $9m to its loss column, nearly quadrupling its loss. It is the kind of financial manoeuvre that would be frowned upon now after the Enron scandal.

How does Mr Bush explain the transaction?
In a press conference this week, an irritated Mr Bush said: "There was an honest difference of opinion as to how to account for a complicated transaction. Sometimes the rules aren't as specific as one would expect, and therefore the accountants and the auditors make a decision."

How did Mr Bush link up with Harken?
Mr Bush became a director of Harken and a member of its audit committee when Harken paid $2m for Spectrum 7, a small loss-making energy company with large debts. Mr Bush was chief executive of Spectrum 7. When asked why Spectrum 7 was of interest to Harken, its founder, according to the US economist Paul Krugman, said: "His name was George Bush." At the time Mr Bush's father was president.

Is there a cloud over the vice-president, Dick Cheney, as well?
There are questions over Mr Cheney when he was chairman and executive of Halliburton, an oil services company, from 1995 to 2000. A Washington-based group, Judicial Watch, is suing Mr Cheney and the company, alleging accounting fraud - a charge the company describes as being without merit. At issue are accounting practices Halliburton adopted in 1998 that included some of its unresolved claims against engineering and construction clients as revenue, even though the amounts of money at stake were still in dispute. Before 1998, the company was more conservative, reporting such revenue only after settling with customers. Halliburton said in May that the SEC was looking into its accounting practices.