Published on Thursday, July 4, 2002 in the San Francisco Chronicle
Past business deal haunts president as he plans Wall Street speech
by Zachary Coile

WASHINGTON -- The White House said a "clerical mistake" by lawyers was to blame for President Bush's failure to disclose an $848,560 stock sale in a timely fashion, as required by federal law, when he was on the board of directors of a Texas oil company in 1990.

But the statement by White House spokesman Ari Fleischer Wednesday raised new questions about the lucrative stock sale because Bush had previously given a different explanation: that he had filed the required disclosure forms with the Securities and Exchange Commission, but government regulators lost the paperwork.

The new focus on the decade-old stock transaction -- which White House aides contended was orchestrated by Bush's opponents -- comes as the president prepares to give a major speech Tuesday on Wall Street on corporate accountability.

Meanwhile, the Bush administration also is pushing for more prompt disclosure by corporate leaders when they trade their own company's stock. The move is a response to the discovery that Enron executives earned windfalls by dumping their shares before the company's stock plummeted.

The administration already faces a potentially embarrassing probe by the SEC into accounting irregularities at the Dallas-based energy firm, Halliburton, when Vice President Dick Cheney was the firm's chief executive officer.

White House officials insisted Wednesday that the president broke no laws and did not intend to mislead investors.

And even some government watchdogs critical of the president's stock dealings as a corporate director before he entered politics said Bush's actions don't compare to the magnitude of the current Wall Street scandals.

WHAT HAPPENED

The controversy involves Bush's sale of shares of stock in Harken Energy Co. , an oil and gas exploration company. Bush had acquired shares in the company and joined its board in the mid-1980s when Harken bought his money-losing energy firm, Spectrum 7.

On June 22, 1990, Bush sold 212,140 shares of Harken stock -- just two months before the company reported a $23 million loss. At the time he sold, the stock price was $4, but by the end of the year, it had fallen to $1 a share.

Fleischer told reporters that Bush believed that he had complied with the law by filing an SEC Form 144, which alerted investors of his intention to sell the stock.

But Bush did not file a second document, SEC Form 4, until 34 weeks after the sale of the stock. U.S. securities law requires that corporate leaders at publicly traded firms report sales by the 10th day of the month following the sale.

Fleischer blamed the lawyers at Harken for not filing the second form. "It was a mix-up with the attorneys," he said.

But Fleischer later backed off his statement that it was the corporation's responsibility to file the form on behalf of its directors. Federal law says it's the responsibility of the director, not the company, to file the form.

NEW QUESTIONS

Democrats quickly pounced on the news, saying it raised doubts about whether Bush has the credibility to convince corporate leaders to clean up their act.

"It's time this CEO, President Bush, took responsibility for his actions as a private businessman and as president of the United States," Democratic National Committee Chairman Terry McAuliffe said.

Rep. Henry Waxman, D-Los Angeles, suggested that lawmakers may want to probe the matter further.

"It obviously raises serious concerns, and Congress needs to determine the most responsible way to examine this," Waxman said.

Shortly after Bush sold his Harken stock, the SEC investigated the deal for possible insider trading. The investigation occurred while Bush's father was president, and the agency ended its inquiry in 1993. The SEC decided that when Bush sold his stock, he did not have enough information to know that Harken's losses of $2 million in the first quarter of 1990 would grow to $23 million in the second quarter.

The controversy bubbled to the surface again this week after the release of a 1991 SEC memo showing that Bush was late in filing four Form 4s for sales of Harken stock. Bush used $600,000 of money from the sales to buy part-ownership of the Texas Rangers baseball team.

LONGTIME ISSUE

The issue of the stock sales has been a sore point for Bush since he first ran for Texas governor in 1994. Former Texas Gov. Ann Richards ran a television ad against Bush in the waning days of the race questioning the sales.

"It's been used as an issue by every political opponent in every campaign in which he's run," Fleischer said.

Government watchdogs said the White House's new explanation doesn't clear the president from responsibility for failing to disclose a very large stock sale.

"It doesn't change the fact that it wasn't disclosed in a timely fashion," said Bill Allison, a spokesman for the Center for Public Integrity. "Saying the dog ate my homework isn't an excuse for a third-grader and it shouldn't be an excuse for the president."

The stock sale will also cast new attention on Harken's questionable accounting. The SEC forced the company to restate its 1989 earnings after discovering that the firm reported profits based on the dubious sale of one of its subsidiaries, Aloha Petroleum, to a group of Harken insiders.

SEC memos have since shown that Bush may not have been aware of the company's worsening finances or the details of the Aloha transaction.

"In fairness, there's nothing in the Harken story that compares in magnitude with WorldCom or Enron in terms of possible crimes and outright fraud," Allison said.

"But, nevertheless, it does show that he came from a company and was a director of a company that wasn't aboveboard and used the same kind of deceptive accounting practices to save its own skin." The Bush stock sale

-- What happened: President Bush failed in 1990 to disclose a sale of nearly $850,000 in Harken Energy stock as promptly as required by law.

-- The explanation in 1994: Bush said the Securities and Exchange Commission misplaced the proper forms.

-- The explanation Wednesday: A White House spokesman attributed the problem to a "clerical mistake'' by lawyers for Harken.

©2002 San Francisco Chronicle

Bush’s Insider Connections Preceded Huge Profit On Stock Deal