October 17, 2002 — In the wake of the corporate scandals that began with Enron Corp.’s collapse in October 2001, there has been renewed interest in material the Center for Public Integrity obtained via the Freedom of Information Act from the Securities and Exchange Commission concerning George W. Bush’s tenure at Harken Energy. The Center used this material in The Buying of the President 2000 and in two reports. (We published the first on April 4, 2000 and the second on October 4, 2000.) In July 2002, we began posting the documents on which we based our reporting.
As a public service, we are offering in PDF format the previously posted documents, in addition to some new material.
The Center obtained these documents in 2000.
Posted July 3, 2002
Written by Jerry Reidler of the SEC’s Division of Corporation Finance, the letter requests additional information on Harken’s Aloha sale, among other matters.
Written by SEC investigators Herbert F. Janick 3d, Lewis J. Mendelson, and James B. Adelman for the SEC’s files, the memorandum notes that Bush was late reporting his Harken stock sales. “Bush’s Forms 4 [disclosing the sale of stock by an insider] were filed from 15 to 34 weeks late”
Written by Hebert Janick of the SEC’s Division of Enforcement, the fax requests a chronology of events leading up to Harken’s public announcement of a $23.2 million loss on August 20, 1990.
Prepared by Harken Energy at the request of the SEC, the document describes “the events and circumstances leading up to the release of Harken’s earnings for the period April 1, 1990 through June 30, 1990 “
Written by Lisa Meulbroek for Janick, Mendelson, Adelman, and Paul Gerlach, the report analyzes the effect of Harken’s Aug. 20, 1990 disclosure of its $23.2 million loss and the subsequent effect on the company’s share price.
Written by Janick, Paul Gerlach, and Adelman and addressed to Bruce Hiler, it traces the circumstances of Bush’s sale of Harken stock. “The staff’s investigation indicates that there is insufficient evidence to establish three necessary aspects of a possible insider trading case.”
Prepared by the Division of Enforcement, the memorandum summarizes the findings of the SEC investigation.
Written by Janick for the file, this memorandum suggests that Bush was unaware of the magnitude of the impending loss at the time he sold his stock. “The vast majority of the [second quarter] loss was unknown to management, let alone Bush.” It also notes that the Audit Committee, of which Bush was a member, was not privy to much of the financial information about the company.
Posted July 11, 2002
From Mikel D. Faulkner, President of Harken Energy, to the board of directors. The letter notes that new conditions on a loan Harken sought “greatly intensifies our current liquidity problem and mandates the infusion of equity into the company.”
From Bruce N. Huff, senior vice president of Harken Energy, to the members of the company’s “special committee,” which included George W. Bush. The letter notes, “It is become evident that it will be necessary to reach a conclusion regarding the fairness of the proposal by the Major Shareholders before permanent waivers of various loan covenant violations and an extension of the due date for specific loan facilities can be obtained from our major banks. Such waivers and extensions will allow the Company to properly report the substantial portion of its debt facilities as long-term and thereby avoid any negative repercussions that might otherwise occur if the Company remains in a state of non-compliance with regard to loan covenants.”
From Bruce N. Huff, senior vice president of Harken Energy, to Edmund Coulson, chief accountant of the SEC. Huff describes in detail Harken’s position on the Aloha sale, and how it was restructured. Huff notes that in April 1990, “The immediate focus of the Company was at that time redirected to raising cash.” He also notes, “By June, 1990, the Company was constrained by its worsening cash and credit situation.”
From Herbert Janick, assistant director of the SEC Enforcement Division, to George W. Bush. The letter requests, “Copies of all Forms 3, 4 and 144, cover letters and attachments thereto that were transmitted by you, or on your behalf, to the Commission during the period September 1, 1986 through the present.”
From Herbert Janick to Joseph A. Cialone 2nd, a Baker & Botts attorney who represented both George W. Bush and Harken Energy. “We appreciate Mr. Bush’s willingness to cooperate in the staff’s inquiry,” Janick wrote in the first paragraph. The fax requests that Bush “voluntarily provide” any documents in his possession received from Jan. 1, 1990 to June 30, 1990 related to, among other things, “unusual charges” stemming from the Aloha transaction.
From Herbert Janick to Joseph A. Cialone 2nd, a Baker & Botts attorney who represented both George W. Bush and Harken Energy. The fax requests that “Harken voluntarily provide copies of all documents concerning, referring, or relating to any policies or procedures of Harken, in effect during the period of January 1, 1990, to the date of Harken’s response to this request, concerning the purchase, sale or ownership of Harken securities by any officer or director of Harken.”
From Herbert Janick and Paul Gerlach of the Enforcement Division, the memorandum notes “Harken has asserted attorney-client privilege and refused to produce documents concerning its policies covering the purchase, sale or ownership of Harken securities by officers or directors. Bush has produced a small amount of additional documents which provide little insight as to what Harken nonpublic information he knew and when he knew it.”
From Herbert Janick to Joseph A. Cialone 2nd, a Baker & Botts attorney who represented both George W. Bush and Harken Energy. The letter describes the material that the SEC had requested that Bush and Harken “voluntarily provide.”
Posted July 12, 2002
It includes information on the Aloha transaction and the loans George W. Bush received from the company.
Bush sold more than 212,000 shares of Harken stock during the period
Harken declared its $23.2 million loss during the period
Posted July 15, 2002
Right on the Money: The George W. Bush Profile (From The Buying of the President 2000)
Posted July 19, 2002
February 1, 1990 Letter From Mikel D. Faulkner, president of Harken Energy, to the Board of Directors. Faulkner wrote, in part, “It appears that our 1989 profitability will be in the range of $1.2 million. Although disappointing, this is consistent with the last projection which was made and provided to the Board Although several accounting issues remain unresolved, it is anticipated that none of them should cause major changes either up or down in that projection.”
March 6, 1990 Letter From Mikel D. Faulkner, president of Harken Energy, to the Board of Directors, regarding the March 14 board meeting. Faulkner refers to the newly formed special committee of the board of directors, which Bush chaired. “The Special Committee noted above should be appointed as an independent committee to approve any action taken with regard to the Shareholders’ notes which originated in connection with the Soros transaction.”
Public Common Stock Offering presented to the board of directors, March 14, 1990. “In working and planning toward the public offering which will be priced based on the market price for the Company’s common stock established on or about Closing, it is appropriate for the Company to take reasonable steps and measures to avoid fluctuations in the market price,” the document notes. Among those steps: “Exercise caution regarding insider and related party transactions.”
Shareholders Notes presented to the board of directors, March 14, 1990. Bush is proposed as the chairman of a board committee to investigate $12 million in secured notes held by Intercontinental Mining & Resources Limited (IMR), Atherstone Corporation, N.V. and Galata Associates. The document advises the board to appoint and empower a Special Independent Committee with full authority to review, negotiate, authorize and approve the terms and provisions of a restructuring of the $12 million of debt. IMR was the group of Harken insiders who, in 1989, purchased the Aloha subsidiary from Harken. Harken’s treatment of that sale, and the subsequent sale of Aloha to Advanced Petroleum Marketing, was challenged by the SEC, which forced Harken to restate its earnings for 1989.
General Resolutions presented to the board of directors, March 14, 1990. Among the resolutions were various personnel and financial items, including one requesting approval of the sale of IMR’s stake in Aloha to Advance Petroleum Marketing. “IMR has requested the Company’s consent to this sale which will include an assumption and restructuring of the $11,000,000 seven year promissory note from IMR to Harken.” The terms of the deal are summarized, among them: “IMR will guarantee payment of the restructured note.”
Minutes of the Board of Directors Meeting, March 14, 1990 Faulkner presented “a summary concerning the preliminary financial statements of income and loss for the Company for the 1989 fiscal year.” Talit Othman, chairman of the audit committee (on which Bush served) reported that Arthur Andersen, Harken’s accountants, responded “to a request for review of affiliated party transactions which were completed by the Company during 1989 upon which review the auditors found no areas of concern or impropriety.” The sale of Aloha to IMR in 1989 was an affiliated party transaction; the minutes do not note whether that transaction was reviewed by Arthur Andersen. The board also reviewed the sale of Aloha from IMR to Advance Petroleum. “The Board discussed the terms of this transaction in detail and with Mr. Quasha and Mr. Laikind [the two Harken directors who were also investors in IMR] upon motion being duly made and seconded, the Board unanimously authorized and empowered the President with full authority [to] approve or disapprove the terms and provisions of such transaction in his sole and reasonable discretion.”
April 30, 1990 Letter to the Board of Directors from Faulkner. Cover letter sent with the companies February 1990 financial statements. Faulkner wrote, “Harken’s February consolidated balance sheet does not reflect the reclassifications of the major shareholders’ notes to equity or the reclassification of the IMR note to other assets based upon its March sale to Advance.”
May 8, 1990 Minutes of a special meeting of the executive committee (Bush was not a member of the executive committee). The committee decided to abandon a plan to raise capital through a public offering of Harken stock. Instead, the committee favored a rights offering for two of Harken’s subsidiaries, in effect splitting the company into three separate public companies with their own management and boards of directors.
May 11, 1990 Minutes of the Board of Directors This meeting followed an April 25 board meeting and a May 8 meeting of the Executive Committee (of which Bush was not a member). The Center does not have minutes from the April 25 meeting. The board discussed the rights offering – an attempt to raise capital by offering shares in two Harken subsidiaries, Harken Marketing Corporation and Tejas Power Corporation. Bush told the board that “the interests and preservation of value for the small shareholder of the Company” must be among the guiding principles of Harken’s efforts to raise capital – one of the few comments attributed to him in the minutes. The board also reviewed the reasons for abandoning a proposed public stock offering of additional shares of Harken stock.
May 17, 1990 Minutes of a Special Committee Meeting The special committee, chaired by Bush, discussed the terms of the rights offering. Michael Eisenson, one of two representatives of Harvard Management Company on Harken’s board of directors, offered the major shareholders’ plan for a rights offering. The special committee decides that elements of the plan need to be further evaluated to determine whether they are fair to the company’s other investors, and designates Smith Barney, the manager of the rights offering, to analyze the plan.
May 18, 1990 Letter to the Special Committee from Bruce Huff, senior vice president of Harken. One day after its first meeting, Huff called for another due to “several events which have occurred.” “It is [sic] become evident that it will be necessary to reach a conclusion regarding the fairness of the proposal by the Major Shareholders” to help Harken obtain more favorable treatment from its creditors. “Such waivers and extensions [from the company’s major banks] will allow the Company to properly report the substantial portion of its debt facilities as long-term and thereby avoid any negative repercussions that might otherwise occur if the Company remains in a state of non-compliance with regard to loan covenants.”
May 25, 1990 Letter to the Board of Directors from Faulkner, with the agenda for the company’s next board meeting. The agenda lists several objectives: “Improve consolidated and subsidiary financial information,” “avoid default under existing bank lines,” “monitize [sic] assets to raise cash,” and “resolve open accounting issues.”
June 11, 1990 Minutes of the Audit Committee The Audit Committee discussed the plan to split Harken into three publicly traded companies with representatives of Arthur Andersen, the firm’s auditors. Talit Othman, the chair of the committee, “stressed the desire of the Audit Committee that the accounting practices of the Company reflect moderate policies and procedures compared to industry practices. He stressed this would avoid the use of extremely aggressive accounting policies in the presentation of financial statements of the Company and its subsidiaries.”
July 11, 1990 Letter to the Board of Directors from Dale R. Valvo, president of Harken Marketing Company, a subsidiary of Harken Energy. Valvo describes terms of the deal struck with Advance Petroleum Marketing over the restructuring of the Aloha purchase. “The very significant disadvantage of this deal is that HMC will likely have to take a write down of approximately $1,000,000 to $7,000,000 in the second quarter of 1990”
July 13, 1990 Letter to the Board of Directors from Faulkner. Updates the board on recent developments. “The Special Committee, Chaired by George Bush has received positive response from Smith Barney with regard to the fairness of the ‘major Shareholder’ transactions,” Faulkner wrote. He also notes of the Aloha Petroleum deal, “Given the finalization of certain outstanding issues, this transaction holds significant benefit to HMC in that it provides cash during a much needed time in the Company’s history.”
July 26, 1990 Presentation to the Executive Committee Contains detailed information on how Harken attempted to cope with its financial crisis. The document includes information on savings from salary cuts and staff reductions, estimates and allocations of costs related to the company’s rights offering, the terms of a loan agreement for Harken Marketing Company, and an analysis of the company’s ownership structure after the proposed rights offering had been completed. Among the costs Harken incurred were legal fees and salary expenses of more than $930,000 owed to Quasha, Wessely & Schneider. Alan Quasha, a partner in the firm, sat on the board of directors; his North American Resources was one of major shareholders in Harken. Bush was not a member of the Executive Committee.
July 26, 1990 Minutes of the Executive Committee The committee discussed the terms of the Aloha sale to Advance Petroleum Marketing. “Mr. Valvo discussed the reasons for restructuring this transaction with Aloha and Advance was [sic] to create an incentive on their part to make a significant additional cash payment immediately, to encourage earlier payments of the remaining indebtedness and to relieve HMC and the Company from any further environmental obligations or liabilities for Aloha under the previous sale agreements. The Committee discussed the proposed transaction in great detail” The committee was also briefed on “the current status regarding the Special Committee of the Board of Directors which had been established to review and consider the affiliated transactions related to the rights offering.” Bush chaired the Special Committee.
August 27, 1990 Letter to the Board of Directors from Faulkner. “As you are aware, we released news on Monday, August 20, 1990, of our second quarter loss. The stock acted erratically but seems to have recovered from its immediate decline.”
August 29, 1990 Minutes of the Board of Directors Meeting Reference was made to a change in the minutes of a May 21, 1990 board meeting. Quasha proposed the change, which was seconded by Bush. The Center does not have minutes of the May 21 meeting. The audit committee, of which Bush was a member, reported that it had met “earlier in the morning with the Company’s auditors, Arthur Andersen & Co. It reviewed the items which had been discussed with the Company’s auditors being the second quarter write-off and the Aloha Transaction and various accounting and auditing issues relating to it.”
Posted July 25, 2002
Letter shows Bush’s close involvement with the internal workings of the company.
Bush has been questioned about late filings of SEC forms. In this letter, Harken’s top lawyer asks for a missing “Form 4,” which was filed to document insider stock sales.
March 11, 1992 letter from Representative John Dingell, D-Mich., chairman of the Subcommittee on Oversight and Investigations of the Commerce and Energy Committee to Richard Breeden, chairman of the SEC
Dingell asks the SEC about its investigation of Bush’s alleged insider trading and requests a confidential briefing by the SEC. The letter was referenced in a March 18 SEC memo. In comments to the press, Bush said “in the early 90s key members of Congress asked for relevant documents from the SEC on this case. They were given the documents. You’ve seen the relevant documents.” Staff from the subcommittee told the Center they were “unaware of any official subcommittee action taken subsequent to any briefing received.” We have also posted a letter by then-Senator Lloyd Bentsen, D-Texas, and a response from the SEC.
This internal memo shows graphically how difficult Harken’s financial situation was in the spring of 1990, shortly before Bush sold his stock. It is unknown from available documents whether Bush was sent a copy of the memo.
Posted August 1, 2002
The record shows the date of incorporation of Harken Bahrain Oil Company
The meeting was held two weeks after the Harken Bahrain Oil Company was set up. The minutes make no mention of the subsidiary or the Bahrain deal.
The board was briefed by Monte Swetnam, president of the Harken Exploration Company and the company’s point man on the Bahrain deal. The board discussed the “foreign opportunity” and then unanimously approved finalizing a formal agreement with the government of Bahrain.
Posted October 17, 2002
The Wall Street Journal and Boston Globe recently wrote that Bush proposed the creation of an Enron-style off-the-books partnership involving Harken and Harvard Management, based on Harken’s public disclosures. The Center now provides the internal documents.
Harken Marketing traded futures contracts which were much in the news when Enron, Bush’s top career patron, collapsed in October 2001. An internal company memo sheds some light on Harken’s activity and reveals one of Harken’s partners in commodities trading was Enron.
Bush was paid $80,000 in 1987-1988 to consult for Harken, according to a company proxy statement, though he was working full time for his father’s presidential campaign. The George Herbert Walker Bush campaign paid for his son’s trips to attend Harken board meetings
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