White House blames late report of Bush stock sale on lawyers

1990 transaction came just before price plunged

he was company director

July 04, 2002|By Edwin Chen | Edwin Chen,SPECIAL TO THE SUN

WASHINGTON - As President Bush prepares for a major speech on corporate responsibility, the White House offered a new explanation yesterday of why he did not report in a timely manner his 1990 sale of nearly $850,000 worth of stock in a Texas energy company weeks before its value plummeted.

Then a West Texas oilman, Bush was eight months late in filing a sales report with the Securities and Exchange Commission because of "a mix-up with the attorneys" for the energy company, White House press secretary Ari Fleischer said yesterday.

Bush, in years past, has said he filed the required paperwork and the SEC might have lost it.

The revised explanation comes as Bush readies the speech he plans Tuesday on business ethics, an address prompted by the rash of high-profile corporate scandals.

Yesterday's developments are bound to raise questions about Bush's own actions as a businessman and perhaps detract from his effort to respond to the corporate scandals.

In an interview, Fleischer emphasized that Bush, as required by law, had filed with the SEC a notice of intent-to-sell on the day he sold his 212,140 shares of stock in the Harken Energy Corp. in June 1990, at $4 a share. At issue is the filing of a second form, required after such a sale.

Fleischer said the current focus on the tardy filing of the second form is misleading because "it makes it look like he was trying to hide something." Bush's filing of the first form shows that he was not, Fleischer said.

Eight days after Bush sold the stock, Harken finished the second quarter with a loss of $23.2 million, more than eight times the loss it showed for the second quarter of 1989.

When the second-quarter loss was publicly reported Aug. 20, the share price fell to $2.37. Bush, a member of the Harken board of directors at the time, denied any advance or inside knowledge of the company's financial problems before his stock sale.

The SEC investigated the Bush transaction in 1991 and cleared him of any wrongdoing. According to documents released by the White House yesterday, the agency concluded: "It appears that Bush did not engage in illegal insider trading."

The SEC probe drew attention when it occurred because Bush's father was president at the time. It gained additional attention in Texas during Bush's first gubernatorial run in the state in 1994.

The Harken transaction is coming under fresh scrutiny because of the burgeoning corporate scandals involving insider trading and fraudulent accounting practices.

In March, Bush proposed a 10-point "corporate responsibility" plan that would, among other things, require corporate officers to disclose sales of company stock within two days.

In his Tuesday speech, which he plans to deliver on Wall Street, Bush might propose new or tougher criminal as well as civil penalties for business executives guilty of misleading or defrauding stockholders, employees and the public.

Fleischer suggested yesterday that Bush's sale of Harken stock is an old story being fanned anew by the president's political foes.

"This is one of the most widely reported stories of the '90s," Fleischer said.

In discussing what he termed a "mix-up" in the filing of the second form, Fleischer argued that the Harken attorneys bore responsibility for it.

But several former SEC officials said it was Bush's responsibility, not the company's, to make sure the stock sale report was filed on time. Even so, they said they regarded the infraction as relatively insignificant and the White House's revised version of events as believable.

"This stuff happens," said Jacob Frenkel, a former federal prosecutor and SEC enforcement attorney who now heads the securities law practice of Smith Gambrell & Russell in Washington. "It does not appear to be a scenario in which someone was trying to circumvent their filing obligations."

Bush was asked about the stock sale Tuesday while visiting a church in Milwaukee. Clearly annoyed, he snapped:

"Everything I do is fully disclosed. It's been fully vetted. Any other questions?"

The president's testiness and Fleischer's comments were the latest signs of how seriously the White House is taking the potential political fallout from the spate of corporate scandals.

The issue also is energizing Democrats, struggling for campaign issues against a popular wartime president. They wasted no time yesterday jumping into the fray.

"President Bush, Vice President Cheney and SEC Commissioner Harvey Pitt like to preach CEO responsibility," said Terry McAuliffe, chairman of the Democratic National Committee.

"But when it comes to their own records, their motto is `the buck stops over there,'" he added, referring to Fleischer's explanation about a lawyers' mix-up.

"The reality is that Bush and his administration have given the green light to unscrupulous CEOs by helping to foster a business environment that says `if it feels good, do it' and when confronted with the crisis they offer toothless reforms," McAuliffe said.

Edwin Chen writes for the Los Angeles Times, a Tribune Publishing newspaper. The New York Times contributed to this article.

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