Bush faces questioning about '90 stock sale

Focus of news conference eludes president's control

July 09, 2002|By NEW YORK TIMES NEWS SERVICE

WASHINGTON -- If President Bush hoped to turn attention to the first topics he mentioned at the start of his news conference yesterday -- military appropriations, trade and a review of the welfare system -- he was in for a rude shock.

For most of the 36-minute session with reporters, Bush faced a series of detailed questions about his own business dealings a dozen years ago at Harken Energy Corp. of Texas and whether they undermined his call for improved corporate ethics and stiffer penalties for executives who defraud investors.

Bush's involvement in Harken began in 1986, when he sold it a struggling energy company of his own, the Spectrum 7 Energy Corp. Bush received more than 200,000 shares of Harken stock and a seat on its board.

The current scrutiny of Bush's involvement with Harken focuses on two issues.

The first is whether he profited from inside information in selling Harken stock in 1990 two months before the company announced a much bigger than anticipated loss.

The other is Bush's role, as a director, in Harken's decision to immediately book a $7.9 million gain from the sale of its Aloha Petroleum subsidiary, although the sale, to a group of Harken insiders, was largely paid for with a loan from Harken.

Bush never worked full time for Harken, though in addition to serving as a director he had a consulting contract that paid $42,000 to $120,000 a year for five years. Not long after the merger with Harken, he moved to Washington to help with his father's presidential campaign.

By 1989, Bush's business efforts were focused on acquiring and running the Texas Rangers baseball team. He began selling some other investments, and in June 1990, he received a call from a stockbroker asking whether he wanted to sell 212,140 shares of Harken stock.

He did so on June 22, 1990, receiving $4 a share, for a total of $848,560.

At the time, Harken was struggling. It had suffered big trading losses; it was having trouble with its banks; its long-term debt had more than doubled; and it was trying to sell some of its assets.

In August 1990, Harken reported that it had lost $23.2 million in the second quarter, a far worse performance than investors had expected. The stock plunged from $3 a share to $2.37 in a day before rebounding.

The next winter Bush filed -- 34 weeks late -- a required form with the SEC about his sale of Harken stock. The commission began investigating whether Bush had sold on the basis of inside information.

It ultimately concluded that while Bush knew about many of Harken's problems, he did not know of the scale of the loss that would be announced two months after his stock sale.

Bush has always maintained that he was selling the stock on goods news -- Harken's progress in lining up financing from the Bass family of Texas for a venture to drill for oil in Bahrain.

During late 1990 and 1991, Harken was also under pressure from the SEC about its accounting for the sale of Aloha.

By booking a $7.9 million profit from that sale, Harken was able to report a relatively modest loss for 1989 of $3.3 million. But when the SEC finished its study in early 1991, Harken was forced to restate its earnings, reporting that it had actually lost $12.6 million for 1989.

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