07/09/2002 Archived Entry: "Harken stains Bush"

At a news conference Monday, Bush was bombarded by questions about his record as a director at Harken Energy Corp. in the early 1990s. The SEC forced the company to amend its books to reflect millions of dollars in losses that had been hidden by the sale of a subsidiary to a group of insiders. As Bush described it Monday, when the SEC cried foul on Harken's sale of a subsidiary to a partnership of its own executives, which had the effect of concealing $10 million in losses, "There was an honest difference of opinion as to how to account for a complicated transaction."

Asked if he, as a member of Harken's board at the time, approved of the questionable transaction, Bush shrugged. "You need to look back on the directors' minutes," said Bush, who was on the company's audit committee.

So did Bush approve of this accounting scheme as a member of the audit committee? Paul Krugman, in How Bush firm used accounting scam, explains how the deal works pretty good:

The ploy works as follows: corporate insiders create a front organisation that seems independent but is really under their control. This front buys some of the firm's assets at unrealistically high prices, creating a phantom profit that inflates the stock price, allowing the executives to cash in their stock.

A group of insiders, using money borrowed from Harken itself, paid an exorbitant price for a Harken subsidiary, Aloha Petroleum. That created a $10m phantom profit, which hid three-quarters of the company's losses in 1989. White House aides have played down the significance of this manoeuvre, saying $10m isn't much, compared with recent scandals. Indeed, it's a small frac tion of the apparent profits Halliburton created through a sudden change in accounting procedures during Dick Cheney's tenure as chief executive. But for Harken's stock price - and hence for Mr Bush's personal wealth - this accounting trickery made all the difference.

Mr Bush was on the company's audit committee, as well as on a special restructuring committee; back in 1994, another member of both committees, Stuart Watson, assured reporters that he and Mr Bush were constantly made aware of the company's finances. If Mr Bush didn't know about the Aloha manoeuvre, he was a very negligent director.

So what are the connections with this group of insiders that created a phantom profit and Bush?

Q: Mr. President, if I may ask you, right before the accounting -- the sale itself of the subsidiary, did you favor that? Were you involved ...

BUSH: You need to look back on the director's minutes, but all I can tell you is is that in the corporate world sometimes things aren't exactly black and white when it comes to accounting procedures, and the SEC's job is to look and is to determine whether or not the decision by the auditors was the appropriate decision.

What are the chances those SEC files being opened, "The president would do well to ask the SEC to release the file . . . let everybody see just what is there," Mr Daschle said on the CBS News programme Face the Nation.

Or, Is The Harken Oil Scandal Dead In The Water? Hey, I was mildly surprised at the coverage the scam actually has gotten to date. Some activists have too high of hopes for the lemmings amongst us. The crux of the matter here is that Bush is not taking responsibility for his own actions, as Dikinis points out, Bush and Harken Energy: The Dog Ate My Homework? federal law mandates that it is the "individual director" who, ultimately, is responsible for SEC Form-4 filings.

I like The Note's summary: Basically, we've gone now from "the SEC ate my homework," to "my lawyers ate my homework," to "despite my vast staff, and the knowledge that there is press interest in this matter, I stand before you today to tell you I don't know who ate my homework."