Bush Violated Security Laws Four Times, SEC Report Says
By Knut Royce
public-i.org
(Washington, Oct. 4) George W. Bush violated federal securities laws at least
four times when he was a director of a Texas oil firm in the late 1980s and early
1990s, according to an internal government report.
The document was prepared by the Securities and Exchange
Commission in 1991 during its well-publicized investigation
into whether Bush had benefited from insider information
when he sold Harken Energy Corp. stock before its value
plummeted, and then failed to promptly report the transaction
to the SEC in violation of federal law. Bush's stake in Harken
helped make him a multimillionaire.
The internal SEC memorandum,
prepared by the commission's enforcement division and
obtained by The Public i from sources, discloses what
was previously not known--that Bush also had been
tardy in reporting three other transactions involving stock
in Harken, on whose board he sat as director.
(This report was prepared in collaboration with Talk
magazine, whose article, "George W. Bush . . . And the
Horse He Rode In On," appears in the magazine's November issue.)
The Securities and Exchange Act of 1934 requires company insiders to disclose
publicly, in a report called a Form 4, all stock purchases and sales by the 10th
day of the month following the transaction.
A former SEC official who asked not to be further identified said that he could
recall at least one instance-involving the late stock manipulator Alexander
Guterma, who began a three-year prison term in 1960 for a variety of securities
offenses - where a prison sentence was imposed for failure to report a
transaction. More commonly, he said, the SEC has obtained court injunctions
barring frequent violators from repeating the offense. But he said that instances
of insiders filing late disclosures were "fairly common" and that the SEC, with a
limited staff, seldom pursued those cases.
The filing requirements are not a trivial matter. Insider transactions can
sometimes alert outside investors that corporate officers or directors are
nervous about the company's earnings or growth. They can also alert the SEC
that an officer or director benefited from information that only an insider could
have known, a violation of securities laws.
Bush, the SEC memo noted,
had on four occasions filed
late Form 4s involving Harken
stock worth more than $1
million. The tardiest-34
weeks late-was his Form 4
report disclosing that he had
sold $848,560 of Harken
stock on June 22, 1990, just
weeks before the company
filed a quarterly report
revealing that it had hemorrhaged $23 million during
that period. Bush had sold his stock for $4 a share. By
the end of the year it was trading not much above $1.
The Public i in April reported that Harken had been
bleeding profusely in 1989, before Bush sold his stock,
but masked the losses by claiming in its annual report
a capital gain on the sale of a subsidiary even though
the transaction was through a seller-financed loan.
Months after Bush sold the stock, the SEC directed
Harken to recast its balance sheet to reflect a net loss
of $12,566,000 for 1989.
The SEC did not press charges against Bush, even
though the tardy disclosures had become something of
a pattern, according to the memo, which was drafted for
the files on April 9, 1991, by three enforcement
investigators.
"The SEC never raised any missed deadlines with us,"
Bush's attorney in the matter, Robert Jordan, told Talk
magazine, which analyzed the transactions in
cooperation with The Public i. "It was either a trivial
matter to the SEC, or everything was fine."
That indeed appears to have been the SEC's conclusion
after it learned that between 1987 and 1989, Bush was
about three months late on three other occasions in
reporting the acquisition of Harken stock, including the
shares he eventually sold in June 1990, the memo
discloses.
Yet the memo also makes clear that Bush was aware of
the requirement to report insider transactions. On
June 25, 1984, the document reveals, he was timely in
filing a report disclosing that he was a director of Silver
Screen Management Inc., the managing partner of a
movie production company, Silver Screen Partners; was
prompt in reporting on Aug. 31, 1989, that he owned
shares in Tom Brown, Inc., an energy company on
whose board he served, and was only three days late in
reporting on Jan. 6, 1984, that he owned stock in
Lucky Chance Mining, where he also was a director.
In its book The Buying of the President 2000, the
Center for Public Integrity reported that Bush had
acquired the stock he sold in 1990 in a deal that made
little economic sense. Bush had been chief executive
officer of a tiny money-losing energy company called
Spectrum 7. Harken acquired the firm in 1986 from
Bush and two partners for $2 million in stock despite
the fact that Spectrum 7 had posted losses of $400,000
six months before the purchase and carried a debt of
$3 million.
"His name was George Bush," Phil Kendrick, Harken's
founder, said of the purchase. "That was worth the
money they paid him."
At about the same time Bush unloaded his Harken
stock in 1990, he also sold nearly $700,000 worth of
shares in four other companies. His accountant,
according to a March 1992 SEC memo to the file, had
been "bugging him to get liquid." About $600,000 of
the proceeds, the memo noted, went to pay off a bank
loan he had taken a year earlier for his minority stake
in the Texas Rangers baseball team. In 1998 Bush's
trust sold that stake for $16 million, catapulting him to
the rank of multimillionaire. |
