Bush Linked to Harken Off-the-Books Deal
President Did Not Profit; White House Says Venture
Can't Be Compared to Enron
washingtonpost.com
Bush Linked to Harken Off-the-Books Deal
President Did Not Profit; White House Says Venture Can't Be Compared to Enron
By Dana Milbank
Washington Post Staff Writer
Thursday, October 10, 2002; Page A06
When President Bush served as a director of an energy company
12 years ago, he approved the creation of an off-balance-sheet partnership
that reduced the company's debts and improved earnings in a transaction
similar to those that led to the collapse of Enron Corp.
As a director of Harken Energy Corp. in 1990, Bush, who had
sold his own oil business to Harken and was retained as a consultant, made
the motion at a board meeting to negotiate the transfer of struggling Harken
assets into a partnership with Harvard University's investment
arm, Harvard Management Co. Inc., documents indicate.
Unlike Enron, which used partnerships to conceal debts and loss-making
operations, Harken's partnership followed accounting rules and
was disclosed to investors and regulators. Bush did not profit personally
from the transaction because he had sold most of his shares earlier.
"There is simply no comparison" to Enron, said White House spokesman
Scott McClellan. "It was disclosed to investors and it conformed to
accounting rules."
But news of the partnership, first reported yesterday in the Wall Street Journal
and the Boston Globe after documents were gathered by a
group called HarvardWatch that monitors Harvard investments,
provides an unwelcome link between Bush and the accounting scandals that
have spooked investor confidence this year. After creation of the partnership,
depressed Harken shares enjoyed a brief renaissance as the
company's financial situation appeared to improve, in part because
of the removal of $20 million in debt.
According to board minutes of Aug. 29, 1990, obtained by HarvardWatch,
Bush made the motion, which was approved, to "proceed in
negotiations . . . toward formulating a letter of intent" creating "a new entity."
The entity, which became the Harken Anadarko Partnership,
included oil and gas properties to be managed by Harken.
Harvard Management, which invests the university's endowment,
was a major investor in Harken, at one point owning 30 percent of its
shares. Its investments began at about the time that Bush, the son
of the then vice president, became a director of the company in 1986.
According to the Journal, Harvard's support of Harken influenced A. Robert Abboud,
then head of First City Bancorp, to take over another
bank's loans to Harken in 1990 and rescue Harken from default.
Abboud had been a prominent supporter of Saddam Hussein's government
in Iraq before the Persian Gulf War. Abboud also had ties to
President George H.W. Bush, the current president's father.
McClellan, the White House spokesman, said the ties between
Harvard Management and Harken had nothing to do with the Bush
connections because talks about a possible Harvard investment in Harken
began before Bush became a director. McClellan said the
off-balance-sheet partnership was proposed by Harvard, and the
university investors "set the terms of the partnership."
Harvard said in a statement yesterday that its investments in Harken
were not inappropriate" and had nothing to do with Bush connections.
"The role of the Harvard Management Company is not to curry political
favor but to invest well on Harvard's behalf," the statement said.
A phone call to Harken officials seeking comment was not returned.
The partnership significantly improved Harken's fortunes. Its shares,
which had fallen to $1.25 in late 1990 from an earlier high of $6,
climbed to $8 in 1991. The stock improvement came as Harken's debt
and interest expenses fell because of the partnership. Harvard
benefited from the higher stock price by selling 1.6 million shares
between September 1991 and October 1992, HarvardWatch said.
By December 1992, Harvard Management had bought all of Harken's
interest in the partnership. Harvard sold the venture in 1993 to Cabot
Oil and Gas Corp. for stock valued at $34.6 million, HarvardWatch said.
The partnership "bears striking resemblance to the partnerships Bush has
condemned at Enron," HarvardWatch argued. "It was controlled
by and transparent only to Harken insiders, and likely was used to
artificially brighten the company's business prospects."
© 2002 The Washington Post Company
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