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Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: Mephisto who wrote (4238)	7/7/2002 9:34:32 PM
From: TigerPaw	Read Replies (1) \| Respond to of 5185

Bush wasn't duped by Kenney Boy, Bush taught Kenney Boy! nytimes.com Harken did badly. But for a time it concealed its failure — sustaining its stock price, as it turned out, just long enough for Mr. Bush to sell most of his stake at a large profit — with an accounting trick identical to one of the main ploys used by Enron a decade later. (Yes, Arthur Andersen was the accountant.) As I explained in my previous column, the ploy works as follows: corporate insiders create a front organization 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. That's exactly what happened at Harken.

To: Mephisto who wrote (4238)	7/26/2002 9:50:44 PM
From: Mephisto	Respond to of 5185

Papers Show Bush Played Active Role at Harken "Two weeks before selling his shares, Bush was sent a company report giving "information provided by subsidiaries regarding estimated historical and projected earnings." Earlier in the year, Bush received a letter from Harken's president warning that the company would "continue to be severely limited in our activities due to cash constraints." Thu Jul 25, 7:25 PM ET By Adam Entous WASHINGTON (Reuters) - President Bush ( news - web sites) played an active role in Harken Energy Corp's business decisions and consulted with the head of the company shortly before a controversial 1989 transaction which drew scrutiny from the Securities and Exchange Commission , documents released on Thursday show. The information raised fresh questions about the extent of Bush's role as a director at Harken more than a decade ago. Democrats have seized on the Harken transactions and Vice President Dick Cheney tenure at Halliburton Co. to paint the Republican administration as compromised by insider deals and close business connections. Given public outrage over stock market losses triggered by a wave of corporate scandals, the scrutiny could undercut Bush's public standing and hurt Republicans in the November congressional election, polls show. White House officials said Democratic attacks were politically motivated and without merit. "The career staff of the SEC reviewed all of the documents in this matter and concluded that there was no case, that the president had acted appropriately," White House spokeswoman Claire Buchan said. According to a June 15, 1989 letter from Harken President Mikel Faulkner, obtained by the nonpartisan Center for Public Integrity, Bush frequently advised Harken management on "organizational and strategic matters." In the letter, Faulkner praised Bush for "the positive image you have helped create regarding Harken Energy Corporation, the intuitive analysis you have provided on our various acquisitions, operating decisions at the board level and the personal suggestions and ideas you have shared with me over the past two years on a CEO to CEO basis." "I consider the role which you play at Harken Energy Corporation to be a very meaningful and significant role and look forward to a continuing relationship," Faulkner said in his letter to Bush. Documents show the two met just two weeks before Harken's controversial sale in 1989 of its Aloha Petroleum subsidiary, a transaction which critics have compared to the accounting irregularities at bankrupt energy trader Enron Corp. . The company's initial treatment of the Aloha sale significantly understated the losses Harken first reported for 1989. Under a subsequent agreement with the SEC, Harken restated its financial statements for 1989 and for the first nine months of 1990. As a result of accounting changes, Harken's 1989 loss widened to $12.57 million from the $3.33 million loss initially reported. Bush has denied wrongdoing, saying the Aloha matter reflected an honest disagreement over accounting. "All I can tell you is, that in the corporate world, sometimes things aren't exactly black and white when it comes to accounting procedures," he said earlier this month. In addition to the Aloha deal, Bush is under pressure to explain his sale of 212,140 shares of Harken stock at $4 per share, or $848,560, on June 22, 1990. Two months later, the company announced bigger-than-expected losses for the quarter ending June 30, and its stock price plunged. Democrats point to documents showing Bush was told that Harken faced serious cash flow problems in the weeks and months before he sold his stock holdings. Two weeks before selling his shares, Bush was sent a company report giving "information provided by subsidiaries regarding estimated historical and projected earnings." Earlier in the year, Bush received a letter from Harken's president warning that the company would "continue to be severely limited in our activities due to cash constraints." An internal memo dated May 20, 1990 also warned of the possibility that Harken would "deplete all available cash to pay payroll and other basic needs." The SEC investigated and concluded in a March 18, 1992 memorandum: "It appears that Bush did not engage in illegal insider trading because it does not appear that he possessed material nonpublic information." A week earlier, Rep. John Dingell, a Michigan Democrat who at the time chaired the House subcommittee on oversight and investigations, asked the SEC to provide his staff with a confidential briefing on its investigation of Bush's stock trades, newly-released documents show. "We are looking into the administration and enforcement of the federal securities law by the commission with respect to the prohibitions concerning insider trading," Dingell wrote. Cheney has refused to comment on the SEC's investigation of how Halliburton accounted for cost overruns. But Bush said earlier this month that he was confident the federal probe would show his vice president did nothing wrong. dailynews.yahoo.com

To: Mephisto who wrote (4238)	7/26/2002 9:56:24 PM
From: Mephisto	Respond to of 5185

The Insider Game The New York Times July 12, 2002 By PAUL KRUGMAN The current crisis in American capitalism isn't just about the specific details - about tricky accounting, stock options, loans to executives, and so on. It's about the way the game has been rigged on behalf of insiders. And the Bush administration is full of such insiders. That's why President Bush cannot get away with merely rhetorical opposition to executive wrongdoers. To give the most extreme example (so far), how can we take his moralizing seriously when Thomas White - whose division of Enron generated $500 million in phony profits, and who sold $12 million in stock just before the company collapsed - is still secretary of the Army? Yet everything Mr. Bush has said and done lately shows that he doesn't get it. Asked about the Aloha Petroleum deal at his former company Harken Energy - in which big profits were recorded on a sale that was paid for by the company itself, a transaction that obviously had no meaning except as a way to inflate reported earnings - he responded, "There was an honest difference of opinion. . . . sometimes things aren't exactly black-and-white when it comes to accounting procedures." And he still opposes both reforms that would reduce the incentives for corporate scams, such as requiring companies to count executive stock options against profits, and reforms that would make it harder to carry out such scams, such as not allowing accountants to take consulting fees from the same firms they audit. The closest thing to a substantive proposal in Mr. Bush's tough-talking, nearly content-free speech on Tuesday was his call for extra punishment for executives convicted of fraud. But that's an empty threat. In reality, top executives rarely get charged with crimes; not a single indictment has yet been brought in the Enron affair, and even "Chainsaw Al" Dunlap, a serial book-cooker, faces only a civil suit. And they almost never get convicted. Accounting issues are technical enough to confuse many juries; expensive lawyers make the most of that confusion; and if all else fails, big-name executives have friends in high places who protect them. In this as in so much of the corporate governance issue, the current wave of scandal is prefigured by President Bush's own history. An aside: Some pundits have tried to dismiss questions about Mr. Bush's business career as unfair - it was long ago, and hence irrelevant. Yet many of these same pundits thought it was perfectly appropriate to spend seven years and $70 million investigating a failed land deal that was even further in Bill Clinton's past. And if they want something more recent, how about reporting on the story of Mr. Bush's extraordinarily lucrative investment in the Texas Rangers, which became so profitable because of a highly incestuous web of public policy and private deals? As in the case of Harken, no hard work is necessary; Joe Conason laid it all out in Harper's almost two years ago. But the Harken story still has more to teach us, because the S.E.C. investigation into Mr. Bush's stock sale is a perfect illustration of why his tough talk won't scare well-connected malefactors. Mr. Bush claims that he was "vetted" by the S.E.C. In fact, the agency's investigation was peculiarly perfunctory. It somehow decided that Mr. Bush's perfectly timed stock sale did not reflect inside information without interviewing him, or any other members of Harken's board. Maybe top officials at the S.E.C. felt they already knew enough about Mr. Bush: his father, the president, had appointed a good friend as S.E.C. chairman. And the general counsel, who would normally make decisions about legal action, had previously been George W. Bush's personal lawyer - he negotiated the purchase of the Texas Rangers. I am not making this up. Most corporate wrongdoers won't be quite as well connected as the young Mr. Bush; but like him, they will expect, and probably receive, kid-glove treatment. In an interesting parallel, today's S.E.C., which claims to be investigating the highly questionable accounting at Halliburton that turned a loss into a reported profit, has yet to interview the C.E.O. at the time - Dick Cheney. The bottom line is that in the last week any hopes you might have had that Mr. Bush would make a break from his past and champion desperately needed corporate reform have been dashed. Mr. Bush is not a real reformer; he just plays one on TV. nytimes.com Copyright 2002 The New York Times Company

To: Mephisto who wrote (4238)	7/26/2002 10:10:48 PM
From: Mephisto	Respond to of 5185

Steps to Wealth The New York Times July 16, 2002 By PAUL KRUGMAN W hy are George W. Bush's business dealings relevant? Given that his aides tout his "character," the public deserves to know that he became wealthy entirely through patronage and connections. But more important, those dealings foreshadow many characteristics of his administration, such as its obsession with secrecy and its intermingling of public policy with private interest. As the unanswered questions about Harken Energy pile up - what's in those documents the White House won't release? Who was the mystery buyer of Mr. Bush's stock? - let me now turn to how Mr. Bush, who got by with a lot of help from his friends in the 1980's, became wealthy in the 1990's. He invested $606,000 as part of a syndicate that bought the Texas Rangers baseball team in 1989 - borrowing the money and repaying the loan with the proceeds from his Harken stock sale - then saw that grow to $14.9 million over the next nine years. What made his investment so successful? First, the city of Arlington built the Rangers a new stadium, on terms extraordinarily favorable to Mr. Bush's syndicate, eventually subsidizing Mr. Bush and his partners with more than $150 million in taxpayer money. The city was obliged to raise taxes substantially as a result. Soon after the stadium was completed, Mr. Bush ran successfully for governor of Texas on the theme of self-reliance rather than reliance on government. Mr. Bush's syndicate eventually resold the Rangers, for triple the original price. The price-is-no-object buyer was a deal maker named Tom Hicks. And thereby hangs a tale. The University of Texas, though a state institution, has a large endowment. As governor, Mr. Bush changed the rules governing that endowment, eliminating the requirements to disclose "all details concerning the investments made and income realized," and to have "a well-recognized performance measurement service" assess investment results. That is, government officials no longer had to tell the public what they were doing with public money, or allow an independent performance assessment. Then Mr. Bush "privatized" (his term) $9 billion in university assets, transferring them to a nonprofit corporation known as Utimco that could make investment decisions behind closed doors. In effect, the money was put under the control of Utimco's chairman: Tom Hicks. Under his direction, at least $450 million was invested in private funds managed by Mr. Hicks's business associates and major Republican Party donors. The managers of such funds earn big fees. Due to Mr. Bush's change in the rules, these investments were hidden from public view; an employee of Utimco who alerted university auditors was summarily fired. Even now, it's hard to find out how these investments turned out, though they seem to have done quite badly. Eventually Mr. Hicks's investment style created a public furor, and he did not seek to retain his position at Utimco when his term expired in 1999. One last item: Mr. Bush, who put up 1.8 percent of the Rangers syndicate's original capital, was entitled to about $2.3 million from that sale. But his partners voluntarily gave up some of their share, and Mr. Bush received 12 percent of the proceeds - $14.9 million. So a group of businessmen, presumably with some interest in government decisions, gave a sitting governor a $12 million gift. Shouldn't that have raised a few eyebrows? All of this showed Mr. Bush's characteristic style. First there's the penchant for secrecy, for denying the public information about decisions taken in its name. So it's no surprise that the proposed Homeland Security Department will be exempt from the Freedom of Information Act and from whistle-blower protection. Then there's the conversion of institutions traditionally insulated from politics into tools for rewarding your friends and reinforcing your political control. Yesterday the University of Texas endowment; today the Federal Energy Regulatory Commission; tomorrow those Social Security "personal accounts"? Finally, there's the indifference to conflicts of interest. In Austin, Governor Bush saw nothing wrong with profiting personally from a deal with Tom Hicks; in Washington, he sees nothing wrong with having the Pentagon sign what look like sweetheart deals with Dick Cheney's former employer Halliburton. So the style of a future Bush administration was easily predictable, given Mr. Bush's career history. nytimes.com Copyright 2002 The New York Times Company