Taking business seriously
Michael Kelly
July 10, 2002
In 1986, George W. Bush, who was then (not much of) a Texas oilman, sold his not-obviously-worthwhile company, Spectrum 7 Energy, to Harken Energy Corp. for more than 200,000 shares of Harken stock, a seat on the board and a modest five-year contract as a consultant. He was also made a member of the firm's audit committee.
In 1989, Harken sold a subsidiary company, Aloha Petroleum, for $7.9 million, to a group of company insiders. The purchase was made possible by a loan from Harken to the insiders. This apparent ``phantom profit'' allowed Harken to report a modest loss for 1989 of $3.3 million. In 1991, the SEC forced Harken to restate its earnings, reporting that it had actually lost $12.6 million in 1989.
In June 1990, Bush sold 212,140 shares of his stock, for $4 a share, a total of $848,560--real money and easy money. He made the sale a few weeks before Harken finished its second quarter with a loss of $23.2 million, much worse than expected. When Harken disclosed the loss in August, its share price fell to $2.37, before climbing back up (ultimately to $8, says Bush). The SEC investigated Bush for possible insider trading, but in 1993 decided not to take any action.
On Monday, Bush, who presides over a nation increasingly worried that the entire stock market is one vast and varied fraud, held only the third news conference of his term to address what he had to have known would be repeated questions about his own brush with the market and the law. He said:
(1) ``This is old politics ... this is recycled stuff.''
(2) ``Tomorrow I'm going to talk about some specifics'' on how to deal with the ``few (corporations) that have created the stains that we must deal with."
(3) ``In the corporate world, some things aren't exactly black and white when it comes to accounting procedures."
(4) And in explaining the central question dealing with his own alleged stain, ``I still haven't figured it out completely.''
This turned out to be one of the least successful lines of defense since Al Gore hit upon the unfortunate idea of ``no controlling legal authority." As it happened, Monday was the same day that the former chief executive and the former chief financial officer of WorldCom refused to answer questions from a congressional committee on their company's overstatement of pretax profits by $3.8 billion in less than two years. Bush, fumbling around with Harken's little ol' overstatement, managed to knock the WorldCom scammers off the front page of The New York Times. Impressive.
The current issue of The Economist carries a little chart listing the precise levels of value that some of the giants of the New Economy (remember it?) managed to destroy in just six months through dedicated applications of fraud, greed and stupidity: Enron (99.9 percent); Global Crossing (99.7); Adelphia Communications (99.1); Peregrine Systems (95.8); Qwest Communications (95.6); WorldCom (93.8); Dynegy (88.9); ImClone (79.4); Tyco International (78.4).
This is not a climate in which people are clamoring for a laissez-faire SEC headed by an accounting industry insider, as is Bush's man Harvey Pitt; or an SEC with a ``zero-growth'' budget and staff reductions, as the White House proposed earlier this year; or for an MBA-bearing president dismissing suspicions of his own involvement with corporate accounting deception with a lecture that ``in the corporate world, some things aren't exactly black and white when it comes to accounting procedures.''
Bush figured this out, or someone did, sometime between his Monday news conference and his speech before business leaders in New York on Tuesday. He gave the speech he should have given months ago. He spoke of ``business leaders obstructing justice and misleading clients, falsifying records ... breaching the trust and abusing power"; of ``CEOs earning tens of millions of dollars in bonuses just before their companies go bankrupt, leaving employees and retirees and investors to suffer.'' He promised that his administration would ``use the full weight of the law'' to ``end the days of cooking the books, shading the truth.''
Good, ripe stuff, and backed up by a long, Clintonian list of specific proposals and promises: doubling jail time for financial fraudsters, creating a Justice Department ``financial crimes SWAT team,'' adding $100 million to the SEC budget; stripping corporate leaders convicted of financial crimes of their past compensation; requiring CEOs to personally certify that their company's financial statements are true; aggressively enforcing new SEC rules barring market analysts from touting companies their own firms carry as underwriting or consulting clients; reforming pension funds so that executives joined employees in being barred from trading company stock in ``blackout periods" following mergers and acquisitions, and so on.
Late, and after a terrible blunder, but the right stuff finally. And if Bush doesn't want to go the way of his father, he had better be serious about it.
©2002 Washington Post Writers Group
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