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CHAPTER 1

CHAPTER 1

 

HARKEN ENERGY AND THE SEC: BUSH CHANGES HIS STORY

 

 

George W. Bush’s first two oil ventures – Arbusto Oil and Spectrum 7 -- turned out to be failures. And so he called on wealthy Bush family friends to invest in Harken Energy, which likewise, took a downward spiral. As the stock plummeted in 1991, Bush dumped nearly $1 million in shares to enable him to invest as a partner in the Texas Rangers major league baseball franchise.

In 1983, Harken Energy Corporation absorbed Spectrum 7's $3 million worth of debt and purchased its 180 well process. Bush received $600,000 worth of Harken Energy stock in return for his 14.9 percent stake in Spectrum 7. As a consultant, Bush was paid $80,000. In 1989, it was increased to $120,000 annually, and he was allowed to buy Harken Energy stock at 40 percent below face value as a member of the company's board of directors. Bush received 212,152 shares of Harken Energy stock worth $530,380 and was given stock worth about $500,000 and a $120,000 consulting fee. Harken Energy's partners received a total of $2 million in the company's stock. Within three years Bush owned 345,426 shares, or 1.1 percent of the company's common stock.

Othman was on the Harken Energy's board, representing Sheik Abdullah Bakhsh of Saudi Arabia, a 17.6 percent Harken shareholder. On the eve of an American war over oil in the Middle East, Othman was invited to the White House with a small group of Arab Americans who were able to make their opinions known to the president of the United States. In June 1990 he sold two-thirds of the Harken Energy stock he had acquired in the Spectrum 7 deal at $4 per share, for a total of $848,560 -- $318,430 more than it was worth when he got it. Two months later, Iraq invaded Kuwait and Harken's stock dropped to $3 a share. It later fell to $2.37.

Harken Energy was a Persian Gulf oil company which was formed in 1973, and ten years later it was sold to an investment firm led by New York attorney Alan Quasha, a partner in the firm of Quasha, Wessely & Schneider. Quasha became a director and chairman of the board.

By 1988, that equity in Harken Energy reached $70 million. William Quasha, his father and a Filipino banker, had been a strong supporter of President Ferdinand Marcos. He also had advised top officials in Australia's Nugan Hand Bank, a CIA operation, which was involved in drug trafficking operations which originated in Southeast Asia during the Vietnam War.

Jackson Stephens was a member of President Bush's exclusive "Team 100" -- a group of 249 wealthy individuals who contributed at least $100,000 each to his presidential campaign committee. In 1987 Stephens, who had contributed $100,000 to the Reagan-Bush campaign in 1980 and another $100,000 to the Bush dinner committee in 1990, made arrangements with Union Bank of Switzerland (UBS) to provide $25 million to Harken Energy in return for a stock interest in that company. As part of the deal, Sheikh Abdullah Bakhsh, a Saudi real estate billionaire, joined Harken Energy's board as a major investor.

In addition, Stephens, UBS, and Bakhsh had ties to Bank of Commerce and Credit International (BCCI). Only one year before the 1988 election, Stephens was owner of a Little Rock brokerage firm which underwrote Harken Energy's $25 million stock offering. Stephens Incorporated placed the Harken Energy stock offering with the Nugan Hand Bank and the London subsidiary of Union Bank, the later of which later was part of a scandal that resulted in the downfall of the Australian Labor government in 1976. The Union Bank was partially owned by Bert Lance, former adviser to President Carter.

Stephens also helped BCCI in 1978 by arranging the sale of National Bank of Georgia to Ghaith Pharoan, one of its executives. During the next decade, the Union Bank assisted BCCI in avoiding taxes by moving cash from its bank in Noriega's Panama to other locations throughout the world. For example 325 tons of Philippine gold was hidden in other world banks.

Bush loosened his ties with Harken Energy in 1988. He moved to Washington D.C. to help in his father's presidential campaign. Harken Energy hired him as a consultant and gave him contracts for $42,000 to $120,000 in each of the next five years. He remained silent on Harken Energy's ventures, never questioning any of its past deals. Harken Oil paid him $80,000 a year as a consultant. In 1989 his salary was increased to $120,000 and years later it was dropped to $45,000.

In 1989, Harken Energy suffered losses of over $12 million against revenues of $1 billion. Yet Harken Energy continued to pay dividends to upper management. Bush received stock options worth $231,250 , and the next year Harkin Energy awarded three more executives six figure bonuses. Yet the company lost $40 million and shareholder equity plunged $3 million which was down from $70 million in 1988.

Energy analyst Charles Strain told Forbes magazine that in January 1990 the Bahrain government negotiated with Amoco to drill for oil in the Persian Gulf. At that time, Harken Energy's management were threatening to foreclose when it suddenly acquired rights to drill off the coast of Bahrain. When Bahrain broke off talks with Amoco, Harken Energy hoped to expand their business by landing a contract with the Bahraini government. However, experts knew that Harken Energy, a small company which never drilled for oil elsewhere in the world, had no chance to obtain a contract with Bahrain. In addition no American oil company had ever signed a contract to drill in the Persian Gulf. (Covert Action Quarterly, Winter 1998 edition)

But Jackson Stephens' bankers, David and Mike Edwards, made arrangements with a London subsidiary of Union Bank of Switzerland (UBS) to provide the needed funds to Harken Energy in return for a stock interest in Bush's corporation. As part of the deal brokered by Stephens, Sheik Abdullah Bakhsh, a financier from Saudi Arabia, joined Harken Energy on its board of directors. Bakhsh had connections with Bank of Credit and Commerce International (BCCI) which was heavily involved in money laundering during the Contra war. BCCI was frequently referred to as the "Bank of Crooks and Minerals." BCCI was also involved in Ferdinand Marcos' illegal transportation of 325 ons of gold out of the Philippines when he fled to Hawaii.

After Bahrain terminated its proposed contract with ARAMCO, its energy minister contacted Yousuf Shirawi who was a colleague of Houston oilman Michael Ameen who had spent 22 years with ARAMCO and another 13 years with Mobil oil. As head of Mobil Oil's Middle Eastern operations, Ameen recommended that Harken Energy be given rights to drill off the coast of Bahrain. They also urged Ameen to contact the Bahraini government. Ameen told Charles Hostler, the new ambassador to Bahrain, that he was a major contributor to the Republican Party, although Hostler claimed that he never had discussed Harken Energy with the Bahraini regime. Meanwhile, a new American ambassador to Bahrain, Charles Hostler, who had contributed $100,000 to the Republican Party, arrived in Bahrain. Ameen met with Hostler who was instrumental in giving Harken Energy a contract to drill off its coast. Later, Ameen was paid a $100,000 finder's fee.

Since Harken Energy lacked the resources to explore off the coast of Bahrain, Bush was instrumental in assembling a partnership. So he hired the billionaire Bass family of Fort Worth. They had close ties to the Republican Party, contributing over $200,000 to the RNC in the late 1980s and early 1990s. Robert Bass was a member of President Bush's Team 100 and, along with his family members, contributed $226,000 to President Bush's campaign beginning in 1988. The Bass brothers agreed to provide $25 million for seismic data and drilling of the first three exploratory wells in Bahrain in exchange for 50 percent of Harken Energy's profits.

But Bass Enterprises Production Company immediately found itself in a quandary. First, a number of people connected to BCCI also had links to Harken Energy. Second, political instability threatened American corporations in the Middle East, particularly as a result of the Iran-Iraq 10 year war. This tension was further heightened by growing tensions between the United States and the Baghdad regime. On May 16, 1990, National Security adviser Brent Scowcroft received a classified memo from the State Department: "Attached is a paper containing a list of options for responding to recent actions and statements by the Government of Iraq. ... We ask that you pass this paper to (CIA Director) Robert Gates for his review." The State Department document suggested: "Ban oil purchases: The largest benefit Iraq receives from the US is through our oil purchases. ... Pro -- A total ban on oil purchases would have some short term impact. Con -- Such action might also have an impact on United States oil prices." Bush merely claimed that it was coincidental that his firm received the contract from the Bahraini government when his father was president of the United States.

At the time Harken Energy signed its contract with the Bahrani government, the State Department painted a grim picture of oil production in the Persian Gulf area. Furthermore, officials at Harken Energy received news of the company's rapidly deteriorating financial condition. And the fact that Harken was not producing oil at the time further complicated the company's economic problems. Nonetheless, the contract was signed. Bakhsh ended up with 10 percent in Harken Energy as part of Stephens' deal. Harken Energy placed Talat Othman on its board of directors. Subsequently, Othman and 15 other Arabs met with President Bush, White House chief-of-staff John Sununu, and National Security advisor Brent Scowcroft three times in 1990 to discuss Middle East policy.

Four months later, the State Department sent a secret report to Scowcroft, warning that Saddam Hussein may be invading Kuwait. Bush’s Bahraini contract was jeopardized even before its first well was scheduled to be drilled until early 1991. In addition Harken Energy owed $150 million to banks and other creditors. Harken Energy was on the verge of collapsing.

Four months later, the State Department sent a secret report to Scowcroft, warning that Saddam Hussein may be invading Kuwait. Bush’s Bahraini contract was jeopardized even before its first well was scheduled to be drilled until early 1991. In addition, Harken Energy owed $150 million to banks and other creditors. Harken Energy was on the verge of collapsing.

According to Stephen Pizzo (Bush Family Values), a May 16, 2000 secret document read, “Attached is a paper containing a list of options for responding to recent actions and statements by the Government of Iraq. ...We ask that you pass this paper to Robert Gates (CIA) for his review.

Under “options” the memo suggested, “Ban Oil Purchases: The largest benefit Iraq receives from the US is through our oil purchases … PRO -- A total ban on oil purchases would have some short-term impact. CON --- Such action might also have an impact on US Oil prices.

Pizzo wrote, “Oil companies had learned, during the years of the long Iran-Iraq war, that trouble in the gulf hurts companies with oil interests because, for one thing, at the first sound of a rifle shot in the gulf region, Lloyds of London jacks up insurance rates on oil tankers and company installations. The “war-time” rates are very high and cut deeply into company profits and investor confidence. If things really get out of hand, pipelines are destroyed and waterways are mined.”

The secret memo anticipated tumbling shares of Harken Energy stock. To compound matters, that same month, Harken Energy’s own financial advisers at Smith Barney produced a hand-wringing report voicing alarm at the company’s rapidly deteriorating financial condition. A former company official told Mother Jones that Harken Energy owed more than $150 million to banks and other creditors at the time. As a member of the restructuring committee, Bush could not have been ignorant of the report, since the board had met in May and worked directly with the Smith Barney consultants. (Bush Family Values, Stephen Pizzo; Mother Jones, March/April 1992)

During the summer of 2002, both Bush and a retired Harken Energy executive claimed that he opposed the company’s drilling venture off the coast of Bahrain -- which included the creation of a Cayman Islands tax-sheltered subsidiary. But according to the Los Angeles Times (August 1, 2002), a document from 1991 showed that director Bush voted in favor of the Bahrain deal.

When asked about the Harken Energy subsidiary in July 2002, Bush said he had opposed an “arrangement with Bahrain, a drilling venture there.” Backing the president, White House Press Secretary Ari Fleischer denied that the subsidiary was set up to avoid taxes. “Any oil that was produced in Bahrain and sold in the United States would have been taxable in the United States,” Fleischer said. (Los Angeles Times, August 1, 2002)

BUSH’S STORY IN 1991. Over the course of the following 34 weeks, Bush failed to file a disclosure with the SEC. Bush maintained that he had filed the missing disclosure form. He waited eight months before notifying the SEC of the sale of Harken Energy, missing the filing deadline for reporting insider trades. He claimed that the SEC fully investigated his stock transaction in October 1994, and he boasted that he was exonerated. However, the SEC never determined who purchased Bush’s stock. Robert Jordan, Bush’s legal counsel, defended him by arguing that he had not known about the impending loss when he sold his stock and that he had thought he was selling on the news that the Bahrain contract would bolster stock prices.

BUSH’S STORY IN 2002. But in the midst of reports of corporate fraud by such companies as Enron, Arthur Andersen, and WorldCom, Bush changed his story on his failure to file timely disclosures to the SEC. Even though the president believed that corporations regulate themselves, he was forced to tell the public that some kind of government oversight was a necessity. Bush’s delayed filing with the SEC was at odds with his proposal as president that such trades should be disclosed within two days to prevent executives from profiting from information that shareholders did not have.

On July 4, 2002, Bush changed his story. He announced that the 34-week delay in his filing on the SEC was a result of a “mix-up” by Harken Energy’s lawyers. Bush said there was a “clerical mistake” by his lawyers for failing to disclose an $848,560 stock sale in a timely manner

In mid-2002, accusations were made that several corporations -- primarily Enron, Arther Anderse, and WorldCom -- had engaged in fraudulent activities. So President Bush challenged corporate leaders to engage in ethical business practices. Just days later, Bush was hit by another bombshell when it was revealed that, as a corporate director at Harken Energy in the late 1980s, he received two low-interest loans to buy stock from Harken Energy in the late 1980s. He then benefited from the company’s relaxation of the terms of one loan in 1989. It was this type of deal that, as president, he told corporate leaders to stay away from. In his famous Wall Street address, Bush called on corporate directors to “put an end to all company loans to corporate officers.” (New York Times, July 11, 2002)

The loans in the amount of $180,375 allowed Bush to acquire 105,000 shares of Harken Energy stock -- 80,000 in late 1986 and 25,000 in 1988 -- through a stock option program that was available to top corporate officials. Harken Energy did not require repayment of the principal for eight years and charged 5 percent annual interest. The prime rate in December 1986, when Bush received the initial loan, was 7.5 percent.

Bush ultimately returned the stock he acquired this way, canceling the loans. Such loans were not uncommon among companies seeking to promote long-term shareholding among executives and directors.

To finance the stock purchase in 1986, Bush originally had to assume personal liability for repayment. He pledged as collateral not only the 80,000 shares he got through the options program but also other Harken Energy shares he had gotten for selling his struggling energy company to Harken Energy earlier that year.

In 1989, Harken Energy relaxed the terms of the 1986 loan to remove any “personal liability to yourself,” the company's lawyer wrote to Bush on October 5 of that year. The change had the effect of freeing Bush’s original 212,000-share block of Harken Energy stock, which he sold the next year.

That sale, in June 1990, brought him $848,000, which he used to pay off a $500,000 loan he had taken out to help him buy into the Texas Rangers baseball team, a deal that helped secure his own personal fortune and propel him into Texas politics.

Dan Bartlett, the White House communications director, tried to justify Bush’s behavior, saying that he was not being hypocritical in calling for an end to loans of a kind he once received. He said that, while such loans had been properly used by many companies to encourage long-term share ownership, they had in some cases recently been abused.

Bartlett also said that Bush never profited from the Harken Energy loans because after the company changed its stock option program, Bush returned the shares in exchange for new options that he never exercised. Bartlett said, “President Bush looked at these loans, and the president felt the best way to do it was to draw a bright line; the best way to handle these loans going forward is through a bank.”

SIMILARITIES BETWEEN HARKEN ENERGY IN 1990 AND ENRON IN 2001. As a director of Harken Energy, Bush approved the creation of an off-balance-sheet partnership that reduced the company’s debts and improved earnings in a transaction that was similar to the accounting system that led to the collapse of Enron in 2001. 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.” (Washington Post, October 10, 2002)

In 1990, Bush made the motion at a board meeting to negotiate the transfer of struggling Harken Energy assets into a partnership with Harvard University’s investment arm, Harvard Management Company Incorporated. Unlike Enron, which used partnerships to conceal debts and loss-making operations, Harken Energy’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. (Washington Post, October 10, 2002)

The partnership significantly improved Harken Energy’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 Energy’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, according to HarvardWatch.

By December 1992, Harvard Management had bought all of Harken Energy’s interest in the partnership. Harvard sold the venture in 1993 to Cabot Oil and Gas Corporation for stock valued at $34.6 million, HarvardWatch said.

After creation of the partnership, depressed Harken Energy shares enjoyed a brief increase 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 August 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 Energy.

Harvard Management, which invested the university’s endowment, was a major investor in Harken Energy, 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 Energy influenced A. Robert Abboud, then head of First City Bancorp, to take over another bank'’ loans to Harken Energy in 1990 and rescue Bush’s company 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 the elder President George Herbert Bush. (Washington Post, October 10, 2002)

INVESTIGATED BY THE SECURITIES AND EXCHANGE COMMISSION. Bush quickly reacted to the negative news. One month later -- on June 22, 1990 -- he unloaded 212,140 shares of Harken Energy stock, a majority of his portfolio. The transaction came a week before the end of the quarter when Harken Energy announced a loss of $23.2 million. Bush cashed in for $4.12 a share, selling his 212,140 shares -- two-thirds of his total holdings -- for $848,560. A week later, the stock plummeted to $2.37 a share. He was able to pay off a $500,000 bank loan which he had used to buy his share of the Texas Rangers in 1989. Bush made an astonishing 200 percent profit. Eight days later the company finished the second quarter with a spectacular loss of $23.2 million -- more than eight times the loss it showed for the second quarter of 1989.

Over the following six months, Harken Energy’s stock lost 60 percent. Bush may have violated Securities and Exchange Commission (SEC) regulations which required insider stock deals to be reported promptly. He did not file the stock sale with the SEC until the first week of March 1991. Later that year, the SEC investigated Bush’s transaction for the possibility of insider trading. Bush maintained that he had filed the missing disclosure form. He waited eight months before notifying the SEC of the sale of Harken Energy, missing the filing deadline for reporting insider trades. He claimed that the SEC fully investigated his stock transaction in October 1994, and he boasted that he was exonerated. However, the SEC never determined who purchased Bush’s stock. Robert Jordan, Bush’s legal counsel, defended him by arguing that he had not known about the impending loss when he sold his stock and that he had thought he was selling on the news that the Bahrain contract would bolster stock prices.

Over the following six months, Harken Energy’s stock lost 60 percent. Bush may have violated Securities and Exchange Commission (SEC) regulations which required insider stock deals to be reported promptly. He did not file the stock sale with the SEC until eight months after he had sold the stock.

The SEC launched a probe of Bush’s sale of his Harken Energy stock the day after the Wall Street Journal (April 4, 1991) reported that he had been eight months late in filing the required insider-trading form with the regulators. This investigation was separate from the earlier division of corporation finance probe that resulted in Harken Energy’s recasting its 1989 balance sheet.

Bush maintained that he had filed the missing disclosure form. He waited eight months before notifying the SEC of the sale of Harken Energy, missing the filing deadline for reporting insider trades. He claimed that the SEC fully investigated his stock transaction in October 1994, and he boasted that he was exonerated. However, the SEC never determined who purchased Bush’s stock. Robert Jordan, Bush’s legal counsel, defended him by arguing that he had not known about the impending loss when he sold his stock and that he had thought he was selling on the news that the Bahrain contract would bolster stock prices.

While discovering public documents dating back to the late 1980s, The Public i (June 30, 2002) discovered that Harken Energy effectively concealed its dismal financial status before Bush dumped his stock in 1990. A year before, the company sold a retail subsidiary through a seller-financed loan but recorded the transaction in its 1989 balance sheet as a cash sale.

The SEC records suggested that Bush -- as one of Harken Energy’s director and a member of its audit committee -- may have been unaware of the company’s questionable accounting methods. Nevertheless, SEC accountants hinted of fraud when they discovered Harken Energy had recorded the 1989 sale as a capital gain.

To further indicate that Bush may have engaged in dubious activities, two and a half months before he sold his Harken Energy stock, he signed a letter promising to hold onto the shares for at least six months, internal company documents show. Bush signed the letter on April 3, 1990. The letter on April 2 from Harken secretary Larry Cummings read in part, “Dear George. As you are aware, Harken is contemplating a public common stock offering. In connection with such offering, the underwriters have requested that Harken obtain consents for all directors, officers and other affiliates to agree to not sell ... for a period of 180 days from the date our proposed public offering goes effective.” Bush signed and returned the letter the next day. (Associated Press, July15, 2002)

According to attorney Thomas Ajamie, “Bush’s signing of the April 2, 1990, lockup agreement undercuts his lawyers’ explanation for the early sale of his Harken stock. If his accountant told him that he needed to sell stock to pay a debt obligation for his interest in the Texas Rangers, it does not make sense that he would subsequently sign an agreement promising not to sell his shares of Harken stock for six months.” (Associated Press, July15, 2002)

In 2002, The Public i (June 30, 2002) could not determine how much Bush made on the stock sale. But in 2001 in a financial disclosure, Bush said he realized a capital gain, or profit, of as much as $1 million on the sale. Bush spokesman Scott McClellan refused to explain more, except his investment had been in a blind trust.

The Public I launched an investigation of Bush’s windfall in Harken Energy stock. The investigative journal could not determine how much Bush made on the stock sale. But in 2001 in a financial disclosure, Bush said he realized a capital gain, or profit, of as much as $1 million on the sale. Bush spokesman Scott McClellan refused to explain more, except his investment had been in a blind trust.

Months later, the SEC directed Harken Energy to reevaluate its 1989 annual report and to publicly disclose the extent of its losses that year. According to The Public i, it was unclear how a timely acknowledgement of the true losses would have affected the value of the stock when Bush sold. At that time, Harken Energy reported for the first time in a quarterly report that it was losing a lot of money, and the stock dropped to $2.37 a share. By the end of the year, it was trading at about $1.

Six weeks before Harken Energy publicly announced in January 1991 that it was revising its 1989 losses upward, the SEC asked the company to explain whether the sale of Aloha to Advance was contemplated at the time IMR purchased Aloha from Harken Energy.

In its public filings to the SEC, The Public I learned that Harken Energy gave conflicting accounts of who sold Aloha, who bought it, and even when the sale occurred. In its 1989 annual report, for example, it declared that it sold Aloha to IMR on June 30. The report said that IMR then sold Aloha to Advance on January 1, 1990, but in another portion of the report, it said IMR sold on March 30.

Additionally, in its 1990 report, Harken Energy declared that it was its subsidiary E-Z Serve Holding Company that sold Aloha to IMR. Adding to the confusion, E-Z Serve, which shortly after the transaction was spun off as a separate publicly traded company, claimed in its 1991 annual report that it had sold Aloha to Advance Petroleum -- not IMR -- in 1989.

Advance Petroleum agreed to pay off the $10 million note by the following year, which it did, instead of in March 1993 as stipulated in the original contract. It also relieved Harken Energy from picking up the cost of fixing leaking underground tanks to meet environmental standards.

According to The Public I, “Advance (Petroleum) got the $3 million of Aloha stock for $1. Harken Energy also forgave $5 million in loans it had made to Aloha and about $1 million in interest payments. The renegotiated contract reduced Harken Energy’s bottom line, and the SEC clearly believed the write-off might have helped depress the stock. “

Harken Energy was notorious during that period for filing confusing reports. In 1991, Harken Energy founder Phil Kendrick told Time magazine that the company’s annual reports ‘get me totally befuddled.’ Quoted in the same article, Faulkner had this advice to those trying to figure out the company’s financial statements: ‘Good luck. They’re a mess.’ ”

According to The Public I probe, Harken Energy masked its 1989 losses when in mid-year it sold 80 percent of a subsidiary, Aloha Petroleum, to a partnership of Harken Energy insiders called International Marketing & Resources for $12 million, $11 million of which was through a note held by Harken Energy. By January 1, 1990, IMR, in turn, sold its stake in Aloha to a privately held company called Advance Petroleum Marketing, and the Harken Energy loan was effectively transferred to Advance, though guaranteed by IMR.

The Public I reported that the SEC enforcement investigators focused on whether Bush dumped his stock, because he knew that the company’s second-quarter report would show a $23.2 million loss and depress the stock. Part of that loss was $7.2 million that Harken Energy wrote off “because it was being pressed by a nervous bank and renegotiated the Aloha sale to generate quick cash.”

The SEC probe was limited to whether Bush had inside knowledge of the dismal financial report that was about to be dealt to Harken Energy. It was “unclear whether Bush knew that Harken Energy, after five straight years of profits, began to bleed profusely in 1989, its first year of being traded on the New York Stock Exchange, though in its annual report for that year it had declared a net loss of only $3,300,000.

The SEC investigation was conducted by the agency’s accounting staff, which did not believe there was intent to defraud and therefore did not refer the matter to the SEC’s enforcement division. Instead, the agency directed the company to publicly correct its reports, according to a retired SEC official familiar with aspects of the case.

In its investigation, The Public I reported that most of Bush’s profits in the stock sale were used to off a bank loan he had taken out in 1989 to buy a partnership interest in the Texas Rangers for $600,000. Bush received nearly $16 million for his stake when the team was sold two years ago.

In the fall of 1990, Bush announced a six-month leave of absence as a consultant and member of the Harken Energy board. He said that he was returning to Washington D.C. to help his father in his 1992 reelection bid. But Bush remained on Harken Energy’s payroll, being appointed to a “fairness committee” to study the possible economic restructuring of the company.

Harken Energy was awarded the contract for which they had lobbied. This touched off wide speculation that President Bush and Saudi oil sheiks with ties to BCCI may have helped broker the deal. Six months after the contract was signed, Talt Othman, the president of Harken Energy, was placed on the White House select list of 15 Arab-Americans who met periodically with President Bush and NSA adviser Brent Scowcroft to discuss policies in the Middle East. Since August 1990, Othman attended three White House meetings with President Bush to discuss Middle East policy.

According to the SEC, Bush was also allowed to borrow $180,375 from Archon Minerals at very low interest rates. In 1989 and 1990, according to the company’s SEC filing, Harken Energy’s board “forgave” $341,000 in loans to its executives. In addition, Bush took advantage of the company’s executive stock purchase plan, which allowed him to buy Harken Energy stock at 40 percent below market value. (Bush Family Values, Stephen Pizzo, September/October 1992)

THE TEXAS RANGERS. Bush looked to his friends once again for financial support in 1988 when he made a bid to purchase the Texas Rangers from Eddie Chiles. William DeWitt, Jr., who had been Bush's financial partner in Spectrum 7, searched for donors to purchase the team. However, Peter Ueberroth, commissioner of major league baseball and an ardent contributor to the RNC, refused to approve the transaction unless Bush acquired more financial backing.

Ueberroth and American League president Bobby Brown took the initiative and contacted Richard Rainwater. The Texas multi-millionaire contributed to George H. Bush's presidential campaign and had stayed overnight at the White House. Until 1986 Rainwater had been the chief money manager for the Bass brothers who financed Harken Energy's drilling contract off the coast of Bahrain.

Rainwater agreed to form a partnership with Bush and DeWitt and included several smaller partners. Rusty Rose, a Dallas business associate of Rainwater's, was known as the "Mortician" because he had taken dying companies and made huge profits. Roland Betts was one of Bush's classmates at Yale and had made $3.6 million by financing movies in New York. And Fred Malek was a Washington lobbyist who had been the senior George's campaign manager. In April 1989 they purchased the Texas Rangers for $86 million. Bush needed $606,000, so he went to a Midland bank where he once served on the board of directors. So he was able to secure for himself ownership of 1.8 percent of the Texas Rangers. Then Bush's partners granted him an additional 10 percent share of the Texas Rangers once they recouped their investments along with 2 percent interest. So his ownership increased to 11.8 percent. They also voted him a salary of $200,000 for his full time work as a managing general partner.

A year later, Bush and his co-owners threatened to move the Rangers out of Arlington unless the city built a new stadium for $1.3 million. That meant a sales one-half cent tax hike which Bush totally supported. The city spent $150,000 on an advertising campaign to persuade voters to pass the $135 million bond measure. In January 1991, the voters passed the measure by a 2-to-1 margin.

The Rangers contributed only $30 million to the $190 million stadium, and management was allowed to keep the ensuing revenue. In return Bush and his partners paid $5 million in annual rent and maintenance fees to the city. Ultimately, the Rangers received approximately $200 million in public subsidies from the sales tax increase and state tax exemptions. The contract read that after 12 years, the Rangers' owners would be given full rights to the property. Thus, the Rangers will have paid a total of $60 million in rent before Arlington turns the $191 million ball park over to them in 2002.

However, Bush and his associates were not totally satisfied with that arrangement. They conspired to increase the value of the ballpark by purchasing the land next to the stadium. Mike Reilly, one of the owners of the Rangers, was also a realtor who attempted to purchase the surrounding parcels for a price well below market value. When the Curtis Mathes family refused to sell the 12.7 acres, the city created the Arlington Sports Facilities Development Authority (ASFDA) which was given the right of eminent domain to force the sale.

Appraisers for ASFDA valued the Mathes land at $3.16 a square foot for a total of $1,515,000. The family countered with $5.31 a square foot which totaled $2,800,000. Then Six Themes theme park jumped in as a potential buyer. To assure that Six Themes could not purchase the Mathes property, the ASFDA condemned the land and seized the property under the eminent domain clause. Eventually, a jury ruled that $817,220 was substantially low and awarded the family $7.2 million. When confronted with the details of the land grab, Bush testified that he was unaware of the details. However, Tom Schieffer, president of the Rangers, testified that he kept Bush abreast of the purchase of the parcels.

In 1994, Bush withdrew from the daily management of the Rangers franchise after being elected governor. Many of his business partners contributed to his gubernatorial campaign. For example, Rainwater gave $100,000 to Bush's 1994 gubernatorial campaign. Bush ended up selling his $600,000 investment in the Rangers and went home with a profit of $15 million.

Friends of Bush also dominated the board of directors of the University of Texas' Investment Management Company (UTIMCO) which invested $1.7 billion of state money. UTIMCO's chairman, Tom Hicks, purchased the Texas Rangers from Bush. He and his brother gave $146,000 to the Bush campaign. In return, $252 million of the invested money went to funds run by Hicks' business associates or friends. Hicks even insisted that UTIMCO increase by $10 million an investment with a fund that he had an indirect financial interest in, but UTIMCO staff prevented this funding after they discovered the conflict.