DIAMONDS | money bags

HARKEN: 5 of diamonds
($) (what do these signs mean?)

The story of Harken is a cautionary tale ignored by too many Americans. Had it been paid attention, this country would have been saved enormous suffering, a considerable amount of which is still ahead of us. Badly managed, with CEO George W. Bush benefiting from the sleaziest of corporate manipulations, had he been anyone but a President's son, Bush very likely would have ended up in the slammer on insider trading charges. The story of Harken demonstrates the character, or rather, lack of character, of the man currently in the White House, his inability to plan competently, his eagerness for others to pay the price of his mistakes rather than accepting responsibility himself, and his basic greed. This latter quality is perhaps the defining hallmark of the Bush administration. The chief difference between Bush in charge of Harken and Bush sitting in the Oval Office is that then only that small percentage of citizens who were shareholders got ripped off. Today it is all of us, and generations yet to come.

Bush's first oil company, Arbusto (aptly named) produced little oil, no profits, and big tax shelters. In 1982 the name was changed to the "Bush Exploration Oil Company." A new name was no substitute for competence. The company continued needing to be bailed out by family friends and allies. Spectrum 7 then merged with Bush Exploration, named GWB chairman and CEO, and gave him a lot of stock. Big losses continued.

Harken Energy Corporation then purchased Spectrum 7. The company gave Bush $600,000 in stock and a seat on its Board of Directors. It was apparently interested in the Bush name and connections rather than the value of Bush's company, which was next to nothing. This is how crony capitalism replaces free market capitalism competence is trumped by connections.

Harken also paid Bush a consulting fee initailly of $80,000 annually, later increased to $120,000 per year. It is barely possible Bush believes this enormous sum was in recognition of his expertise. But given his track record, the best use of his advice would to have been to do the opposite. Mother Jones reports "He was also allowed to borrow $180,375 from the company at very low interest rates. In 1989 and 1990, according to the company's Securities and Exchange Commission filing, Harken's board "forgave" $341,000 in loans to its executives. In addition, Junior took advantage of the company's ultraliberal executive stock purchase plan, which allowed him to buy Harken stock at 40 percent below market value."


Harken fell on hard times by 1989 even with its political connections. Its chairman Alan Quasha had amply proved that George Bush was not the only poor manager of other people's money, and by 1990 Harken's losses reached $40 million. Connections stepped in at this point, to bail the company out.

In 1990 the Arab country of Bahrain broke off negotiations with Amoco in order to award Harken exclusive off shore drilling rights. Unlike Amoco, Harken had never drilled under the sea. Nor had it previously drilled overseas. In fact it had to bring in outside experts to do the job. But it did have GW, son of the President of the United states, on its Board of Directors.

Six months after the Bahrain contract, Bush sold 212,140 shares, netting himself $848,560. He used the bulk of his money to pay off the loan he had taken out to buy the Texas rangers baseball team.

Here the story gets even more interesting. Bush was on the company's audit committee, and knew its finances were bad. This gave him the opportunity to engage in insider trading on a scale that dwarfed what Martha Stewart has been accused of. Compare $848,000 with $40,000. Despite appearances, nothing was done until the SEC realized it had not been notified of the stock trade until 8 months after the legal deadline. It began an investigation that concluded, in 1991, with no measures against GWB. We should not be surprised, given who was President at the time Further, the SEC's general council, James Doty, handled the sale of the Texas rangers for Bush in 1989.

Interestingly, Bush had been warned against insider trading by Harken's lawyers, just before he sold his shares. But then, flouting the law by well connected rich boys was a practice with which Bush had plenty of previous experience. No legal action was ever taken, even though two months after Bush raked in his insider profits, Harken posted losses of over $20 million, and its stock fell 24%. Harken now sells for under $1/share.

The SEC investigation did uncover the fact that from 1989 and 1990, Harken "forgave" Bush some $341,000 in loans, precisely the same type of loan that Bush now criticizes corporate executives for taking. Bush himself was a recipient of such a loan, worth $180,375 at very low interest.

During the corporate scandals leading up to his attack on Iraq, Bush's shady dealings involving Harken were repeatedly raised. He claimed he had been exonerated by the SEC but steadfastly refused to allow the records of its investigation to be made public. Secrecy and connections are the MO of this man. Yet he could tell the American people in a speech on Wall Street: "I challenge compensation committees to put an end to all company loans to corporate officers." Apparently it is more of a matter of "do as I say and not as I do."


The Mother Jones story cited in this article and Joe Conason's Big Lies give far more details, and put this sordid story into more complete contexts. We recommend both.

  American shadow

the web

copyright © 2003, inc | legal disclaimer | privacy policy