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Bush Knew of 'Crisis' Before Selling Stock

Finance: Newly released SEC papers show details of 1990 insider trading inquiry, in which he was cleared.

September 07, 2000|From Associated Press

WASHINGTON — Before selling his stock in a Texas oil company, a transaction that prompted an insider trading inquiry, George W. Bush was informed as a company director that the firm was suffering a cash "crisis," newly released records show.

The internal corporate documents, released by the Securities and Exchange Commission, provide the most detailed view yet of Bush's knowledge of Harken Energy Corp.'s financial problems when he sold his shares for $848,560 in June 1990.

Bush's lawyer said Wednesday the information, though new to the presidential campaign, was provided to the SEC as part of its investigation a decade ago and contributed to the agency's finding that Bush's trading was appropriate.

"The SEC did their job by the book, and this is old news," attorney Robert Jordan said. The Bush lawyer added that "the company's financial situation was well-disclosed to the public" through filings at the time with the SEC.

"By the time Bush sold his stock, the cash crisis had been largely resolved," Jordan said. "By May 21, 1990, the major shareholders had agreed to a credit agreement which put $26 million into the company immediately."

Insider trading allegations have been an issue in both Bush's run for governor in Texas and his presidential bid. The SEC in the last month released several hundred pages of corporate documents from its investigation under the Freedom of Information Act.

Bush has said he had no knowledge the Texas-based company was going to report a $23-million loss two months after he sold his stock. "I absolutely had no idea and would not have sold it had I known," he said during his 1994 campaign for governor.

SEC investigators concurred there was no evidence Bush knew that the loss would be of that magnitude. At most, the investigators found, Bush was aware of a projected $4-million loss, which was "consistent with Harken's publicly reported trend" of losses, states an SEC investigative document. The same document projecting the $4-million loss, Jordan noted, projected a profit for the fourth quarter. Bush sold his stock at $4 a share and by the end of that year, its value had sunk to slightly over $1. It returned to the $4 level and above in 1991.

The Harken documents released under FOIA detail Bush's knowledge of the company's problems.

As a Harken director, he received memos in spring 1990 that referred in stark terms to the company's cash-strapped condition as banks demanded it pay down its debts. One document said the company was in the midst of a "liquidity crisis" and another told Bush the company was "in a state of noncompliance" with its lenders.

Bush also was informed that a company plan to make a public stock offering to generate cash was being abandoned because one of its lenders objected.

The SEC investigators never interviewed Bush about what else he might have known about the company's financial situation before selling the stock.

The investigators noted that Bush did not initiate the sale of his stock, that he was approached by a broker and checked with the company's general counsel about the propriety of the sale before carrying it out.

At the time of the investigation, Bush's father was president of the United States and the SEC was run by one of his biggest political supporters, Richard Breeden. The SEC's then-general counsel, James R. Doty, was another staunch presidential supporter who as a private attorney was George W. Bush's lawyer when he purchased his share of the Texas Rangers baseball team.

SEC's enforcement chief at the time, William McLucas, said in an interview that the Bush investigation "was handled the same way any insider trading inquiry would be handled."

New York University law professor Stephen Gillers, who reviewed the SEC investigative documents at Associated Press' request, said the agency made a sound judgment legally and ethically to close the inquiry without interviewing Bush.

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