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Why Investigation of Bush's Stock Sale 'Just Didn't Pan Out'


WASHINGTON — What Lisa Meulbroek best remembers about the day in 1990 when she handed her four-page report to two young enforcement lawyers at the Securities and Exchange Commission was their disappointment.

Meulbroek was working in the SEC's Office of Economic Analysis at the time. Fresh out of MIT, she had just done her doctoral dissertation on insider stock trading. The SEC lawyers, excited about a hot insider-trading case they had been pursuing for several months, had asked her to analyze trading patterns in a small Texas oil-and-gas exploration company.

Their target: George W. Bush, son of the president of the United States.

"There was just this sense among the enforcement lawyers that this was going to be an opportunity for them to have a fairly high-profile case," Meulbroek, who now teaches corporate finance at MIT, recalled in an interview Friday.

"And it just didn't pan out."

Indeed, Meulbroek's report was instrumental in turning the tide in Bush's favor 11 years ago this month--a watershed moment that helps explain why, after four months of investigation by apparently gung-ho lawyers, the SEC closed the case on Bush's sale of 212,140 shares of Harken Energy Corp. Bush was a director of Harken.

The SEC did not exculpate Bush. Rather, its investigating attorneys concluded only that they lacked sufficient evidence to prosecute him for illegality or fraud.

Meulbroek's analysis determined that a critical event necessary to justify civil or criminal charges of insider trading simply hadn't happened: Harken's stock price did not collapse, as investigators thought it had, when the company announced a record $23.2-million loss two months after Bush's stock sale.

Until today, not even Meulbroek is certain just why the stock didn't tank--one of the enduring mysteries in the case. But she and others who were then at the SEC say that her July 7, 1991, conclusion was the beginning of the end of the enforcement division's File No. MHO-3180, the SEC's investigation of George W. Bush.

A detailed review of more than a dozen internal SEC memos and letters and hundreds of pages of Harken documents that the agency amassed in the case, along with interviews with Meulbroek and the broker who told the SEC he initiated Bush's stock sale, leave another crucial question unanswered:

Who stepped up to buy Bush's stock, at a time when Harken was bleeding red ink and Bush was trying to raise cash to pay off the loan he used to buy into the Texas Rangers baseball team?

"Bush didn't even know who the buyer was at the time. He still doesn't know. No one but me ever knew who the buyer was. And no one ever will know," said Ralph Smith, the now-retired Los Angeles institutional trader who represented that buyer in the sale.

"It's nobody's business. There isn't anything there. And nothing was done wrong."

Bush has said repeatedly through the years that the SEC's investigation was thorough and that it cleared him of any wrongdoing, beyond the technical violation that he reported the sale to the SEC eight months late.

It was that tardy report filed in March 1991 that caught the eye of the enforcement division's lawyers and launched the SEC probe on April 5 that year, according to the agency's internal documents in the case. The SEC has been releasing some of those files, stack by stack, to the Washington-based Center for Public Integrity and to newspapers, including The Times, under the Freedom of Information Act.

The SEC's probe has been dogged by skepticism and partisan challenges almost from the start. The agency's chairman at the time was Richard C. Breeden, a staunch supporter of Bush's father, who appointed him to the post.

Breeden has maintained that he distanced himself from the staff's investigation, giving the agency's lawyers a free hand. And the internal documents released so far show no indication of political interference or pressure from the top.

The documents chronicle a probe spanning 4 1/2 months. It included at least four lawyers in the SEC's enforcement division, led by Assistant Director Herbert F. Janick III, who is now general counsel at UBS PaineWebber Inc.

Those SEC lawyers, most of whom have left the agency for private practice, still decline to comment on the case.

In recommending that the case be closed, the three investigating lawyers stated in a memorandum to their division chief: "The staff's investigation indicates that there is insufficient evidence to establish three necessary aspects of a possible insider trading case."

The investigators never interviewed Bush. But they extensively questioned Harken's chief in-house lawyer, the company's outside counsel and Bush's personal lawyer, who together handed over boxes full of internal memos, board meeting minutes and other confidential correspondence.

The SEC lawyers also questioned stock trader Smith for more than two hours in a conference call, and Smith turned over copies of most of his notes on the sale.

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