Bush’s Corporate Scandal D?j? Vu
President Bush had to wield a double-bladed axe during his “working vacation” last month. Even as he felled unwanted cedar on his Craw-ford ranch he also fended off corporate scandals, which now encroach on his presidency like so much mesquite scrub. Just off the choreographed stage of Bush’s Waco economic forum, a nation yearned for any president but this one to restore the market confidence demolished by Enron, Arthur Andersen, WorldCom, Adelphia, Global Crossing, Tyco, Qwest, Dynegy, ImClone and even Martha Stewart.
It’s awkward enough that after assembling the quintessential corporate cabinet, George W. Bush’s No. 1 campaign donor, Enron, ignited a corporate crisis that he–of all people–is supposed to extinguish. Each month this farce becomes more improbable as haunting new parallels surface between the corporate excesses vilified on the evening news and Bush’s own past business practices. As a Texas businessman a decade ago, Bush became well-schooled in such hallmarks of the current corporate crisis as cooked books, insider sales, sweetheart deals, tax dodges, corporate welfare and incestuous government probes.
While some shady Bush dealings surfaced during Texas’ 1994 gubernatorial race, others are still being ferreted out. Thanks to the current corporate crisis, there is renewed scrutiny of Bush’s formative Texas business years–especially his time on Harken Energy’s board from 1986 to 1993.
The Wall Street Journal–which first exposed how Enron cooked its books through bogus deals with purportedly “independent” partnerships–reported in March that Harken Energy had used a similar method to hide $8 million in losses in 1989. In that deal Harken insiders hid Harken losses by borrowing Harken money to buy Aloha Petroleum, a Harken subsidiary, at an inflated price. Federal regulators later forced Harken to correct its accounting for this deal in its financial statements to investors.
Harken’s best-known insider deal occurred in 1990, when Bush, who received internal financial reports while on Harken’s audit committee, sold $850,000 of stock a couple months before the company published depressing financial reports. Bush reported this insider stock sale eight months after he was legally required to do so. Yet in recently denouncing executives who collectively pocketed billions by privately liquidating stock which they publicly promoted, an angry Bush now insisted that insiders should have to disclose their stock sales within two days.
Another Harken oddity involves the firm that manages Harvard University’s huge endowment. Right after Harken bought a previous Bush oil company in 1986, Harvard Management Co. made an unprecedented $20 million investment in a risky wildcat oil venture: Harken. A couple of Harvard Management principals have ties to Harken and the Bush family. The Houston Chronicle revealed in 1998 that, after Bush became governor in 1995, the Texas Teacher Retirement System then feathered the nests of Harvard Management and a major Bush donor: the family of developer Trammell Crow. Without seeking competitive bids, the state teacher retirement fund sold the Anatole Hotel in Dallas to Harvard and Crow for less than what the state spent to refurbish it.
Some people have speculated that Harvard Management is the institutional investor that bought all of Bush’s Harken shares in 1990. Feeding this rumor is the fact that the broker who handled this sale wrote a Harvard Management partner’s name and number in the log that he kept of his phone calls to Bush. Yet a representative of Harvard Management told the Harvard Crimson in July that it did not buy Bush’s shares.
As Congress feigned shock at reports that Enron and other unpatriotic U.S. corporations exploited off-shore tax havens to screw Uncle Sam out of oceans of revenue, the New York Daily News reported in July that Harken had established a similar subsidiary in the Cayman Islands in 1989. Although the Caymans are a notorious corporate tax shelter, Bush spokespeople claim that this transaction was designed to dodge Harken’s legal liabilities–not taxes. They also said that the matter is moot since this subsidiary, Harken Bahrain Oil Co., covered Harken’s Bahrain ventures–which never produced energy or taxable income.
Responding to reports of how Enron, WorldCom, Tyco and Adelphia lent billions of dollars to their executives on cushy terms, Bush insisted in July that corporations should “put an end to all company loans to corporate officers.” As the New York Times noted, however, Harken lent Bush $180,375 to buy the company’s stock and then forgave this debt in 1989, thereby allowing Bush to sell his Harken stock and buy a smidgen of the Texas Rangers. An analysis of these transactions circulated by Democrats in August argues that Bush was legally required to treat his forgiven loans as taxable income. It urges Bush to reveal records of what taxes he paid on those forgiven loans, a disclosure request that the president has so far declined.
Enron also famously flexed its storied U.S. government clout to win sweetheart deals abroad (the ugliest case being when the Clinton Administration threatened to cut off U.S. aid to Mozambique if Enron lost a government pipeline contract there). Similar favoritism questions surfaced in 1990, after oil-rich Bahrain passed over Amoco to award exclusive off-shore-drilling rights to struggling Harken, which had never drilled off-shore or abroad.
Enron also was a leading recipient of U.S. corporate welfare, receiving more than $4 billion in U.S. taxpayer support for overseas projects since 1992, according to the Washington-based Institute for Policy Studies. While the U.S.-subsidized International Finance Corp. awarded Harken $55 million for a Colombian energy project in 1999, Bush himself went on the public dole with the Texas Rangers. Thanks in part to the $200 million stadium that Arlington taxpayers built for the team’s owners, Bush sold his Rangers stake for $15 million.
Finally, the Harken shenanigans and the current corporate crisis both feature incestuous government probes. The inconclusive federal probe of Bush’s insider Harken stock sales came when Richard Breeden, an appointee of Bush’s dad, headed the Securities and Exchange Commission (SEC). The agency’s general counsel at the time was James Doty, who was Bush’s personal attorney during his Ranger deals.
The current Bush-appointed SEC Chair Harvey Pitt previously defended accounting firms, including Arthur Andersen (which approved the books of Enron, WorldCom, Qwest, Dynegy, Global Crossing, and Harken) from SEC probes. Before being confirmed as a deputy attorney general in 2001, Bush’s top corporate-crime cop, Larry Thompson, sat on the board of Providian Financial, which paid $400 million in 2000 to settle charges that it engaged in predatory lending frauds.
Meanwhile, in the hot August sun outside Bush’s Waco economic forum, 60 uninvited protestors chanted, “Hail to the thief.”
Andrew Wheat is research director of Austin-based Texans for Public Justice.