Just One Minute
Balanced Fare: We Report, You Deride

Tuesday, July 02, 2002

It's Christmas in July!

And Paul Krugman is red and green. Red with anger over corporate fraud. Green with a sudden fervor for recycling, but not old soda bottles. No, Prof K. is recycling some old stories about George Bush. Let's just skip to the fun bit of "Everyone is Outraged":

"Now to the story of Harken Energy, as reported in The Wall Street Journal on March 4. In 1989 Mr. Bush was on the board of directors and audit committee of Harken. He acquired that position, along with a lot of company stock, when Harken paid $2 million for Spectrum 7, a tiny, money-losing energy company with large debts of which Mr. Bush was C.E.O. Explaining what it was buying, Harken's founder said, "His name was George Bush."

Unfortunately, Harken was also losing money hand over fist. But in 1989 the company managed to hide most of those losses with the profits it reported from selling a subsidiary, Aloha Petroleum, at a high price. Who bought Aloha? A group of Harken insiders, who got most of the money for the purchase by borrowing from Harken itself. Eventually the Securities and Exchange Commission ruled that this was a phony transaction, and forced the company to restate its 1989 earnings."

OK, this could get confusing. Let's go to the Wall Street Journal and see what else they reported back on March 4:

"After months of back-and-forth with the SEC, the company amended its report to show a much larger net loss, $12.6 million, than it had reported.

No evidence suggested Harken officials purposely tried to mislead investors..."

Back to Prof K.:

"But long before that ruling — though only a few weeks before bad news that could not be concealed caused Harken's shares to tumble — Mr. Bush sold off two-thirds of his stake, for $848,000. Just for the record, that's about four times bigger than the sale that has Martha Stewart in hot water. Oddly, though the law requires prompt disclosure of insider sales, he neglected to inform the S.E.C. about this transaction until 34 weeks had passed. An internal S.E.C. memorandum concluded that he had broken the law, but no charges were filed. This, everyone insists, had nothing to do with the fact that his father was president.

Back to the WSJ:

"The separate issue of Enron executives selling stock ahead of the company's meltdown holds another rough parallel to Mr. Bush's Harken experience. He sold 212,000 Harken shares, or 66% of his holdings in the company, on June 22, 1990, just months before it disclosed growing debt problems.

SEC documents show Mr. Bush knew of the financial crunch when he sold his shares at $4 each. After the company divulged its true debt, its stock price dropped to $2.27; by the end of the year, it had plummeted to $1. The SEC began investigating Mr. Bush's sale in April 1991, after The Wall Street Journal reported that he failed to report the transaction on time. Its focus: whether Mr. Bush knew the company planned to report a huge loss that would drag down its stock price.

He was cleared of any wrongdoing, but Democrats suggested he was getting favorable treatment from his father's administration. And so was Harken, they claimed. Their evidence: Shortly before Mr. Bush sold his stock, Harken won the rights to drill potentially lucrative offshore wells from the Middle East government of Bahrain -- even though the company had never drilled in water. Democrats claimed Bahrain picked Mr. Bush's company because of his White House ties.

Again, no evidence surfaced to show he or Harken received favors, and Bush aides chafe at accusations otherwise. "There is one constant," says an exasperated Bush aide now. "Politics is politics. And that remains the same."

Prof K.'s big finish:

"Given this history — and an equally interesting history involving Dick Cheney's tenure as C.E.O. of Halliburton — you could say that this administration is uniquely well qualified to chase after corporate evildoers. After all, Mr. Bush and Mr. Cheney have firsthand experience of the subject. And if some cynic should suggest that Mr. Bush's new anger over corporate fraud is less than sincere, I know how his spokesmen will react. They'll be outraged"

And the key point from the WSJ piece:

"Mr. Bush was found to have done nothing illegal or improper by the SEC. Democrats nonetheless tried to hang the episode around his neck during his 1994 run for Texas governor, and during the presidential campaign, with little success."

Well, the story is back again. Maybe third time's a charm. And maybe we should have a new slogan for Paul Krugman: Yesterday's news tomorrow. But I still like my old one:

How many trees must die before Paul Krugman's space is given to Michael Lewis?

UPDATE: Hey in there! Just One Minute? How about Just One Brainwave, or even Just One Link to the Wall Street Journal story?

So much anger. Maybe everyone is outraged. Anyway, the WSJ story requires registration, and subscription, and other cool stuff that I'm not even sure I have, let alone you. But go see for yourself.

UPDATE II: OK, here is the oldest Harken Energy Corp 10-K I could find (1993). George Bush does appear among the directors.

The share price (Symbol HEC) is quite volatile. Yahoo has history, or see the chart on p. 11 of the 10-K. Anyway, there were clearly prices both higher and lower than $4 after Bush sold at $4. Timing is everything, or sometimes nothing.

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