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A Harken Energy Primer
Tuesday, July 9, 2002
Recent corporate scandal and wrongdoing have brought issues of business ethics and propriety to the forefront of media attention. President George W. Bush's hard-line stance against corporate book-cooking has prompted critics to look for possible hypocrisy in Bush's own business history, particularly in connection with the Harken Energy Corporation. The following is a brief explanation of Bush's involvement with Harken and subsequent inquiries by the U.S. Securities and Exchange Commission into both the corporation's practices and Bush's personal financial proceedings.
What is Harken Energy Corp.?
The Houston-based company explores for and produces oil in the U.S. and Latin American countries. It currently owns oil production sites in the U.S. which total approximately 3,400 barrels of oil equivalent per day. Their sites are located in Utah's four corners area, Texas, New Mexico, the Arkansas-Louisiana-Texas area and the Gulf region. Additionally, Harken controls approximately 740 thousand acres of land in Colombia, where about 1,500 barrels of oil are produced per day. The company also controls 1.4 million acres of land in Costa Rica.
What was President Bush's involvement with Harken?
Before Bush's entree into politics, he was founder and CEO of Bush Exploration, an independent oil and gas exploration company. In 1982 he sold public shares of the company to offset financial distress, including 10 percent of the company to James Baker III, his father's eventual secretary of state. Time magazine reported the company's worth at $382,000. However, the one-tenth share went for $1 million, according to a June 15, 1999, Washington Post article.
Despite efforts to save the company, Bush Exploration merged with Spectrum 7 Energy Corp. of Midland, Texas, in 1984 and Bush became its president. A decline in oil prices over the next two years forced Bush to sell his interest in Spectrum to Harken in 1986. Bush served on the Harken Board of Directors from 1986 through the early '90s, during the period when Harken faced an inquiry by the Securities and Exchange Commission.
Why did the SEC investigate Harken?
Harken sold a subsidiary, Aloha Petroleum, in 1989 to a group of insiders through a seller-financed loan. This was declared a cash gain, masking huge company losses, according to Washington Post reporters Mike Allen and Dana Milbank. After their inquiry, the SEC forced Harken to revise their books to include these losses. The company added $9 million to its net loss for the year, nearly quadrupling the reported loss.
In a White House press conference Monday, Bush rejected comparisons of Harken's SEC dealings with that of the Enron Corp., where accounting practices were used to conceal millions of dollars in losses. Arthur Anderson LLP handled accounting for both Enron and Harken.
Why was President Bush investigated by the SEC?
Bush was investigated by the SEC in 1992 for insider trading when he sold two-thirds of his shares of Harken stock worth $848,560 before the company reported huge losses. Bush sold the stock in June 1990 for $4 a share; the price then dropped to a dollar by the year's end. The Post reported that Bush disclosed the transaction 34 weeks late, and the SEC discovered he had disclosed sales of Harken stock late for four transactions totaling $1 million. In October 1993 the SEC cleared Bush of any wrongdoing. During the investigation, Bush blamed the delay in filing on the SEC, claiming they had lost the disclosure document. After a 1991 SEC report was leaked last week, the White House blamed the tardy report on a "mix-up" by the company's lawyers.
Led by Senate Majority Leader Thomas A. Daschle (D-S.D.), Democrats in Congress are calling for the release of records of the SEC's investigation of Bush's trading in Harken shares. Bush has not authorized the release of the full SEC report, saying, "You've seen the relevant documents."
Compiled by Anne Rittman