Corporate crook in the White House
August 2, 2002 | Pages 6 and 7
THE FLURRY of corporate accounting scandals has got Washington talking about cleaning up Corporate America. The first arrests of CEOs since the scandals began took place last week when Securities and Exchange Commission (SEC) agents handcuffed Adelphia CEO John Rigas and his sons Michael and Timothy--as television cameras jostled for position. Congress put "reform" legislation on the front burner, and the White House claims to support a get-tough attitude.
But George W. Bush has a problem. He has a corporate crime rap sheet that ranks with the worst of the bunch. As ERIC RUDER shows, Bush's own past--and the many connections of top administration officials to scandals--make a mockery of his newfound "outrage" at corporate sleaze.
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"I'm all name and no money."--Bush in 1986
IN 1975, Bush returned to Texas after his stint at Yale and Harvard in the hopes of copying his father's success in the Texas oil business. By the end of the 1990s, Bush had a $15 million fortune--even though each one of his business ventures was an unquestionable failure.
Today, the idea that Bush could be an aggressive cop on the corporate crime beat is about as believable as the idea that he got into Yale because of his sharp intellect. It's not just that Bush has packed his administration with officials who have their own records as corporate hucksters. The fact is that Bush himself owes his fortune to a string of insider deals.
Along the way, he relied on the same corporate shenanigans that he complains about today--not to mention wealthy investors who were happy to bail out Dubya as a favor to the Bush political dynasty.
Bush's first four ventures after returning to Texas in the 1970s were all failures. In 1986, Harken Energy bought out Spectrum 7, the company that had bought out Bush's last disaster. Like in past deals, Bush was kept on as an executive, so Harken could make the most of his connections. He was given $600,000 in stock and a $120,000-a-year salary for his troubles.
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"Corporate leaders should be required to tell the public promptly whenever they buy or sell company stock for personal gain."--point six in Bush's 10-point corporate reform proposal
As oil prices plunged in the mid-1980s, Harken began having its own troubles. On June 22, 1990--two months before Harken reported a whopping $23 million quarterly loss--Bush sold 212,140 shares of Harken stock at $4 a share, netting a tidy $848,560. News of the loss two months later pushed Harken's stock price down sharply--by the end of the year, it was trading at $1.
Maybe this explains why Bush waited well past the deadline to file the SEC form required of executives who trade their own company's stock. The late filing--and the fact that Bush cashed out ahead of Harken's public disclosure of bad news--sparked an SEC investigation.
Bush's "defense" was that he had no idea about the company's financial woes--even though two weeks before his stock sale, Harken President Mikel Faulkner sent Bush a memo warning of a "Harken International shutdown effective June 30, unless third party funding [is] obtained."
As far as why he filed the SEC form late, Bush has had at least three stories. In 1994, he claimed that the SEC lost the forms. When asked about it last month, Bush first blamed Harken's lawyers. But when it became clear that he, not the company's lawyers, was responsible, Bush changed his tune again.
"As to why the Form 4 was late, I still haven't figured it out completely," Bush told reporters last month. "But nevertheless, the SEC fully looked into the matter and the people that looked into it said there is no case."
In fact, during the SEC's "thorough" investigation of Bush, neither Bush nor any other Harken board member was ever interviewed. How could this be, you ask?
Bush's father, President George H.W. Bush, had a good friend at the helm of the SEC--and the general counsel in charge of deciding whether to pursue legal action had just finished negotiating Dubya's participation in the purchase of the Texas Rangers baseball team.
It certainly does pay to have friends and family in high places.
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"My administration will do everything in our power to end the days of cooking the books, shading the truth and breaking our laws."--Bush's July 9 speech to Wall Street leaders
In 1989, Harken was scrambling to keep from going under. So Harken executives cooked up a scheme to sell an asset--Aloha Petroleum--to a corporate entity made up of Harken insiders. Harken loaned this dummy entity $11 million of the $12 million asking price for Aloha--and then recorded a $7.9 million profit on the sale.
"The people at Enron could have gone to school on this thing," said Alfred King, former managing director of the Institute of Management Accountants and former advisor to the Financial Accounting Standards Board. "They sold to themselves and recorded a profit. That's exactly what Enron did on a number of those off-balance-sheet transactions."
In early July of this year, reporters asked Bush about Harken's Enron-esque accounting methods. "In the corporate world," Bush had the gall to reply, "sometimes things aren't exactly black and white when it comes to accounting procedures."
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"I challenge compensation committees to put an end to all company loans to corporate officers."--Bush on July 9
Dubya's big haul came when he bought in to the Texas Rangers baseball team in 1989. But this deal was handed to him on a silver platter--again, because big investors figured his name and connections would be useful.
Bush needed $606,000 to become a co-owner. That's a pittance by baseball standards, but Dubya could only scrounge together about $100,000 in cash. So he borrowed $500,000 from United Bank--a bank where he sat on the board of directors.
The initial $606,000 gave him a 1.8 percent share in the team. But the real windfall came when the other owners decided to up Bush's stake to 12 percent. Overnight, Bush had a Texas-sized fortune.
Dubya returned the favor by being the Rangers owners' front man in pushing for public financing of a new ballpark in Arlington, Texas. With a new stadium paid for by taxpayers, Rangers owners sold the team for triple the purchase price of a decade earlier. Bush's $606,000 investment netted an astonishing $14.9 million return.
But after more than two decades of corporate scams, Bush thinks it's time to move on. "I believe people have taken a step back and asked, 'What's important in life?'" Bush said two weeks ago. "You know, the bottom line and this corporate America stuff--is that important? Or is serving your neighbor, loving your neighbor like you'd like to be loved yourself?"
Fine words from a man who served himself up a multimillion-dollar fortune through insider scams.
Why Cheney is on the hot seat
POLITICIANS LIKE to say that they're "public servants." But for Bush administration officials, it's more accurate to speak of their careers as public pillage.
Take Dick Cheney. After years in Washington--as a White House staffer under Richard Nixon and Gerald Ford, a congressional representative, and defense secretary for Papa Bush--Cheney decided to try his hand in the private sector as CEO of Halliburton, an energy services company.
When he resigned to become Bush's vice president, he got a $36 million farewell present from Halliburton. Today, Cheney is on the hot seat--as Halliburton faces an SEC investigation of its shady accounting methods, which pumped up its bottom line by an estimated $234 million over four years.
But even more sleazy--though less scrutinized--is Cheney's work on behalf of Corporate America as a government official. As defense secretary, for example, Cheney conveniently rewrote the rules that limit private contractors doing work on U.S. military bases, allowing a subsidiary of his future employer Halliburton to rake in the first $2.5 billion worth of contracts.
Since his return to public service/pillage, Cheney doesn't even blush at the fact that Halliburton is the main financial beneficiary of the U.S. military's rush to build "anti-terrorism" military bases around the world.
But the Republicans don't have a monopoly when it comes to public pillage. As treasury secretary under Bill Clinton, Robert Rubin played a key role in Congress' 1999 decision to allow banks, insurance companies and securities to merge into giant conglomerates.
Within four days of the final compromise, Rubin--who had resigned from his treasury post earlier in the year--announced that he had been hired by Citigroup, the financial giant with the most to gain under the new law.
There may as well be a conveyer belt between the corporate boardrooms and the corridors of power in Washington.
Washington's tame watchdogs
BUSH'S CORPORATE crime watchdogs couldn't be more tame. The Securities and Exchange Commission (SEC)--the main federal agency that oversees corporate behavior--is headed by corporate lawyer Harvey Pitt. Pitt made a career out of fighting the SEC--and promised to make the agency "a kinder gentler place for accountants."
Then there's the "white-collar-crime SWAT team"--headed by Deputy Attorney General Larry Thompson. Thompson knows about corporate crime--having committed some on the board of directors of the credit card company Providian Financial.
Regulators found that the firm systematically overcharged customers and used deceptive sales tactics to pump up its bottom line. Providian paid $400 million in June 2000 to settle the charges.
When he joined the Justice Department, Thompson sold $4.7 million worth of Providian stock. Months later, the price tanked. It sells for under $5 today.