week before George W. Bush's 1990 sale of stock
in Harken Energy Co., the firm's outside lawyers
cautioned Bush and other directors against selling
shares if they had significant negative information
about the company's prospects.
sale came a few months before Harken reported
significant losses, leading to an investigation
by the Securities and Exchange Commission.
June 15, 1990, letter from the Haynes and Boone
law firm wasn't sent to the SEC by Bush's attorney
Robert W. Jordan until Aug. 22, 1991, according
to a letter by Jordan. That was one day after
SEC staff members investigating the stock sale
concluded there was insufficient evidence to
recommend an enforcement action against Bush
for insider trading.
president's sale of his oil company shares has
become tied to a broader political debate about
business ethics in the wake of the Enron Corp.
scandal and other cases of corporate wrongdoing.
delay in delivering the law firm's report to
the SEC -- Harken executives had previously
withheld it citing attorney-client privilege
-- indicates that regulators did not have a
full picture of the Bush transaction when they
finished their investigation, said Michael Aguirre,
a securities lawyer in San Diego, who obtained
the documents in the case last summer after
filing a Freedom of Information request.
was a failure to deal with the most important
piece of evidence," he said.
Dan Bartlett, White House communications director,
said the timing of the letter's delivery should
not have had an impact on the investigation.
has been made very clear that the SEC had the
right to reopen the case" after August 1991,
he said. "Whether it was a day after, or a week
after, if career prosecutors received information
that was material and relevant, it's safe to
say they would follow up on it."
Boston Globe, which reported Wednesday on the
late delivery of the law firm memo, said four
former SEC officials who worked on the case
did not recall receiving it. Several of those
former officials did not return telephone calls
yesterday about the 1991 inquiry.
sold 212,140 shares of Harken on June 22, 1990,
for $848,560, using the funds to pay off a bank
loan that financed his investment in the Texas
Rangers baseball team.
SEC memo closing the case in August 1991 reported
that Bush had been given approval to sell the
shares by Harken's general counsel Larry E.
Cummings and Harken's chairman Mikel D. Faulkner.
Cummings told the investigators that he had
also checked with Haynes and Boone attorneys,
who said they saw no reason why Bush should
not sell. In light of the approvals Bush received,
it would be difficult to establish that he acted
with fraudulent intent, the SEC memo concluded.
The SEC memo does not mention the Haynes and
said the attorneys' letter was not specifically
addressed to the stock sale that Bush was considering
at the time. "It was a very general, broad set
of guidelines to board members," he said. Bartlett
said President Bush does not recall receiving
the lawyers' warning but does specifically recall
seeking and receiving approval to sell.
In their letter, the Haynes and Boone attorneys
noted they had been asked for advice on whether
Harken directors and executives who sold company
stock could be accused of securities law violations.
At the time, Harken, a small, Dallas-based energy
company, was in dire need of funds to avoid
bankruptcy and had decided to sell shares in
two subsidiaries that would be split off from
the parent company in what is called a "rights
The offering had been announced publicly, but
the price of shares Harken would sell had not
been set. Thus, the potential value of the deal
could not be immediately assessed.
The lawyers' memo said that if directors had
any unfavorable information about the company's
outlook, their sale of Harken shares would be
viewed critically if the stock price dropped
following the rights offering. "Unless the favorable
facts clearly are more important than the unfavorable,
the insider should be advised not to sell."
Bush and two other directors attended a June
11, 1990, meeting of Harken's audit committee,
where Harken's outside auditor, Arthur Andersen,
reviewed the proposed rights offering. An Andersen
partner told the Harken directors that the offering
might lead to a potentially significant reduction
in the market value of the subsidiaries, although
the amount could not be determined right away.
The attorneys' letter did not conclude whether
directors' information about the rights offering
Bush has said that his decision to sell his
shares was based on good news -- the January
1990 announcement of Harken's deal to drill
for oil in Bahrain, in the Persian Gulf region.
Bush received $4 a share for his stock in June
1990. The price dropped sharply following the
October 1990 disclosure of the rights offering
price, to a low of $1.25 a share in December
1990, but then recovered.
Harken Energy shares now trade at 20 cents a
share -- equivalent to 2 cents a share in 1990,
before a reverse stock-split in 2000 in which
investors received one new share of Harken for
each 10 held previously.