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Right on the Money: The George W. Bush Profile
July 8, 2003
From the Buying of the President 2000 by the Center for Public Integrity

Part One:

On January 30, 1990, Platt's Oilgram News, a respected trade journal of the petroleum industry, reported that a subsidiary of a small, Dallas-based independent oil company, Harken Energy Corporation, had just signed an agreement with the government of Bahrain. "Harken Bahrain Oil Company signed a production sharing contract today," the article announced, "that gave the company exclusive rights to carry out exploration, development, production, transportation, and marketing of petroleum throughout most of Bahrain's Gulf offshore areas."

That the government of Bahrain, and its state-owned petroleum franchise, Bahrain National Oil Company, or Banoco, should choose tiny Harken Energy to explore for oil off its coast came as something of a surprise to industry experts. Amoco, the global oil giant, had also wanted the contract, and Chevron Corporation, another multinational, had advised the Bahraini government on choosing an American company for the venture.

Harken Energy had fewer than a thousand employees, and no experience whatsoever in international oil production. The company had confined its activities entirely to the domestic production of oil, and to expanding itself through the acquisition of troubled U.S. oil producers at bargain-basement prices. And it was so cash poor that it didn't even have enough capital to drill for oil without bringing in well-heeled partners to finance the exploration.

Even more surprising, Harken hadn't even actively sought the deal.

"It was not our intention to seek out international opportunities," Monte Swetnam, the president of Harken Exploration Company, the Bahrain-based subsidiary of Harken, told World Oil, another industry trade publication. "However, we were introduced to officials in Bahrain and were able to present our credentials to them. And from that, a relationship developed . . . that has evolved into one of mutual respect, ultimately resulting in signing the production-sharing contract."

The relationship promised Harken more than respect. The offshore fields were bordered on one side by a Saudi Arabian deposit with proven reserves of about 7 billion barrels, and a field belonging to Qatar with 2 billion barrels. The Bahraini offshore reserves had the potential to be enormous.

Harken Energy was in the right place at the right time. But it had something else - the right name. In January 1991 a global coalition led by President George Bush had mobilized an enormous military force to drive Saddam Hussein and the Iraqi army out of Kuwait. Another George Bush -- the son of the President of the United States -- was a director and shareholder of Harken Energy.

The few press reports about the deal questioned the motives of the government of Bahrain for making the deal with Harken Energy. Even the Wall Street Journal, customarily reserved on such matters, reported in a page-one analysis of the contract in December 1991 that it "raises the question of . . . an effort to cozy up to a presidential son."

Bush says that he pulled no strings to win the contract, and that he in fact opposed the deal, but his presence may have been enough. According to Swetnam, the Bahrainis knew that Bush was on the company's board of directors and "were clearly aware he was the President's son."

Alas for Harken, the Bush name wasn't magical enough to ensure a strike off the coast of Bahrain. The company drilled two dry holes. Bush himself fared better. He sold off two-thirds of his holdings in Harken for nearly a million dollars, and bought a small share of the Texas Rangers, a deal that ultimately netted him -- with a helping hand from Texas taxpayers -- some $15 million.

Which is all par for the course for the front-runner for the Republican presidential nomination. Whenever he's struck a dry hole, someone has always been willing to fill it with money for him. Throughout his long business career and in his six years as governor of Texas, Bush has relied on family connections, sweetheart deals, and the inside track to build a fortune. And Bush, both in private life and since he became governor of Texas, has always been willing to return the favors.

*    *    *

Governor George W. Bush makes a lot of his Texas childhood. He proudly boasts of his tenure at San Jacinto Junior High School in Midland, Texas. But the first place he ever lived was next door to the president of Yale University.

Yale was like a second home for the Bushes of Greenwich. Bush's grandfather, Senator Prescott Bush, graduated from Yale. So did his uncles Prescott Jr. and Jonathan. When Bush was born in New Haven on July 6, 1946, his father, George H.W. Bush, was finishing his college degree there.

Bush returned to Yale himself in 1964. He wasn't quite the all around scholar-athlete his father had been, but he was elected the president of his fraternity18.2 and invited to join the exclusive and secretive Skull & Bones Society.

When Bush graduated in 1968, he faced the prospect of being sent to Vietnam, but avoided combat by joining the National Guard. At the time, the Guard had 100,000 applicants on its waiting list. But Bush was sworn in as a member of the 147th unit of the Texas Air National Guard the same day he applied. Ben Barnes, who was then the Speaker of the Texas House of Representatives, recently said under oath that he secured a spot in the guard for the young Bush at the urging of Sid Adger, a Houston businessman and close friend of Bush's father, then a U.S. Representative from Houston. Bush wasn't the only son of a prominent Texan in his unit. Others included the sons of Senators Lloyd Bentsen (a Democrat) and John Tower (a Republican), and at least seven members of the Dallas Cowboys football team.

The only battle Bush fought during those years was on the home front. He says that he struggled to establish an identity separate from his famous father, who went on to become the chairman of the Republican National Committee, chief of the U.S. Liaison Office in China, and director of the Central Intelligence Agency under President Ford. Young George's identity crisis reportedly reached its climax one night in Midland when he was confronted by his father for taking his brother Marvin, then fifteen, out drinking. Bush, the story goes, challenged his father with the words, "Do you want to go mano a mano right here?"

But there was never really any doubt that Bush would hew to the family path. At that point, he was already talking to friends about running for the Texas statehouse. After being rejected from the University of Texas law school, he enrolled in Harvard Business School. Two years later, MBA in hand, he returned to Midland to find his own fortune in the oil fields,25.5 just as his father had done twenty-seven years earlier. Bush had no experience, but he had $13,000 in seed money from his parents and a network of well-heeled family friends, who became the principal financiers of his oil ventures.

Before going into business, however, Bush took a quick detour into politics. In 1978, he ran for a seat in the U.S. House of Representatives from Midland after hurriedly assembling all the trappings of a candidate. In one year, he started a business, Arbusto Energy, Inc. (Arbusto is Spanish for Bush); married Laura Welch, a librarian who grew up in Midland; and bought a house in the district of retiring Representative George Mahon. Don Evans, his best friend and fellow Texas oil man, ran the campaign.

Bush lost the election, but won the confidence of relatives and family friends who agreed to gamble on Arbusto. Owing to the huge losses its limited partners sustained, Bush's wildcat operation doubled as a tax shelter.

From 1979 to 1983 some fifty individuals pumped at least $4.7 million into Arbusto and its successor, Bush Exploration. Among them were some of his father's most durable political supporters, who guaranteed that the shaky company stayed afloat. John Macomber, the chief executive officer of Celanese Corporation, invested $79,500, and William Draper III, a venture capitalist, put in $93,000. Macomber, a friend of Bush's uncle Jonathan Bush, would go on to serve as the president of the Export-Import Bank of the United States under President Bush, the same job Draper had held under President Reagan.

George Ohrstrom and his wife invested $100,000 in Arbusto. Ohrstrom had attended Greenwich Country Day in Connecticut with Bush's father. Ohrstrom was a business partner of Philip Uzielli, a wealthy investor and the owner of Executive Resources, a company based first in the Dutch West Indies and later in Panama. Uzielli put $50,000 into one of the early Arbusto partnerships. In January 1982, his company bought ten percent of Arbusto's stock for a cool $1 million. The investment made Uzielli Arbusto's largest benefactor, a privilege he paid well for. The million-dollar purchase price was at least three times more than the stock he bought was worth. Uzielli, incidentally, had another connection to the Bush clan besides Ohrstrom. He'd been a close friend of James Baker III, who was intimately involved in the elder Bush's political career, ever since the two had been classmates at Princeton University. Baker managed Bush's presidential campaign in 1980 and was Secretary of State during Bush's sole term as President.

Russell Reynolds, Jr., the founder of his own executive search firm, Russell Reynolds Associates, put up $23,250. H. Leland Getz, who co-founded the firm, invested twice as much - $46,500. "These are all the Bushes' pals," Reynolds once said of Arbusto's backers. "This is the A-Team."

Reynolds knew whereof he spoke. He'd gone to Yale with George W.'s uncle Jonathan Bush, an investment manager and New York Republican Party official who lined up most of Arbusto's backers. Many of them were already clients of his, and he charged his usual commission for recruiting them. Jonathan Bush, who tapped Reynolds for a turn with Yale's a capella group, the Wiffenpoofs, would later take a turn on the board of directors of Russell Reynolds Associates. Reynolds, a former finance chairman of the Connecticut Republican Party, also raised $4 million for Vice President Bush's 1988 presidential campaign. "In Greenwich," he told an interviewer last year, "the Bush family are is absolute tops."

Investing in Arbusto, however, turned out to be the absolute pits. By April 1984, Arbusto had drilled ninety-five holes, with forty-seven yielding oil, three yielding natural gas, and forty-five that were dry. The company had returned only $1.5 million to its investors. "The bottom line is it didn't work out very well with Arbusto," Russell recalled. "I think we got maybe twenty cents on the dollar."

Philip Uzielli tried to shore things up by buying another ten percent stake for $150,000, but to no avail. "We lost a lot of money in the oil business," Uzielli told a reporter for the Wall Street Journal in 1991. "We had a lot of dry wells. . . . Things were terrible. It was dreadful."

But the A-Team was willing to take a bath to help out a Bush. "We wrote the money off the minute we invested," said Stephen Kass, a classmate of Bush's at Harvard Business School. Trying to capitalize on that sentiment, Bush changed the name of the company from Arbusto to Bush Exploration in 1982. His father had been Vice President for more than a year at the time.

But the name change didn't help. The world price of oil was collapsing, and even the savviest of the independent oil companies were hard hit. The less savvy were going bankrupt. By 1984 the only way Bush could save his business was to find yet another well-heeled partner. This time he turned to an old Yale classmate of his, William DeWitt, Jr., who owned Spectrum 7 Energy Corporation, an Ohio oil exploration company. DeWitt came from a wealthy background; his father once owned the Cincinnati Reds baseball club. DeWitt and his investment partner, Mercer Reynolds, later became donors to the elder Bush's 1988 presidential campaign and to the Republican National Committee.

The two men also took care of the son. Rather than invest in Bush Exploration, they bought it out. And they didn't just pay for the office furniture. As part of the deal, Bush became Spectrum 7's chief executive officer, at an annual salary of $75,000, and got 1.1 million shares of the company's stock. Unfortunately for DeWitt and Reynolds, Bush turned Spectrum 7 into a money-losing enterprise. Two years after the merger, in 1986, world oil prices fell even further. Bush needed another bailout, and fast. He found a willing savior in Harken Oil and Gas, an oil exploration company headquartered in Dallas, Texas.

Despite the fact that Spectrum 7 had posted losses of $400,000 just six months earlier and carried $3 million in debt, Bush and his partners received $2 million worth of Harken stock. Bush's cut was worth about $500,000. Bush also became a director, and he was paid as much as $120,000 in consulting fees plus $131,250 in stock options. even though he spent much of 1987 and 1988 working on his father's presidential campaign. That was fine with Harken; unlike DeWitt, Bush's new benefactor wasn't interested in having him run the company.

"His name was George Bush," Phil Kendrick, Harken's founder, said. "That was worth the money they paid him."

Stuart Watson, who was a member of Harken's board of directors at the time of the Spectrum deal, echoed that view in a 1994 interview with a reporter for the Dallas Morning News. "George was very useful to Harken," Watson said. "He would have been more so if he had had funds, but as far as contacts were concerned, he was terrific."

Indeed, once Bush signed on, business at Harken began to pick up.

When Harken bought out Spectrum 7, the company was broke and desperately needed a cash infusion. As the talks with Spectrum 7 progressed, Harken officials were lining up a major new financial backer: Harvard Management Company, Inc. The investment firm's only client is Harvard University; it manages the school's multibillion-dollar endowment.

A month after Bush came on board, Harvard Management agreed to invest at least $20 million in Harken. It would eventually come to own some ten million shares of Harken's stock, making it one of the company's largest investors.

The Bush name may have helped seal the deal.

Michael Eisenson, a partner in Harvard Management Company who sat on Harken's board of directors, said that he and other Harvard officials picked Harken after reviewing several proposals from energy companies. "Harken management seemed capable and honest," Eisenson said.

The Bush name certainly would have made an impression on Eisenson's boss, Robert Stone, Jr., who was one of Harvard Management's directors. Stone was "the driving force" behind Harvard's Southwest oil and gas investments, according to Scott Sperling, who worked with Eisenson at Harvard. Stone himself was a player in the Texas oil and gas industry; at the time, he was the chairman of Kirby Exploration, an oil and gas transportation company based in Houston. As a longtime resident of Greenwich, Connecticut, he also knew the Bushes. His father-in-law, Godfrey Rockefeller, had invested in George Bush's oil drilling ventures in the late 1940s. Stone's brother, Galen L. Stone, was the U.S. envoy to Cyprus during the first Reagan-Bush Administration. In 1980 and 1988 he contributed to the elder Bush's presidential campaigns. And like Bush's uncle Jonathan, Stone had been on the board of directors of Russell Reynolds Associates. (Stone did not return the Center's telephone calls.)

In a recent interview, Scott Sperling told the Center that he doesn't recall Harken as "an investment that had come specifically recommended by any board member."

But according to Bing Sung, who was an investment manager at Harvard Management Company until 1986, "You just don't knock on the door of a major endowment, which Harvard certainly was, and say, 'Listen, I've got a great idea and I want to present it to the board,' . . . unless you have an in."

Harken was Harvard Management's first major investment in Texas wildcat operations, a part of the university's investment history it would rather forget. The investments in oil and gas would eventually generate nearly $200 million in losses for the endowment.

The university's commitment to Harken was surprising in view of the bad shape the company was in. "I took some time and looked at it and I went, god, I don't want to be anywhere near this," a prospective investor in Harken from the late 1980s told the Center. "This thing looks like a train wreck."

By Harken executives' own accounts, the company's financial statements were "a mess" and "a fast numbers game." But insiders insist that Harvard's money mangers wouldn't have kept pumping money into Harken if they didn't think it would become profitable.

For a time, they had reason to believe it would.

The Bahrain agreement, announced on January 30, 1990, seemed to justify Harvard's enthusiasm for Harken. While Bush said he had no role in securing the deal, and added that he had argued against it, his wealthy patrons certainly ensured that Harken could pull it off.

Bass Enterprises Production Company put up $25 million to finance the drilling. After Bass Enterprises invested in the Bahrain operation, paying for the exploration that would eventually produce two dry wells, Harvard Management upped its stake in Harken to 30 percent.

Bass Enterprises is part of the financial empire of the Bass brothers of Fort Worth, two of whom became members of Team 100, an elite club of big donors to the Republican National Committee, during the elder Bush's 1988 presidential campaign. The Bass family has been generous to the son as well; they rank No. 5 among Bush's career patrons, having contributed more than $273,000 to him. All four Bass brothers -- Sid, Robert, Edward, and Lee -- attended Yale, as did their father, Perry Bass. Edward was enrolled at the Ivy League school at the same time as George W. Bush.

In August 1990, Harken posted a $23 million loss from its consolidated operations, sending its share price down from $3 to a year-end low of $2.37. Bush, however, avoided the downturn in the company's fortunes. Two months earlier, on June 22, 1990, he had unloaded 212,140 shares, or about two-thirds of his holdings, for $848,560.

As a director of the company, Bush was required to promptly report the stock sale to the Securities and Exchange Commission. He did -- eight months late. Bush later claimed he had indeed reported the transaction in a timely manner, but that somehow the paperwork had been lost. Whatever the case, the eight-month delay attracted the attention of SEC investigators. The timing of the transaction seemed too good to be true.

As a member of Harken's audit committee, Bush was familiar with the company's finances and was aware that it was about to restructure its debt - a move that would depress its share price. In addition, he may have been alerted that the company was about to post a huge loss. In April 1991 the SEC launched an insider-trading investigation of Bush. The outcome of the probe raised more questions than it answered.

When the investigation began, the chairman of the SEC was Richard Breeden, who had been appointed by President Bush. Before joining the SEC, Breeden had for several years been the President's economic policy adviser. Bush even thanked Breeden by name in several speeches. Breeden's office at the SEC was adorned with so many pictures of President and Mrs. Bush that a reporter for the New York Times observed, "George Bush is Breeden's Mao." Before going to the White House, Breeden had been a partner in Baker & Botts, the law firm started by the grandfather of James A. Baker III, President Bush's Secretary of State.

The SEC's general counsel at the time, who would be ultimately responsible for any litigation the commission would initiate, was James Doty. Doty had also worked at Baker & Botts, where he represented the younger Bush in business related to his stake in the Texas Rangers baseball team.

In addition to collecting reams of documents, investigators for the SEC interviewed Harken's lawyer as well as the broker who'd sold Bush's stock. Then, in 1993, the agency dropped the investigation. William McLucas, the director of the SEC's enforcement division, said "there was no case there." (McLucas had been promoted to the job of being the SEC's top cop by Breeden.) But in a letter to George W. Bush announcing the agency's decision, McLucas's deputy, Bruce Hiler, wrote that the end of the probe "must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff's investigation."

Bush, who by then was running for governor of Texas, gave the letter his own spin. "The SEC fully investigated the stock deal," he said in October 1994. "I was exonerated." Since 1993, Breeden, Doty, and other lawyers at Baker & Botts have given Bush $182,050, making the firm his No. 13 career patron.

One of the questions the SEC didn't answer was who bought Bush's stock.

In his statement of intent to sell, which Bush also had to file with the SEC, he said he was putting his 212,140 shares on the open market. That was nearly twenty times the daily volume of stock that traded on average during June 1990; without a buyer willing to absorb such a large block of stock, the share price would have plummeted.

Under questioning by SEC investigators, Ralph Smith, a Los Angeles broker with Sutro & Company, who handled the sale, said that he solicited the shares at the behest of an institutional investor, which he didn't name.

The available evidence suggests that the investor was Harvard. The university increased its holdings in Harken around that time. No new institutional investors appeared on the scene. At the bottom of a spreadsheet Smith used to record his calls to Bush was the name of Michael Eisenson, along with the telephone number of Harvard Management. (Eisenson did not return the Center's telephone calls.)

If Harvard was the institutional investor that bought Bush's stock, it would be the second time in his career that Bush was bailed out by his alma mater. Bush needed the money from the sale to secure his stake in the Texas Rangers baseball team, an investment he believed would propel him into politics, and that would ultimately bring him $15 million.

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