Copyright 2002 The International Herald Tribune | www.iht.com

Bush backed off-books deal for Harken
Dana Milbank The Washington Post
Friday, October 11, 2002
 
WASHINGTON When President George W. Bush served as a director of an energy company 12 years ago, he approved the creation of an off-balance-sheet partnership that reduced the company's debts and improved earnings in a transaction similar to those that led to the collapse of Enron Corp.

As a director of Harken Energy Corp. in 1990, Bush, who had sold his own oil business to Harken and been retained as a consultant, made the motion at a board meeting to negotiate the transfer of struggling assets of Harken into a partnership with Harvard University's investment arm, Harvard Management Co., documents indicate.

Unlike Enron, which used partnerships to conceal debts and unprofitable making operations, Harken followed accounting rules for its partnership and disclosed it to investors and regulators. Bush did not profit personally from the transaction because he had sold most of his shares earlier.

"There is simply no comparison" to Enron, a White House spokesman, Scott McClellan, said. "It was disclosed to investors, and it conformed to accounting rules."

News of the partnership was disclosed Wednesday in The Wall Street Journal and The Boston Globe after documents were gathered by HarvardWatch, a group that monitors the university's investments. It provided what to Bush was an unwelcome link between him and the accounting scandals that have weakened investor confidence this year.

After the partnership was created, the price of Harken's shares recovered as the company's financial situation appeared to improve, in part because of the removal of $20 million in debt.

According to board minutes of Aug. 29, 1990, obtained by HarvardWatch, Bush made the motion, which was approved, to "proceed in negotiations" toward "formulating a letter of intent" creating a "new entity." The entity, which became the Harken Anadarko Partnership, included oil and gas properties to be managed by Harken.

Harvard Management, which invests the university's endowment, was a major investor in Harken, at one point owning 30 percent of its shares. Its investments began at about the same time that Bush, whose father was then vice president, became a director of the company in 1986.

McClellan, the White House spokesman, said the ties between Harvard Management and Harken had nothing to do with connections to the Bushes because talks about a possible Harvard investment in Harken began before Bush became a director of the company. McClellan said that the off-balance-sheet partnership had been proposed by Harvard and that the university investors had "set the terms of the partnership."

Harvard said Wednesday that its investments in Harken "were not inappropriate" and that connections to the Bush family had not been a factor. "The role of the Harvard Management Company is not to curry political favor but to invest well on Harvard's behalf," its statement said.

A phone call to Harken executives seeking comment was not returned.

The partnership significantly improved Harken's fortunes. Its shares, which had fallen to $1.25 in late 1990 from a high of $6, climbed to $8 in 1991. The improvement came as Harken's debt and interest expenses fell because of the partnership. Harvard benefited from the higher stock price by selling 1.6 million shares between September 1991 and October 1992, HarvardWatch said.

By December 1992, Harvard Management had bought all of Harken's interest in the partnership. Harvard sold the venture in 1993 to Cabot Oil Gas Corp. for stock valued at $34.6 million, HarvardWatch said.

The partnership "bears striking resemblance to the partnerships Bush has condemned at Enron," HarvardWatch argued. "It was controlled by and transparent only to Harken insiders, and likely was used to artificially brighten the company's business prospects."

Copyright 2002 The International Herald Tribune