White House defends Bush handling of stock sale
CNN Washington Bureau
WASHINGTON (CNN) -- The White House Wednesday defended President Bush's handling of a stock sale 12 years ago, arguing the reason Bush failed to disclose the sale promptly under federal law was because of a "mix-up" involving the corporation's attorneys, a different explanation from what Bush himself said in the early 1990s.
During his first race for Texas governor, the first time the stock issue surfaced, Bush said he filed the appropriate report with the Securities & Exchange Commission about the sale of stock in Harken Energy Company, but contended the SEC had misplaced that report. Bush served on the company's board of directors at the time of the stock sale.
The transaction has resurfaced in the wake of Wall Street scandals involving companies such as WorldCom and Enron, with Bush himself calling for higher ethical standards for corporate leaders and for those leaders to disclose promptly any sale or purchase of their company's stock.
Form of mix-up
At issue is Bush's sale on June 22, 1990 of 66 percent of his holdings, 212,140 shares of Harken at $4 per share, a sale netting Bush nearly $850,000, at a time when Bush served on the company's board of directors.
About two months later, the stock fell to $2.37 per share after the company disclosed it was carrying a larger debt and announced losses for its results in the second quarter of 1990. The stock eventually was trading at only $1 by the end of 1990, according to the Dallas Morning News.
Ari Fleischer, White House press secretary, said that on the date of the sale, Bush filed a Form 144, also known as a Notice of Intent to Sell. However, he did not file the Form 4, the form reporting the sale, until March 1991, more than eight months later, which was a violation of federal law.
A corporate insider is legally required to disclose publicly by the 10th day of the month following the transaction any purchase or sale of stock in that company.
"The president thought [the Form 4] had been filed at the time and indicated so publicly," Fleischer said during his afternoon briefing, which included a flurry of questions about the stock sale. "What happened as a result was it was a mix-up with the attorneys dealing with the Form 4, and it was filed later. But it was indeed filed."
Fleischer, who indicated he only learned about the issue this week, was pressed to explain how such a "mix-up" could occur.
"I think the best explanation is that the attorneys thought the form had been filed, which is what led then George W. Bush to say that he thought it had been filed and that SEC must have lost it," he said. "That was not the case."
'The buck stops over there'
Democrats raised the issue during Bush's 1994 race for Texas governor against then Gov. Ann Richards and are now raising the issue once again.
"President Bush, Vice President Cheney and SEC Commissioner Harvey Pitt like to preach CEO responsibility, but when it comes to their own records, their motto is 'the buck stops over there," Terry McAuliffe, Democratic National Committee Chair, said in a statement.
"President Bush blames his lawyers for late SEC filings, Vice President Cheney claims he did not know what was going on at Halliburton while he was CEO and Chairman of the Board," McAuliffe said. "It's time this CEO, President Bush, took responsibility for his actions as a private businessman and as president of the United States.
"The idea that he sat on these boards and did not know [the company] would report losses is not credible," said one Democratic Party official.
The official said that Bush, while on the board of Harken, sat on the audit and fairness committees, arguing that Bush likely had information about the company's performance.
But the White House argues Bush did not have any insider information, and pointed to the SEC, which looked into the matter but took no action against Bush.
"The SEC took a look ... and concluded there's nothing there," Fleischer told reporters. "The SEC has been well aware of this issue, involving the Form 4, the filing of forms. And they've looked at all of this, and the SEC has concluded that this is not anything that's actionable."
In a memo from the SEC's enforcement division dated March 18, 1992, obtained by CNN, the SEC staff said it did not "intend to pursue the investigation further or to recommend any action."
"Based upon our investigation, it appears that Bush did not engage in illegal insider trading because it does not appear that he possessed material nonpublic information or that he acted with scienter [deliberation or knowledge] when he sold the Harken stock," the memo by the SEC's enforcement division said.
The SEC staff, according to the memo, said the evidence showed that Bush was not aware of the "majority of the items that comprised the loss Harken announced on August 20" of $23.2 million.
SEC memo on stock sale
The SEC said it found one document that Bush received before his stock sale, indicating that Bush learned the first week of June 1990 that Harken's projected operating losses for the period were $4.2 million, which the SEC said was consistent with "Harken's publicly reported trend of quarterly operating losses."
The SEC also said that when Harken announced its $23.2 million loss on August 20, the markets did not "immediately react." The SEC memo said the stock continued to trade at $3 per share on August 20, dropped to $2.375 per share and then rebounded the next day to $3 per share.
"In light of the market reaction to Harken's announcement of a $23.2 million loss ... it would be extremely difficult to establish that an announcement that Harken would lose $4.2 million for the quarter ended June 30 [the only information Bush knew] was material information," the memo said.
Bush bristled Tuesday when a reporter asked him about the matter, which resurfaced in a column in the New York Times Tuesday.
"Everything I do is fully disclosed, it's been fully vetted," Bush said after a tour of a Milwaukee church.
In a letter to Bush's lawyer, obtained in 1994 by the Dallas Morning News, the SEC said that "the investigation has been terminated as to the conduct of Mr. Bush... at this time, no enforcement action is contemplated with respect to him."
However, the letter went on to say that it "must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result" from the investigation.
The SEC never interviewed Bush, Democratic sources said.
The Bush spokesman tried to downplay the significance of the story, calling it "one of the most widely reported stories of the '90s" and an issue the president's "political opponents have raised against him, going back to 1994 in his first campaign ever for office."
"This is old news," said another Bush adviser, Claire Buchan, White House deputy press secretary. "It's been raised in every campaign the president has run in. It didn't have merit 10 years ago when people raised it for political purposes and it does not have any merit now."
Bush plans to focus on corporate responsibility during a speech to a gathering of about 1,000 business leaders on Wall Street Tuesday.
Fleischer did not rule out the president unveiling tougher measures, including calling for criminal penalties for corporate leaders who knowingly misreport the company's earnings.
"If there are any bad players in our free enterprise system, they will be held accountable by this administration and by the government," the Bush spokesman said during his morning briefing with reporters.
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