July 12, 2002 – The current crisis in American capitalism isn’t just about the
specific details —— about tricky accounting, stock options, loans to executives, and
so on. It’s about the way the game has been rigged on behalf of insiders.
And the Bush administration is full of such insiders. That’s why President Bush
cannot get away with merely rhetorical opposition to executive wrongdoers.
To give the most extreme example (so far), how can we take his moralizing
seriously when Thomas White —— whose division ofEnrongenerated $500 million
inphony profits, and who sold$12 million in stock just before the company
collapsed —— is stillsecretary of the Army?
Yet everything Mr. Bush has said and done lately shows that he doesn’t get it.
Asked about the Aloha Petroleum deal at his former company Harken Energy ——
in which big profits were recorded on a sale that was paid for by the company
itself, a transaction that obviously had no meaning except as a way to inflate
reported earnings —— he responded, “There was an honest difference of opinion. .
. . sometimes things aren’t exactly black-and-white when it comes to accounting
And he still opposes both reforms that would reduce the incentives for corporate
scams, such as requiring companies to count executive stock options against
profits, and reforms that would make it harder to carry out such scams, such as
not allowing accountants to take consulting fees from the same firms they audit.
The closest thing to a substantive proposal in Mr. Bush’s tough-talking, nearly
content-free speech on Tuesday was his call for extra punishment for executives
convicted of fraud. But that’s an empty threat. In reality, top executives rarely
get charged with crimes; not a single indictment has yet been brought in theEnron
affair, and even “Chainsaw Al” Dunlap, a serial book-cooker, faces only a civil suit.
And they almost never get convicted. Accounting issues are technical enough to
confuse many juries; expensive lawyers make the most of that confusion; and if all
else fails, big-name executives have friends in high places who protect them.
In this as in so much of the corporate governance issue, the current wave of
scandal is prefigured by President Bush’s own history.
An aside: Some pundits have tried to dismiss questions about Mr. Bush’s business
career as unfair —— it was long ago, and hence irrelevant. Yet many of these same
pundits thought it was perfectly appropriate to spend seven years and $70 million
investigating a failed land deal that was even further in Bill Clinton’s past. And if
they want something more recent, how about reporting on the story of Mr. Bush’s
extraordinarily lucrative investment in the Texas Rangers, which became so
profitable because of a highly incestuous web of public policy and private deals? As
in the case of Harken, no hard work is necessary; Joe Conason laid it all out in
Harper’s almost two years ago.
But the Harken story still has more to teach us, because the S.E.C. investigation
into Mr. Bush’s stock sale is a perfect illustration of why his tough talk won’t
scare well-connected malefactors.
Mr. Bush claims that he was “vetted” by the S.E.C. In fact, the agency’s
investigation was peculiarly perfunctory. It somehow decided that Mr. Bush’s
perfectly timed stock sale did not reflect inside information without interviewing
him, or any other members of Harken’s board. Maybe top officials at the S.E.C.
felt they already knew enough about Mr. Bush: his father, the president, had
appointed a good friend as S.E.C. chairman.
And the general counsel, who would normally make decisions about legal action, had
previously been George W. Bush’spersonal lawyer —— he negotiated the
purchase of the Texas Rangers. I am not making this up.
Most corporate wrongdoers won’t be quite as well connected as the young Mr.
Bush; but like him, they will expect, and probably receive, kid-glove treatment. In
an interesting parallel, today’s S.E.C., which claims to be investigating the highly
questionable accounting at Halliburton that turned a loss into a reported profit,
has yet to interview the C.E.O. at the time —— Dick Cheney.
The bottom line is that in the last week any hopes you might have had that Mr.
Bush would make a break from his past and champion desperately needed
corporate reform have been dashed.
Mr. Bush is not a real reformer; he just plays one on TV….
THE BUSH PIONEER-RANGER NETWORK
From Texans for Public Justice
Name: Lee Bass Occupation: President & Owner, Lee M. Bass, Inc. Industry: Energy & Natural Resources Home: Fort Worth, Texas Net Worth:$3.9 Billion (53rd in the Fortune 400)
Lee Bass manages the inherited oil assets of this now-diversified billionaire family,
which is Bush’s fifth largest career patron, according to the Center for Public
When Bush’s ailing Harken Oil suspiciously won exclusive offshore drilling rights in
Bahrain in ’90, the Basses bankrolled the venture. Two of Texas’ wealthiest Pioneer
families, the Basses and the Wylys mobilized their lobbyists to kill a ’97 bill that
would have taxed investment partnerships in Texas, with the Basses threatening to
move their operations to another state.
Bush appointed Lee Bass chair of the Texas Parks and Wildlife Department
(TPWD), which is in hot water for selling alcohol and tobacco ads for brochures
distributed to park visitors.
In a controversial ’98 move, the agency privatized wildlife by granting permits
that allow landowners to trap and breed “wild” deer that they can sell on the hoof
to hunters who lease their land. Yale returned the $20 million that Lee Bass gave
it in ’95 for a Western Civilization program. Bass wanted to control related faculty
appointments; critics said he would use this power to exclusively promote ideas of
“dead white European males.”
Tri-Lateral Investment Group
Excerpt from Al Martin’s book about
Bush’s Harken Energy Fraud
… The Tri-Lateral Investment Group, Ltd. is also one of the deals (one of the
very few deals, perhaps only a few dozen deals in that era by this group of guys)
that you could connect Jeb, Neil, George, Jr., Prescott, and Wally Bush.
All five you can put in the Tri-Lateral Investment Group, Ltd. You can put Neil in it
vis-a-vis Tri-Lateral’s dealings with Neil’s Gulf Stream Realty.
Then you back up a step and put Neil Bush into Tri-Lateral Investment Group’s
dealings with the Winn Financial Group of Denver run by the infamous former
Ambassador to Switzerland, Phillip Winn.
You can put George, Jr. in the deal vis-a-vis the Tri-Lateral Group Ltd.’s
fraudulent relationship with American International Group(AIG), of which
George, Jr. was a part through the same series of fraudulent fidelity guarantee
instruments issued on behalf of Harken Energy from American International
Tri-Lateral Investment Group then sold bogus oil and gas leases to AIG.
This is a direct fraud that George, Jr. profited to the extent of (not a lot) $1.6
or $1.7 million.
Aloha Petroleum is buying former
Arco stations but the FTC
is scrutinzing the deal
By Rick Daysog Star-Bulletin
Aloha Petroleum Inc. said its purchase of 18 former Arco stations will likely close
next month despite a joint anti-trust investigation by the Federal Trade
Commission and the state Attorney General’s Office.
Bob Maynard, president of Aloha Petroleum, said that such investigations are part
of the “normal process” when it comes to the sale of oil industry properties and
that he doesn’t expect any delay in the deal.
Aloha Petroleum announced earlier this year that it was acquiring the stations
from U.S Restaurant Properties Inc.
The company also is purchasing U.S. Restaurant’s 50 percent interest in the
500,000-barrel Aloha Petroleum Fuel Storage Terminal at Barbers Point.
Aloha Petroleum owns the other 50 percent interest in the terminal facility.
In a filing with the Securities and Exchange Commission yesterday, U.S.
Restaurant’s successor company, Trustreet Properties Inc., said it received a
letter from the Attorney General’s Office last week informing it of an anti-trust
Trustreet said the Attorney General’s Office asked that it voluntarily provide
records relating to the sale of the stations and its interest in the terminal facility.
Both Aloha Petroleum and Trustreet said they intend to cooperate with the
U.S. Restaurant had been trying to sell its Hawaii stations after the previous
station operators, BC Oil Ventures, filed for bankruptcy protection in 2000.
BC Oil had operated in Hawaii under the Arco brand.
Trustreet is an Orlando, Fla.-based real estate investment trust that was formed
in February through the merger of U.S. Restaurant, CNL Restaurant Properties
Inc. and 18 CNL income funds.
CNL was a landlord for national fast-food chains such as Jack in the Box and
State: Big oil firms tried to
cripple Aloha Petroleum
Attorneys for several firms dispute the allegations that
they conspired against Aloha’s lower prices
By Rob Perez, Star-Bulletin
The major oil companies in Hawaii tried to cripple Aloha Petroleum in the 1990s
because its lower gas prices undermined a scheme that produced high profits for
the industry and high costs for consumers, the state alleges in court documents.
Aloha’s pricing strategy prompted the other companies to boycott Aloha until it
started importing gasoline, the state says in documents filed as part of a $2 billion
antitrust lawsuit against the major companies. Aloha began importing in 1997.
Attorneys for several of the oil companies strongly denied the state’s allegations.
“That’s just nonsense,” said Alan Grimaldi, a Washington, D.C., attorney
representing Texaco Inc. “There’s absolutely no evidence of that.”…
Attorney John Myrdal, who represents Unocal Corp., likewise dismissed the
state’s allegations. “These are totally false,” he said….
Had 20-year contract
Aloha also had a 20-year supply contract with BHP Petroleum, which used to own
one of Oahu’s two refineries, until 1997, Grimaldi said.
Few details of the state’s allegations have been made public, and Spencer Hosie,
the San Francisco attorney heading the state’s case, did not respond to requests
for comment. Aloha Petroleum also did not return phone calls seeking comment.
The allegations are briefly mentioned in an October 2000 federal court filing by
Texaco, a defendant in the antitrust case.
One state document referred to in the Texaco filing said Unocal, also known as
Union Oil, refused in 1993 to provide Aloha with fuel that could be obtained
directly from Unocal’s suppliers. Unocal at the time got its supply from BHP and
Chevron, which owned the other Oahu refinery, in exchange for providing gas to
the two companies elsewhere.
Unocal refused for the next two years to provide fuel or “terminaling” to Aloha,
according to the state.
“This refusal confirms that Union had joined with its ‘exchange partners’ to
control and cripple Aloha as a price competitor in the Hawaii market,” the
Chevron did not respond
A Chevron spokesman did not respond to a request for comment. A spokesman for
Australia-based BHP, which sold its Hawaii refinery and gas stations to Tesoro
Petroleum Corp. in 1998 and no longer is in the market, could not be reached for
In the court document, the state said Unocal considered Aloha to be a price cutter
whose marketplace conduct reduced profit margins for Unocal and its exchange
But in a 1994 report on Hawaii’s high gas prices, the state attorney general’s
office said Aloha claimed it could not obtain competitive exchange agreements
with Chevron and BHP.
Yet the other companies that did not make gasoline here had exchange agreements
with the two refinery operators.
The exchange agreements, the state alleges in the lawsuit, were only available to
companies that would not compete on price, preserving high profit margins. Those
agreements were used to allocate market share among the companies and to fix
prices, according to the state.
Tim Hamilton, a mainland petroleum analyst who has studied Hawaii’s market, said
he wasn’t surprised by the state’s allegations.
‘Common business practice’
In mainland markets where independent gas marketers aggressively cut prices to
try to build volume, the major oil companies pressured the independents to retreat
or face being driven out of business, Hamilton said.
“This has been found and shown and documented before,” he said. “It’s a common
Hamilton said Aloha likely was pressured into keeping its per-gallon prices within a
few cents of the stations run by the oil companies. That way, Hamilton said, Aloha
could not continue taking market share from the other companies.
Dealers at competing gas stations say Aloha, an $80 million company with roughly
15 percent of the Oahu market, does not price as aggressively today as it did in
the early 1990s. Aloha stations, which are operated by the company instead of
dealers, generally are in the low end of the price range on Oahu.
When the state filed its antitrust lawsuit in October 1998, Aloha was the only
major gas company in Hawaii that was not named as a defendant.
Hosie at the time said Aloha was excluded because it initially wasn’t part of the
group that conspired to keep Hawaii prices artificially high.
When Aloha bought gas locally, it was charged a higher price than the other major
suppliers that got fuel from Hawaii’s refiners, Hosie said.
Once Aloha started importing less-expensive gas, however, it did not pass on the
savings to consumers and benefited from the alleged conspiracy, Hosie said in
the October 1998 interview.
The oil companies have denied the conspiracy charge. The lawsuit is scheduled to
go to trial in September.
War is a racket…. War is largely a matter of money. Bankers lend money to
foreign countries and when they cannot pay, the President sends Marines to
– Marine Maj. Gen. Smedley D. Butler (1881-1940)
~ ~ ~
THE PERSIAN GULF
The Allied victory in the Persian Gulf war of 1991 was loudly trumpeted by the
American mass media, but the actions leading to this conflict were sparsely
reported throughout the coverage. These machinations involved people in secret
societies and indicated a very different rationale for the war than the one
presented to the public.
No one can argue that the United States military, with some assistance from
British, French, and Arab forces, did not perform magnificently during this brief
conflict. It took only between January 17 and February 28, 1991, for the coalition
of Operation Desert Storm to soundly defeat the Iraqi forces of Saddam
Hussein, then representing the fifth largest army in the world. This astounding
military success was due primarily to the Allied forces’ superiority in both
weaponry and training as opposed to Saddam’s conscripts who, through veterans of
combat against Iran, had limited training and low morale.
This disparity created a lopsided war which resulted in more than 300,000
Iraqi casualties, both military and civilian, and 65,000 prisoners, compared to
the extraordinary low Allied losses of 234 killed, 470 wounded, and 57 missing.
Primary leader of the war was U.S. President George Bush, a former CFR
member, Trilateralist, and Skull and Bonesman.
As with most Middle East conflicts, the primary issue was oil. Both Bush and then
Secretary of State James Baker were deeply involved in the oil business. Any
Bush policy which increased the price of oil meant more profit to his companies,
those of his oilmen supporters and, of course, to the Rockefeller-dominated oil
An added bonus was that any conflict which divided the Arab world would only
strengthen the power of the U.S., Britian, and Israel in the region. A coalition of
countries fighting for the United Nations could only advance the globalists’ plan
for a one-world military force.
This“battle of the New World Order was some kind of manufactured crisis with a
hidden agenda,” wrote conspiracy researchers Jonathan Vankin and John Whalen
after study of the events leading to this conflict.
Bush and Saddam Hussein had had a close relationship for many years. In his role
as CIA director, and later as vice president, George Bush had supported Saddam
through his eight-year war against Iran following the ouster of the Shah in 1979.
By 1990 Saddam’s Iraq was a primary threat to the balance of power between
Israel and its Arab neighbors, but Saddam was strapped for cash due to the Iraq-Iran War and couldn’t pay his bills. Under pressure from the international bankers
for slow repayment of loans and from the Organization of Petroleum Producing
Countries (OPEC), which refused to allow him to raise oil prices, Saddam turned his
eyes to Kuwait as a source of income. At the time it was the third largest
producer of oil next to Iraq and Saudi Arabia.
Kuwait had been carved out of Iraq by Britain, who in 1899 took control of Kuwait’s
foreign policy under an agreement with the dictatorial Sabah family. The Sabahs
had produced a series of ruling sheikhs since assuming control of the area’s nomad
tribes in 1756. Kuwait became a British Protectorate in 1914 when German
interest suddenly gave the area strategic importance. British dominance was
solidified by sending British troops to the area in 1961 after Iraq sought to
The Pentagon had known that Iraqi troops were massing along the Kuwait border
since mid-July 1990. On July 25 Saddam sought advice from the United States on
his intentions to reclaim Kuwait. He met with U.S. ambassador April Glaspie, who
told him, “I have direct instructions from President Bush to improve our relations
with Iraq. We have considerably sympathy for your quest for higher oil prices,
the immediate cause of your confrontation with Kuwait….
“I have received an instruction to ask you, in the spirit of friendship not
confrontation, regarding your intentions: Why are your troops massed so very
close to Kuwait’s borders?”
According to transcripts released long after the war, Hussein explained that, while
he was ready to negotiate his border dispute with Kuwait, his design was to “keep
the whole of Iraq in the shape we wish it to be.” This shape, of course, included
Kuwait, which Saddam considered still a part of Iraq.
“What is the United States’ opinion on this?” he asked.
“We have no opinion on your Arab-Arab conflicts, like your dispute with Kuwait,”
replied Glaspie. “Secretary Baker has directed me to emphasize the instruction,
first given to Iraq in the 1960s, that the Kuwaiti issue is not associated with
“Shortly after this, April Glaspie left Kuwait to take her summer vacation, another
signal of elaborate American disinterest in the Kuwait-Iraq crisis,” noted authors
Tarpley and Chaitkin in George Bush: The Unauthorized Biography.
On July 31, Bush met with GOP congressional leaders but said nothing about the
The crisis escalated on August 2, when Iraqi troops moved into Kuwait. Bush froze
all Iraqi assets in the United States, adding to Saddam’s money woes, which had
worsened in 1990 after international bankers refused him further loans. Glaspie
was prohibited from speaking out by the State Department, so the American public
could not learn of Bush’s duplicity.
In later testimony before the Senate Foreign Relations Committee, Glaspie pointed
out that the July 25 conference was her first and only meeting with Saddam, who
had not met with any foreign ambassador since 1984, the midpoint of his war with
But if Saddam had not met with U.S. diplomats, the same could not be said of
American businessmen. Economist Paul Adler noted, “It was known that David
Rockefeller met with the Iraqi leader on at least three known occasions after the
Chase Manhattan consortium became the lead banker in a number of major Iraqi
It was also reported that Alan Stoga, a vice president of (Henry) Kissinger
Associates met with Iraqi leaders during a two-year period preceding the Gulf
“Saddam began to realize that he could not get what he wanted from the striped-pants set. He began doing business with the people who mattered to him – foreign
businessmen, defense contractors, technologists and scientists, occasionally even
visiting newsmen,” reported the Washington newspaper, The Spotlight.
Following the money trail of such non-diplomatic contacts which led to the Gulf
War, Congressman Henry Gonzalez, chairman of the House Committee on Banking,
Finance and Urban Affairs, discovered that almost $5 billion in loans had been
passed to Saddam Hussein in the 1980s through the Atlanta, Georgia, branch of
Italy’s government-owned bank, Banca Nazional del Lavoro (BNL).
The branch manager, Christopher Drogoul, was finally brought into federal court,
where he pleaded guilty to approving this huge cash transfer without the approval
of BNL’s head office in Italy. However, the whole investigation was put on hold
during the Gulf War.
Most observers disblieved that Drogoul could have conducted such a massive
transaction without the knowledge of his superiors. Bobby Lee Cook, one of
Drogoul’s several defense attorneys, argued that his client had been made the
patsy in “a scheme orchestrated at the highest levels of the U.S. Government.”
In court, BNL official Franz von Wedel testified that his boss Drogoul had acted
on the advice of the bank’s consultants, Kissinger Associates.
In both 1989 and 1990 the Bush Justice Department had quashed indictments
against the BNL by the Atlanta Attorney General’s office following an FBI raid on
the bank on August 4, 1989. Action against the bank managers was held up for
more than a year. Indictments were finally handed down one day after Bush
declared a cease-fire in the Gulf War.
This scandal – dubbed “Iraqgate” – prompted Gonzalez to prepare a House
resolution called for the impeachment of Bush Attorney General William Barr for
“obstruction of justice in the BNL scandal.” House Judiciary Committee Chairman
Jack Brooks called on Barr to appoint a special prosecutor in the case.
In a classic case of who-will-watch-the-watchers?, Barr said he could find no
evidence of wrongdoing on his part and refused to appoint a special prosecutor. It
was one of the only times that an attorney general had failed to appoint a special
prosecutor when asked to do so by Congress.
WHO PAYS THE TAB?
The clincher of this sordid story of financial scheming and official malfeasance
was that not only had most of the $5 billion been used by Saddam to buy weaponry
to be used against American servicemen, but the U.S. taxpayers picked up the
Gonzalez said $500 million of the loans to Saddam came through the government-backed Commodity Credit Corporation (CCC) and had been intended to purchase
grain from U.S. farmers. However, grain shipped though the port of Houston had
gone to then-Soviet bloc nations for weapons, while the remainder of the grain
purchase had freed Saddam’s limited cash reserves to buy more military materials.
The Bush administration had pledged taxpayer guaranteesshould Saddam default
on the loans, which he did after sending troops to Kuwait. According to at least
one public source, more than $360 million in American tax money was paid to the
Gulf International Bank in Bahrain which was owned by seven Gulf nations
including Iraq. This amount was only the first of an estimated $1 billion to be paid
to ten banks by the CCC to cover the $5 billion of Saddam’s defaulted loans.
“The $1 billion commitment, in the form of loan guarantees for the purchase of
U.S. farm commodities, enabled Saddam to buy needed food on credit and to spend
his scarce hard currency on the arms buildup that brought war to the Persian
Gulf,” wrote author Russell S. Bowen.
Even after the Iraqi invasion began on August 2, Bush publicly appeared strangely
noncommittal. Asked by reporters if he intended any intervention in the Gulf
crisis, Bush said, “I’m not contemplating such action….”
His attitude apparently changed drastically that same day after meeting with
British prime minister Margaret Thatcher, a regular attendee of Bilderberg
meetings who had been implicated with Bush in both the Iran-Contra and October
After meeting with Thatcher, Bush began to describe Saddam as a “new Hitler”
and said “the status quo is unacceptable and further expansion [by Iraq] would be
even more unacceptable.”
Despite assurance from Saddam that Kuwait was his only objective and with no
concrete evidence to the contrary, Bush nevertheless personally telephoned the
leaders of Saudi Arabia and warned that they would be the next target of the
“new Hitler.” Panicked, the Saudis handed over as much as $4 billion to Bush and
other world leaders as secret payoffs to protect their kingdom, according to
Sabah family member Sheik Fahd Mohammed al-Sabah, chairman of the Kuwait
Long after the Persian Gulf War, when audits found this money had been diverted
into a London slush fund, anti-Sabah elements in Saudi Arabis criticized the
payoff. They were told by al-Sabah, “That money was used to buy Kuwait’s
liberation. It paid for political support in the West and among Arab leaders –
support for Desert Storm, the international force we urgently needed.”
Whether this money played any role or not, Bush soon drew a “line in the sand” to
block further Iraqi intrusion. It is interesting to note that this line was located
between the Iraqi forces and oil interests owned by his son, soon-to-be Texas
governor George W. Bush.
Bush, the president’s eldest son, was a $50,000-a-year “consultant” to and a board
member of Harken Energy Corp. of Grand Prairie, Texas, near the home of the
Texas Rangers baseball team of which the younger Bush was a managing general
In January 1991, just days before Desert Storm was launched, Harken shocked
the business world by announcing an oil-production agreement with the small island
nation of Bahrain, a former British protectorate and a haven for international
bankers just off the coast of Saudi Arabia in the Persian Gulf. Bahrain was listed
among the top forty countries of the world with the highest per capita Gross
Domestic Product in 1996.
Veteran oilmen wondered aloud how unknown Harken, with no previous drilling
experience, obtained such a potentially lucrative deal. Furthermore, it was
reported that “Harken’s investments in the area will be protected by a 1990
agreement Bahrain signed with the U.S. allowing American and ‘multi-national’
forces to set up permanent bases in that country.”
The younger Bush, in October 1990, told Houston Post reporter Peter Brewton
that accusations that his father ordered troops to the area to protect Harken
drilling rights were “a little far-fetched.” He further claimed he sold his Harken
stock before the Iraqi invasion, but Brewton cold find no record of the sale in the
files of the Securities and Exchange Commission (SEC).
Records of Bush’s Harken stock sale finally turned up in March 1991, eight months
after the July 10, 1990, SEC deadline for filing such disclosures. One week after
Saddam’s troops entered Kuwait, Harken stock had dropped to $3.03 a share. The
tardy SEC records revealed that by some good fortune, Bush had sold 66 percent
of his Harken stock on June 22, 1990 – just weeks prior to Iraq’s invasion – for the
top-dollar price of $4.00 a share, netting him $848,560.
Despite locating productive wells in South America, the drop in oil prices in early
1999 caused Harken stock to remain about $4.00 per share.
Stock purchases, oil and grain deals, arms sales, loans and guarantees, the
weakening of the Arabs to benefit Israel, the movement toward a global army
and government created a mind-numbing entanglement.
“It is doubtful whether the ‘real’ reasons why the United States went to war in the
Persian Gulf will ever emerge,” wrote Vankin and Whaley.
“Unlike in Vietnam, where the ambiguous outcome elicited natural suspicions, in the
Gulf the decisiveness of victory has buried the reality deeper than any Iraqi or
American soldier who went to a sandy grave.”
The duplicity didn’t end with the fighting. Throughout the Clinton administration
there have been periodic air forays into Iraq, ostensibly to punish Saddam for
preventing UN inspection of his development centers for biological and nuclear
weaponry. However, this time there was a big difference – probing questions were
raised by both a suspicious public and a few less timid members of the news media.
Following missile and bombing strikes in late 1998, a letter writer to a national
news magazine asked, “By using weapons of mass destruction to deter Iraq
from manufacturing weapons of mass destruction, would America not be doing
the very thing we’re warning Iraq not to do?”
Others raised the question of why we attacked Iraq for refusing UN inspection of
its sensitive military installations whenPresident Clintonalso hadrefused to
allow such inspections in the United States – a refusal greeted with general
approval by the public.
Scott Ritter, a member of the United Nations Special Commission (UNSCOM)
created to locate and eliminate Saddam Hussein’s secret weapons caches, resigned
in August of 1998 and accused the U.S. government of using the commission to
justify an attack on Iraq.
Ritter said that before his resignation he disbelieved Baghdad’s minister of
defense when he told him the UNSCOM team was being used by to “provoke a
crisis,” but he slowly came to agree with the charge.
Ritter’s superiors scoffed at the allegation, claiming Ritter’s knowledge of the
situation was “limited.”
However, in early 1999 it was reported that Washington had used UNSCOM to
plant electronic bugs in the Ministry of Defense (Iraq’s Pentagon) and other U.S.
officials confirmed much of Ritter’s accusations.
“The relationship between the United States and the inspection commission…has
long been a subject of debate,” wrote U.S. News reporter Bruce B. Auster.
“The issue is sensitive because UNSCOM is an arm of the UN Security Council, not
an agency of the United States, although it does rely on the United States for
intelligence and personnel.”
On December 15, 1998, after stockpiling cruise missiles in the Persian Gulf during
the fall, the U.S. launched a much-delayed air strike against Baghdad.
But with Christmas nearing, most Americans couldn’t get too worked up over
civilian casualties halfway around the world. And any doubts about U.S.
involvement in the Persian Gulf – except among those unfortunates have to deal
with Gulf War Syndrome caused by lethal combination of oil fires, biological
agents, and radioactive uranium-tipped artillery and tank shells – had been
thrown away, along with the yellow ribbons which had proudly displayed the total
support of the uninformed….
WASHINGTON — In early 1989, George W. Bush and his fellow board members
at Harken Energy Corp. were presiding over a company that was headed south in a
hurry. The Dallas-based oil firm had lost millions of dollars placing bad bets on
Debt was piling up; red ink was beginning to flow.
Harken’s executives came up with a novel plan to ease the pain. They would sell a
small chain of Hawaiian gas stations called Aloha Petroleum to a group of investors
that included Harken’s chairman and one of its directors. The buyers would pay $1
million up front, but the accountants would record an immediate $7.9-million
profit, enough to erase most of Harken’s losses for the year.
They made a point of seeking the approval of directors who were not participants
in the investor group. Bush, a member of the board’s audit committee, signed off
on the deal, according to Harken documents. So did the company’s outside auditor,
Arthur Andersen & Co. But the government challenged and ultimately overturned
the accounting method used by Harken to post a gain on the sale.
Aloha was sold a second time, and the new buyer extracted big concessions from
the company. The initial profit recorded on the sale morphed into a big loss. In
the midst of all the maneuvering, Bush sold most of his Harken stock in June
Based on a review of publicly released Securities and Exchange Commission filings,
meeting minutes, memos and correspondence from that period, there is no
evidence that Bush, or any of the other directors, raised objections or expressed
concern about the Aloha deal.
Experts on corporate governance say that as an independent director and one of
only three members of the audit committee, Bush was in a position to exercise an
important oversight role but apparently failed to do so.
An audit committee’s primary responsibility is to ensure that the company’s
outside auditors conduct a thorough examination of the financial records without
interference from officers and employees.
The White House on Thursday declined to comment on the SEC documents
pertaining to Bush’s actions as a director.
As the president tries to respond to the wave of accounting scandals sweeping
corporate America, the events of 12 and 13 years ago have come back to haunt him.
TheAlohasale was so similar to whatEnron Corp. did to hide its losses that
Harken could have served as a model for the now-disgraced company, one
accounting expert said.
“The people at Enron could have gone to school on this thing,” said Alfred King,
former managing director of the Institute of Management Accountants, vice
chairman of Milwaukee-based Valuation Research Corp. and former advisor to the
Financial Accounting Standards Board.
“They sold to themselves and recorded a profit,” King said.
“That’s exactly what Enron did on a number of those off-balance-sheet
transactions. On this one transaction at least, it’s almost identical.“
Bush rejects the comparison to Enron, a far larger Texas energy firm that cooked
its books on a scale never before seen. He insists his actions at Harken were
thoroughly investigated by the Securities and Exchange Commission.
“In the corporate world, sometimes things aren’t exactly black and white when it
comes to accounting procedures,” Bush said when asked in general about Aloha at a
news conference this week.
It’s up to the SEC, Bush said, “to determine whether or not the decision by the
auditors was the appropriate decision. And they did look, and they decided that
the earnings ought to be restated, and the company did so immediately.”
Bush’s father was vice president in 1986 when Bush’s previous company was
purchased by Harken and he became a member of the board. Bush’s sale of his
Harken stock in 1990 was an issue in his 1994 gubernatorial campaign and 2000
But Harken’s sale of Aloha received little public attention until Enron’s spectacular
collapse and parallels were noted between the Aloha deal and Enron’s practice of
inflating its earnings and shoring up its balance sheet by hiding massive amounts of
debt in partnerships consisting of company insiders.
The magnitude of Enron’s collapse is many times greater than Harken’s financial
travails. Moreover, Enron’s top officers are facing criminal charges for their
actions. Although the SEC required Harken to revise its financial results for 1989,
it did not refer the case to its enforcement division for prosecution.
“If the division of corporate finance had believed the purpose of the [Aloha]
transaction was to generate a phantom profit, there is little question that it would
have made a referral,” said Jacob S. Frenkel, a former SEC enforcement attorney
who heads the white-collar crime group at the Gambrell & Russell law firm in
Still, accounting experts, security law specialists and political analysts say there is
enough similarity between events at Harken and Enron to keep Bush on the
defensive about his own actions a decade ago and undermine his credibility as a
Indeed, Bush would not have been allowed to serve on Harken’s audit committee if
the reform proposals he outlined this week had been in effect then. The president
says audit panel membership should be limited to outside directors. Besides sitting
on Harken’s board, Bush had a consulting contract with the company. According to
accounting experts, that qualifies him as a corporate insider.
“Hiding losses in partnerships, playing games with accounting, not reporting
forthrightly transactions as a potential inside trader–it’s all eerily reminiscent of
Enron,” said Charles Lewis, executive director of the Center for Public Integrity,
a Washington research group….
Another transaction at Harken would have violated Bush’s reform proposals as
well: On Thursday, the White House confirmed that Harken made two loans to
Bush while he served on the board of directors, a practice that Bush now wants
publicly held companies to prohibit.
The loans, totaling $180,375, were made in 1986 and 1988 at a below-market
interest rate to enable Bush to purchase Harken stock under an incentive plan for
board members. They were later converted into stock options that Bush never
exercised, the White House said.
Suspicions about the Aloha Petroleum deal have been fueled by the fact that most
of the principals refuse to talk.
Of the seven Harken directors who served on the board with Bush, five declined
to discuss the deal or did not return calls seeking comment. Executives at Aloha,
now a privately held company, also declined to comment. So did past and present
officials at Harken, Arthur Andersen and the SEC.
Former director Talat M. Othman, who chaired the three-member audit
committee, said he did not recall the details of the Aloha sale or the company’s
reasons for arranging it.
“I’m not sure that our motivation was to create instant profits,” said Othman, a
Palestinian who represented Saudi investors who owned 13% of Harken’s stock.
“It was a normal part of the business to be buying and selling.”
The third audit committee member, E. Stuart Watson, also said he didn’t
remember much about Aloha. “I don’t know about that Hawaiian outfit because I
was getting off the board about that time,” Watson said.
Aloha dispensed gasoline at 40 or so service stations, convenience stores and mini-marts on Oahu and Hawaii. The little chain traced its history to J. Paul Getty,
who installed the island’s first gas pumps.
Harken acquired Aloha in 1986 when it bought a multi-state gas retailer called E-Z
Serve. When it announced its plan to sell 80% of Aloha in 1989, it said Hawaii was
too far away from its other gasoline markets and required too much management
But the new owners looked an awful lot like the old owners. The buyers were an
investor group controlled by the family of Harken Chairman Alan G. Quasha. The
sales price was$12 million, of which $11 million would come in the form ofa loan
from Harken, with no payments due for several years.
Although the company received only $1 million, it recorded a$7.9-million
profiton the sale.
Harken reported a net loss of $3.3 million for that year. It was bad news for
shareholders, but it could have been much worse. Harken’s commodity trading
losses had reached $16.6 million by year’s end. Without the Aloha profit, the 1989
shortfall would have been a real shocker.
The Aloha transaction raised eyebrows at the SEC, which spent several months
reviewing the relationship between Harken and the buyer group and the accounting
procedures that produced the big profit.
In the end, the agency forced Harken to restate its earnings for 1989. The $3.3-million loss ballooned to $12.6 million.
In the meantime, Aloha had changed hands a second time. Quasha’s investor group
sold the chain to a firm headed by David Halbert, a business associate of Harken
President Mikel D. Faulkner and a friend of Bush.
Once again, it was not a clean break. When Harken sold Aloha to Quasha’s group, it
had agreed to retain liability for any environmental problems associated with the
In early 1990, it discovered that the commitment would cost it dearly.Aloha’snew
owner had 20 gas outlets tested and found that 11 had leaky underground tanks
requiring expensive repairs.
There were 21 sites still awaiting tests.
Meanwhile, Harken was experiencing a severe cash flow crisis and needed to raise
money fast. Acknowledging in internal memos that it was negotiating from
weakness, the company agreed to forgive$7.2 millionof the money it was owed
by Halbert for the Aloha purchase and related transactions in exchange for
accelerated payments of the remaining debt.
King, the accounting expert, said the initial sale to the insider group and the
subsequent concessions to the second buyer no doubt contributed to the SEC’s
conclusion that Harken had no business booking a profit….
April 4, 2002
Bush’s Insider Connections Preceded
Huge Profit On Stock Deal
It has been widely reported that Texas Gov. George W. Bush made money over the
years with a little help from his friends. But new details show that he served on an
energy corporation’s board and was able to realize a huge profit by selling his stock
in the corporation because an accounting sleight-of-hand concealed it was losing
large sums of money. Shortly after he sold, the stock price plummeted. That profit
helped make him a multimillionaire.
By Knut Royce, The Center for Public Integrity
WASHINGTON – The year 1986 was very good for George W. Bush.
After a decade of striking Texas brown dust instead of oil, his luck finally turned
that year when go-for-broke Harken Energy Corp. bought his failing oil
exploration firm for stock. Four years later the company concealed large losses
just before the GOP presidential hopeful unloaded those securities for a nice
profit. That, in turn, helped finance his stake in the Texas Rangers baseball club
and catapult him into the ranks of multimillionaires.
And it was in 1986, too, that Harken’s CEO introduced Bush, the company’s new
director and consultant—as well as son of then-Vice President George Bush–to a
little startup health-care company. He put in a modest investment, and a few
years later walked away with a six-figure windfall.
There also was a little benefit on the side. In 1994, when Bush was running for
Texas governor, and scrambling for campaign cash, insiders in that health-care
company, now known as Advance Paradigm, contributed $23,700.
Bush’s sale of the Harken stock in 1990 attracted the attention of regulators and
the national media because he was tardy in filing the required public disclosure,
and because the trade came shortly before the company reported for the first
time that it was incurring huge losses.
George W. Bush and partners sell their failing Spectrum 7 Energy Corp. to
Harken Energy Corp. Bush receives more than 200,000 shares of Harken stock
and is made director and consultant to the company.
Harken’s CEO, Mikel Faulkner, introduces Bush to an old business associate, David
Halbert, who is raising seed money to start up Allied Home Pharmacy. Bush
becomes one of 30 initial investors who put up a total of $250,000.
Harken sells a subsidiary, Aloha Petroleum, to International Marketing &
Resources, a partnership of Harken insiders, through a seller-financed loan, but
declares the profit in its annual report as a cash gain. This effectively masks big
losses by the company that year.
At the beginning of the year, International Marketing & Resources in turn, sells
Aloha to Halbert’s Advance Petroleum Marketing for no profit. Advance now must
pay the Harken-financed loan.
On June 22, Bush sells his Harken stock at $4 a share, for a total of $848,560.
He uses most of the proceeds to pay off a loan he had taken out the previous year
to buy a partnership interest in the Texas Rangers for $600,000.
On Aug. 22, Harken files a second quarter report disclosing for the first time that
it is hemorrhaging. Total losses for that quarter are $23.2 million. Stock plunges
to $2.37 a share.
That fall the Securities and Exchange Commission discovers that Harken had
effectively concealed earlier losses in its 1989 annual report, before Bush sold his
stock, by claiming a capital gain on the Aloha sale even though it was financed
through a loan. It directs Harken to recast its balance sheet for 1989.
On Feb. 5, Harken files an amended 1989 report, asserting that after “discussions”
with the SEC about its method of accounting, it was recasting its losses for that
year from a modest $3,300,000 to a whopping $12,566,000. But by then Bush
had already sold.
On July 22, insiders of Halbert’s Allied Home Pharmacy, now called Advance
Health Care, hold a fund-raiser for gubernatorial candidate Bush, chipping in
$20,750. Other contributions from those insiders that year bring the total to
Advance Health Care becomes a publicly traded company called Advance
Bush’s trust sells his Advance stock. In his financial disclosure statement last
year, he declares a capital gain of up to $1 million on the sale. It also sells his
$600,000 stake in the Texas Rangers for about $16 million.
But The Public i has found that Harken was bleeding profusely even before Bush
unloaded his stock. Harken effectivelyconcealed the hemorrhaging by selling a
retail subsidiarythrough a seller-financed loan but recording the transaction in
its 1989 balance sheet as a cash sale.
Securities and Exchange Commission records suggest that Bush, a company
director who sat on Harken’s audit committee and was a paid consultant to the
firm, may nonetheless have been unaware of the sleight-of-hand accounting or, for
that matter, other significant company actions Nevertheless, SEC accountants
cried foul when it discovered Harken had recorded the 1989 sale as a capital gain.
But it was months after Bush’s June 1990 sale of the stock at $4 a share, for a
total of $848,560, that the SEC directed Harken to recast its 1989 annual report
and to publicly disclose the extent of its losses that year, according to records
reviewed by The Public i.
It is unclear how a timely acknowledgement of the true losses would have affected
the value of the stock when Bush sold. But most investors look at a company’s
balance sheet, among other indicators of corporate well-being, before parting with
Two months after Bush’s sale, Harken reported for the first time in a quarterly
report that it was losing a lot of money, and the stock dropped to $2.37 a share.
By the end of the year, it was trading at about $1.
Harken masked its 1989 losses when in mid-year it sold 80 percent of a subsidiary,
Aloha Petroleum, to a partnership of Harken insiders called Intercontinental
Mining Resources, Limitedfor $12 million, $11 million of which was through a note
held by Harken.
By Jan. 1, 1990, IMR, in turn, sold its stake in Aloha to a privately held company
called Advance Petroleum Marketing,and the Harken loan was effectively
transferred to Advance, though guaranteed by IMR.
‘George and I Became Friends’
Advance Petroleum was headed by a Texas entrepreneur, David Halbert, who had
been a friend and business partner of Harken’s CEO, Mikel Faulkner. In 1986,
Faulkner had introduced Harken’s newest director, Bush, to Halbert. Harken, in a
stock swap, had just acquired the ailing Spectrum 7 Energy Corp., where Bush had
been CEO and a significant shareholder.
“George and I became friends,’’ recalled Halbert in a telephone interview with The
Public i. Halbert said that at the time Faulkner introduced Bush to him he had just
formed a little home-health-care firm, Allied Home Pharmacy, and was in the
process of raising $250,000 in seed money.
“Mikel said (to Bush), ‘Hey, you might want to invest in this,’” Halbert recalled. “I
said fine. I don’t remember how many people we brought in, but it wasn’t that
many. Maybe 25 or 30 . . . It was sort of friends and family, and George invested.’’
So did Faulkner. Halbert said Bush also put in a little more money in an offering to
existing shareholders in 1991.
Halbert said he did not recall how much Bush invested in the company.
Allied Home Pharmacy became known as Advance Paradigm, one of the nation’s
leading pharmacy benefits management companies, when it went public in 1996.
Two years later, Bush’s trust sold his stock in the firm.
Public records give no precise amount of how much he earned on the Advance stock
sale, but Bush’s financial disclosure form made public last year shows that he
realized a capital gain, or profit, of as much as $1 million on the sale.
Asked how much the Texas governor paid for the stock and how much he profited
from the sale, spokesman Scott McClellan referred all questions to the manager
of Bush’s blind trust, Robert McCleskey.
McCleskey declined to discuss his client’s investment in the Advance stock. He said
that under the terms of the Texas blind trust—a legal requirement for the
governor but less rigorous than the blind trust that applies to federal executive
branch officers—he cannot tell even Bush how much profit he made on the sale.
SEC Probe Was Limited
The SEC’s division of enforcement launched a probe of Bush’s sale of his Harken
stock the day after the Wall Street Journal on April 4, 1991, reported that he had
been eight months late in filing the required insider-trading form with the
regulators. This investigation was separate from the earlier division of corporation
finance probe that resulted in Harken’s recasting its 1989 balance sheet.
SEC enforcement investigators focused on whether Bush dumped his stock on June
22, 1990, because he knew that the company’s second-quarter report, announced
on Aug. 20, would show a $23.2 million loss and depress the stock. Part of that loss
was $7.2 million that Harken wrote off because it was being pressed by a nervous
bank and renegotiated the Aloha sale to generate quick cash. Aloha’s buyer,
Advance Petroleum, was a clear winner in the renegotiated deal.
The SEC probe was limited to whether Bush had inside knowledge of the red ink
that would be reported in the August filing and concluded that he did not.
It is unclear whether Bush, who holds a master’s degree from the Harvard
Business School, knew that the company, after five straight years of profits,
began to bleed profusely in 1989, its first year of being traded on the New York
Stock Exchange, though in its annual report for that year it had declared a net
loss of only $3,300,000.
Even that small loss would have surprised readers of the January 1990 issue of
National Petroleum News, a trade publication. Interviewed some time during the
fourth quarter of 1989 for a lengthy and glowing article on Harken, company
president Faulkner said that based on the strong earnings during the first three
quarters, he expected that year to be the most profitable yet. “We made $6
million last year (1988) … We’ll certainly be ahead of last year.’’
Alas, a year later, in an amended 1989 annual report filed on Feb. 5, 1991, the
company reported that after “discussions” with the SEC, which insisted that
Harken use the traditional “cost recovery’’ method of accounting, it was revising
its declared 1989 net loss of $3,300,000 fourfold–to $12,566,000.
Harken also filed an amendment to its third quarter report for 1989 revealing that
over the first nine months of that year it had lost nearly $4 million, rather than
the $4.6 million profit it had declared.
Faulkner, now Harken’s chairman, did not return repeated calls from The Public i
seeking comment on the Aloha sale and the subsequent public filings.
Company Directed to Correct Reports
The SEC can prosecute company officers for willfully filing fraudulent reports. But
in the Harken case, as in most similarly questionable filings, the investigation was
conducted by the agency’s accounting staff, which did not believe there was intent
to defraud and therefore did not refer the matter to the SEC’s enforcement
division. Instead, the agency directed the company to publicly correct its reports,
according to a retired SEC official familiar with aspects of the case.
It is also clear that Harken did not draft the misleading 1989 annual report, filed
with the SEC on April 16, 1990, merely to buttress the value of Bush’s stock. The
filing date was two months before the company reported it became aware that
Bush wanted to sell.
In its 1989 annual report, Harken recognized a profit of $8 million on the sale,
which allowed it to limit its declared losses to only $3,300,000 for the year. But
the SEC objected, saying that the income can be recognized only as the principal of
the loan is reduced—that is, when real cash comes in.
A corporate accountant interviewed by The Public i agreed with the SEC’s claim,
saying he found it “unusual’’ for a company to declare an earning on the sale when it
is contingent on a loan. The accountant, who asked to not be further identified,
said he knew of no other instance when a company declared full gain on a sale based
on a loan.
Why Harken initially sold to IMR is unclear. But a senior tax lawyer who works for
a leading auditing firm told The Public i after reviewing portions of the SEC filings
that he believes Harken wanted to show a cash infusion to mitigate the 1989
“It looks like the sale was done (to IMR) in order to show a book gain of $7
or $8 million,’’ said the attorney, who also asked not to be further identified.
“That would have eliminated a good part of their loss during that time. Given the
fact that the sale was to a related entity, I would guess they were just trying to
show a better financial statement at that time.’’
Advance’s Halbert said that he believes IMR bought, and then quickly sold, Aloha
because of a sudden change of heart. “I think it had something to do with IMR
wanting to own it [Aloha] but there was some concern about the affiliate
relationship [between Harken and IMR],’’ he said.
The SEC, too, was curious about the transaction, according to agency records
obtained under the Freedom of Information Act.
Six weeks before Harken publicly announced in January 1991 that it was revising
its 1989 losses upward, the SEC asked the company to explain “whether the sale of
Aloha to Advance was contemplated at the time IMR purchased Aloha from
Harken.’’ In a letter, it also asked Harken to explain why the company and its
independent accountants concluded it could declare a capital gain on the sale.
The SEC declined to provide Harken’s responses to The Public i.
Conflicting Accounts Offered
In its public filings to the SEC, Harken gave conflicting accounts of who sold Aloha,
who bought it, and even when the sale occurred.
In its 1989 annual report, for example, it declared that it sold Aloha to IMR on
June 30. In one passage of the report, it says that IMR then sold Aloha to
Advance on Jan. 1, 1990; in another it says IMR sold on March 30.
But in its 1990 report, Harken declared that it was its subsidiary E-Z Serve
Holding Co. that sold Aloha to IMR.
Adding to the confusion, E-Z Serve, which shortly after the transaction was spun
off as a separate publicly traded company, claimed in its 1991 annual report that it
had sold Aloha to Advance Petroleum—not IMR—in 1989.
Harken was notorious during that period for filing confusing reports. In 1991,
Harken founder Phil Kendrick told Time magazine that the company’s annual
reports “get me totally befuddled.’’
Quoted in the same article, Faulkner had this advice to those trying to figure out
the company’s financial statements: “Good luck. They’re a mess.’’
The corporate fog did not, however, obscure the fact that by the time the SEC
directed Harken to recast its 1989 report, Bush already had already sold his
stock in the company.
The bulk of the $848,560 went to pay off a bank loan he had taken out in 1989 to
buy a partnership interest in the Texas Rangers for $600,000. He received
nearly $16 million for his stake when the team was sold two years ago.
Bush’s run of financial good luck starting in 1986 is in stark contrast to the woeful
performance of his previous oil ventures, which he had launched in 1977. Though he
had little difficulty in rounding up investors for his Arbusto, Bush and Spectrum 7
oil exploration firms, they were all money losers.
Even as Harken in late 1989 and early 1990 appeared to be trying to minimize its
losses, its bankers were clamping down because the company was having trouble
meeting its loan payments. That led to a renegotiated loan agreement in May 1990,
which required Harken to come up with fresh cash, raised the interest rate,
required new guarantees from major shareholders and featured stricter terms
“After closure (on the sale of Aloha) Harken discovered they had trading losses on
gasoline purchases and they came back to us and said, ‘We really need some cash,’”
Cash Raised in Nick of Time
Halbert said he was able to raise the cash in the nick of time — just three days
before Iraq invaded Kuwait, setting in motion huge gasoline-price increases that
drove numerous small distributors out of business.
Under the original contract, Harken had given Advance an option to purchase the
remaining 20 percent of Aloha, or 60,000 shares, for $50 each, or a total of $3
By the time the contract was renegotiated in August, Advance agreed to pay off
the $10 million note by the following year, which it did, instead of in March 1993 as
stipulated in the original contract.It also relieved Harken from picking up the
cost of fixing leaking underground tanks to meet environmental standards.
In turn, Advance got the$3 millionof Aloha stock for$1. Harken also
forgave$5 million in loans it had made to Aloha and about $1 million in
The renegotiated contract reduced Harken’s bottom line, and the SEC clearly
believed the write-off might have helped depress the stock. During its
investigation of whether Bush benefited from insider information when he sold his
stock, the SEC on July 25, 1991, asked both Bush and Harken to disclose when the
company’s officers and directors “first became aware … that the Advance note …
was going to be renegotiated; and that Harken intended to write down its
investment in Aloha.’’
Unaware of Magnitude
After the SEC ended its investigation, according to one of its memos, the
regulators concluded that Harken and Bush were unaware of the magnitude of the
write- downs until at least mid-July, or after Bush’s stock sale.
While the renegotiated contract clearly hurt Harken’s bottom line, Halbert admits
it clearly was beneficial for Advance Petroleum.
Meanwhile, Bush was generating admirers among Advance Paradigm’s insiders, the
limited number of shareholders.
In 1994, when the company was known as Advance Health Care and Bush was
making his first run for Texas governor, those insiders gave him $23,700 for his
first gubernatorial run, including $14,500 from Halbert, his brother, Jon, their
father and their wives. Virtually all the money came on the same day, July 22.
“That was his first time around, and he was trying to raise money any way he
could,’’ recalled Halbert.
And, as has been the case throughout Bush’s career, a long-time friend of the
family came to his aid.
This time it was Benno C. Schmidt, the pioneering venture capitalist and partner in
J. H. Whitney & Co. in New York. Schmidt, who died last October at age 86, had
been a director of Advance Health Care, and J. H. Whitney had provided the firm
with much needed capital in 1993.
“Benno was an old friend of the Bush family. He called me one day and said, ‘David,
I think we ought to do something for young George,’” Halbert recalled. “He said, ‘I
think we ought to have a fund-raiser.’”
So after a board meeting on July 22, Bush spoke at a private little dinner attended
by the directors and their wives and walked away that night with $20,750.
– Knut Royce is a senior fellow at the Center for Public Integrity.
< < < FLASHBACK < < <
March 16, 1992
The Color of Money
by Stephen J. Hedges, US News and World Report
The president‘s eldest son and his ties
to a troubled Texas firm
George W. Bush shares more than a name with his father. The president’s eldest
son has followed closely in his father’s footsteps, trading Yale for Texas, working
his way up from the dust and dry oil wells of West Texas to carve out his own
piece of the Lone Start dream. Today he runs the Texas Rangers baseball team,
sits on the boards of several companies and is rising start in the state s Republican
As George Bush the president glides to victory in the Texas primary this week,
George Bush the son will be a center stage with his father. Some say he the
president’s most influential advisors. It was George W. Bush, after all, who was
called upon to tell John Sununu that powerful Republicans wanted him to resign as
the White House chief of staff. Sununu was gone soon afterward.
In one important respect, however, George W. Bush has less in common with his
father than with his younger brother Neil, who sat on the board of Denver’s now
infamous Silverado Savings & Loan. When the thrift failed in 1988, with $1
billion in losses, Neil Bush said he didn’t understand Silverado’s complex deals.
George W. Bush has also benefited from some questionable but less well-known
business associations. A U.S. News examination of one of his principal investments,
in the Dallas-based Harken Energy Corp., found that:
Bush sold $828,560 worth of Harken stock just one week before the company
stock posted unusually poor quarterly earnings and Harken stock plunged sharply.
Shares lost more than 60% of their value over 6 months.
When Bush sold his shares, he was a member of a company committee studying the
effect of Harken s restructuring, a move to appease anxious creditors. According
to documents on file with the Securities and Exchange Commission, his position on
the Harken committee gave Bush detailed knowledge of the company’s
deteriorating financial condition. The SEC received word of Bush’s trade eight
month’s late. Bush has said he filed the notice but that is was lost.
Despite Harken’s small size and poor performance in recent years, it continues to
provide Bush and its other directors and executives with unusually generous pay
and perquisites. In 1989, for instance, Harken suffered losses of more than $12
million against revenues of $1 billion. That same year Bush received $120,000 as a
company consultant ans stock options worth $131,250; other Harken executives
also drew six-figure salaries and five figure bonuses.
The next year, Harken s board was equally generous, even though the company lost
$40 million and shareholder equity plunged to $3 million – down from more than
$70 million in 1988.
Harken has been characterized by a pattern of financial deal making so burdened
with debt and tangled stock swaps that its largest creditors threatened to shut
the company down and oil-industry analysts have all but given up on tracking it.
“It s a lot of jiggery-pokery,” says analyst Barry Sahgal. “I want to be an analyst,
not a speculator.”
George Bush – Member of the Skull and Bones Society
Despite repeated requests for interviews, Bush declined to discuss Harken or the
reason for his stock sale, saying through an assistant that he “does not wish to
read about himself.” Harken executives say the company s practices are proper.
Harken Energy today is a very different company from the gutsy start-up outfits
that President Bush and his father once ran. In 1983, Harken was purchased by a
group of investors led by Alan Quasha, an aggressive young lawyer from New York.
Quasha and his colleagues transformed Harken overnight, playing the oil game like
high-stakes poker. They spent money, they made money – and most recently, they
have lost money. The company s annual reports now speak little of oil and gas
production but volumes about share offerings and renegotiated debt.
George W. Busharrived in the Texas oil fields in the mid-1970s. Within a few
years, he had founded his own exploration company. His partner, Mike Conaway,
says they “made some money and lost some money.” But by 1983, the oil market
was in trouble, and so was Bush Exploration. Relief came from two Cincinnati
investors who had their own small oil firm, Spectrum 7.
William DeWitt was the son of the former owners of the Cincinnati Reds baseball
team. Mercer Reynolds was his business partner. A DeWitt family relative and old
oil hand, Paul Rea, ran Spectrum 7. Rea met Bush when he first arrived in Texas.
The two became friends.
The son of an affluent American lawyer in the Phillipines,Alan Quasha brought
Harken some impressive financial backers. They included money manager George
Soros, who would come to hold a 30.4 percent stake; Harvard Management Co.,
who would control another 30.4 percent share, and Abduliah Taha Bakhsh, a Saudi
investorwith 21.4 percent. Harken bought Spectrum out in 1986, trading stock for
Spectrum assets. Bush received $600,000 in Harken shares, but his stake would
actually be worth much more.
Harken is a small oil company, but it pays big league benefits. Estimates based on
company documents show that Quasha and Harken President Mikel Faulkner each
received compensation worth more than $400,000 a year between 1986 and 1990,
including stock options.
In addition, Faulkner has borrowed$1.1 million from Harken, using stock as
collateral. Quasha has borrowed$631,270 from the company, and Harkenhas
paid his law firm$1.3 million in fees since 1988.
At least three other Harken executives had six-figure compensation when Harken
posted its $40 million loss. Faulkner says the compensation is based on “incentives
and performance.” He does not consider Harken ‘s pay excessive.
In addition to his $600,000 stake in Harken, George W. Bush has profited
handsomely. As a consultant to the company for “investor relations and equity
placement,” Bush was paid $80,000 a year until 1989, when his salary jumped to
$120,000. With the company suffering, Bush received only $50,000 last year and
$42,000 this year. He also receives $2,000 for each board committee meeting and
in 1989 was granted, with other directors, options for 25,000 shares of Harken
stock. Faulkner declines to say what services Bush has performed as a consultant.
As is the case with many executive compensation packages, the key to Harken’s is
the stock options. But very few companies offer terms as sweet. For starters,
Harken offers select executives, including Bush, eight year loans at 5% interest.
The loans may be used by the company brass to exercise options to purchase
Harken shares. Bush has borrowed $180,375.
At Harken, loans are sometimes forgiven. The board forgave $72,000 in non-interest-bearing loans to employees in 1989, and $269,000 in 1990.
The deal gets sweeter still.
Harken allows select executives and directors like Bush, who exercise their
options,to purchase stock at a 40 percent discount; most U.S. companies allow
executives to purchase their companies stock at current market value. Harken says
it is because the stock is not registered and therefore cannot be traded. But in
March 1990, Harken registered 1.8 million option shares.
“Unusual,” says Paula Todd of Towers Perrin, a compensation consulting firm, when
asked about Harken compensation. “This definitely is not a cookie-cutter plan.”
Graef Crystal, a vocal critic of excessive executive pay, has harsher words: “This
is a tremendous package for a little tiny company. Their stock has been growing at
4.9% per year when the market is growing at 15 percent. That is rotten
Given Harken s troubles, it might appear that owning its stock isn t much of a
bargain. However, Harken s liberal option program makes it profitable. On June 22,
1990, for instance, Bush sold $848,560 worth of stock, which was trading at $4 a
share. Even with a $180,375 loan to pay back, Bush realized $668,185 on the sale.
He still owns 105,012 Harken shares.
Harken has launched several deals involving its largest shareholders. The most
complex was a major reorganization through the sale of two subsidiaries, E-Z
Serve, a chain of gas stations, and Tejas Power, a natural-gas supplier.
First, companies tied to Alan Quasha and Harvard Management lent Harken $46
million. Harken used $15 million of that money to retire E-Z Serve debt. It
spent $28 million more on capital improvements at E-Z Serve and Tejas stock.
Harken kept the remaining $3 million.
The company then gave its shareholders rights to buy E-Z Serve and Tejas stock.
An agreement stipulated that any stock not purchased by the shareholders could
be bought at a discount of at least 3 percent by two companies affiliated with
Quasha and Harvard. But Quasha andHarvard controlled 55.6 percent of Harken
stock. By not exercising the rights to buy it immediately, they effectively gave
themselves the built-in discount. Harvard Management declines to discuss the
There is substantial evidence to suggest that Bush knew Harken was in dire straits
in the weeks before he sold the $848,560 of Harken stock. For one, Harken’ s
board has appointed Bush and another director, E. Stuart Watson, as a “fairness
committee” to determine whether the restructuring would adversely affect
The committee, which first met in May 1990, worked closely with financial advisors
from Smith Barney, Harris Upham & Co., which had concluded by that time that
only drastic action could save Harken.
Even before then, however, Harken’s SEC filings make it clear that the company s
directors knew radical steps were necessary. One informed source says Harken’s
creditors had threatened to foreclose on the company if substantial debt
payments were not made. Harken s treasurer, Dale Brooks strenuously denies any
suggestion that creditors were poised to seize the company.
Today, Harken is letting it all ride on one all-or-nothing bet. Two years ago, it won
the rights to look for oil and gas off the coast of Bahrain, a coup that shocked the
industry. The first of the wells came up dry last month, giving analysts new reason
to wonder if Harken itself isn t a dry hole.
For George W. Bush, however, Harken remains a good deal. He is still a director
and consultant and has Harken shares worth about $400,000. A Bahrain gusher will
mean all the more profit. If luck isn t with him, he has still done well with Harken.
It may be, though, that Harken has benefited most from Bush s board service.
That s the view of some Texas oil people and analysts, including founder Phil
Kendrick, the oil man who founded Harken and sold out to Quasha a decade ago.
“It’s obvious why they kept George Bush,” Kendrick says.
“Just the fact that he’s there gives them credibility. He’s worth $120,000 a year
to them just for that.”…
$ $ $
August 24, 1989
Harken Makes Bid for Tesoro
The New York Times
The Harken Energy Corporation, an energy development company, today offered
to acquire the Tesoro Petroleum Corporation of San Antonio for $11.75 a share,
or about $190 million, in cash.
Tesoro’s board has turned down several other, higher offers to sell the company,
whose major asset is considered to be its Alaska-based refining and marketing
The chairman of Harken’s board, Alan G. Quasha, said in an interview that he felt
confident that the Tesoro board would be willing to consider an offer at this time.
He said he believed that the company’s three major shareholders, which control
about 40 percent of the shares, would also support the sale.
The Metropolitan Life Insurance Company, which controls 25 percent of Tesoro’s
shares and has two members on Tesoro’s board, indicated earlier this year that it
wanted to sell its stake.
G. Bryan Dutt, an oil and gas industry analyst at the Howard Weil Corporation in
New Orleans, said Harken’s offer was substantially lower than the breakup value
of the company, which he placed at $15 a share.
Tesoro’s share price rose 1.25 today, to $10.875, in New York Stock Exchange
* * *
February 28, 1990
Harken Withdraws Offer for Tesoro
The New York Times
The Harken Energy Corporation withdrew its offer to acquire the Tesoro
Petroleum Corporation for $11.75 a share, or about $190 million, in cash. Harken’s
chairman, Alan G. Quasha, said in a letter to Tesoro’s chairman, Dr. Richard V.
West Jr., that Harken had concluded the San Antonio-based oil refining and
marketing company’s board was not interested in maximizing shareholder value.
It was unclear whether Harken, a diversified energy company, would now make a
hostile offer for Tesoro, whose largest operations are in Alaska. The Metropolitan
Insurance Company, which holds about one-fourth of the company’s shares,
indicated previously that it was interested in divesting itself of its shares.
Tesoro shares closed today at $8.75, down 62.5 cents, or 6.7 percent, in New York
Stock Exchange trading. Harken fell 37.5 cents, or 6.8 percent, to $5.125.
Arthur Andersen LLP – A “Big Five” accounting firm still praised by some for its
May 17, 2002
Ex-Andersen Partner Kept Enron Papers
HOUSTON – A former Arthur Andersen partner who illegally shredded documents
related to Enron Corp. testified yesterday that he preserved several potentially
David Duncan, who pleaded guilty to obstruction of justice charges in April, said
he kept records related to allegations of questionable accounting practices
brought last August by Enron Vice President Sherron Watkins.
“I believe I retained (documents) relevant to the Watkins allegation matter in a
separate folder,” Duncan told attorney Rusty Hardin in a second day of cross-examination at Andersen’s obstruction trial.
Andersen claims neither the firm for Duncan broke any laws and that Duncan took
the plea deal under threat of extensive prison time.
In his questioning yesterday Hardin focused on the important documents that
survived the shredder in an effort to show the jury there was no conspiracy to
cover up auditing work on Enron’s books.
Among the documents Duncan retained was a memo from fellow Andersen partner
James Hecker, who took a call from Watkins in August. In the call, Watkins
relayed her worries about Enron’s accounting of so-called “Raptor” entities and
rumors of side deals that might have jeoparized the veracity of Enron’s financial
The memo, detailing the conversation with Watkins, was titled “Smoking guns you
can’t extinguish.” Duncan dismissed the title as nothing more than sarcastic wit.
Also preserved were copies of Watkins’ complaints, which she shared with former
Enron Chairman Kenneth Lay.A review by law firm Vinson & Elkinslater
dismissed many of Watkins’ concerns.
Obstruction carries a maximum sentence of 10 years, but prosecutors can
recommend Duncan, 43, be sentenced only to probation.
If Andersen is convicted, it could be fined up to $500,000 and face probation for
five years. It also could be fined up to twice any gains or damages the court
determines were caused by the firm’s action and would be barred from auditing
publicly traded companies – likely putting the firm out of business.
The beleaguered accounting firm Arthur Andersen, on trial in Houston for
obstructing justice in the federal investigation of Enron Corp.’s collapse, was paid
$2.1 million last year to help audit Hawai’i’s largest nonprofit organization, the $6
billion Kamehameha Schools, according to the organization’s tax return, made
Eric Yeaman, chief financial officer of Kamehameha Schools, was an Arthur
Andersen employee, working as “internal auditor” of the schools, when the
Kamehameha trustees decided to hire him for the CFO post in July 2000.
Arthur Andersen has continued to serve as internal auditor and provides other
services to Kamehameha Schools. The company will receive a slightly lower sum this
year than the $2.1 million it was paid last year, according to Yeaman and to the
Yeaman said he has a conflict of interest in dealing with Arthur Andersen and
“leaves the room” when there is any discussion at Kamehameha Schools about a
business transaction with the accounting firm.
Hamilton McCubbin, chief executive officer of the schools, said the Honolulu
office of Arthur Andersen has demonstrated “outstanding integrity” in its
dealings with Kamehameha Schools.
The internal auditing contract with Arthur Andersen expires this summer, and the
schools plan to hire their own internal auditing staff rather than rely on an outside
company for the work, McCubbin said.
But an outside firm will be needed to help in that transition and to provide
independent expertise when needed by the internal auditing staff, McCubbin said.
Arthur Andersen will be free to bid for that work, he said.
Once the fourth-largest accounting firm in the world, Arthur Andersen has lost
clients steadily in the wake of the Enron scandal. In addition to the criminal trial
now going on in Houston, Arthur Andersen has been named in a class action lawsuit
filed by Enron shareholders. The firm has been selling offices and assets around
the country, and could face bankruptcy in the near future, according to news
The Kamehameha Schools tax return shows net assets of more than $4 billion. A
wholly owned subsidiary, Kamehameha Activities Association, filing a separate
return for the first time, listed assets of more than $2 billion.
The schools, which educate children of Hawaiian ancestry, spent $139 million of its
operating budget on program services, and another $53.9 million in school
construction and repair, according to the tax filing.
The construction expenses were mainly incurred building two new campuses, one on
the Big Island and the other on Maui.
McCubbin said the schools are now spending about $20,000 per student on the
Neighbor Islands, compared with $13,000 per student at the main campus on
The tax return also reveals considerable turnover in top employees at the huge
Four former executives of Kamehameha Schools/Bishop Estate are listed among
the highest-paid executive personnel, but the numbers include their severance pay.
They include Nathan Aipa, former chief lawyer for the schools and later acting
chief administrative officer. Aipa, now in private practice, was paid $413,620 for
the tax year ended June 30, 2001.
McCubbin is the highest-paid executive now on payroll at Kamehameha Schools,
receiving $321,026 plus $28,585 in expense account allowances.
Chief Investment Officer Wendell Brooks, who also has left the institution, was
paid $300,000. Yeaman was paid $224,532. Mike Chun, acting chief education
officer, was paid $188,718.
Executive salaries are considerably higher nowthan they were before years of
turmoil culminated with the departure of all five of the institution’s trustees two
Trustees used to be paid about a million dollars each. Last year they were paid
between $122,000 and $49,500, depending on whether they served in the job a
Board chairman Robert Kihune received the top salary of$122,000, because he
was one of the acting trustees who carried over to full-time status. The same is
true of trustee Connie Lau, who was paid $100,500, according to the return…
Bank of Credit and Commerce International– The now-defunct bank that was
a clearinghouse for almost anything crooked: political bribes, money-laundering,
illegal drugs, guns, tanks – even nuclear weapons….
From The Outlaw Bank:BCCI (copyright 1993), by Jonathan Deaty & S.C. Gwynne:
Bill White, from Houston, was the All-American Boy, even if he was middle-aged. …
He had been a star football player in high school, graduated from Annapolis, and
became a naval flight officer. After the navy he put away his combat decorations,
earned a Harvard Business School graduate degree, and returned to Texas to
become a well-paid investment point man for a lot of heavy-hitting Republicans.
Patriotism is real in Texas: White paid his dues and was admitted to the club by
the good old boys who run things.
He was sponsored by another Harvard M.B.A., Lloyd Bentsen, Jr., the son of the
distinguished Texas senator. … The senator’s son, who had been a Harvard
classmate of George Bush, Jr., ran on the inside track and was looking for
someone who could handle discreet private investments. The boyish-looking,
personable former navigator had just the credentials he was looking for.
As White explained it, Bentsen had suggested that when White returned to Texas
he should look up a Houston businessman namedJames Bath, who was in real
estate and aircraft sales and represented some of the richest Arab sheikhs. Bath,
also a friend of George Bush, Jr., was looking for a business partner. Bentsen
though that since Bath was also a former fighter, the two men wold have a lot in
White had gone into business with Bath and they had done quite well for a while,
especially in land development deals. White was the amiable front man, while Bath,
who shunned publicity of any kind, quietly rounded up the investors. But they had
had a falling-out, and now White wanted to explain why he believed his former
partner had been a front man for Arabs connected with BCCI who were buying
influence in America.
“You have to understand that they thought I was one of them,” White said
earnestly. “Bath told me that he was in the CIA. He told me he had been recruited
by George Bush himself in 1976, when Bush was director of the agency. That made
sense to me, especially in light of what I had seen once we went into business
Bath and George, Jr., were pals and flew together in the same Air National Guard
unit, and Bath lived just down the street from the Bush family when George, Sr.,
was living in Houston. He said Bush wanted him involved with the Arabs, and to get
into the aviation business,” White began pulling documents out of his cases as he
“That’s how Bath, who didn’t know anything about the aviation business, became one
of the biggest jet aviation dealers in the country within a couple of years. Look,
here’s a Boeing he’s leasing to the Abu Dhabi National Oil Company. That’s a
multimillion-dollar jet. And that’s how he became a representative for Sheikh
Kahlid bin-Mahfouz, whose family controls the National Commercial Bank of
He handed the reporter a legal document attesting that Bath was the
representative of Mahfouz, empowered to act in his name for “all U.S. business
activities.” … Mahfouz really was one of the richest men in the world, and he was a
controlling shareholder in both BCCI and First American Bank. . . .
White’s story was cogent and well organized. … He talked about Mahfouz’s
investments and his early venture into Texas banking in partnership with Ghaith
Pharaon and former Treasury Secretary and Texas Governor John Connally. . . .
White also spilled out a tangled tale of Sheikh Mahfouz’s more recent Texas
investments, including the alleged sweetheart purchase of the Texas Commerce
Bank Tower for some $200 million during the mid-1980s Texas oil-business crash.
That purchase, White indicated, greatly benefited the fortunes of the Baker
family, who were founders and principal holders of Texas Commerce stock.
That Baker family included James Baker, President Bush’s confidant and secretary
of State, who had been forced to put his Texas Commerce stock into a blind trust
after questions about potential conflicts of interest arose while he was secretary
of the Treasury.
From there, White launched into an account of George Bush, Jr.’s business
ventures. He described how Bush’s storefront energy company, Arbusto (Spanish
for “Bush”), had been purchased in 1988 by a little-known Dallas firm, Harken
Energy. Harken was primarily in the business of buying up old refineries, and
George, Jr. had been name a director of the company. Then Harken’s threadbare
fortunes had zoomed when the company – which had no offshore drilling
experience – won an offshore drilling concession from the Gulf kingdom of Bahrain
that was potentially worth billions.
White suspected that Mahfouz, or other BCCI players, must have had a hand in
steering the oil-drilling concession to the president’s son. He thought it was part
of a pattern, since Bath – who made his fortune by investing money for Mahfouzand another BCCI-connected Saudi,Sheikh bin-Laden – had once confided that
he was an original investor in George Bush, Jr.’s oil exploration company.
In fact, White said, Bath had bragged he had put up $50,000 to help George, Jr.,
get started in the oil business.
White pulled out more documents that seemed to support his contentions, legal
papers from James Bath’s contested divorce. There, in a list of his assets, was a
$50,000 investment in Arbusto oil, Bush’s original company.
White’s point was that Bath had no substantial money of his own at the time he
made that investment. Most of Bath’s investments, including his main holding – a
Houston company named Skyways Aircraft Company that held Middle Eastern
contracts – were really fronts for Mahfouz and other Saudis connected with BCCI.
Much of White’s tantalizing paper trail had come from four years of legal battles
with Bath. … According to White, his falling-out with Bath had come after Bath
had “borrowed” $500,000 from funds supplied by his Saudi/CIA backers to invest
in a sure-thing real estate deal.
When Bath lost the money in the Texas real estate and oil crash, according to
White, the desperate Bath had come to him and insisted that he help cover the
hole in the books. When White refused, Bath vowed to ruin him.
Whether White’s version was true or not, the records showed Bath indeed had
driven White into the ground with an onslaught of ruinous lawsuits. Legal fees
alone had bankrupted White, who said Bath had bragged that his problems
would never end because of Bath’s CIA connections and friendships with judges
Investcorp – Investcorp is a leading global investment group with offices in
London, New York and Bahrain. Since 1982, it has completed transactions in North
America and Western Europe, with a total acquisition value of approximately $19
* * *
May 24, 1996
Stock offering by Saks a
boon to Bishop Estate
Its holdings gain more than $24 million in value
on the first day of trading
By Rick Daysog, Honolulu Star-Bulletin
Bishop Estate’s investment in Saks Fifth Avenue increased by more than $24
million in a single day.
The charitable trust owns 4.1 percent of the upscale department store chain’s
parent, Saks Holdings Inc., whose shares soared with the successful launch of its
initial public offering Wednesday.
The stock, priced late Tuesday at $25 per share, closed Wednesday at $34.621/2
on the New York Stock Exchange, a 38.5 percent increase.
That gave Bishop Estate a paper profit of $24.1 million for the 2.5 million Saks
shares it owns. Saks’ stock closed on Thursday at $32.50 a share but regained 50
cents on Friday to close at $33.
The estate stressed that it has not realized any gains because it has not sold any
of its stock.
“We’re very pleased with the results there,” said Kekoa Paulsen, spokesman for
the estate. “(But) bottom line, it’s a paper gain.”
Paulsen said the estate is positive about Saks’ future and its current management,
noting that the investment in Saks is for the long-term. Bishop Estate purchased
its stake in Saks Holdings back in March 1993 from Bahrain-based Investcorp
S.A. for about $50 million.
Bishop Estate, the state’s largest private landowner, lists about $1 billion in assets
but critics have said that figure may be as high as $10 billion.
Founded in 1867, Saks Fifth Avenue was privately held and operated as a division
of Gimbel Bros. Inc. until it was purchased by British giant BAT Industries Plc in
1973. In 1990, BAT sold Saks to Investcorpfor $1.6 billion.
The retailer currently owns 45 Saks Fifth Avenue department stores, 19 Off 5th
outlet stores and the Folio catalog.
In Hawaii, Saks operates an off-price outlet at the Waikele Center and has
expressed an interest in opening a department store in central Honolulu.
In Wednesday’s public offering, Investcorp sold 16 million shares in Saks, or
about a quarter of the retailer’s equity. Saks said it would use the proceeds to pay
down debt, which it listed as nearly $976 million.
An offering prospectus said that Bishop Estate’s 4.1 percent stake represents the
fifth largest block of the company’s stock. Investcorp is the largest with 17.3
percent of the Saks’ equity, followed by SIPCO Ltd., a Cayman Island-based
investor, with 17.28 percent.
James Ahloy – President, Aloha Petroleum and Ali’i Petroleum; Trustee for
Excerpted from a Letter dated January 9, 1991, from Bruce N. Huff, Sr. V.P.,
and CFO, Harken Energy Corp. to Edmund Coulson, Chief Accountant, Securities
and Exchange Commission:
June, 1989, the Company decided to sell Aloha (Petroleum) due to the lack of
strategic fit and the need to redeploy assets and management effort . . .
determined that Intercontinental Mining & Resources, a major shareholder of the
company, was the most logical buyer.
. . . At the end of March, 1990, IMP completed the sale of its interest in Aloha to
Advance Petroleum Marketing Co.
. . . Advance at this time raised the possibility of a long and costly dispute over
environmental liabilities. . . .
. . . Prior to entering into the Letter of Intent dated February 22, 1990 with
Advance concerning this sale, IMR through its affiliate Quadrant Management
Co. had contacted a number of potential third parties towards locating a
prospective purchaser of IMP’s interest in Aloha including potential purchasers in
Japan, New York and in Hawaii, after which it determined that Advance
constituted the most acceptable purchaser for its interest….
By Samuel King, Msgr. Charles Kekumano,
Walter Heen, Gladys Brandt and Randall Roth
~ ~ ~
The time has come to say “no more.” The web of relationships between the
Judiciary and our beloved Kamehameha Schools/Bishop Estate has pushed two
great institutions to an absolute critical point. Immediate action must be
taken. To understand the underlying causes, readers must piece together the
following stories. Think of them as puzzle parts….
~ ~ ~
How trustees get selected
In the words of a former Supreme Court justice, here’s how the process worked:
“The way we went about picking trustees was different each time. The time we
named Chief Justice Richardson, for example, Justice Lum suggested that we
select him, and we all agreed. It was just that simple. Another time, we must have
gotten over 100 applications. It was pretty informal then too, but we did read
through everything. It’s really hard to generalize about how we did things because
it just depended on the circumstances.”
In the words of a different former justice, “When Os Stender was picked, we got
lucky. Two of the justices wanted Larry Mehau very badly, another two were just
as adamant about Anthony Ramos. The fifth justice, who was for Jimmy Ahloy,
refused to switch to either of the other two candidates. Once it became crystal
clear that we had a stalemate, someone — and I wish I could remember who —
brought up Os’ name. We all knew he was Hawaiian and that he was the CEO at
Campbell Estate, and it didn’t take long to agree on him. Chief Justice Lum
immediately called and asked him to come over right away.
When Os arrived 10 minutes later, we told him he had just been chosen to be a
Bishop Estate trustee. He just sat there for a good minute. You know, a minute is a
pretty long time to just sit there in a situation like that. Anyway, after that long
pause, he just said thank you,’ and that was that. Just about everyone agrees that
Os has been a great trustee. Like I said, we got lucky.”
Here’s the same scene as seen through the eyes of Os Stender: “You know, when
they picked me, they practically picked my name out of a hat. Can you believe it?
There was no process, not even an interview. I was speechless.”
We can’t knock good luck, but would rather rely upon clearly articulated criteria
and a coherent selection process. Otherwise, the selectors cannot effectively be
Bill would limit amount of money paid
to board members of charitable trusts
By Craig Gima, Star-Bulletin
Trustees of the Bishop Estate and other charitable trusts would be limited to
compensation of not more than the salary of the chief justice of the Hawaii
Supreme Court under a bill heard today in the Senate Judiciary Committee.
The chief justice makes $94,780 a year. In the last few years, Bishop Estate
trustees received more than $800,000 annually in compensation.
Critics of the Bishop Estate told senators that excessive compensation is the
genesis of many of the estate’s problems….
In written testimony, Beadie Kanahele Dawson, of Na Pua a Ke Ali’i Pauahi, told
the committee, “Eliminate the fat commissions and you eliminate much of the court
battles, greed, self-interest, and future politically connected, unqualified
Another bill before the committee would impose a five-year renewable term limit
on trustees, allow a designated group of beneficiaries to sue trustees and receive
attorneys’ fees if they win, and prohibit public officers and employees except
probate judges from appointing trustees of a charitable trust.
James Ahloy, a trustee for theLunalilo Trust, opposed the measure because it
would also affect the selection process for the estate that supports the Lunalilo
“The precedent set by changing King Lunalilo’s will may lead to other changes of
negative results for Lunalilo Home,” he told the committee….
Kukui, Inc. – A for-profit oil and gas subsidiary formed by the Kamehameha
Schools Bishop Estate to take over the operations of the bankrupt business
ventureMcKenzie Methane; parent of Ali`i Petroleum dba Paradise Petroleum.
September 28, 2001
EuroGas Shareholder-Information No. 11
==>LETTER TO THE SHAREHOLDERS<==
Ladies and Gentlemen,
The terrorist attack in New York and Washington on September 11, 2001 changed
the world. We silently mourn our friends in New York and the members of their
families who lost their lives or were injured through this cowardly deed.
But life must go on, and we must try to forget these terrible occurrences from
time to time, so that we can concentrate on our daily affairs. . . .
Of all the company’s legal disputes during the past six months, the one with Kukui
Inc. was finally resolved and dismissed in court. The suit brought years ago before
the Houston court by the bankruptcy trustee of the McKenziefamily, Trustee
Smith, is still proceeding. Settlement discussions on this matter have been going on
for almost a year. No other major legal disputes are underway.
Mr. Fern is a graduate of Willamette University in Oregon with a Bachelor’s
degree in Mathematics. A Certified Public Accountant, Mr. Fern worked for
PricewaterhouseCoopers (formerly Coopers & Lybrand, CPAs) in their auditing
division. In 1983, Mr. Fern joined Kamehameha Schools Bishop Estate (KS), the
largest private landowner in the state of Hawaii and an education trust, as their
Internal Auditor. In 1991, in his role as Internal Auditor, he became involved in
KS’ investment in coalbed methane projects in Alabama, Colorado, and New Mexico.
In 1996, he took over responsibility for KUKUI, INC., a wholly owned taxable
subsidiary of KS, which had been assigned KS’ interest in the coalbed met
Steve Sandlin – Vice President Land
Mr. Sandlin is a 1974 graduate of the University of Oklahoma with a BBA degree in
Petroleum Land Management. A Certified Professional Landman, Mr. Sandlin began
his professional career as a Petroleum Landman with Amoco Production Company in
Houston, Texas, in their Texas Coast (east and south Texas and north Louisiana)
District. In 1977 he joined American Petrofina Company of Texas. As the
Assistant Land Manager, he negotiated the acquisition of exploration prospects
submitted to Fina by the industry in all of the major geologic basins in the lower
forty-eight states and offshore Gulf of Mexico. Mr. Sandlin was employed by
Harry H. Cullen, Oil Operator, a small Houston exploration company, in 1981. He
supervised all land department activities connected with exploration prospects in
the Texas and Louisiana Gulf Coast, South Texas and Oklahoma. In 1992 he was
assigned to Quintana Petroleum Services, Inc., a Cullen family owned operating
company, and named the Project Land Manager over a coalbed methane project in
which KUKUI, INC. owns an interest involving wells located in Alabama, Colorado
and New Mexico. In 1995 Steve joined KUKUI Operating Company (KOC) and in
1998 was made Vice President-Land of KOC and Vice President of KUKUI, INC.
John W. Wessels – Vice President Operations
Mr. Wessels is a licensed professional engineer with BS and MS degrees in
Petroleum Engineering from the University of Texas at Austin. Mr. Wessels has
over twenty-seven years of experience in the upstream side of the oil and gas
industry. His responsibilities have included various engineering and management
positions with Quintana Petroleum Corporation, President of WPS, Inc., Vice
President-Operations of KUKUI Operating Company and Vice President of KUKUI,
INC. . . .
Larry K. Strider – District Operations Manager
Mr. Strider is a 1981 graduate of Auburn University with a BS degree in
Agricultural Engineering. He has over nineteen years of experience primarily in the
Southeastern and Gulf Coast areas. Mr. Strider worked as a field engineer for
Halliburton Services (U.S. Vice-Pres. Dick Cheney’s company) for six years in the
Laurel, Mississippi and Mobile, Alabama districts. In 1986 he joined Graves Well
Drilling Company as Operations Manager supervising drilling and workover
activities in the coalbed methane industry in the Black Warrior Basin. He also
worked on industrial and community water well systems and waste disposal well
projects. In 1990 Larry joined AMPCO Resources and operated a sucker rod pump
and supply store. He joined Quintana Petroleum in 1992 and KOC upon inception in
1995. . . .
David A. Petty – Manager of Regulatory Affairs
Mr. Petty is a graduate of Sam Houston State University in Huntsville, Texas, with
a BBA in Accounting and is a CPA with the state of Texas. Mr. Petty has 20 years
experience in the oil and gas industry in the areas of accounting, auditing, finance
and regulatory. Mr. Petty began his career with Coastal Corporation from 1981-1987. In 1987 he began his private accounting practice with Petty & Campise. From
1988-1995 David joined Quintana Petroleum Company as an Internal Auditor,
Accounting Supervisor and Assistant Treasurer. In 1995 David moved to KUKUI
Operating Company as Manager of Regulatory Affairs. David has served as
President of the Petroleum Accounting Society of Houston from 1993-1994,
Chairman of the Coalbed Methane Association of Alabama from 1998-2000,
Chairman of the COPAS Education Committee from 1990-1993 and is a current
member of the Texas Society of CPA’s.
* * *
Catbird Notes: Coincidently, one of the ‘Distinguished Visitors’ taking a taxpayer-funded joyride on the ‘USS Greeneville’ at the time it accidently sank the ‘Ehime
Maru’ was HELEN CULLEN, of Houston, Texas.
The Cullen Family owns Quintana Petroleum. According to
http://www.opensecrets.org, they are big backers of both G.W. Bush and the GOP.
HELEN CULLEN comes from a family that has business links with Clinton-pardoned felonMARC RICH.
Cullen’s father-in-law,ROY CULLEN, is the owner of Quintana Petroleum of
Houston, which, the New York Daily News reports, created a business partnership
in Argentina with Rich’s Suedelektra Holdings during the 1980s.
One unidentified White House source told the New York Daily News that there
was a “tremendous amount of nervousness at the White House about who these
The Cullen family has donated tens of thousands of dollars in soft money to the
Republican Party. And Roy Cullen donated $1,000 to George W. Bush‘s
Lee H. Henkel, Jr.– A Republican, was Treasury Dept. & IRS Counsel in the
Nixon Administration; later a tax attorney and real estate developer in Atlanta.
From the CENTURY CAPITAL GROUP website:
Lee H. Henkel, Jr., Managing Director, has over 40 years experience in the tax,
merger and acquisition fields both as a lawyer and broker representing primarily
the owners of closely held businesses. He is widely known as a dealmaker and is
comfortable discussing the various elements of selling a business. . . .
In 1971 he was appointed by President Nixon as the ranking Assistant General
Counsel of the U.S. Treasury Department and Chief Counsel for the Internal
Revenue Service, Washington, D.C. In this position, he served under Secretaries
of the Treasury John B. Connally, George P. Schultz, and William E. Simon . . .
* * *
From www.jailhurwitz.com/beebe.html :
In 1980, Lee Henkel and the infamous Charles Keating were the East & West
Coast financial chairs for ‘John Connally for President’.
Henkel was Keating’s attorney.
In October 1983, ACC buys the infamousLincoln Savingswith DBL issued junk
In 1984, Lincoln makes $70,000 loan to Connally on a land deal near Austin, TX and
$134,000 loan to Henkel; Connally defaulted leaving Lincoln (and not the taxpayers)
holding a $70,000 loss (Nation 11/19/90).
In February 1987, WSJ reports Lincoln S&L made at least $619,000 in loans to
corporations & partnerships in which Lee Henkel had an interest.
In mid-August 1987 the records of the records of Southmark, San Jacinto SA,
Strauss, Barnes, Connally and about 200 others were seized according to the
Dallas Times Herald. . . .
In 1988, SEC v. MDC Holdings; MDC (has close ties with Silverado), is caught in
shady deal with Lincoln S&L.
Neal Bush is loaned $550,000 for a house.
Connally was elected to Maxxam BOD.
* * *
BILLIONS WON BY INVESTORS
The Arizona Republic
Damages and out of court settlements won by investors in Charles H. Keating Jr.’sAmerican Continental Corp. who filed a $1.2 billion fraud and racketeering lawsuit
in U.S. District Court in Tucson:
DAMAGES AWARDED BY JURY:
Defendants will share in a judgement of $1.8 billion in compensatory damages
returned by a jury Friday against:
Charles Keating, former chairman of American Continental, who also owes $1.5
billion in punitive damages.
Editor’s note:Now that really sounds wonderful but what does it mean? Since
Keating says he is broke that $1.5 billion just disappears form the equation. Now
there is just chicken feed left for the investors. This headline is a lie. Notice
(burried at the very end of the article!) the amount Michael Milken had to pay and
remember he was making $550 million per year when he was stopped. That is what
it means to have attorneys like the Dershewitz brothers, Melvin McDonnald, and
John Dowd. I can think of about 200 million people who would think serving a few
years in the pen and keeping all that loot was a pretty good deal!!
Saudi European Investment Corp. of Paris, was a financial partner.
Conley Wolfswinkel of Tempe, was a borrower from Lincoln Savings and Loan
Association, an American Continental subsidiary.
Continental Southern Inc., Atlanta, was a Lincoln borrower.
Former executives of American Continental and Lincoln Savings, $4.75 million.
Law firms and individual lawyers
Jones, Day, Revis & Pogue, Cleveland: helped Lincoln prepare for a 1986 federal
examination, $24 million.
Kaye, Scholer, Fierman, Hays & Handler, New York: represented Lincoln in its
disputes with federal regulators, $20 million.
Parker, Miliken, Clark, O’Hara & Samuelian, Los Angeles: worked with American
Continental’s Lincoln subsidiary in connection with investigations by California
regulators, $5.65 million
Sidley & Austin, Chicago: represented Lincoln in dealings with federal regulators,
Mariscal, Weeks McIntyre & Freidlander, Phoenix: represented Lincoln in dealings
with federal regulators, particularly in disputes over appraisals of properties,
including the Phoenician Resort, $2 million.
Barbara Thomas, New York, $90,000.
Arthur Young & Co. (succeeded by Ernst & Young); audited Lincoln and
Continental’s financial statements for 1986 and 1987, $63 million.
Arthur Anderson & Co.: audited Lincoln and American Continental’s financial
statements for 1984 and 1985, $22.8 million.
Touche, Ross & Co.: audited Lincoln and American Continental from November
1988 until April 1989, $7.5 million, plus $1million in services for accounting and
distribution of payments to investors.
MDC Holdings, Denver, $1 Million
Isaac Heimbinder, US Homes president, Houston, $1 million.
McKenzie Methane – A Texas methane gas company in which Bishop Estate was
the majority investor– and in which the Estate’s Trustees, managers, friends and
other insiders co-invested their personal funds…and then let the Estate BAIL
THEM OUT WHEN THE DEAL FIZZLED.
. . . During his employment with KSBE and P&C, Plaintiff became aware of various
activities of certain individual trustees, directors, officers, and employees of
these entities that appeared to be illegal and/or breaches of their fiduciary
duties. The following is only a small sample of some of these wrongful activities
witnessed by Harmon:
a. There was a failure to disclose conflicts of interest and other financial
information in annual financial statements and in federal tax returns for KSBE
regarding personal investments by certain trustees, executives, managers and
employees in related for-profit companies controlled by KSBE.
b. IRS rules regarding the maintaining of “arms-length” relationships between a
tax-exempt charitable organization and its for-profit subsidiaries were being
breached. For example, at the direction of Henry Peters, Nathan Aipa, Louanne
Kam, Eric Martinson, and others, KSBE paid salaries, premium charges, legal fees
and claims costs that should have been paid by for-profit subsidiaries (e.g. Kukui,
Inc., Sino Finance, Unison Pacific, SoCal, AFCO, Paradise Petroleum, etc.), or by
individual trustees, officers, directors or employees, or by persons outside of
Despite recommendations from its tax advisors, Price Waterhouse, the official
written policy of Trustees, and the policies and procedures of P&C, services were
being provided by KSBE’s employees to P&C and other for-profit entities at no cost
to the subsidiaries.
In effect, KSBE was subsidizing these for-profit entities, which resulted in larger
profits for the subsidiaries; larger commissions for the Trustees; larger
compensation to “insider” officers, directors and employees of these entities; and
larger payments to independent contractors such as attorneys, auditors and claims
William E. Simon – Financier, businessman, and Secretary of the Treasury during
the Nixonand Ford administrations. He was also a member of the Committee of
A partial business career listing: Partner, Solomon Brothers (1964); Deputy Sec of
the Treasury (1973); Secretary of the Treasury (1974-77); Sr Consultant, Booze
Allen & Hamilton (1977-79); Consultant, Allstate Insurance Co.; Pres, John M. Olin
Foundation; Director, Kissinger Associates; Founding Board Member, Robert Trent
Jones International Golf Club; Senior Trustee, University of Rochester; Director,
William Simon died on June 3, 2000 of heart and lung ailments. He was 72.
* * *
William Simon was a co-investor with Bishop Estate in several business ventures,
including HonFed Savings & Loan, Sino Finance Group, Xiamen International Bank
(China), SoCal Holdings, and the now-infamousMcKenzie Methanedeal.
… Plaintiff alleges that the following persons, corporations, partnerships and other
business entities knowingly participated in, and improperly benefitted by, theRacketeering Activities of Defendants. By their acts or omissions, they either
sanctioned or perpetuated the crimes:
… William E. Simon – Simon has been involved in several financial ventures
involving KSBE, Marsh & McLennanandGoldman Sachs, both during and after the
period Plaintiff was employed by KSBE and P&C, which Plaintiff believes involved
unfair competition; opportunities for “insider trading” abuses; excess benefit
transactions to certain Trustees; fraud; money-laundering and other illegal
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