ALOHA, HARKEN ENERGY!
Welcome to Hawaii
Sightings from The Catbird Seat
~ o ~
The Insider Game
By PAUL KRUGMAN, The New York Times
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 of Enron generated $500 million in phony profits, and who sold $12 million in stock just before the company collapsed —— is still secretary 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 procedures.”
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 the Enron 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’s personal 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 Integrity.
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.”
www.tpj.org/pioneers/lee_bass.html
Example fraud:
Tri-Lateral Investment Group
Excerpt from Al Martin’s book about
Bush’s Harken Energy Fraud
From Demopedia
… 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 Group.
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.
But it was a clear out-and-out fraud.
www.almartinraw.com/harken.html
External links
May 4, 2005
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 investigation.
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 request….
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 Wendy’s.
http://starbulletin.com/2005/05/04/business/story2.html
January 18, 2001
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 document said.
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 comment.
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 partners….
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 business practice.”
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.
www.starbulletin.com/2001/01/18/business/story1.html
THE FINGERPRINTS OF CONSPIRACY
From Rule by Secrecy, by Jim Marrs
Copyright 2000
~ ~ ~
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 get it.
– 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 cartel.
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 reclaim it.
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 America.”
“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 Gulf situation.
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 Iran.
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 credit syndications.”
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 conflict.
“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 tab.
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 guarantees should 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 Surprise scandals.
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 Investment Office.
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 partner.
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 when President Clinton also had refused 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….
– Copyright 2000, by Jim Marrs
For more, GO TO > > > APCOA: Vultures in the Parking Lot; BCCI; Investigating Investcorp; Nests in the Pentagon; The Nuclear Nests; The Peregrine Fund; The Peregrine Gallery; Uncle Sam’s Guinea Pigs
July 12, 2002
As a Board Member,
Bush OK’d a Deal Like Enron’s
By WARREN VIETH, Los Angeles Times
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 commodity futures.
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 1990.
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.
The Aloha sale was so similar to what Enron 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 presidential bid.
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 Washington.
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 corporate reformer.
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 attention.
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 of a loan from Harken, with no payments due for several years.
Although the company received only $1 million, it recorded a $7.9-million profit on 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 chain.
In early 1990, it discovered that the commitment would cost it dearly. Aloha’s new 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 million of 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.
Timeline
1986
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.
1989
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.
1990
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.
1991
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.
1994
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 $23,700.
1996
Advance Health Care becomes a publicly traded company called Advance Paradigm.
1998
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.
Hemorrhaging Concealed
But The Public i has found that Harken was bleeding profusely even before Bush unloaded his stock. Harken effectively concealed the hemorrhaging by selling a retail subsidiary through 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 their money.
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, Limited for $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 losses.
“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 overall.
“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,’” Halbert recalled.
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 million.
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 million of Aloha stock for $1. Harken also forgave $5 million in loans it had made to Aloha and about $1 million in interest payments.
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.
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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 Party.
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. Bush arrived 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.
Enter Quahsa.
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 investor with 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 Harken has 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.
Sweet Deals.
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 performance.”
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 and Harvard 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 deal.
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 ordinary shareholders.
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 business.
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 trading.
* * *
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 “Outstanding Integrity.”
May 17, 2002
Ex-Andersen Partner Kept Enron Papers
Associated Press
HOUSTON – A former Arthur Andersen partner who illegally shredded documents related to Enron Corp. testified yesterday that he preserved several potentially embarrassing records.
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 statements.
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 & Elkins later 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.
* * *
May 16, 2002
Kamehameha uses Enron firm in audit
By Jim Dooley, Honolulu Advertiser
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 public yesterday.
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 tax return.
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 reports.
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 O’ahu.
The tax return also reveals considerable turnover in top employees at the huge institution.
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.
Former Kamehameha tax director Gilbert Ishikawa was paid $271,610; Rodney Park, former administrative/planning director, received $260,023; and former appraisal director Kenneth Teshima was paid $214,627.
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 now than they were before years of turmoil culminated with the departure of all five of the institution’s trustees two years ago.
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 full year.
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…
For more on the Kamehemameha Schools scandals, GO TO > > > Dirty Money, Dirty Politics and Bishop Estate
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 named James 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 common….
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 together.
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 talked.
“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 Saudi Arabia.”
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 Mahfouz and 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 in Houston….
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 billion….
* * *
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 Investcorp for $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.
Honolulu Star-Bulletin Business
~ ~ ~
For more, GO TO > > > Investigating Investcorp
James Ahloy – President, Aloha Petroleum and Ali’i Petroleum; Trustee for Lunalilo Trust.
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….
… Concessions:
– Assumed Jimmy Ahloy’s Employment Contract obligation….
August 9, 1997
BROKEN TRUST
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 held accountable….
For more, GO TO > > > Broken Trust: The Book
February 2, 1999
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 trustees.”
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 the Lunalilo Trust, opposed the measure because it would also affect the selection process for the estate that supports the Lunalilo Home.
“The precedent set by changing King Lunalilo’s will may lead to other changes of negative results for Lunalilo Home,” he told the committee….
See also: Paradise Petroleum
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 venture McKenzie 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 McKenzie family, 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.
* * *
From their website:
MANAGEMENT OF KUKUI OPERATING COMPANY
Dennis E. Fern – President
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 felon MARC 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 guys are.”
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 presidential campaign.
* * *
See also: McKenzie Methane
For more, GO TO > > > The Sinking of the Ehime Maru
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 infamous Lincoln Savings with DBL issued junk bonds.
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.
* * *
From www.dcia.com/settlement.html
BILLIONS WON BY INVESTORS
The Arizona Republic
Damages and out of court settlements won by investors in Charles H. Keating Jr.’s American 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.
SETTLEMENTS REACHED
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, $4 million.
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.
Accountants
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 $1 million in services for accounting and distribution of payments to investors.
Lincoln borrowers
MDC Holdings, Denver, $1 Million
Isaac Heimbinder, US Homes president, Houston, $1 million.
C.V. Nalley, Atlanta, $750,000
Lee H. Henkel Jr., Atlanta, $100,000
E.C. Garcia & Co., Phoenix $90,000
Others
Offerman & Co., Minneapolis, investment bankers, $1.5 million.
Lexecon Inc., Chicago Financial Consultant, $1 million in services for investors.
Jeffery C. Patch, PHX, appraiser, $500, 000
Richard Fenn, former vice chairman of Saudi European Investment Corp. a financial partner, $16,000
ANTICIPATED SETTLEMENTS
Drexel Burnham Lambert Inc. Investment bankers, $40 to $50 million
Michael Milken, former head of junk bond sales for Drexel, $35 million to $50 million.
Emerald Homes, PHX, Lincoln borrower, $200,000
* * *
For more on Charles Keating, GO TO > > > Vultures in the Meadows
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.
For more, GO TO > > > The Myth & The Methane
Paradise Petroleum – A subsidiary of Autofuel Company (AFCO) which was a subsidiary of Kukui, Inc., which was a subsidiary of Pauahi Holdings Corp.
From the RICO lawsuit, Harmon v. Trustees of Bishop Estate, P&C Insurance Company, et al.:
. . . 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 these organizations.
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 adjusters….
For more, GO TO > > > Confessions of a Whistleblower
William E. Simon – Financier, businessman, and Secretary of the Treasury during the Nixon and Ford administrations. He was also a member of the Committee of 300.
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, Xerox Corp.
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-infamous McKenzie Methane deal.
From the RICO lawsuit, Harmon v. Trustees of Bishop Estate, et al.:
… Plaintiff alleges that the following persons, corporations, partnerships and other business entities knowingly participated in, and improperly benefitted by, the Racketeering 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 & McLennan and Goldman 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 activities.
For more, GO TO > > > William Simon says…
# # #
! ! ! NEWS RE KARL ROVE ! ! !
http://www.oilempire.us/karlrove.html
For more, GO TO > > >
AIG: The Un-American Insurance Group
A Connecticut Yankee in King Kamehameha’s Court
The Bankruptcy Buzzards in Liberty House
Confessions of a Whistleblower
Dirty Money, Dirty Politics & Bishop Estate
Office of U.S. Trustee vs. Harmon
The Peregrine Gallery
P-s-s-t, wanna buy a good audit?
The Morgan, Lewis & Bockius Report
The Rise and Fall of Summit Communications
Vultures Up to Their Beaks In Tesoro Petroleum
Vultures of the Sandwich Isles
Office of the U.S. Trustee vs. Harmon
MORE OF THE CATBIRD’S FAVORITE LINKS
THE CATBIRD SEAT FORUM
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Last update January 8, 2007, by The Catbird.