The Return of the Revenge of the Son of "Bush is a crook"

Great Debates
121

Mr. Svinlesha:

There were a couple of reasons this specific manuever. Harvard was going to inject more money into Harken to help ensure its viability. They wanted to protect that investment. Had Harken still gone bankrupt then all the assets that Harvard injected would be up for grabs by anybody who Harken owed. They would likely only get back pennies on the dollar. By setting up a partnership, they serve the dual purpose of ensuring Harken’s ongoing viability, and ensuring that they maintain control of their assets.

The lack of subsequent disclosure really isn’t a loophole. It’s a side effect. Disclosure has to end at a certain place for a number of reasons. If it didn’t, then Wrigley had to list your assets in their annual report every time you bought a pack of gum. Clearly that’s excessive.

Additionally, non public entities posess a right to privacy. The Harvard Fund’s research and investments are proprietary. If they fully disclose them at all times it would be as if they were playing poker with their cards facing the wrong way. Other investment firms would be able to take advantage of them. For this same reason most mutual funds only list their holdings in a 6 month retroactive manner.

As a private organization, the Harvard fund had a right to privacy in its partnership. As a public corporation Harken has to disclose it’s dealings. A tough compromise has to take place.

In a transaction like this Harken would have to make a filing with the Sec, have a board vote, and possibly a stockholder vote on what they were doing. They would have to divulge full details of what assets they were placing into the partnership at the time they did it, and that would be divulged in several places, including its financial statements which are sent to all shareholders.

Finally, in the ongoing years that Harken was involved in the partnership, their interest in the partnership would be revealed in several ways on the balance sheet.

The main difference in this kind of thing is twofold:

  1. Checks and balances- Harken would hold an interest in an entity that was not held to the same disclosure requirements as Harken itself. Harken investors would know the companies interest in the partnership without any of the specifics of the ongoing operations being revealed. The health of the partnership might be very strong or very weak. Investors trying to analyze the Company would not know, and hence would not have a full and complete picture of Harkens health. While investors do not have full disclosure on this the fact is that they’re not really kept in the dark either. Within the companies 10-k they would be required to disclose the risks and health of their investments in these partnerships, just not with the same stringency they do on the balance sheet.

  2. Typically these partnerships are taxed, operate, and subject to different accounting measures than a publically traded corporation, so the companies ongoing interest may be a difficult thing to judge accurately.

The way the law deals with these things to protect investors is by size and interest. If the corporation’s interest is minor, and/or the assets in the partnership are of a de minimis nature than this reduced disclosure is called for. If the interest is large, or the assets are beyond a certain threshhold than the partnership would not escape disclosure, as it would be considered major enough that the public’s need to know outweighs the other considerations.

As for the specifics of this partnership. It is extremely clear and straightforward what it is for, and why it occured. Harken’s interest was a minority one, and at the timeframe we are talking about it was fully disclosed.

No investor in their right mind would have taken issue with this, or the way it was done, or subsequantly reported. The benefits were very large, and the reduced disclosure was minimal.

Finally, neither harken nor Harvard had a choice. The law says that this is the way these things have to be handled. They did not have the option to carry the partnership on the balance sheet.

122

Well, damn, Scylla that was concise, informative, and, best I can tell, unbiased. Going to have to chew on that for a while, very nutritious. I’m happy to report I understand every word. It also clears up something in the underlying reports, as to why the ratio of ownership was pegged so precisely.

Of course, if you weren’t so consistently nasty, it would be a lot easier to thank and/or congratulate you. Ah, well, you are what your are. And I’m not.

Well done.

123

Elucidator:

As you complain about the shellacking the poor investors took as a result of these fast and loose enron like dealings, and how the stock was cruelly manipulated so that the big boys could rip off the investing public, you once again forgot to check the facts!

In other words, you’re making this up to.

This “bubble” you refer to lasted for a year. As an exploratory company Harken hit subsequent unrelated troubles including several dry holes and a disapointing exploration market. However, Harken made good use of the second chance that Harvard had given it, and starting in 1994 it had a long streak of successes and earnings growth that were reflected in the stock price culminating in a peak in late 1998, early 1999. The bottom then fell out of the exploratory market, and Harken is in the same boat as so many other of it’s peers. However, it is still in business and potentially viable.

I personally would not have recommended this to Aunt Tilly specifically because from the get go it was and is a speculative investment. I would have found an interesting situation for the appropriate investor at the time though. In 1990-1991 harken was having troubles, but it had a couple of nice things goings for it as well.

To summarize Harken was saved because of the Harvard transaction. Considering the time frame, Harvard has almost surely recovered the debt that would have been defaulted, so there action turns out to have been justified with the benefit of hindsight.

Investors received many benefits and opportunities as a result of the transaction, including the ability to be made whole as much as 8 years later. If they invested wisely or luckily they had the chance to make substantial profits up to 300%

The only investors who would have been deprived of the benefits of disclosure of this transaction would be those that willfully choose to be this way. There’s nothing darwinistic or cold-hearted about it. If people wish to behave foolishly than we can’t force them to read the 10-k, can we?

But really, this isn’t much of a valid concern either. Investors who do their own work and make their own decisions take of the fiduciary responsibility of due diligence.

Most investors make the use of a professional money manager, or professional research, in which case their due diligence is done for them by the analysts and money managers involved.

I woud wager that very few people became aware of Harken on their own, and bought it without doing any research whatsoever. Most would have come to it through a money manager or paid research from an analyst.

In summary, a vanishingly small number of people would have likely purchased this stock without having had due diligence completed at some point in the process, and those that did (if any) probably went to pains to avoid it.

124

That’s because Mr. Svinlesha isn’t fucking around. He’s writing clearly identifying his concerns and objections, and asking concise meaningful questions. He’s not running around making stuff up or trying to hide his actual arguments in innuendo.

It would be discourteous of me not to treat him as he deserves.

125

This isn’t “fiscal Darwinism,” it’s simply investor responsibility. As Scylla points out, you cannot force investors to read a prospectus at the point of a gun. A company is obliged to make material information readily available to the investing public; it is not obliged to guarantee that the investing public consumes that information.

At any rate, information will be processed and reported on by financial analysts, stock brokers and the business press. An investor who is uncomfortable with reading a prospectus can simply go to a full-service broker and rely on their professional advice – which should include familiarity with the company’s filings.

The bottom line here is that in the US securities are regulated on a disclosure basis, not a merit basis. The government doesn’t try to tell people whether a given company is a good or bad investment; it only seeks to guarantee that the investing public has access to all the information it needs to make an investment choice. And SEC filings are readily available. Any investor who chooses not to read them does so at his own peril.

Indeed, elucidator, to be consistent with what you’re saying, even if the Harvard transaction had been consolidated into Harken’s balance sheet, it would not be “full disclosure” from your point of view because many unsophisticated investors don’t bother to read the 10-K. :rolleyes:**

Depends on what Aunt Tilly’s toleration of risk is. If Aunt Tilly had big wad of cash and a high tolerance for risk, I’d tell her to invest away (albeit not just in Harken – Aunt Tilly should diversify her portfolio no matter how she invests). However, if (as I assume your example is meant to imply) Aunt Tilly is an unsophisticated elderly person with modest investment capital, I’d tell her to avoid Harken and put her money somewhere safer – the returns will be less, but she will incur less risk in doing so.

126

Coitenly! They tend to cover each other fairly well too, and you have to know how to get to the relevant boards. Buzzflash, as I use it, links to other media sites. While Buzzflash and DemocraticUnderground are highly partisan, the media articles that they link to are an order less partisan. It as of today:

http://www.people.fas.harvard.edu/~skomarov/harvardwatch/ (having a lot more links)

http://www.boston.com/dailyglobe2/282/business/Harvard_role_in_Harken_called_deeper+.shtml (both sites link to this article)

There is also a reference to a Wall Street Journal Article on the same matter. (Requires paid registration)

A lot of stuff, much weird, is discussed in this thread: http://www.democraticunderground.com/duforum/DCForumID61/4538.html

This guy here is blogging HarkenGate: http://elitewatch.netfirms.com/HarkenGate.html

Here’s a link on Harken buying Bush’s bust oil venture, and the connection to BCCI from last July: The REAL Dirt On Bush/Harken Scandal!! : Indybay (Arbusto, Spectrum 7 to Harken)

It strikes me as interesting that as Governor of Texas that Bush put the U of T funds under the direct management of his political cronies who are in a position to do the same things. http://seattlepi.nwsource.com/opinion/78918_krugman18.shtml

Had Clinton, or his wife or his relatives done any of these things, there would be a $50 million investigation with the power to subpoena all the “private” documents from all those involved. Combined with his heavy drug use, Laura’s “Chappiquidick” killing of a former boyfriend, and the desertion from the Texas Air Guard, after favoritism in joining, there is enough of a stink around this guy to conclude that he is just scum floating by on his daddy’s name. Personally, I’d like a full fledged Congressional investigation into all of the Bush family’s financial dealings for the last 100 years so we could get at a bunch of private records. There is far more probably cause here than for Whitewater, and yet Whitewater had five investigations, and Bush finances, not one.

“Who cares what you think?” – GW Bush July 4, 2001

127

I am sparticus:

I’ve looked over those articles. Some I’ve seen before. Unfortunately, there’s quite a few innacuracies in them. For details, you can examine the thread elucidator links to in his second post, which is this thread’s precursor.

In that thread we took a look at some primary documents such as SEC filings and Freedom of Information Act documents. These pretty much so that Krugman’s suppositions are irresponsibly wild if not outright falsehoods.

Additionally, a lot of this stuff is sensationalized. Bush’s company being engaged in an “enron-like deal” may be an utter falsehood, but it makes for an interesting story.

Krugman is a bit of a bore on the subject of Bush, being about as reliable and nopartisan as Ann Coulter.

We’ve covered the Harvard transaction pretty completely. In the previous thread we cover the Aloha transaction with harken pretty completely.

I won’t liken this to Whitewater, as each of these things needs to be looked at under its own merits.

Bush has certainly received advantage due to the political and social prominence of his family. I don’t think anybody will deny that.

I’ve seen nothing however to suggest that his business dealings were anything but legal and ethical.

If you wish to discuss a specific incident or case, or have questions, let me know.

128

Thanks, DCU and Scylla, for your enlightening responses.

In elucidator’s defense, I just want to point out that for us unwashed out here – that is to say, we who don’t know diddley about securites, accounting, etc. – the articles in the Globe and the WSJ do make the whole thing sound fishy. Especially the “off balance sheet” partnership, which seems to hide Harkan’s debt, taken with Dr. Bharan’s statement that Bush and Harvard Mgt. were exploiting an “accounting loophole.” Underneath both articles, as well, I detect an insinuation that the entire operation was a “good old boy” deal between various insiders, each one watching the other’s back.

129

Well, gee, double-teamed, overlapped and insulted as well. If only I had a Marxist MBA at hand. I’m simply not able to keep up. But a few points, if I may.

Good question! Where would we go to find out? Have you reliable access to such information? Damn good question! I have no idea where I would go to answer such a question. Do you? Do companies like Harken have a section in thier annual reports “People Who Are Suing Us? (Aaronson-Carlson, Vol. 1)”

Tell you what. If both of us are brought up on charges of bias, I’ll plead guilty if you will. The Debater’s Dilemma, no?

And you were doing so well, too. Is it that you can’t help it, or don’t want to?

You guys have made a good “prima facae” case (I believe the term is). Barring further evidence, I am inclined to accept it, with reservations. Regrettably, those reservations lie outside my training and skills to resolve, as is demonstrated by the question of whether or not lawsuits from shareholders have been filed.

Beside, as noted above, Our Leader had sold most of his interest before this happened. Tell you the truth, it was so interesting I had quite forgotten that my primary concern was undermining the reputation of this sterling example of civitas, The Man Who Fell Up.

I thank you for the education, and serenely ignore your derision. Which is probably as closing to “winning” as any of us ever get.

130

Material lititgation shows up on both the balance sheet and the footnotes to the financial statement. For it to show up in the balance sheet, the outcome must be both (1) probable (likely to occur) and (2) estimable (a reasonably concrete dollar amount can be assigned to the outcome). If only one is present it gets footnoted. Note that a company must even disclose litigation it expects to occur even if a lawsuit hasn’t yet been filed, assuming requirements 1 and 2 are met.

So yes, it would be in the 10-K.

The fact that the Milberg, Weisses of the world didn’t start a derivative suit over this transaction is pretty good evidence that it was on the up and up (Milberg tends to sue first, ask questions later when the stock price falls on a public company).

131

**

The characterization is accurate. What we have here is the equivelant of Creationists arguing over evolution with a couple of biologists. Faith that something, anything must be dishonest about this transaction persists even in the face of overwheliming explanations as to why that isn’t so. That is plainly idiocy, and what’s worse is that it’s idiocy with an agenda.

132

The explanation is granted as prima facie, as I have stated above. That it is overwhelming…well, I reserve that, just in case the aforementioned Marxist MBA with relentless credentials as an investment analyst should check in. Do either of you know any?

133

Well, it seems there is another development. I recall, in our original discussion, the conjecture was offered that Mr. Bush sale of his stock was approved by corporate lawyers at Harken as being kosher. It would appear that this is something less than entirely factual.
http://www.boston.com/dailyglobe2/303/nation/Board_was_told_of_risks_before_Bush_stock_sale%2B.shtml

"One week before George W. Bush’s now-famous sale of stock in Harken Energy Corp. in 1990, Harken was warned by its lawyers that Bush and other members of the troubled oil company’s board faced possible insider trading risks if they unloaded their shares.

The warning from Harken’s lawyers came in a legal memorandum whose existence has been little noted until now, despite the many years of scrutiny of the Bush transaction. The memo was not received by the Securities and Exchange Commission until the day after the agency decided not to bring insider-trading charges against Bush, documents show.

The memo, a copy of which was obtained by the Globe, does not say directly whether Bush would face legal problems if he sold his stock. But it does lay out the potential for insider-trading violations by Bush and other members of the Harken board, and its existence raises questions about how thoroughly the SEC investigated Bush’s unloading of $848,000 of his Harken stake to a buyer whose name has not been made public.

The SEC cleared Bush after looking into whether he had insider knowledge of an upcoming quarterly loss at Harken. But the SEC investigation apparently never examined a key issue raised in the memo: whether Bush’s insider knowledge of a plan to rescue the company from financial collapse by spinning off two troubled units was a factor in his decision to sell."

There is very little in the article to leave out, regretably, and I am loathe to bring some sort of copyright trouble. I encourage you to read the cited article before further discussion.

And the revelations seem to continue, one drip at a time, one more suggestive fact after another, no smoking gun, no fingerprints, just another fact. And through all of this, we are expected to cling to Our Leaders innocence of any knowledge, we are to believe that all of this paper swirled about him, and he knew nothing of it.

It strains my credulity. Yours?

134

Not in the least, Comrade. I hardly think Koko is clever enough to even comprehend the ramifications of his behavior. “Umm… more money for me? Sure, let’s do that!”

135

elucidator:

That’s an interesting article. I would like to see the memo myself. As we have encountered before in this discussion, the press does not always represent these things accurately. I note within that article at least one substantive error, that being that Bush was “cleared” by the SEC (you’ll recall that no such statement can reasonably be made concerning the SEC’s investigation.)

Seeing as it appears from this article that Bush never saw the memo (and it was generated in response to his request, which is odd) he can hardly be held culpable for its contents.

Please also note that the memo does not appear to say that members should not sell, but merely raises the possibility of an iside information issue. The possibility of such an issue is of course why Bush asked for permission to sell.

I hope you’ll take it on good faith when I tell you from experience that lawyers generally practice C.Y.A (cover your ass,) when they render such opinions. When asked to comment in writing about such insider sales, they will typically list any and all issues that could possibly be construed as an insider trading violation. I have seen many such documents, and such a listing is standard.

Finally, this is rendered somewhat moot by the SEC’s own study on materiality which it conducted, analyzing the stocks performance and the news subsequent to Bush’s transaction. That report concluded that none of the insider information posessed at the time of the sale was material. Remember that insiders always posess information not available to the general public. The test is whether that information is material. Without materiality, by definition there is no insider information.

Of particular note though is the issue that what was contained in the memo does seem to conflict with what the SEC was told, specifically “’'Haynes and Boone informed [Bush] that they had met internally to consider the issue and, based upon the information they had, they saw no reason why Bush could not sell his shares,.”

It may be odd, that Bush did not see the memo but was only told about it by a company lawyer who may have ommitted the statement.

What is not clear, and what would be of operative interest in this memo is whether the potential issue was more in the form of a standard disclaimer listing the possible issues with a sale, or if it was more of an express warning. Unless we see the memo firsthand we won’t be able to tell.

What is clear is that Bush is not accountable for illegal insider trading both because the statute is long past, and because in the final analysis the information turned out not to be material.

I would like to see the memo though as it raises some interesting possibilities.

136

Well, the Globe says they have a copy. It will no doubt be posted somewhere, if not now, pretty soon. Center for Public Integrity, most likely, or Daily Enron.

137

God, this thread Just. Will. Not. Die.

I’d have to read the memo to be sure, but the title ("‘Liability for Insider Trading and Short-Term Swing Profits’’) sounds like a generic memo laying out the law of insider trading – a primer for the client of sorts. In fact, that’s what the White House is claiming the memo is (’‘This is a general memo that goes through the perfunctory guidelines of a rights offering,’’ Bartlett said. ‘‘It was not specific to the transaction that the president was contemplating.’’)

I’ve written memos like that. They’re more about client education than anything else (and, to be fair, some lawyerly CYA, as Scylla notes). Consider this tidbit, which the Globe describes as a “warning”: ''The act of trading, particularly if close in time to the receipt of the inside information, is strong evidence that the insider’s investment decision was based on the inside information. … Unless the favorable facts clearly are more important than the unfavorable, the insider should be advised not to sell."

That is a basic black-letter description of how the SEC views insider trading. I’d put the same language in any memo about insider trading simply because it’s important to understanding how an insider trading case is made. Note, however, that the memo does not say whether the favorable facts in the Harken case are more favorable than the unfavorable facts – it just lays out the guideline.

Also note that the memo doesn’t say that selling close in time to the receipt of inside information is necessarily insider trading – it is evidence of possible insider trading; the law firm would be advising its client to avoid the sale because it would cause the client a mess of trouble, even if the sale was not in fact made because of the inside information.

At any rate, we corporate lawyers sometimes advise our clients to be afraid of their own shadow – we try to inform them of every possible pitfall, no matter how remote. The facts that have developed do not evidence insider trading. The fact that this memo describes what constitutes insider trading does not change those facts.

138

Well, it will not die for the same reason the Chinese Water Torture is protracted: it is the nature of the beast. Revelations are not all at once, though they could be if the much esteemed Mr. Pitt would have it so. Unlikely, at best.

What has surfaced from this long exchange, to my mind, is the schism between what might be called “common sense” and legalese.

In some sense, this is a good thing. Common sense would dictate that if a man be guilty of a crime, and has confessed, that is all to the good, justice is served. Yet we recognize that there must be limits to confession, it must be properly obtained, and if, in denial of CS, the guilty go free, that is a fair price to pay in order to deny untrammeled power to the authorities. I have no qualms whatever with this disparity.

CS would also indicate that if a man is in a position to know, indeed, is in the very thick of information flow, it is likely that he has such information. Designation such as “insider” and “material” are matters of legal sense (LS), as has been tirelessly brought to my attention. I rest assured that, for varioius reasons, Mr. Bush will never be charged with insider trading beyond these pages and those of the press.

But one is necessarily expected to believe that he stood in a veritable whirlwind of memos, reports, etc. and not one, not one of those struck his attention sufficiently to alter his opinion about the viability of the enterprise Harken. He stands in the center, while suspicious facts and actions dance about him, but he is innocent of them, lamb-like in his ignorance.

I don’t find this entirely implausible, as I have stated before, he might well have been the doofus figurehead, and afforded the Mushroom Treatment. But CS dictates, while LS ignores, that he should have felt some obligation to apprise himself more fully of facts. LS seems to say that as long as he maintains a pristine ignorance, he is not culpable. I don’t deny your expertise, that this is the letter of the law. It rankles, nonetheless.

Further,we are given to believe that the son of a sitting President recieves no special deference, something that astounds CS. CS blithers and faints dead away. Power and money are not influential? Not to the majesty of LS, it is intoned gravely. The SEC is quite above such. Even the arrival of the aforementioned letter the very day after the investigation is ended, is quite unremarkable. Well, I haven’t been assured of that yet, I suspect I will be.

CS gazing upon LS in the matter is not so surprised that Mr. Bush cannot be found legally culpable, the wonder is, given the number of technical, LS, escape hatches that anyone is ever found guilty of such, never mind the remote possiblity that they might suffer in proportion to thier crimes.

CS notes that there are more millionaires in our Congress than in our prisons, when there are millions in our prisons and only about 500 in our Congress. This astonishing bit of demographics might best be explained by the extraordinary civic virtue of the moneyed. Either that, or the fix is in, the game is rigged. Yours truly suspects darkly that it is the latter, and history offers little to deny such.

I entertain no illusions that the Man Who Fell Up will ever feel any dread or guilt, persons of his class know instinctively that’s what’s their is thiers, they inherit thier virtue with thier privilege, they are part and parcel. They cover thier tracks simply as a matter of good taste, it wouldn’t do to let Downstairs become too cognizant of the real goings-on. Simply isn’t done, don’t you know.

And they are aided and abetted by hard-headed, realistic men who shrug, and say that this is simply how it is, they do not make it so, they simply take thier cut and remain tactfully quiet.

CS says that sucks. LS says that’s just the way it is, and the law will cease to favor the rich and powerful when the rich and powerful cease to make the laws.

In the words of Buddy Holly, “That’ll be the day”.

139

Translation: I do not like Bush, and will continue to level baseless accusations at him even after being repeatedly shown that Bush’s actions were above board.

Seriously. Under what circumstances would you find it appropriate for an insider to sell?

140

Elucidator:

I would suppose that if you were to look at any sale of stock by any insider in any company in the last ten years or so, you would, if you looked hard enough, be able to find something, that happened, might have happened, or could have happened to that company, that the insider might have been in a position to know about.

Based on hindsight, it would be possible to assign that potential as the motivation for the sell, thus building a case for illegal insider trading.

You could literally do this with any sale, by any insider, of any company.

By the very nature of a corporation there is always opportunity and danger in the future. There is no point in time when nothing is going on.

Insiders cover themselves by filing and getting legal opinions and permission before they sell.

The fact that Bush did this, and that nothing material affected the stock after the sell, makes Bush’s transaction relatively innocuous.

As you say, there is not cause for legal action. There really isn’t even cause for an assumption of bad faith.

What there is is the possiblity for dishonesty.

But there is that possibility in any every human endeavor.
For the love of God, man. Let it go!