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Allegation of insider trading (last updated August 19, 2004)
Fahrenheit 9/11 refers to George W. Bush's sale of about $850,000 worth of Harken Energy stock in June 1990, shortly before a larger-than-anticipated loss was announced. At the time, Bush was a director of the Harken company.
The Securities and Exchange Commission did investigate the stock sale but concluded in August 1991 that there was "insufficient evidence" to recommend bringing an enforcement action against Bush. According to SEC memos from 1991 and 1992 that were obtained by the Center for Public Integrity, the reasons for the SEC's conclusions broke down as follows:
- Bush had a pre-existing plan to liquidate stock in several companies, not just Harken. In addition to the $848,560 of Harken stock that he sold on June 22, 1990, Bush sold about $660,000 in stock that summer. Bush's attorneys told the SEC that all the stock sales were made to pay $600,000 in connection with Bush's investment in the Texas Rangers, to pay a tax bill of several hundreds of thousands of dollars, and to invest in T-bills and other liquid investments.
- At the time of Bush's sale, he would have expected quarterly losses to be consistent with traditional losses and could not have known that overall losses would be as great as they were.. According to a March 18, 1992 SEC memo, Bush would have known at the time of the sale only that Harken's estimated operating losses were $4.2 million, which was considered in line with traditional losses though less than the actual operating losses for that quarter. The SEC noted that at the time of Bush's sale, Harken management had not taken steps that would increase the total losses by another $6 million and was not aware of the accounting affects of a transaction that would increase the total losses by another $7.2 million.
- According to witnesses, Bush had consulted with several lawyers before making the sale. According to the SEC's March 18, 1992 memo, Harken's in-house counsel Larry Cummings told the SEC that Bush had approached him in early June 1990 about whether Bush could sell the stock legally and that Cummings as well as Harken's outside lawyers had concluded that there was no reason Bush could not do so.
Given such factors, the SEC staff concluded in an August 21, 1991 memo that "it would be difficult to establish that, even assuming Bush possessed material nonpublic information, he acted with scienter or intent to defraud."
Nonetheless, questions have continued to linger about the sale.
For example, according to some reports, less than three months before the stock sale, Bush signed an April 3, 1990 "lockup" letter promising not to sell shares for at least six months because Harken was contemplating a public common stock offering. Harken reportedly dropped the public stock offering idea soon after, arguably rendering Bush's promise null and void. However, some question why Bush would have signed such a letter if he was already planning to liquidate Harken stock as he did in June.
Some have also argued that Bush received documents just before the sale that indicated that Harken was having more financial difficulties than expected.
Bush himself has viewed the matter as closed. "Everything I do is fully disclosed, it's been fully vetted," he said in response to a question about the stock sale in July 2002 (transcript on-line here). White House spokesman Ari Flesicher similarly dismissed the lingering questions: "It's all been looked into, the Securities and Exchange Commission has looked into this issue extensively and exhaustively and made the determination there was no 'there' there." (transcript on-line here).
Sources: The Center for Public Integrity, which requested SEC documents under the Freedom of Information Act, is on-line here.
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George W. Bush
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