Loan Star State?

In fact, a few weeks after Pres. Bush sold his Harken stock at $4 per share -- raking in around $850,000 -- Harken reported a $23 million loss. At that point, the stock price fell by more than 40 percent.

Moreover, IMR (the group that bought Harken's 80 percent stake in Aloha) was run by -- you guessed it -- Harken senior management. Although CFO.com has not been able to track down an exhaustive list of principals of IMR, several of the company's directors were Harken managers. As one accounting expert says, the Aloha deal resembled "a typical management buy-out."

But, adds the expert, "in practice," proper accounting calls for "the typical management buyout to defer reporting the gain."

Yet on Jan. 1, 1990, a mere six months after it purchased the Aloha stake, IMR sold its stake to Advance Petroleum. Advance Petroleum, a company that held an option to purchase the remaining 20 percent of Aloha, was backed by a friend of the Bush family. Four years later, Advance Petroleum reportedly contributed to Bush's first gubernatorial campaign.

Related Party Lines
While the Aloha transaction clearly enriched Bush, it wasn't nearly as beneficial to other Harken shareholders -- shareholders Bush had a fiduciary obligation to protect.

Under the terms of IMR's sale of its interest in Aloha to Advance, Harken agreed to forgive $5 million in loans it had made to Aloha and about $1 million in interest payments. That resulted in write-offs that accounted for almost a quarter of the $23 million loss Harken reported just weeks after Bush sold his Harken shares.

In its investigation of the deal, the SEC concluded that Pres. Bush was unaware of the magnitude of the write-downs until afterward. Some critics point out, however, that Bush's father was president at the time of the SEC inquiry.

One securities lawyer also notes that the younger Bush's liability in the case ultimately depended on various factors, including the degree to which Harken's audit committee vetted the mistaken accounting. "Of course a director has a fiduciary obligation," says the lawyer, who asked not to be named, "but there's a question as to why (the mistake) has occurred."

Further, the Aloha sale took place long before the accounting debacles at Enron and WorldCom prompted calls for greater independence and expertise among board members serving on audit committees.

Still, it's hard to get past President's speech to corporate executives last week. In that oration, Bush called for a crackdown on executives who profit from stock sales because their companies "cook the books."

Did Harken cook the books? Difficult to say. While the SEC never leveled charges against the company's management, the Commission certainly took the energy specialist to task over its accounting for the Aloha Petroleum sale.

And to a few outside observers, the Aloha sale in 1989 -- a sale which involved a loan to a purchaser that was run by the seller's management -- seems to look more like self-dealing than square-dealing. At the very least, the circumstances surrounding the selling of Aloha Petroleum to a related-party would likely fail to qualify as "higher ethical behavior."

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