Oh what tangled webs! And, oh how they spin within them as they get tangled in earlier "obfuscations."
The Iraqis? No. The Bush/Cheney team. Yesterday was a bad day for the two former corporate homeboys.
First, the Wall Street Journal and Boston Globe let loose on W. Bush. The papers disclosed that while a director and paid consultant for Harken Energy Bush had actively participated in the creation of off-the-books accounting gimmicks to hide company debt and raise the company's stock price. The deal, which the company did in conjunction with Harvard Management, created an off-the-books partnership strikingly similar to the kind Enron used to accomplish the same goals -- and which Bush has condemned.
The White House reacted to the unwelcome disclosure by denying it was what it appeared. "There is simply no comparison" to Enron, said White House spokesman Scott McClellan. "It was disclosed to investors and it conformed to accounting rules."
Part of that was true. The deal was disclosed in the fine print in company SEC filings. But, whether or not it violated any laws is a matter that has yet to be explored. That would require the SEC to open an inquiry into the complicated deal to see who benefited, why and how.
A couple of questions come to the naturally curious mind. First, Harvard Management now says the deal was their idea, not Harken's. Okay, that's a good place for the SEC to start asking questions. (Forget for a moment the obvious questions -- why the hell was a billion-dollar investment fund fiddling around with a tiny, half-backed, ne'er-do-well Texas wildcatter anyway. That's another issue entirely.)
If it was all Harvard's idea, then what exactly happened? Let's lay out what little we already know:
Harvard already had a sizable investment in Harken stock (at one point Harvard was the largest single institutional holder of Harken shares, owning nearly a third of the company.)
The investment manager for Harvard Management also sat on Harken's board.
By June 1990 Harken's audit committee (on which Bush sat) had just completed a report outlining Harken's dismal financial state that included $23 million in losses that year and mounting bank debt.
Harvard says they came up with the idea of moving the debt off Harken's book by creating a special purpose entity (a "partnership") that Harvard would own a majority stake in but that Harken would get paid handsomely to "manage" thereby creating revenue on Harken's books.
The deed was done and, once investors saw Harken's debt vanish and fresh cash flowing in for the first time in living memory, Harken's stock went up.
When the stock went up, Harvard sold, making a "small profit."
"The partnership significantly improved Harken's fortunes. Its shares, which had fallen to $1.25 in late 1990 climbed to $8 in 1991. The stock improvement came as Harken's debt and interest expenses fell because of the partnership. Harvard benefited from the higher stock price by selling 1.6 million shares between September 1991 and October 1992." Harvard Watch
Shouldn't the SEC be just a bit curious to see if the Harken/Harvard partnership wasn't simply a smoke and mirrors contrivance, solely designed to create a profit for Harvard on what otherwise would have surely proven to be a very bad investment? And, Harken benefited too since the deal hid just how unprofitable and debt-ridden the company really was from its investors, customers and bankers.
Oh, and don't forget the third party beneficiary -- George W. Bush -- who was then nurturing his image as a self-made businessman. Bush had sold his Harken stock and was trying to back out of the company as gracefully as possible as he moved on up to a high profile job as owner of the Texas Rangers baseball team. The last thing Bush needed then was for Harken to show up as stinking carcass rotting in the Texas sun. People might start asking questions. Questions like, "How did you get the money to buy this ball team if the company you just left just filed bankruptcy?" Ugly, unfeeling, class warfare kind of questions, like that.
Bush went on to parlay the $850,000 he made selling his Harken stock into $15 million when he sold his interest in the team a few short years later.
While the White House denies any of this resembles anything that happened at Enron, there are some mighty interesting similarities between Harken's ever so cozy relationship with Harvard Management and Enron's similar symbiotic relationship Alliance Capital Management.
Like Harvard Management, the CEO of Alliance sat on Enron board. And, like Harvard Management, Alliance became the largest institutional shareholder in Enron. And, when Enron started going down the tubes, like Harvard Management, Alliance tired to help out, in that case selling over $300 million in Enron shares to Florida public pension funds.
Coincidence? Maybe. Maybe not. Someone ought to investigate.
Where Was Waldo?
Now onto the other fellow who also campaigned on his alleged private sector prowess.
The SEC is currently looking into the accounting practices of Dick Cheney's former company, Halliburton. I say, "looking into" rather than "investigating," because there is scant evidence that anything like an investigation is underway. Cheney has not even been interviewed by the SEC about the matter.
The issue revolves around how Halliburton booked revenue it had not yet (and might never) receive. Before Cheney took over as the company's CEO such revenue was not booked until it was collected. That changed under Cheney's rule. Disputed and uncollected revenues were counted right along with the money in the bank.
Somehow the company forgot to tell investors about this change the year it was made. Of course it boosted Halliburton's apparent revenue, which in turn boosted its share price. Cheney, of course, possessed a lot of Halliburton shares and options.
When Cheney was running on the Bush/Cheney ticket he made one of his central themes that he had been a hands-on CEO. Nothing moved at Halliburton that Cheney did not approved, so the spin went.
But, after the election Halliburton's little accounting problem surfaced in the press and SEC Chairman, Harvey Pitt -- already under fire for his ties with the accounting profession -- had little choice but to declare that the SEC was going to get to the bottom of it all.
That apparently scared the hell out of executives at Halliburton, who figured that since Cheney was now vice president of the United States, they would have to take the fall if the SEC ruled against the company. So, they sent a warning shot across the administration's bow. The company issued statements declaring in no uncertain terms, that Cheney had been in the loop when those decisions were made.
The message might have read -- "If we go down Dick, you're going down with us."
As the months passed the same SEC that showed a fierce determination to collected every scrap of information and testimony about Martha Stewart's ImClone stock sale seemed to have changed it's focus on Halliburton. Suddenly the SEC began framing Halliburton's accounting issues less as a violation of rules and more as a gentlemanly difference of opinion over how such disputed revenues should be handled. After all, the SEC began saying, all big construction companies do this to some degree or another.
The message to Halliburton executives - "Relax. Stand by us and we'll stand by you."
So, yesterday Halliburton's new CEO came out swinging in defense of his old boss, and in the process contradicting all previous statements on the subject.
"He (Cheney) had absolutely nothing to do with it," said CEO David J. Lesar, who took over from Cheney in 2000. "His job was not to collect bills."
The fix was in and yesterday everyone involved was busy fine-tuning earlier messages to fit.
Previously, Halliburton public relations officials had stated emphatically that Cheney was aware of the accounting change. Yesterday, one of those officials, spokeswoman Wendy Hall, said that what she really meant to say back then was that the approval of the change came in the form of Cheney signing the company's annual report to the SEC.
So, like Mel Brooks as Governor in Blazing Saddles, we are told now Cheney just signed what was put in front of him by others while chanting, "work, work, work, work..."
Or, he knew and approved the change. Either version of events creates a decidedly un-Adam Smithish image of Cheney as CEO.
One more thing to keep in mind when watching how the SEC handles the Halliburton accounting issue is the relationship between Pitt and Halliburton's accounting firm, KPMG. The accounting firm that approved Cheney's bookkeeping change for Halliburton was KPMG. That company was one of Pitt's law clients at the time and, early in his reign at the SEC Pitt was heavily criticized by his own staff for meeting privately with the head of KPMG to discuss the SEC's investigation of the accounting company's audits of Xerox. (Yesterday, Senate Majority Leader Tom Daschle and House Minority Leader, Dick Gephardt called for Pitt to resign.)
Oh what tangled webs...Someone ought to untangle them, don't you think?
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