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. Last Updated: 07/27/2016

Bush OK'd Enron-Type Deal

WASHINGTON -- When President George W. Bush served as a director of an energy company 12 years ago, he approved the creation of an off-balance-sheet partnership that reduced the company's debts and improved earnings in a transaction similar to those that led to the collapse of Enron Corp.

As a director of Harken Energy Corp. in 1990, Bush, who had sold his own oil business to Harken and was retained as a consultant, made the motion at a board meeting to negotiate the transfer of struggling Harken assets into a partnership with Harvard University's investment arm, Harvard Management Co. Inc., documents indicate.

Unlike Enron, which used partnerships to conceal debts and loss-making operations, Harken's partnership followed accounting rules and was disclosed to investors and regulators. Bush did not profit personally from the transaction because he had sold most of his shares earlier. "There is simply no comparison" to Enron, said White House spokesman Scott McClellan. "It was disclosed to investors and it conformed to accounting rules."

News of the partnership was first reported last week in the Wall Street Journal and the Boston Globe after documents were gathered by a group called HarvardWatch that monitors Harvard investments. After creation of the partnership, depressed Harken shares enjoyed a brief renaissance as the company's financial situation appeared to improve, in part because of the removal of $20 million in debt.

According to board minutes of Aug. 29, 1990, obtained by HarvardWatch, Bush made the motion, which was approved, to "proceed in negotiations ... toward formulating a letter of intent" creating "a new entity." The entity, which became the Harken Anadarko Partnership, included oil and gas properties Harken would run.

Harvard Management, which invests the university's endowment, was a major investor in Harken, at one point owning 30 percent of its shares. Its investments began at about the time that Bush, the son of the then vice president, became a director of the company in 1986.

According to the Journal, Harvard's support of Harken influenced A. Robert Abboud, then head of First City Bancorp, to take over another bank's loans to Harken in 1990 and rescue Harken from default. Abboud had been a prominent supporter of Saddam Hussein's government in Iraq before the Persian Gulf War. Abboud also had ties to President George H.W. Bush, the current president's father.

McClellan, the White House spokesman, said the ties between Harvard Management and Harken had nothing to do with the Bush connections because talks about a possible Harvard investment in Harken began before Bush became a director. McClellan said the off-balance-sheet partnership was proposed by Harvard, and the university investors "set the terms of the partnership."

Harvard said in a statement yesterday that its investments in Harken "were not inappropriate" and had nothing to do with Bush connections. "The role of Harvard Management ... is not to curry political favor but to invest well on Harvard's behalf," the statement said.

A phone call to Harken officials seeking comment was not returned.

The partnership significantly improved Harken's fortunes. Its shares, which had fallen to $1.25 in late 1990 from an earlier high of $6, 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, HarvardWatch said.

By December 1992, Harvard Management had bought all of Harken's interest in the partnership. Harvard sold the venture in 1993 to Cabot Oil and Gas Corp. for stock valued at $34.6 million, HarvardWatch said.

The partnership "bears striking resemblance to the partnerships Bush has condemned at Enron," HarvardWatch argued.

"It was controlled by and transparent only to Harken insiders, and likely was used to artificially brighten the company's business prospects," it said.