U.S. President George Bush held a press conference this morning NZT (5pm July 8th EST) and faced intense questioning from the White House press corps on allegations of insider trading in relation to Harken Energy in 1990.
For background on the Harken insider transaction and
the SEC investigation (which very importantly – given the
President’s explanation following - did not “clear” the
president, but just elected not to proceed.) see…
- UQ Wire: Harken Energy - Bush’s No Good Trade
- Fleischer Press Briefing - Damage Control On Harken Energy
- Investigator Who Cleared Bush Gets WorldCom Job
Extracts from today’s Presidential press conference on Harken, Harvey Pitts and corporate respondibility follow:
Q Mr. President, the Democrat have signaled that they are going to make your behavior while a director at Harken an election-year issue. There's an ad out today which is relatively new. I know you said this has been vetted before -- I mean, I've heard that. But would you take on the charge that you were eight months late with an $850,000 stock sale report?
THE PRESIDENT: First, let me take on the notion that people love to play politics. You know, you said the Democrats are going to attack me based upon Harken -- that's nothing new. That happened in 1994. I can't remember if it happened in 1998, or not. It happened in 2000. I mean, this is recycled stuff. (Laughter.) Thank you. (Laughter.)
When I made the decision to sell, I filed what's called a Form 144 -- I think you all have copies of the Form 144. It's an intention to sell, and I did so. And -- but as you said, this has been fully vetted. It has been looked at by the SEC. You've got the document; you've got the finding where the guy said, there is no case here. And it's just -- the way I view it is it's old-style politics. And I guess that's the way it's going to be, but --
Q Well, sir, if I might, on the question that the Form 4 was eight months late, why was it?
THE PRESIDENT: You know, the important document was the 144, the intention to sell. That was the important document. I think you've got a copy of it. If you don't, we'll be glad to get you one, that showed the intention to sell.
As to why the Form 4 was late, I still haven't figured it out completely. But nevertheless, the SEC fully looked into the matter. They looked at all aspects of it, and they did so in a very thorough way. And the people that looked into it said there is no case. And that was the case in the early '90s; it was the case in the '94 campaign; it was the case in the '98 campaign. The same thing happened in the 2000 campaign -- I guess we're going to have to go through this again in the 2002 campaign. But nothing has changed. And the nothing that changed was the fact that this was fully looked into by the SEC, and there's no "there" there.
Q Mr. President --
THE PRESIDENT: I'm working my way around, John.
Q -- in a way to clean up the corporate world and start the reforms, Senator McCain is suggesting that you ask for the resignation of Harvey Pitt, and says that he is inept and has had to recuse himself so many times in all these cases. What do you think? And are you one thousand percent behind him?
THE PRESIDENT: Very tricky. I support Harvey Pitt. Harvey Pitt has been fast to act. He's been in office less than 12 months, I think -- I mean, he was -- we sent him up to the Senate, and was unanimously approved. I'm not exactly sure when the vote was, I guess it was about a year ago. And every senator said aye on Harvey Pitt -- aye, meaning that they thought he would do -- they thought he was the right man for the job. And I still think he is.
He is -- in a quick period of time he has taken 30 CEOs and directors to task by not allowing them to serve again on a board or serve in a CEO capacity of a company. He's encouraged what they call disgorgement; in other words, if somebody has profited based upon malicious reporting, or whatever the lawyers call it -- obviously trying to scam somebody, they had to give the money back. And he's been very active on that. So I think Pitt's doing a fine job.
Q Sir, you said in your speech tomorrow you're going to talk about some of the excesses of the 1990s, when a lot of money was flying around, people were playing a lot of games with money.
THE PRESIDENT: That's right.
Q You weren't President then; Bill Clinton was President. Do you think in some way he contributed to that, set a moral tone in any way?
THE PRESIDENT: No.
Q Can I ask one more -- (laughter.) You'd not like to expand on that?
You were asked about the SEC and the Harken Energy Company. Democrats are saying, would you have the SEC release all the papers in connection with that to end all the questions? Would you tell the SEC, Mr. Pitt, to release those papers?
THE PRESIDENT: This is old politics, John. This has been around for a long time. In the early '90s, key members of Congress asked for relevant documents from the SEC on this case. They were given the documents. You've seen the relevant documents.
And I want to remind you all that I sold the stock at 4, and 14 months later -- the holding period for capital gains, I think, was 12 months in those days -- the person who bought my stock could have sold it for 8. Could have doubled his or her money.
Q Mr. President, you've said that you didn't know, when you sold your Harken stock, that the company was going to restate its earnings. As a member of its audit committee, how could you not know that its earnings had not been properly accounted for?
THE PRESIDENT: Because that fact, that fact came up after I sold the stock. And the SEC fully looked into this. All these questions that you're asking were looked into by the SEC. And again, I repeat to you, the summary -- which I think you've seen -- I hope you've seen it; if not, we'll be glad to get it to you -- said that there was no case there.
Q Mr. President, if I may walk you --
THE PRESIDENT: If you'd have worn a tie, you could have had a follow-up. (Laughter.)
Q If I may ask a question from just before the sale of stock that you mentioned. Could you please explain your role when you were on the board of Harken Oil in the sale in 1989 of its Aloha Petroleum subsidiary, which later caused the SEC to require Harken to restate its earnings? The sale has been described as creating a phantom profit to hide large losses. How did you see it, sir? And do you think that this transaction hurts your credibility on corporate responsibility?
THE PRESIDENT: Mike, Mike, this, and all matters that related to Harken were fully looked into by the SEC. And in this case, the system worked. There was an honest difference of opinion as to how to account for a complicated transaction. And that's what -- you're going to find that in different corporations. Sometimes the rules aren't as specific as one would expect. And therefore, the accountants and the auditors make a decision. And it is the SEC's role to make the determination as to whether or not the accounting procedure used in this particular instance was proper, or not.
And -- let me finish. And they made the decision that Harken ought to restate some earnings, which Harken did. And that's how the system is supposed to work.
Q If I may ask you, right before the accounting, the sale, itself, of the subsidiary, did you favor that? We're you involved --
THE PRESIDENT: Mike, you need to look back on the director's minutes. But all I can tell you is, is that in the corporate world, sometimes things aren't exactly black and white when it comes to accounting procedures. And the SEC's job is to look and is to determine whether or not -- whether or not -- whether or not the decision by the auditors was the appropriate decision. And they did look, and they decided that earnings ought to be restated, and the company did so immediately upon the SEC's finding.
Q Sir, in that SEC investigation you waived attorney-client privilege so that the SEC could question Harken attorneys and your personal attorneys about your dealings. In light of that, do you think it is appropriate today, given the fact that you say investors are nervous about the markets, for senior executives of these companies to go before Congress and invoke the 5th Amendment and refuse to discuss their dealings in controversial -- and on a related point, one of the differences right now between the administration and the Senate bill on corporate responsibility is the Sarbanes proposal to have this independent board appointed by the SEC police the accounting industry. You have opposed that so far. Are you prepared today to --
THE PRESIDENT: Well, let me -- I'll give you my opinion on that. Look, I think people -- obviously, if they're called up ought to tell what they know. But lawyers have different opinions. And these people are listening to the advice of their counsels.
Q Does it hurt the very market confidence you're --
THE PRESIDENT: Well, I think what hurts the market confidence is the -- in the recent cases, was the inflated numbers. And so people look at balance sheets and wonder if they're real.
And now, as to the Sarbanes bill, we share the same goals, and I'm confident we can get a good piece of legislation out of the Congress. I, too, called for an independent board. My concern in the Sarbanes bill is that there's overlapping jurisdiction, which will make it harder to enforce rules and regulations, not easier. If you have overlapping jurisdiction, it creates confusion as to who is in charge of what. But I'm confident we can work that out. I am.
Yes, David. We're skipping around there.
And -- tie man. Let me see, you are -- (laughter.) I don't have my -- "no name" is says. (Laughter.)
Q Tie man is a fine --
THE PRESIDENT: Thank you.
Q Thank you. And I thank you for the compliment. Earlier you signaled your staunch support for Harvey Pitt, sir. On August 8th, his one year will have come up and he will no longer have to recuse himself. Do you think that he should voluntarily recuse himself after that point? Would that be --
THE PRESIDENT: I think Harvey Pitt was put in place to clean up a mess. And he's working hard to do that. It's an amazing town where the man barely got his uniform on, barely had a chance to perform, and now, for whatever reason, people think he ought to move on. The very ones who voted for him. And I would ask them to look at his record. And I'm going to -- since I'm the decision-maker, I'm going to give him a chance to continue to perform.
Q Mr. President --
THE PRESIDENT: Your name is not Elizabeth.
Q Thank you. The accounting procedures at Harken and Aloha have been compared to what went on at Enron. Would you agree with that?
THE PRESIDENT: No.
Q Why not, sir?
THE PRESIDENT: Well, again, this is -- there was no malfeance involved. This was an honest disagreement about accounting procedures. And the SEC took a good look at it and decided that the procedures used by the auditors and the accounting firm needed to -- were not the right procedure in this particular case, or the right ruling, and, therefore, asked Harken to restate earnings, which it did. I mean, that's the way the SEC works. That's the proper role of an oversight group.
There was no malfeance, no attempt to hide anything. It was just an accounting firm making a decision, along with the corporate officers, as to how to account for a complex transaction.
Q Can I follow that up, sir?
THE PRESIDENT: Yes, Ken?
Q Yes, Mr. President, to put your speech tomorrow in a larger context, at the turn of the last century, Theodore Roosevelt complained about what he called the "malefactors of great wealth," and he asked, in a very famous speech, "Who shall rule this country? The people?" Or what he called "those who hide behind the breastworks of corporate organizations." I wonder if you feel this era is comparable to that one, and if you feel you should respond as aggressively as Roosevelt did to corporate corruption?
THE PRESIDENT: Well, of course, he was referring to trusts. I'm referring to a lapse of ethics. People forgetting the fact that they represent things other than their own compensation packages, however inflated they may be; that they have a responsibility to employees and shareholders.
And I am -- I also understand how tender the free enterprise system can be. If people lose confidence in the system, it will be hard to attract capital in the markets. And that's one reason I've reacted so steadily against what I have seen. And I don't like it a bit, and I'm going to talk about it tomorrow.
David asked an interesting question about how do you prevent things in the future. It's like asking how do you -- if somebody has -- doesn't have that ethical compass, they'll find ways to cut corners. There are ways that people should hold people accountable. I mean, investors need to be, pay attention. There are investor groups that will do that. Obviously, boards of directors need to hold CEOs accountable. But if you get a bunch of people together that have no sense of ethics, you're going to get this kind of behavior. And so then what the government must do -- and it's a legitimate role of government -- is to step in and hold people accountable.
Q Mr. President, one way to establish or restore investor confidence being floated right now is making public the tax returns of corporations. Would you favor that policy?
THE PRESIDENT: Making public? I'd need to look at that. I'll take a look at that.
Q Mr. President, how do you respond to the criticism that your administration, and you particularly, are more interested in protecting the interests of corporate America than the needs of ordinary Americans?
THE PRESIDENT: What I'm interested in protecting is the confidence of all Americans in the marketplace, so that people feel comfortable investing, because investment means jobs; and so that people feel comfortable that their savings plans and pension plans are protected. That's why I put out the pension reform package.
Remember, in February I laid out a pension reform package. And in March I laid out 10 steps for good corporate governance, and I'm waiting for Congress to act. And it's been a while. But, listen, I'm a believer in the free enterprise system. But I'm also a strong believer in holding people accountable when they betray the trust of employees and shareholders. And that's exactly what we're going to do.
MR. FLEISCHER: Final question.
Q Mr. President, you mentioned that sometimes the accounting laws are just too difficult to calculate --
THE PRESIDENT: No, I said sometimes there's differences -- a ability to interpret one way or the other.
Q But isn't that -- wouldn't that provide a handy excuse to some of the folks who are involved in these scandals today, who say, well, internally we had --
THE PRESIDENT: Sure. Sure, it becomes a handy excuse. But good prosecutors and a strong SEC will determine the difference between what becomes a handy excuse by somebody willing to defraud, and somebody who has just a difference of opinion. And that's the difference. And that's the role of the SEC. And that's why the SEC has to be strengthened.
And tomorrow I'll call for a stronger SEC, more investigators and more budget. But that's precisely what the role of the SEC is, and that's what it does. I know the Democrats are trying to divert attention from the major goal. And I hope they -- I hope we can work together to get good legislation out. The important thing is to restore confidence to the economy, and we can. But -- go ahead.
Q I just wonder if you think then that some of the companies that are in play today in terms of scandal could actually be places where the accounting was just --
THE PRESIDENT: Could be. It could be. It's not my role to judge, or the Congress's role to judge, it is the SEC's role to judge. And that's why we need a strong and vibrant SEC, to make those judgments. But I think it's pretty clear when somebody is trying to defraud. And it's -- when you've got an error of $3.4 billion, I think it was, it's a pretty clear indication that something might be there. But everybody ought to have their day in court. We ought not to rush to judgment on every single case that comes up. And the SEC ought to do its job, and do it well.
Thank you all very much.
END 5:36 P.M. EDT