GWEN IFILL: Even as the president was putting the White House stamp this week on proposals to avoid future corporate scandals, he was also answering questions about his own past, especially his history as a businessman.
In 1986, Mr. Bush sold his own struggling firm, Spectrum 7 Energy, to Harken Energy, a Texas-based oil services company. He received 212,000 shares of stock, a consulting deal, and a seat on Harken's board and audit committee.
In June 1990, Mr. Bush sold the shares of Harken stock for $4 apiece, or close to $850,000. Eight days later, the company reported a higher than expected second quarter loss of $23.2 million.
When that news was made public, the company's stock, which by then was $3 a share, fell to $2.37 a share.
Mr. Bush filed an intention to sell his stock, called Form 144, with the SEC, as required by law. But he didn't file another document -- known as Form 4 -- which stated he sold the stock, until eight months later.
At his press conference Monday, Mr. Bush was asked about his dealings with Harken, and why that form was late.
PRESIDENT GEORGE W. BUSH: You know, the important document was the 144, the intention to sell. That was the important document. I think you 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.
GWEN IFILL: Today new questions were raised about loans Mr. Bush obtained from the company while he served on its board.
In the late 1980s, he got two low-interest loans, totaling $180,000, at a favorable interest rate of 5 percent.
In his Wall Street speech Tuesday, Mr. Bush said such loans should now be banned.
PRESIDENT GEORGE W. BUSH: I challenge compensation committees to put an end to all company loans to corporate officers.
GWEN IFILL: A White House spokeswoman said, Mr. Bush's loans were "entirely appropriate and fully disclosed," and that the president did not profit from the loans.
GWEN IFILL: Now for an explanation of what exactly happened at Harken Energy, we turn to Donald Langevoort, Professor of Law at the Georgetown University Law Center, and a former counsel at the Securities & Exchange Commission.
Let's start by talking about these loans. How unusual was it for a member of a board of directors to receive a loan like this?
DONALD LANGEVOORT: Not unusual at all, especially by the late 1980s and early 1990's, loans to help directors buy stock was pretty common place, to get stock into friendly hands and to motivate the directors.
GWEN IFILL: So incentive for executives to take loans like this is what?
DONALD LANGEVOORT: Strong incentive by the company to get their executives to buy stock. And many executives don't have the cash, so they need a loan.
GWEN IFILL: So the point was to get executives to take the stock and remain loyal to the company. And for the executives, it was just an easy loan?
DONALD LANGEVOORT: Sure, it was an easy loan. But again, you can be motivated when you have even an easy loan.
GWEN IFILL: Now, this loan was about $180,000. We have heard of much... more amazingly sized loans, like the $400 million to Bernard Ebbers of WorldCom. Is that more unusual?
DONALD LANGEVOORT: Very much so.
There has been a progression in the 1990's, from the time we're talking about with respect to Mr. Bush, to the scandals that have broken recently. More and more executives have been willing to put their hands in the corporate till and say, "this is my money. I need it for my portfolio whatever else." So today we're seeing a level that we didn't see 12 years ago.
GWEN IFILL: And were these loans scrutinized in the same way 12 years ago that they would be today?
DONALD LANGEVOORT: I doubt it. For a variety of reasons, the amounts in question - the fact that the stock market was going up… for a variety of reasons it was a little bit under the radar screen.
GWEN IFILL: The president in his speech the other day asked that these loans end, that these kinds of loans end and that's the question that the president accepted the kind of loans he's now calling for an end to. What... who has to do that? How does that work?
DONALD LANGEVOORT: Well, we could bar it by law, but we don't. It's never been illegal to extend a loan to an executive, as long as they are fully disclosed. The board of directors has is completely in charge and many companies around the country have already ended that practice.
GWEN IFILL: They have?
DONALD LANGEVOORT: They've declared they're not a bank anymore.
GWEN IFILL: Why?
DONALD LANGEVOORT: Partly to not create expectations among the executives that any time they need some more money, they ought to look first to the treasury.
GWEN IFILL: And why would a company now, under this just the edict of the president, but not the enforcement power of the president do it?
DONALD LANGEVOORT: I'm not sure it's the president's speech at all.
I think investors have gotten angry at a wide range of abuses, executive compensation, loans, self--dealing transactions and smart companies have discovered in the last few months, if not earlier, that they've got to position themselves as a little bit more attentive to their investor interests. So they stopped these.
GWEN IFILL: Do those loans affect a company's balance sheet?
DONALD LANGEVOORT: Sure. In the sense that they are risky sometimes, they're accounted for on the balance sheet, so they do move money in and out of the corporate treasury, that's usually reflected.
GWEN IFILL: Okay, let's talk about the other part of this, which is the president's role in buying and getting rid of Harken stock.
DONALD LANGEVOORT: Right.
GWEN IFILL: Did the... it seems that the major question here -- the elephant in the room -- is whether there was insider trading involved in the president's decision to sell the stock certainly before it took a dive.
What did the SEC investigate and what did they find?
DONALD LANGEVOORT: Well, we don't know all the details of the SEC investigation. In an insider trading investigation like this, what you want to know are a couple of things:
Did the person, here Mr. Bush, know material nonpublic information, important confidential things in advance of selling? Now, as we look at the facts, we find some things that make this case not smell too bad, and a lot of investigators use a smell test to think about what to follow up on.
In fact, although the stock price did go down a little bit after Mr. Bush sold, it also went back up fairly quickly. There was some good news, in other words, inside the company at the same time there were these questions about the financial condition. It looks like a reasonable person could have said, "This was a wash; I'm selling into a market that I don't know whether the stock's going to go up or down."
That's not classic insider trading.
GWEN IFILL: If you are a member of a board of directors or an audit committee, would you typically have the kind of information, which would allow you to know whether the stock was going to go up, or whether something bad was about to happen with the company?
DONALD LANGEVOORT: It certainly should.
That's the job of a member of the board of directors and certainly a member of the audit committee. Many of the reforms we're pushing today are designed to make people on the board of directors know even more.
GWEN IFILL: But you're saying that in order for the SEC to make a connection, there has to be something more than a bad smell?
DONALD LANGEVOORT: More than a... or a real bad smell, perhaps, is the way you look at it. Usually, in the kinds of cases the commission brings, you see a dramatic stock price increase or decrease right after the sale or the purchase.
GWEN IFILL: Like the Martha Stewart case with ImClone?
DONALD LANGEVOORT: Certainly that kind of situation -- where the stock price tanks shortly after -- is the kind of thing that pushes the SEC forward.
Where it's more ambiguous like this, often the SEC as a matter of discretion says, "let's not push this one."
GWEN IFILL: Now, let's talk about these forms. It's interesting to see whether America will rise up over the question of filing forms on time.
One is the Form 4, which is the form that was filed late. The other form, which the president just said in that opening piece was the Form 144, which, you know, he said was the more important form and had been filed on time. Is it the more important? How do those two...
DONALD LANGEVOORT: No, it's not the more important form at all. The one thing that having filed the 144 but not the 4 does indicate that he wasn't trying to cheat here; I mean if he was willing to disclose it in the intention to sell, there's no reason to believe he was trying to cover up anything.
I'm willing to believe it was a good-faith mess-up, perhaps by his lawyer. But it was a mess-up.
The Form 4 is a very important form for securities disclosure purposes. We want to know what high-level people in all publicly traded companies are doing in the stock mark. Are they buying, or are they selling? If a lot of people at Harken or anywhere else are selling, investors ought to know that quickly.
That's why we have a filing requirement, and when executives ignore that and don't file for four or five months too late, they're depriving investors of some important information.
GWEN IFILL: So in the end, whose responsibility is it to make sure that the form gets filed? First, we heard lawyers, then we heard company officials and ultimately whose responsibility is it?
DONALD LANGEVOORT: It's the person in question -- it's Mr. Bush or any other executive -- certainly not the company.
GWEN IFILL: So does a failure to file a Form 4 all by itself trigger an SEC investigation?
DONALD LANGEVOORT: It can.
In fact, ironically in 1990, the year we're talking about here, the SEC had gotten so upset with directors and officers not filing these forms on time, they went to Congress to get an increase in the penalties for violation of SEC rules.
So the SEC can and has brought cases simply based on failure to file.
GWEN IFILL: Another interesting part of this is we as we were describing earlier, the president sold his 212,000 shares of Harken Energy at a time apparently he received a cold call from a broker who bought these shares on behalf of someone, but we still don't know who bought them.
Does it matter, or is it routine for us not to know?
DONALD LANGEVOORT: It's very routine not to know. Often buyers don't want their identities divulged and the securities laws rarely require that to be disclosed. So there's nothing terribly suspicious about that.
GWEN IFILL: Now, there's another piece of this, which is the Aloha transaction, as it's known, which is a subsidiary of Harken, which sold... 80 percent of it was sold to some Harken insiders and it wasn't because Harken loaned these insiders some money, it wasn't counted against the books in the same way as a loss in the way it might have otherwise been.
Is that in any way reminiscent of other kinds of stocks, swap, sales we've seen, different accounting practices?
DONALD LANGEVOORT: It's hard to know. Reminiscent perhaps in the sense that if you look at Enron, you see that transactions structured with insiders can often be used to manipulate the books and the financial reports.
But the fact that it may be reminiscent enter isn't enough to get upset about it. It may be perfectly legitimate.
GWEN IFILL: Do we need to see these SEC files to find out what really happened?
DONALD LANGEVOORT: I would like to. I think it would clear the air.
I'm willing to believe the president, that there is no 'there, there,' as he said, but I think in light of his strong rhetoric, we ought to have whatever information is available.
GWEN IFILL: Professor Langevoort, thank you very much for joining us.
DONALD LANGEVOORT: Thank you.