George W. Bush Is Investigated for Insider Trading Summary

  • Last updated on November 11, 2022

George W. Bush, elected U.S. president in 2000, sold more than 200,000 shares of Harken Energy two months before the company announced a huge loss. This led to claims of insider trading against Bush, but a U.S. Securities and Exchange Commission investigation, which began in April, 1991, cleared him of wrongdoing.

Summary of Event

The large sums of money George W. Bush collected from his involvement with Harken Energy Corporation was one of the more controversial aspects of his life before his election as Texas governor in 1994. In 1986, Bush was the forty-year-old son of U.S. vice president George Bush, George H. W. H. W. Bush (later president) and had little success of his own. His ventures in the oil industry were struggling. He had lost the election for a Texas congressional seat in 1978. His luck seemed to change, however, when he became involved with Harken Energy Corporation. [kw]Bush Is Investigated for Insider Trading, George W. (Apr. 5, 1991) [kw]Insider Trading, George W. Bush Is Investigated for (Apr. 5, 1991) Securities and Exchange Commission;and George W. Bush[Bush02] Bush, George W. [p]Bush, George W.;insider trading investigation Insider trading;and George W. Bush[Bush] Securities and Exchange Commission;and George W. Bush[Bush02] Bush, George W. [p]Bush, George W.;insider trading investigation Insider trading;and George W. Bush[Bush] [g]United States;Apr. 5, 1991: George W. Bush Is Investigated for Insider Trading[02510] [c]Law and the courts;Apr. 5, 1991: George W. Bush Is Investigated for Insider Trading[02510] [c]Business;Apr. 5, 1991: George W. Bush Is Investigated for Insider Trading[02510] [c]Corruption;Apr. 5, 1991: George W. Bush Is Investigated for Insider Trading[02510] [c]Banking and finance;Apr. 5, 1991: George W. Bush Is Investigated for Insider Trading[02510] [c]Government;Apr. 5, 1991: George W. Bush Is Investigated for Insider Trading[02510]

Harken, based at the time in Dallas, Texas, engaged in exploratory drilling at sites throughout the world. Like many speculative resource companies, it seemed better at self-promotion than at finding oil. Its oil wells were dry, it was loaded with debt, and it lost money most years. Its accounting practices were byzantine, which made it difficult to correlate its assets with its stock price. However, in 1986, it added a famous name to its roster—the younger Bush. Harken purchased Bush’s partly owned and failing Spectrum 7 oil company for $2.25 million. The buyout provided Bush with 212,000 Harken shares and additional stock options worth about $600,000, a position as a consultant to Harken paying between $80,000 to $120,000 a year from 1986 to 1993, and a membership on the Harken board of directors (with additional directors’ fees).

In 1986 and 1988, Bush borrowed $180,000 from Harken to purchase an additional 105,000 shares at favorable terms available to directors. However, Harken’s losses would continue. In 1989 the company lost over $12 million, and in 1990 it lost $40 million. Nevertheless, Harken was granted prime business opportunities, such as exclusive drilling rights in Bahrain along the Persian Gulf in 1990. Although deals such as this helped keep Harken in the financial news, the company was losing so much money its future was in jeopardy.

In the spring of 1990, Bush was considering selling some of his Harken stock to raise cash to participate in the purchase of the Texas Rangers baseball team. However, as he knew, he was required to obey federal laws that prohibit company insiders from profiting from private knowledge of a company. On May 17, Bush attended a special meeting of the Harken board of directors, in which the board was warned of Harken’s looming crisis. On June 6, Bush, as a member of Harken’s audit committee, received the company’s so-called flash report, which predicted a $4 million loss. It is important to note, however, that Bush was not a member of the executive committee that had access to most of Harken’s financial information.

On June 8, Sutro & Company stockbroker Ralph Smith offered to purchase Bush’s Harken shares on behalf of one of his clients. Bush promptly inquired of Harken’s general counsel about the suitability of his selling Harken stock and was given a memorandum, “Liability for Insider Trading and Short-Term Swing Profits,” which warned against any selling by insiders that could be in violation of insider-trading laws. On June 22, Bush sold 212,140 of his 317,152 shares of stock for $848,560—about $4.25 a share. Two months later on August 20, Harken announced an astronomical loss of $23 million for its second quarter. The price of its stock would soon fall to $1.25, a 75 percent decrease, although the stock would eventually rebound to the price at which it was sold at by Bush.

On April 5, 1991, the U.S. Securities and Exchange Commission (SEC) started an insider-trading investigation into the transaction, requesting several documents from Bush. Documents that were made public indicate that the SEC found that Bush was not well informed about the poor financial condition of Harken and, thus, did not sell his shares in anticipation of its pending losses. In addition, Bush had been approached first by Smith to sell his shares and he made no effort to conceal the transaction. Although Harken’s price did fall 20 percent the day of the sale, it rebounded over the following days. Finally, Bush’s failure to file certain SEC forms was found to be a minor violation. Thus, the SEC decided that it would not charge Bush with insider trading; and it would seem difficult in the light of the SEC investigation to claim that Bush violated the law. (The stock price of Harken would continue to fall over the following decade, and it lost hundreds of millions of dollars, eventually reaching penny stock status.)


Bush’s sale of his Harken shares was perhaps the most important transaction of his business career to potentially threaten his political future. If the sale constituted insider trading, it could have resulted in criminal charges and would certainly have obstructed his presidential aspirations. The issue was raised again in the 2000 Presidential campaigns, U.S.;2000 Presidential campaigns, U.S.;George W. Bush[Bush02] presidential campaign and during the early years of his presidency. The Enron Enron Corporation scandal of 2001 raised issues of corporate greed and wrongdoing, and the Center for Public Integrity obtained numerous Harken and SEC documents relating to Bush’s sale through the Freedom of Information Act of 1966 Freedom of Information Act of 1966. Bush’s call for a new era of corporate integrity in the United States subjected his dealings to even closer scrutiny. With no official finding of wrongdoing, however, White House press secretary Ari Fleischer was able to defend the sale in a July 5, 2002, press briefing, and the issue faded from public view.

Although it seems clear that Bush did not violate the law, his involvement with Harken Oil does raise questions in this age of corporate scandals in which public corporations are often accused of being run for the benefit of their executives, directors, and insiders at the expense of workers and shareholders. The SEC conclusion that Bush did not fully understand the financial condition of Harken does excuse him from criminal liability but also raises questions about the lavish consulting and directing fees that he received for his services. Even if Harken were paying Bush for his name and business contacts and not for his expertise, such an arrangement is legal if no improper influence is exerted.

Although Harken’s loan of $180,000 to Bush is reminiscent of the loans Ebbers, Bernard Bernard Ebbers received from WorldCom and the Rigas family from Adelphia Communications Corporation in later corporate scandals, it is clear that Bush broke no law in borrowing from Harken. Although the SEC in January, 1991, compelled Harken to restate its losses for 1989 from $3.3 million as reported to the $12.6 million it actually suffered, this accounting irregularity reflects poorly on Harken management, not on Bush. Certainly, with Harken’s stock price in long-term decline, Bush seems to have been one of the few shareholders to have profited from association with that relentlessly unsuccessful company. Whether the profits Bush accrued constitutes unscrupulous corporate conduct or shrewd business trading depends in the end on one’s view of America’s corporate culture of the last two decades. Securities and Exchange Commission;and George W. Bush[Bush02] Bush, George W. [p]Bush, George W.;insider trading investigation Insider trading;and George W. Bush[Bush]

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Fleischer, Ari. Taking Heat: The President, the Press, and My Years in the White House. New York: William Morrow, 2005. President Bush’s first press secretary defends the president’s commitment to fighting corporate fraud and criticizes reporters trying to turn Bush’s Harken sale into a scandal.
  • citation-type="booksimple"

    xlink:type="simple">Ivins, Molly, and Lou Dubose. Bushwhacked: Life in George W. Bush’s America. New York: Random House, 2003. A chapter in this collection critical of Bush likens Harken to a miniature Enron scandal.
  • citation-type="booksimple"

    xlink:type="simple">Kessler, Ronald. A Matter of Character: Inside the White House of George W. Bush. New York: Sentinel, 2004. In praising the strength of President Bush’s character, Kessler defends Bush’s relationship with Harken.
  • citation-type="booksimple"

    xlink:type="simple">Minutaglio, Bill. First Son: George W. Bush and the Bush Family Dynasty. New York: Times Books, 1999. Includes the story of the Harken stock sale in the context of the business transactions of George H. W. Bush and George W. Bush.
  • citation-type="booksimple"

    xlink:type="simple">Serwer, Andy. “W., President, Harken 38 [cents].” Fortune, August 12, 2002. An update on the dismal fortunes of Harken Oil from a leading financial magazine.
  • citation-type="booksimple"

    xlink:type="simple">Unger, Craig. House of Bush, House of Saud: The Secret Relationship Between the World’s Two Most Powerful Dynasties. New York: Scribner, 2004. An aggressive exposé by an investigative journalist of the financial relations between the Bush family and the Saudi oil princes. Unger finds shadowy links between Saudi Arabian interests and Harken business ventures.

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