Family Value$ (continued)

| Tue Sep. 1, 1992 3:00 AM EDT
Jeb and "Manny" Diaz
Manuel C. Diaz, another Jeb Bush business associate, runs a commercial nursery with headquarters in Homestead, Florida. Manny Diaz's previous business sidekick, Charles Keating, Jr., is now sitting in a California prison. But during Keating's days at the helm of the $6 billion Lincoln Savings, Diaz became a Keating insider, confidant, and beneficiary. For example, in 1987, as federal regulators closed in on his crumbling empire, Keating instructed his attorneys to transfer a large chunk of prime Phoenix real estate to Diaz, for just $1. And right before filing for personal bankruptcy, Keating transferred his $2 million mansion on the island of Cat Cay in the Bahamas to Diaz.

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At the same time Diaz was palling around with Keating, Jeb, then serving as Florida's secretary of commerce, arranged a private meeting for Diaz with Florida's Republican governor Bob Martinez. Promptly afterward, Diaz Farms landed a lucrative, $1.72 million, state-highway-landscaping contract—despite the fact that Diaz had little prior highway-landscaping experience. This raised howls of protest and charges of political influence-peddling from other contractors. But state officials explained that the extraordinary speed in issuing the contract had occurred because the state was anxious to spruce up 113 miles of freeway for the coming visit of the pope.

Did Jeb know about Diaz's business association with Charles Keating? Did he have reason to believe Diaz was qualified for the Florida highway contract that he helped Diaz land? These are the kinds of detailed questions that the Florida chairman of the Bush re-election campaign refuses to answer.

GEORGE W. BUSH, JR., 45, DALLAS
Senior Adviser to the Bush Re-election Campaign

None of George Bush's offspring is more his father's son than George W. Bush. George Jr., or "Shrub" as Molly Ivins refers to him, began his own Texas oil career in the mid-1970s when he formed Bush Exploration. Like the business dealings of his brothers, George's company was not a success, and it was rescued in 1983 by another oil company, Spectrum 7, run by several staunch and well-heeled Reagan-Bush supporters. But by mid-1986, a soft oil market found Spectrum also near bankruptcy.

Many oil companies went belly-up during that time. But Spectrum had one asset the others lacked—the son of the vice-president. Rescue came in 1986 in the form of Harken Energy, just in the nick of time. Harken absorbed Spectrum, and, in the process, Junior got $600,000 worth of Harken stock in return for his Spectrum shares. He also won a lucrative consulting contract and stock options. In all, the deal would put well over $1 million in his pocket over the next few years—even though Harken itself lost millions.

Harken Energy was formed in l973 by two oilmen who would benefit from a successful covert effort to destabilize Australia's Labor Party government (which had attempted to shut out foreign oil exploration). A decade later, Harken was sold to a new investment group headed by New York attorney Alan G. Quasha, a partner in the firm of Quasha, Wessely & Schneider. Quasha's father, a powerful attorney in the Philippines, had been a staunch supporter of then-president Ferdinand Marcos. William Quasha had also given legal advice to two top officials of the notorious Nugan Hand Bank in Australia, a CIA operation.

After the sale of Harken Energy in 1983, Alan Quasha became a director and chairman of the board. Under Quasha, Harken suddenly absorbed Junior's struggling Spectrum 7 in 1986. The merger immediately opened a financial horn of plenty and reversed Junior's fortunes. But like his brother Jeb, Junior seemed unconcerned about the characters who were becoming his benefactors. Harken's $25 million stock offering in 1987, for example, was underwritten by a Little Rock, Arkansas, brokerage house, Stephens, Inc., which placed the Harken stock offering with the London subsidiary of Union Bank—a bank that had surfaced in the scandal that resulted in the downfall of the Australian Labor government in 1976 and, later, in the Nugan Hand Bank scandal. (It was also Union Bank, according to congressional hearings on international money laundering, that helped the now-notorious Bank of Credit and Commerce International skirt Panamanian money-laundering laws by flying cash out of the country in private jets, and that was used by Ferdinand Marcos to stash 325 tons of Philippine gold around the world.)

Stephens, Inc., also helped introduce the BCCI virus into U.S. banking in 1978 when it arranged the sale of Bert Lance's National Bank of Georgia to BCCI front man Ghaith Pharoan. (The head of Stephens, Inc., Jackson Stephens, is a member of President Bush's exclusive "Team 100," a group of 249 wealthy individuals who have contributed at least $100,000 each to the GOP's presidential-campaign committee.)

If any of these associations raised questions in the mind of George Bush, Jr., he had little incentive to voice them. Besides getting Harken stock through the deal, Junior was paid $80,000 a year as a consultant (until 1989, when his wages were increased to $120,000; recently they were reduced to $45,000). He was also allowed to borrow $180,375 from the company at very low interest rates. In 1989 and 1990, according to the company's Securities and Exchange Commission filing, Harken's board "forgave" $341,000 in loans to its executives. In addition, Junior took advantage of the company's ultraliberal executive stock purchase plan, which allowed him to buy Harken stock at 40 percent below market value.

Such lavish executive compensation would suggest a company doing quite well indeed. But in reality, Harken had little going for itself. One Wall Street analyst called Harken's web of insider stock deals and mounting debt "a lot of jiggery-pokery." Harken was not making money and could not have continued into 1990 without at least some means of convincing lenders and investors that the company would soon find a lot of oil.

Suddenly, in January 1990, Harken Energy became the talk of the Texas oil industry. The company with no offshore-oil-drilling experience beat out a more-established international conglomerate, Amoco, in bagging the exclusive contract to drill in a promising new offshore oil field for the Persian Gulf nation of Bahrain. The deal had been arranged for Harken by two former Stephens, Inc., brokers. A company insider claims the president's son did not initiate the deal—but feels that his presence in the firm helped with the Bahrainis. "Hell, that's why he's on the damn board," the insider says. "...You say, 'By the way, the president's son sits on our board.' You use that. There's nothing wrong with that."

Junior has told acquaintances conflicting stories about his own involvement in the deal. He first claimed that he had "recused" himself from the deal; "George said he left the room when Bahrain was being discussed 'because we can't even have the appearance of having anything to do with the government.' He was into a big rant about how unfair it was to be the president's son. He said, 'I was so scrupulous I was never in the room when it was discussed.'"

Junior alternately claimed, to reporters for the Wall Street Journal and D Magazine, that he had opposed the arrangement. But the company insider says, to the contrary, that Junior was excited about the Bahrain deal. "Like any member of the board, he was thrilled," the associate says. "His attitude was, 'Holy shit, what a great deal!'"

Through the Bahrain deal, the ties between BCCI and Harken Energy grew tighter. Sheikh Khalifah, the prime minister of Bahrain and brother of the emir, was also a shareholder in BCCI—and it was Khalifah who played the key role in selecting Harken for the job. Sheikh Abdullah Bakhsh, in turn, was a business associate of BCCI front man Ghaith Pharoan; he bought a chunk of Harken's stock and placed his representative, Talat Othman, on Harken Energy's board of directors.

Did Junior or any of the other Harken Energy executives trade on the Bush name in these speculative business deals? None of the principals will answer questions. But this much is known: after the Harken-Bahrain deal was settled, Othman was added to the list of fifteen Arabs who met with President George Bush and National Security Adviser Brent Scowcroft three times in 1990—once just two days after Iraq invaded Kuwait—while serving on Harken's board of directors.

The promise of hitting it big in the oil-rich gulf was certainly critical for Harken. News of the Bahrain deal kept investors buying stock and lenders making loans. Still, Harken had nowhere near the capital required for such a large offshore operation halfway around the world. This required real money. But not to worry: The billionaire Bass brothers stepped up to the plate and said they'd be happy to underwrite the cost of the drilling in return for a piece of the action. (Robert Bass is a member of President Bush's Team 100; he and other Bass family members have contributed $226,000 to George, Sr.'s, cause since 1988.)

But even well-heeled friends like the Bass brothers could not protect Harken from the troubles of the world. Just four months after the Bahrain deal was sealed, storm clouds developed over the gulf region, threatening the oil-exploration deal. In May 1990, the U.S. State Department sent a chilling but still classified report to Scowcroft. The report warned that Iraqi president Saddam Hussein was out of control and was threatening his neighbors:

May 16, 1990
SECRET
Attached is a paper containing a list of options for responding to recent actions and statements by the Government of Iraq. ...We ask that you pass this paper to Robert Gates [CIA] for his review.

Under "options" the memo suggested:
Ban Oil Purchases: The largest benefit Iraq receives from the US is through our oil purchases...
PRO—A total ban on oil purchases would have some short-term impact.
CON—Such action might also have an impact on US Oil prices.

Oil companies had learned, during the years of the long Iran-Iraq war, that trouble in the gulf hurts companies with oil interests because, for one thing, at the first sound of a rifle shot in the gulf region, Lloyds of London jacks up insurance rates on oil tankers and company installations. The "wartime" rates are very high and cut deeply into company profits and investor confidence. If things really get out of hand, pipelines are destroyed and waterways are mined.

The secret memo augured ill for Harken's fledgling venture. To compound matters, that same month, Harken's own financial advisers at Smith Barney produced a hand-wringing report voicing alarm at the company's rapidly deteriorating financial condition. (A former company official told Mother Jones that Harken owed more than $150 million to banks and other creditors at the time.) Since Harken wasn't producing anything, it was hard to find a revenue stream, unless you count the river of fees, stock options, and salaries running into the pockets of Junior and other top Harken executives. Junior, as a member of Harken's restructuring committee, could not have been ignorant of the report, since the board had met in May and worked directly with the Smith Barney consultants.

In June 1990, Junior suddenly unloaded the bulk of his Harken stock—212,140 shares—for a tidy $848,560. A former business associate says that Junior's motivation was his desire to buy an expensive new house in Dallas, for which he wanted to pay cash. The June 1990 transaction was an insider stock sale, and security laws required that it be reported no later than July 10, 1990. But Junior filed no such report, at least not then.

Then, in August, Iraqi troops marched into Kuwait, and Harken shares plummeted 25 percent. Junior would have lost $212,140 if he'd waited to sell his shares until then. Still, he didn't file his SEC disclosure until seven months later, in March 1991&3151;well after U.S. troops had finished fighting and the gulf war had moved off the front pages. Harken stock rebounded briefly, but quickly collapsed again.

Were government secrets discussed, directly or indirectly, that would have given Harken Energy a leg up in exploiting the Bahrain deal? The White House won't say. If Junior traded on exclusive, nonpublic, insider information, he committed a gross violation of SEC rules. Taken together, the company's critical need for success in its Bahraini deal and a possible oil embargo to be imposed by his father provided Junior with strong motivation to bail out of Harken stock before the public discovered either piece of news. (SEC spokesman John Heine says he is unaware of any enforcement action pending.)

The folks at Harken Energy weren't the only ones in Texas taking care of Junior during the 1980s. He was appointed the managing partner of the Texas Rangers baseball team, even though his partnership contribution was only a fraction of the team's purchase price. Among those coughing up the money to buy the Rangers were William DeWitt and Mercer Reynolds, major contributors to the president's campaign who had also been in on the rescue of Junior's oil company.

Junior doesn't deny that being a Bush has helped him become a millionaire. "I recognize what my talents are and what my weaknesses are," he told Texas reporters last year. "I don't get hung up on it. Being George Bush's son has its pluses and minuses in some people's minds. In my thinking, it's a plus."

Junior might have been thinking that among the minuses were questions about his role at Harken. As this article was being prepared—and in the midst of extensive interviewing of former and current Harken business associates—Junior announced a six-month leave of absence as a consultant and member of the Harken board. His role in the presidential campaign, the statement said, precluded Junior's active involvement at Harken through the remainder of 1992.

In any case, Junior is stepping away from a company in deep trouble. Harken stock is trading near its all-time low. Recently, test wells in Bahrain turned up dry and the company has not produced anything else. "Harken is not hard to understand—it's easy," says Charles Strain, an energy-company analyst in Houston. "The company has only one real asset—its Bahrain contract. If that field turns out to be dry, Harken's stock is worth, at the most, 25 cents a share. If they hit it big over there, the stock could be worth $30 to $40 dollars a share. It's a pure crapshoot."

NEIL BUSH, 37, DENVER

In the March/April issue of Mother Jones, I detailed Neil Bush's activities and therefore only sketch his involvement here. Neil served as a director of Silverado Banking, Savings and Loan in Denver, Colorado, from 1985 until 1988. During that time, the now-dead thrift made over $200 million in loans to Neil's two partners in JNB Exploration, Neil's abysmally unsuccessful oil company. Silverado's failure was due at least in part to the fact that Neil's two partners welshed on $132 million in loans.

Federal regulators determined that, while Silverado was pumping loans to Neil's two associates, Neil was completely dependent on the two men for his income. The failure of Silverado—its closure delayed until after the 1988 election—cost taxpayers about $1 billion. After almost two years of hand-wringing had passed, an expert hired by regulators declared that Neil suffered from an "ethical disability," and he was required to pay a $50,000 fine for his ethical lapses at Silverado. Neil's estimated $250,000 in legal bills generated by the scandal are reportedly being paid for him by a banking-industry lobbyist who is fighting to get banks deregulated.

After Silverado failed, Neil started a new oil company, Apex Energy. This time, his money came from a $2.35 million loan through a Small Business Administration program, a loan arranged by an old family friend. When news of this reached the press in March 1991, the SBA discovered that the companies through which the loan was approved were technically insolvent, and it gave them up to thirty months to "self-liquidate." This meant that Apex would have to repay its SBA-guaranteed loans. Neil took this as his cue to move on, and he left Apex—and its debts—for others to worry about. If Apex Energy can't be sold for more than it owes, the SBA, and ultimately the taxpayers, will be stuck with the difference. The last time we checked, Apex's only known asset was an oil lease, which the company had purchased from Neil for $150,000 before he bailed out. That means taxpayers could get stiffed for another $2.2 million as a result of Neil Bush's wheeling and dealing. The public won't learn the precise outcome until later this year, though. The SBA allowed thirty months for liquidation of the SBA investment in Apex, putting the resolution date just past the 1992 general election.

President George Bush claims that only a return to traditional family values can cure the "poverty of spirit" that plagues places like our decaying inner cities. But after a closer look, particularly at his adult children, one cannot help but wonder about the values that matter to his own family.

Bush says he is proud of his sons. One of them rented himself out to a crooked developer who scammed HUD and helped pry millions out of Medicare to fuel a giant health-care scam. A second may have profited from an insider stock transaction in a gulf oil deal at the very time that U.S. soldiers were dying to make that region safe for oil. And the third son ran a savings and loan into the ground while shoveling millions of its taxpayer-backed dollars into the pockets of two deadbeat partners.

When President Bush speaks of the lack of family values he, of course, is referring to broken marriages, single mothers, and inner-city kids who join gangs and sell dope. But are these the only villains—or the most important ones—responsible for the shredded social fabric? What about well-to-do white boys who trade on family connections, welsh on loans, run with con men, and leave financial ruin in their wake as they line their own pockets? What about grown men, with access to the most powerful public office in the land, who participate in scandal but show no remorse for any of it—and who take no responsibility for the consequences of their own actions?

It's certainly reasonable for candidate Bush to engage the public in a discussion of family values, to use his office as a bully pulpit on modern morals. But what of George Bush's inability or unwillingness to grasp the crisis of values festering within his own family? The pattern of behavior by the president's three sons raises questions—about them and their father. These issues have yet to get the prime-time exposure of fictional Murphy Brown's fictional fatherless child.

Stephen Pizzo is author of Inside Job: The Looting of America's Savings and Loans and a regular contributor to this magazine.

Research assistance by Peter Willmert and Chris Rosché.

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