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'CINC' is
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The Beginning
house.gov/democrats
I. The President
Harken
allegations
a) Insider Trading Allegations
Concerns have been raised that
you may have engaged in insider trading in violation of
securities law during your tenure as a Director of Harken Energy
Corporation. Under 15 U.S.C. § 78u-1 (insider trading of
securities based upon material nonpublic information), one who is
in possession of information not yet available to the public and
who trades in securities about which this information is
pertinent can be fined up to $1,000,000 and/or imprisoned up to
ten years. As Director of Harken Energy Corporation and the son
of President George H.W. Bush, you were privy to substantial
information not available to the general public prior to your
June 22, 1990 sale of 212,000 shares of Harken stock. It has been
well documented that, a mere two months after the sale of the
stock, the price fell from $5.50/share to $1.25/share.
You were one of three members of
Harken's audit committee as well as of a special
"fairness committee" appointed to consider how its
restructuring would affect the value of the company's
outstanding shares. As such, several memoranda were addressed to
you prior to this stock sale that provided substantial insider
information about the troubled financial condition of Harken.
Among these memoranda were the following:
- On February 1, 1990, Mikel D. Faulkner, President of Harken
Energy, wrote to the Board of Directors: "It appears that our
1989 profitability will be in the range of $1.2 million. Although
disappointing, this is consistent with the last projection which
was made and provided to the Board… Although several
accounting issues remain unresolved, it is anticipated that none
of them should cause major changes either up or down in that
projection."
- On April 20, 1990, just two months before your stock sale,
Harken President Mikel Fauklner wrote to the Board of Directors
that "two events have occurred which drastically affect
Harken's current strategic plan with regard to seeking public
funds to reduce our debt and provide equity for current capital
opportunities," and that the development "greatly intensifies our
current liquidity problem."
- On June 7, 1990, just two weeks before your stock sale,
another memo from Faulkner warned of a "Harken International
shutdown effective June 30, unless third party funding [is]
obtained," and discussed plans to lay off 40 employees. The memo
said the company had lost $28.5 million in trade credit since
Jan. 1, and another $11.8 million was "in jeopardy," and said
"most companies that have seen [the company's annual report] are
nervous."
Some have alleged that you were
acutely aware of this information. According to a June 15, 1989
letter from Harken President Mikel Faulkner you frequently
advised Harken management on "organizational and strategic
matters." In the letter, Faulkner praised you for "the positive
image you have helped create regarding Harken Energy Corporation,
the intuitive analysis you have provided on our various
acquisitions, operating decisions at the board level and the
personal suggestions and ideas you have shared with me over the
past two years on a CEO to CEO basis" and said, "I consider the
role which you play at Harken Energy Corporation to be a very
meaningful and significant role and look forward to a continuing
relationship."
Additionally, there are concerns
that, as the son of the President of the United States at a time
when the White House, but not the general public, was well aware
of the aggressive intentions of Saddam Hussein in the lead up to
the Persian Gulf conflict, you may have been privy to this
information. It was also well known that such a conflict would
cause substantial disruptions in the oil industry.
There are concerns that you knew
that any stock sale based upon insider information was a serious
offense because you were so informed in a June 15, 1990
memorandum, one week before your stock sale, by Harken's
attorneys at the firm of Haynes and Boone, with the subject line
"Liability for Insider Trading and Short-Swing Profits." The memo
states the following: "If the insiders presently possess any
material non-public information, a sale of any of their shares
could be viewed critically."
Defending against these
allegations, your representatives have asserted that you always
intended to sell the Harken stock, an assertion which is also
contradicted by documentary evidence. In fact, you signed a
letter of intent, a so-called "lockup letter,"
promising not to sell any Harken stock for at least six months,
but then sold it two and a half months later.
b) Alleged Efforts to Conceal Insider
Trading Violations
There are concerns that you may
have attempted to conceal your alleged insider trading acts
which, if true, would violate 15 U.S.C. § 78j(b) (securities
fraud), the general antifraud provision of the Securities
Exchange Act, which prohibits the use of "any manipulative
or deceptive device or contrivance" in connection with the
purchase or sale of securities. Violations include filing false
or misleading statements with the Securities and Exchange
Commission. Penalties for violating the general antifraud
provision are found at 15 U.S.C. section 78ff(a) and permit fines
up to $1,000,000 (up to $2,500,000 if other than a natural
person) and/or imprisonment up to ten years.
As has been widely reported, you
failed to file the required Form 4, a required notice for an
insider's stock trade, until eight months after the sale.
You have given conflicting explanations for this failure. In
1992, you blamed your Commission, asserting that the SEC lost the
Form 4. However, on July 3 of this year, you, speaking through
your Press Secretary said there was a "mixup with the
attorneys dealing with the Form 4, and it was filed
later."
There are concerns that you knew
that filing this form was an urgent matter but nonetheless did
not file it:
- A January 19, 1990 memo from Harken counsel Larry Cummings to
you emphasized the importance of the filing: "[p]robably the most
outstanding feature of changes in this rule will be the
requirement that a disclosure be made by the company in its proxy
or 10K concerning late Form 3 or 4 filings ... Please examine
your records and files to be certain that this information is
current concerning your beneficial ownership of Harken stock and
there have been no other transactions since such date which have
not been disclosed."
- On March 14, 1990 a Public Common Stock Offering was
presented to the Board of Directors, which stated, "In working
and planning toward the public offering which will be priced
based on the market price for the Company's common stock
established on or about Closing, it is appropriate for the
Company to take reasonable steps and measures to avoid
fluctuations in the market price," the document notes. Among
those steps: "Exercise caution regarding insider and related
party transactions."
- An October 5, 1989 memo from Harken counsel Larry Cummings to
you urged you to rectify the situation: "I could not find where
Form 4 had been filed covering the 25,000 shares you purchased
this year ... If you have no record of filing one, please sign
the enclosed 5 copies of a Form 4 and return them to
me".
c) Allegations Concerning False Statements
Made Under Oath
Moreover, there are concerns
that the Form 4 itself contains indications of a possible attempt
to conceal its late filing which may constitute a violation of 18
U.S.C. § 1001 (false statements)–among other things,
this covers in any matter within the jurisdiction of the federal
Executive, Legislative or Judicial Branches, knowingly and
willfully falsifying, concealing, or covering up by any trick,
scheme, or device a material fact; making any materially false,
fictitious, or fraudulent statement or representation; or making
or using any false writing or document, knowing that it contains
a materially false, fictitious, or fraudulent statement or entry.
Maximum penalties include imprisonment of not more than 5 years,
a fine under Title 18, U.S.C.5 or both. The fact is that the only
form that has come to light that you failed to inscribe with the
appropriate date, was this belated Form 4. Other forms submitted
to the SEC by you on June 22, 1990; April 13, 1987; April 12,
1987 and October 6, 1989 were all dated. In context, such an
omission appears to be an intentional effort to conceal the
trade.
2. Lack of
Investigation of Harken
Contrary to your assertion that
"[t]his was fully looked into by the SEC, and there's
nothing there," there are concerns that the SEC
investigation of Harken can be characterized as cursory,
charitably speaking. You were never interviewed, nor were other
prominent Harken officers and the Chairman of the SEC was
appointed by your father and the General Counsel, James A. Doty,
was your attorney in your purchase of the Texas Rangers baseball
team. It is, therefore, alleged that a clear that a fair,
impartial and complete investigation has yet to occur.
3. Need for
Full Disclosure
On July 8, you invited the media
to "look back on the director's minutes" and SEC
documents concerning your Harken dealings. However, since then,
you have refused to ask Harken or the SEC to disclose those
documents.
II. The Vice-President
Halliburton
a) Securities Fraud Allegations
There are concerns that, while
CEO of Halliburton Co., Vice President Cheney may have
participated in fraudulent securities transactions under under 15
U.S.C. § 78j(b) (securities fraud), the general antifraud
provision of the Securities Exchange Act, which prohibits the use
of "any manipulative or deceptive device or
contrivance" in connection with the purchase or sale of
securities. Violations include filing false or misleading
statements with the Securities and Exchange Commission. Penalties
for violating the general antifraud provision are found at 15
U.S.C. section 78ff(a) and permit fines up to $1,000,000 (up to
$2,500,000 if other than a natural person) and/or imprisonment up
to ten years.
As CEO of Halliburton, the
Vice-President oversaw a change in its accounting practices that
enabled the company to postpone possible losses of hundreds of
millions of dollars. However, Halliburton did not reveal the
change to investors for more than a year after its
institution.
There is troubling information
in the factual record that has raised concerns that the
Vice-President knew about these fraudulent accounting practices.
The current CEO of Halliburton, David Lesar, has indicated that
the Vice-President was well aware of those accounting practices.
In addition, a 2000 memo from Terry Hatchett, the Arthur Anderson
partner who managed the Halliburton account, indicates that he
worked closely with the Vice-President. Finally, while he was an
executive at Halliburton, the Vice-President recorded a
videotaped endorsement of Anderson's accounting
practices.
b) Insider Trading Allegations
There are concerns that the
Vice-President may have engaged in insider trading in violation
of securities law while divesting himself of Halliburton
holdings. Under 15 U.S.C. §78u-1 (insider trading of
securities based upon material nonpublic information), one who is
in possession of information not yet available to the public and
who trades in securities about which this information is
pertinent can be fined up to $1,000,000 and/or imprisoned up to
ten years.
After being named as your
running mate in 2000, the Vice President divested himself of
Halliburton holdings. If the Vice President indeed knew about the
fraudulent accounting practices at Halliburton, he would, of
course, have known about the deleterious effect these practices
would have on the value of his Halliburton shares if they were
revealed. This raised concerns that the Vice-President may have
traded based on inside information and, therefore, violated
insider trading laws.
c) Dealings with Iraq
In addition, it is now
uncontroverted that, while the Vice President was CEO of
Halliburton, the company signed contracts with Iraq worth $73
million. During the 2000 campaign, the Vice President claimed
that Halliburton had a "firm policy" of not doing
business with Iraq. However, this contention has been adamantly
denied by Halliburton officials. Given this
Administration's stated intention of invading Iraq in the
near future, it is important to set the record straight so that
Congress can appropriately evaluate and place into context any
request to commit troops to this endeavor.
d) Need for Full Disclosure
Unfortunately, Vice President
Cheney and his spokesperson have refused to answer questions
about this matter, imposing a blanket policy that the Vice
President won't "discuss Halliburton
issues."
III. Deputy Attorney General (Larry Thompson)
Enron
The head of the your "Swat
Team" on corporate crime is Deputy Attorney General Larry
Thompson. Unfortunately, he – too – is under an
ethical and legal cloud in these matters. He already has rejected
Ranking Member Conyers call, months ago, to recuse himself from
the Department's decisions in the Enron scandal, because he had
received benefits from--and might be receiving a pension from--a
law firm that has substantially represented Enron. That raises a
concerns that he will not vigorously pursue the case against
Enron. To date, not one criminal action has been brought against
any individual in the Enron matter.
Providian
The Deputy Attorney General was
also on the board of Providian Financial Corporation and chaired
its compliance and audit committee, at a time when--to put it
very charitably--Providian was not only unscrupulously enticing
and exploiting the poorest class of debtors, but also inflating
earnings by excessive charges and by engaging in shady lender
practices that violated federal and state consumer protection
rules. His spokesman has claimed that he only learned of these
practices only after regulators made inquiries. If this assertion
is true, and the chair of a compliance committee was unaware of
rampant fraud at his own company, that raises concerns that he is
not alert enough to competently investigate corporate
misdeeds.
IV. Secretary of the Army (Thomas White)
Enron
a) Insider Trading Allegations
The Secretary of the Army was
Vice President of Enron's Energy Services Unit, one of the
company's components engaged in its most egregious accounting
practices. In 1981, between June and October, he unloaded over
$12 million worth of Enron stock. Investigators are assessing
whether this violated 15 U.S.C. § 78u-1 (insider trading of
securities based upon material nonpublic information), under
which one who is in possession of information not yet available
to the public and who trades in securities about which this
information is pertinent can be fined up to $1,000,000 and/or
imprisoned up to ten years.
b) Alleged Failure to Divest/Disclose Enron
Contacts
While the Senate Armed Service
Committee specifically requested that Mr. White sell his 405,710
shares of Enron stock within 90 days of his appointment in May
2001, he actually held onto the stock much longer. Over half of
the stock was not sold until October 2001. It has been revealed
that Mr. White had numerous conversations with Enron officials
prior to the company's filing of its 2001 October quarterly
earning report revealing major loses. These conversations are
undisputed and Mr. White has admitted to having at least 84
meetings or telephone conversations with current and former Enron
executives. Forty-nine of these conversations occurred in the
three-and-half-month period between August 14, 2001 (the date
Jeff Skilling stepped down as CEO of Enron) and December 3, 2001
(the date Enron filed for Chapter 11 bankruptcy). Mr. White
finally disavowed his Enron stock options eight months after his
appointment.
c) Enron Securities Fraud
Allegations
It has been alleged that, while
Vice President of Enron's Energy Services Unit, Mr. White
participated in securities fraud under 15 U.S.C. § 78j(b)
(securities fraud), the general antifraud provision of the
Securities Exchange Act, which prohibits the use of "any
manipulative or deceptive device or contrivance" in connection
with the purchase or sale of securities. Violations include
filing false or misleading statements with the Securities and
Exchange Commission. Penalties for violating the general
antifraud provision are found at 15 U.S.C. section 78ff(a) and
permit fines up to $1,000,000 (up to $2,500,000 if other than a
natural person) and/or imprisonment up to ten years.
Enron Energy Services (EES) was
a "retail energy business" that competed with
utilities and other energy companies to supply commercial,
industrial, and government customers with natural gas and
electricity. Enron created EES in 1997 to take advantage of state
deregulation of the power industry and to function outside the
normal market rules. EES's goal was to undersell so as to
increase its retail customer base and market share. It also
promised to cut its clients' energy costs by installing
energy-saving equipment and finding cheaper natural gas and
electricity.
EES operated as a freestanding
company; however, its results were included in Enron's
financial statements. It was organized so that it could use a
financial reporting technique called mark-to-market
accounting.
Mark-to-Market Accounting
In traditional accounting
practices, profits are declared according to when goods are
delivered to a customer. However, mark-to-market accounting
immediately books all profits from a long-term contract. Former
employees have stated the EES used this accounting practice to
inflate its profits. In 2000, while Mr. White was vice president,
EES reported $165 million in operating profit on $4.6 billion in
sales in contract to a loss of $68 million on sales of $1.8
billion in 1999. These profits turned out to be illusory - EES
lacked the controls and the scrutiny that would have offered a
realistic picture. Mr. White signed off on the use of
"mark-to-market" accounting. EES deliberately used
questionable revenue assumptions to create "illusionary
earnings."
Former employees have also
stated that Mr. White approved the use of aggressive accounting
methods that eventually made the unit appear profitable when it
was not. Indeed, there appears to be overwhelming evidence that
White knew about this fraud:
- Steve Barth, former vice president of special projects for
EES said, "Tom White was there every step of the way. He
was the leader. He signed off on the contracts that some people
have criticized because it's mark-to-market. It
wasn't his idea, but he implemented the
execution."
- An un-named former senior vice president, who worked closely
with White said, "I sat in on those meetings with Tom. He
knew we were losing money, and we all agreed, Tom included, that
we needed to do whatever we could to make EES look like it was
making a profit."
- Lance Dohman, a salesman who worked for EES from 1997 until
late 2000 said, "Anyone who worked at EES between 1997 and
2000 knew that EES was losing a ton of money. In the early days,
there was a lot of turnover at EES. Pai and White would have
daily meetings, sometimes on a conference call to pump us up.
Deregulation was just starting in California and we were
unsuccessful there. But White said Wall Street has to think we
are kicking the heck out of the utilities in California by
stealing their customers."
Fake Trading
Floor
Several former EES employees
said that White was part of a plan in January 1998 to fool Wall
Street analysts into thinking the EES trading floor was far more
active than it really was. At the time, the company allegedly
asked dozens of secretaries and other staff to pretend to be
trading energy on a fake trading floor to impress analysts
visiting Enron's Houston headquarters. White had not yet
been appointed Vice Chairman of EES, but he was in charge of
Enron's renewable energy power plants and other ventures,
and he worked closely with EES. Former salesman Lance Dohman
said: "All the senior management was there — Jeff
Skilling, Ken Lay, Lou Pai, and Tom White. Then the countdown
started, 30 minutes before the analysts arrived, then 15 minutes.
Then the analysts began walking through, and Jeff Skilling says,
‘Gentlemen, behold: This is where we track the deals in
real time.' The problem was the computer was not plugged
into anything."
Former EES administrative
assistant Kim Garcia, who was drafted as a fake trader, said
"We referred to Tom White as ‘the General' in
those days. He was with Lou Pai and Jeff Skilling walking around
the floor with more than 100 analysts, showing them how
everything worked. We would watch to see out of the corner of my
eye when they were going to come over to my area."
EES and
California Electricity Market
Internal Enron memos suggest
that EES was involved in one of the strategies — "Fat
Boy" — that was intended to manipulate the California
electricity market. "Fat Boy" was a strategy whereby
Enron's wholesale energy division Enron Power Marketing
Inc. (EPMI) deliberately overstated demand to increase the amount
of power it sold in the California Independent System Operator
(ISO) Corporation's real-time electricity market. EPMI
would submit a phony power schedule that overstated EES's
demand for power. The excess power would then be available for
purchase in the real-time market, where they could get prices as
high as $1200 per megawatt. It is unlikely that phony schedules
could have been submitted by EPMI on behalf of EES without EES
being aware of deceit. Several investigatory agencies, including
the California Attorney General's office theorize that EES
was complicit in Enron's willingness to jeopardize
California's electricity grid.
Another factor that strengthens
the theory that EES facilitated EPMI's manipulation of the
California market is both EPMI's and EES's role as
scheduling coordinators in the California electricity scheme.
Scheduling Coordinators were power traders and buyers that had to
balance electricity loads (demand had to equal the power
available). Scheduling Coordinators communicated with each other
several times a day informally to balance loads. Both EES and
EPMI were Schedule Coordinators, therefore, the entities had
unfettered ability to communicate and arrange false load
requests.
EES abandoned offering
residential customers power in 1999, after being soundly beaten
by other competitors in the marketplace and economic issues that
could not be surmounted. Since the California Power Exchange
(PX), was a direct competitor with EES, and there was no way EES
could sell power cheaper than the PX because of the way the
market was designed. EES was at a competitive disadvantage at the
start. It is theorized that Enron needed EES to provide false
loads to EPMI, which was making exorbitant sums off of California
trading in the real time market. Therefore, EES had to look
viable in order to maintain the market games EPMI was playing, so
the mark-to-market accounting was essential in covering the
market scam that Enron was executing on the California
consumers.
The memos describing the EES and
EPMI trading strategies were written in December 2000 when Mr.
White served as Vice Chairman of EES.
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