[Newspoetry] outrage

[Scott Rettberg]

http://www.nytimes.com/2002/07/02/opinion/02KRUG.html?todaysheadlines

Everyone Is Outraged
By PAUL KRUGMAN

Arthur Levitt, Bill Clinton's choice to head the Securities and Exchange
Commission, crusaded for better policing of corporate accounting ‹ though he
was often stymied by the power of lobbyists. George W. Bush replaced him
with Harvey Pitt, who promised a "kinder and gentler" S.E.C. Even after
Enron, the Bush administration steadfastly opposed any significant
accounting reforms. For example, it rejected calls from the likes of Warren
Buffett to require deduction of the cost of executive stock options from
reported profits. 

But Mr. Bush and Mr. Pitt say they are outraged about WorldCom.

Representative Michael Oxley, the Republican chairman of the House Financial
Services Committee, played a key role in passing a 1995 law (over Mr.
Clinton's veto) that, by blocking investor lawsuits, may have opened the
door for a wave of corporate crime. More recently, when Merrill Lynch
admitted having pushed stocks that its analysts privately considered
worthless, Mr. Oxley was furious ‹ not because the company had misled
investors, but because it had agreed to pay a fine, possibly setting a
precedent. But he also says he is outraged about WorldCom.

Might this sudden outbreak of moral clarity have something to do with polls
showing mounting public dismay over crooked corporations?

Still, even a poll-induced epiphany is welcome. But it probably isn't
genuine. As the Web site dailyenron.com put it, last week "the foxes assured
Americans that they are hot on the trail of those missing chickens."

The president's supposed anger was particularly hard to take seriously. As
Chuck Lewis of the nonpartisan Center for Public Integrity delicately put
it, Mr. Bush "has more familiarity with troubled energy companies and
accounting irregularities than probably any previous chief executive." Mr.
Lewis was referring to the saga of Harken Energy, which now truly deserves a
public airing. 

My last column, describing techniques of corporate fraud, omitted one method
also favored by Enron: the fictitious asset sale. Returning to the ice-cream
store, what you do is sell your old delivery van to XYZ Corporation for an
outlandish price, and claim the capital gain as a profit. But the
transaction is a sham: XYZ Corporation is actually you under another name.
Before investors figure this out, however, you can sell a lot of stock at
artificially high prices.

Now to the story of Harken Energy, as reported in The Wall Street Journal on
March 4. In 1989 Mr. Bush was on the board of directors and audit committee
of Harken. He acquired that position, along with a lot of company stock,
when Harken paid $2 million for Spectrum 7, a tiny, money-losing energy
company with large debts of which Mr. Bush was C.E.O. Explaining what it was
buying, Harken's founder said, "His name was George Bush."

Unfortunately, Harken was also losing money hand over fist. But in 1989 the
company managed to hide most of those losses with the profits it reported
from selling a subsidiary, Aloha Petroleum, at a high price. Who bought
Aloha? A group of Harken insiders, who got most of the money for the
purchase by borrowing from Harken itself. Eventually the Securities and
Exchange Commission ruled that this was a phony transaction, and forced the
company to restate its 1989 earnings.

But long before that ruling ‹ though only a few weeks before bad news that
could not be concealed caused Harken's shares to tumble ‹ Mr. Bush sold off
two-thirds of his stake, for $848,000. Just for the record, that's about
four times bigger than the sale that has Martha Stewart in hot water. Oddly,
though the law requires prompt disclosure of insider sales, he neglected to
inform the S.E.C. about this transaction until 34 weeks had passed. An
internal S.E.C. memorandum concluded that he had broken the law, but no
charges were filed. This, everyone insists, had nothing to do with the fact
that his father was president.

Given this history ‹ and an equally interesting history involving Dick
Cheney's tenure as C.E.O. of Halliburton ‹ you could say that this
administration is uniquely well qualified to chase after corporate
evildoers. After all, Mr. Bush and Mr. Cheney have firsthand experience of
the subject. 

And if some cynic should suggest that Mr. Bush's new anger over corporate
fraud is less than sincere, I know how his spokesmen will react. They'll be
outraged.