Harvard Role in Harken Called Deeper

Group Says Partnership Kept Bush Firm Afloat

By Michael Kranish, Boston Globe, October 9 2002

WASHINGTON — Harvard University's financial relationship with President
Bush's former oil company was deeper than previously understood, with the
university's management fund creating a separate ''off the books''
partnership with Harken Energy Corp. that helped keep afloat the financially
troubled company, according to a report to be released today.

HarvardWatch, a student-alumni group that monitors the school's investments,
plans to issue the report and say that it has analyzed documents showing
that the Harvard fund, an independent entity that manages the university's
endowment, formed a partnership in 1990 with Bush's oil firm called the
Harken Anadarko Partnership. The partnership effectively removed $20 million
of debt from Harken's books, relieving the Texas company's short-term
financial problems.About the same time, the Harvard fund invested about $30 million in Harken,
which also helped keep the firm afloat. The partnership has not been
mentioned in recent accounts of Bush's financial dealings in the oil
business.

William K. Black, a former federal banking regulator, said in a telephone
interview that he has examined the Harken Anadarko Partnership and concluded
the arrangement was a significant expansion of the Harvard fund's
involvement in the company beyond the $30 million investment.

''Harvard had a dramatically larger financial stake and a much more
interesting financial stake'' than was previously understood, Black said.
''It all serves as a partnership device to move money from Harvard to
Harken. This is beyond nuts from an institutional investor's standpoint.''

The creation of the partnership was approved in a motion made by Bush, who
was on the Harken board of directors and its audit committee, said Black, an
assistant professor at the LBJ School of Public Affairs at the University of
Texas in Austin.

White House spokesman Scott McClellan said the idea of the partnership came
from the Harvard fund.

''This is something that Harvard proposed, and Harvard set the terms of the
partnership,'' McClellan said yesterday. ''Harvard proposed the partnership
because Harvard decided it wanted to get more involved in the energy sector
and be more directly involved in operational aspects.''

Representatives of Harvard Management and Houston-based Harken Energy did
not return phone calls seeking comment on the partnership.

In May 1990, Black said, the Harvard fund and another unnamed shareholder
loaned Harken a total of $46 million. But with Harken still having a debt
load, the fund and Harken formed the Harken Anadarko Partnership in December
1990. The partnership was ''off the Harken books,'' Black said, which he
said means that Harken's stake in the partnership was reported but the
financial details did not need to be revealed to the Securities and Exchange
Commission.

Such a partnership was legal, he said.

According to Black, the partnership was set up to help Harken avoid
bankruptcy and included $64.5 million worth of unrelated energy properties
owned by the Harvard fund and $26 million of drilling operations from
Harken - along with $20 million worth of Harken's debt and liabilities.
Harken held a 16 percent stake in the partnership while the Harvard fund
owned 84 percent, according to HarvardWatch. Nonetheless, the operation was
run by Harken, which was paid $1 million per year to operate the
partnership's oil and gas ventures, the report said.

Harken ''transferred an enormous amount of liabilities to the partnership,''
Black said. ''You don't see the Harvards of the world doing things like
this.''

With so much debt removed from Harken's own books, Harken's stock price rose
and the Harvard fund sold 1.6 million shares during this temporary stock
bubble, the report says.

The formation of the partnership, coupled with the fund's purchase of Harken
stock, kept the firm afloat financially, according to Black. Black's review
of the partnership may add weight to the findings of HarvardWatch.

Black, a registered Democrat, is a well-known specialist in reviewing
financial transactions; he was the deputy director of the Federal Savings
and Loan Insurance Corp. during the Reagan and first Bush administrations
and played a key role in investigating the ''Keating Five'' scandal that
involved five senators. Black also played a role in the investigation that
helped lead to the resignation of House Speaker Jim Wright, a Democrat. He
said he has conducted financial reviews that make him unpopular among
Democrats and said he did not examine the Harken partnership for political
reasons.

It was 1986 when George W. Bush's struggling oil venture, Spectrum 7, was
purchased by Harken. Harken gave Bush a seat on the board of directors and
an annual paycheck of $120,000. At the time, Bush's father, George H. W.
Bush, was vice president. It was around this same time that the Harvard fund
began investing in Harken. The fund eventually poured $30 million into
Harken and became the largest shareholder. A Harvard Management official,
Michael Eisenson, was given a seat on the Harken board.

Michael Kranish can be reached at kranish@globe.com.

This story ran on page C1 of the Boston Globe on 10/9/2002.

© Copyright 2002 Globe Newspaper Company.