A Small Matter, but Bush’s Responsibility, Experts Say

On the seismic scale of insider trading violations, President Bush’s failure to file a required form on time 12 years ago was a minor blip, but one for which he bears ultimate responsibility, securities law experts said Wednesday.

Several former enforcement officials for the Securities and Exchange Commission said they regard Bush’s tardy filing of a form detailing a big stock sale in 1990 as relatively inconsequential and not indicative of an intent to defraud investors.

But they said they do not buy the White House’s claim that it was the responsibility of corporate attorneys, not Bush, to ensure the paperwork was turned in on time.

“It’s a serious obligation,” said Robert Heim, a former SEC enforcement attorney who is now a partner in Meyers & Heim, a New York law firm. “It raises questions about how seriously Mr. Bush was taking his responsibilities.”

Although the SEC concluded that the filing lapse did not merit prosecution, new disclosures about Bush’s actions could undermine the president’s credibility as he prepares to detail his efforts to crack down on corporate crime in a major policy address next week.

The violation in question occurred in 1990, when Bush was a member of the board of directors of Harken Energy Corp., a small Texas oil company, and decided to sell about two-thirds of his stock in the company.

According to SEC documents, Bush filed the required notification of his intent to unload more than 212,000 shares, which he sold on June 22, 1990, for nearly $850,000. But he failed to file a second form divulging details of the transaction until March 4, 1991, more than eight months after the legal deadline.

About two months after Bush sold his shares for $4 each, the company announced a big quarterly loss, and the stock price fell by the end of the year to just over $1 per share. The SEC looked into the transaction but concluded that Bush had not engaged in illegal insider trading because it did not appear that he was acting on the basis of information not available to the general public.

Bush has long maintained that the required filings had been made on time and that the SEC had somehow misplaced the paperwork.

But Wednesday, the White House said it had determined that the second filing, called a Form 4, was 34 weeks late. It suggested that Harken’s attorneys were to blame.

“Form 4s are filled out by corporations, under the SEC rules,” said White House spokesman Ari Fleischer. “... The president believed at the time that he had filled out all the paperwork that was required, and it was filed, and that the lawyers did as they were required to do.”

But according to former SEC officials, it is the director’s responsibility, not the company’s, to make sure that all insider stock sale reports are filed on time.

“From passage of the Securities Exchange Act in 1934 up until today, it has been the filing person’s responsibility,” said Edward Fleischman, who served as an SEC commissioner from 1986 to 1992.

Even so, Fleischman said he regarded Bush’s failure to file on time as a relatively minor offense. At the time it occurred, he said, it would have been regarded as even less significant.

“At the time, the SEC had just begun to crack down on tardiness,” said Fleischman, now senior counsel for Linklaters, a London-based law firm. Until the late 1980s and early 1990s, he said, the timeliness of Form 4 filings had not been closely monitored, let alone enforced.

Since then, he said, expectations have changed.

“The failure to file a Form 4 does not appear to me as a practicing lawyer to be substantive,” he said. “Does it expose my client to SEC prosecution? Today, absolutely. Fifteen years ago, not a chance.”

Simon Lorne, a former SEC general counsel now at the Los Angeles-based law firm of Munger Tolles & Olson, said late filings were commonplace at the time Bush sold his stock.

“I don’t have enough digits to count the number of times I’ve seen people file Form 4s late,” Lorne said.

“It is the individual’s responsibility, but companies often handle it for them because the individuals don’t remember to do it.”

The fact that Bush filed the initial notification of his intent to sell Harken stock suggests that he was not trying to evade his reporting responsibilities, the SEC officials said, and that the late filing of the second report was just an oversight.

“It’s a technical violation,” said another former SEC official, who requested anonymity. “With all that’s going on today, it’s a flea bite on the tail of an elephant.”