Harvard Denies Ties to Oil Firm Were Improper

In the wake of a scathing report released yesterday by HarvardWatch, the University denied that a partnership it formed in 1990 with a company directed by George W. Bush was inappropriate.

The report, based on public documents obtained from the Securities and Exchange Commission, stated the University’s endowment management company formed a partnership with the Harken Energy Corporation in order to hide some of the liabilities of the Texas-based oil firm and keep it solvent.

The partnership “was controlled by and transparent only to Harken insiders, and likely was used to artificially brighten the company’s business prospects,” the report said.

HarvardWatch, a group of students and alums devoted to investigating the University, likened Harvard’s dealings to the partnerships Enron entered into to inflate its profits by millions of dollars. The discovery of those partnerships help lead to Enron’s collapse last year.

“Harvard Management Company (HMC) investments in Harken Oil were not inappropriate and were disclosed openly and properly,” the University said yesterday in an official statement.

The HarvardWatch report captured national attention yesterday, with The Wall Street Journal, Associated Press, Boston Globe and Reuters all publishing articles about the report’s findings.

HarvardWatch stated that Harken and the University formed an “off-the-books partnership,” called the Harken Anadarko Partnership (HAP), in December 1990. Harken reportedly held 16 percent of HAP, while 84 percent was owned by Aeneas Venture Corporation, a division of the Harvard endowment that funds venture capital projects.

Aeneas and Harken were “exploiting, as many companies did, a fundamental weakness in accounting rules,” said Bala G. Dharan, a former visiting professor at Harvard Business School and a finance expert from Rice University’s Jones Graduate School of Management.

According to Dharan, Harken was not required to disclose its holdings of HAP because they amounted to less than 20 percent of the partnership.

“Also, because the entity that Harvard controls—Aeneas—is not publicly traded, investors will not know how much is on their books,” Dharan added.

The report said the formation of HAP improved the appearance of Harken’s financial situation by removing $20 million worth of debt from its ledgers and making it more attractive to investors.

“The creation of HAP had a considerable positive effect on Harken’s reported financial figures while not substantively affecting who controlled the relevant properties,” the report said.

Documents obtained by the watchdog group show that in an August 1990 Harken board meeting, Bush made a motion calling for discussion about the partnership to proceed.

The University denied any link between their investments in Harken and Bush.

“The role of the Harvard Management Company is not to curry political favor but to invest well on Harvard’s behalf,” the University’s statement said.

The report comes months after news of other questions about Harvard’s links with Harken. The Crimson reported in July that HMC owned more than $28 million worth of Harken stock in 1990, when Bush served as a director of Harken and sold 212,140 shares of the company for $848,560. The close timing of Bush’s sale and Harvard’s purchase of Harken stock led to speculation that the University was the unknown buyer of Bush’s shares.

In a July interview, Jack Meyer, current president of HMC, denied that Harvard obtained Bush’s shares.

“We didn’t buy George Bush’s stock,” said Meyer, who took over HMC about two months after Bush’s sale.

At the time of the sale, two top Harvard investment managers—Michael R. Eisenson and Donald D. Beane—also served on Harken’s executive board and held personal stakes in the company, creating further questions about Harvard’s involvement with the company.

—Staff writer Alexander J. Blenkinsopp can be reached at blenkins@fas.harvard.edu.