WASHINGTON -- In early 1989, George W. Bush and his fellow board members at Harken Energy Corp. were presiding over a company that was headed south in a hurry. The Dallas-based oil firm had lost millions of dollars placing bad bets on commodity futures. Debt was piling up; red ink was beginning to flow.

Harken's executives came up with a novel plan to ease the pain. They would sell a small chain of Hawaiian gas stations called Aloha Petroleum to a group of investors that included Harken's chairman and one of its directors. The buyers would pay $1 million up front, but the accountants would record an immediate $7.9-million profit, enough to erase most of Harken's losses for the year.

They made a point of seeking the approval of directors who were not participants in the investor group. Bush, a member of the board's audit committee, signed off on the deal, according to Harken documents. So did the company's outside auditor, Arthur Andersen & Co. But the government challenged and ultimately overturned the accounting method used by Harken to post a gain on the sale. Aloha was sold a second time, and the new buyer extracted big concessions from the company. The initial profit recorded on the sale morphed into a big loss. In the midst of all the maneuvering, Bush sold most of his Harken stock in June 1990.

Based on a review of publicly released Securities and Exchange Commission filings, meeting minutes, memos and correspondence from that period, there is no evidence that Bush, or any of the other directors, raised objections or expressed concern about the Aloha deal.

Experts on corporate governance say that as an independent director and one of only three members of the audit committee, Bush was in a position to exercise an important oversight role but apparently failed to do so.

An audit committee's primary responsibility is to ensure that the company's outside auditors conduct a thorough examination of the financial records without interference from officers and employees.

The White House on Thursday declined to comment on the SEC documents pertaining to Bush's actions as a director.

As the president tries to respond to the wave of accounting scandals sweeping corporate America, the events of 12 and 13 years ago have come back to haunt him.

The Aloha sale was so similar to what Enron Corp. did to hide its losses that Harken could have served as a model for the now-disgraced company, one accounting expert said.

"The people at Enron could have gone to school on this thing," said Alfred King, former managing director of the Institute of Management Accountants, vice chairman of Milwaukee-based Valuation Research Corp. and former advisor to the Financial Accounting Standards Board.

"They sold to themselves and recorded a profit," King said. "That's exactly what Enron did on a number of those off-balance-sheet transactions. On this one transaction at least, it's almost identical."

Bush rejects the comparison to Enron, a far larger Texas energy firm that cooked its books on a scale never before seen. He insists his actions at Harken were thoroughly investigated by the Securities and Exchange Commission.

"In the corporate world, sometimes things aren't exactly black and white when it comes to accounting procedures," Bush said when asked in general about Aloha at a news conference this week.

It's up to the SEC, Bush said, "to determine whether or not the decision by the auditors was the appropriate decision. And they did look, and they decided that the earnings ought to be restated, and the company did so immediately."

Bush's father was vice president in 1986 when Bush's previous company was purchased by Harken and he became a member of the board. Bush's sale of his Harken stock in 1990 was an issue in his 1994 gubernatorial campaign and 2000 presidential bid.

But Harken's sale of Aloha received little public attention until Enron's spectacular collapse and parallels were noted between the Aloha deal and Enron's practice of inflating its earnings and shoring up its balance sheet by hiding massive amounts of debt in partnerships consisting of company insiders.

The magnitude of Enron's collapse is many times greater than Harken's financial travails. Moreover, Enron's top officers are facing criminal charges for their actions. Although the SEC required Harken to revise its financial results for 1989, it did not refer the case to its enforcement division for prosecution.

"If the division of corporate finance had believed the purpose of the [Aloha] transaction was to generate a phantom profit, there is little question that it would have made a referral," said Jacob S. Frenkel, a former SEC enforcement attorney who heads the white-collar crime group at the Gambrell & Russell law firm in Washington.

Still, accounting experts, security law specialists and political analysts say there is enough similarity between events at Harken and Enron to keep Bush on the defensive about his own actions a decade ago and undermine his credibility as a corporate reformer.

Indeed, Bush would not have been allowed to serve on Harken's audit committee if the reform proposals he outlined this week had been in effect then. The president says audit panel membership should be limited to outside directors. Besides sitting on Harken's board, Bush had a consulting contract with the company. According to accounting experts, that qualifies him as a corporate insider.

"Hiding losses in partnerships, playing games with accounting, not reporting forthrightly transactions as a potential inside trader--it's all eerily reminiscent of Enron," said Charles Lewis, executive director of the Center for Public Integrity, a Washington research group. "This is not a corporate executive who laid awake at night worrying about complying with federal laws, from all appearances," said Lewis, who has been critical of the Bush administration.

Another transaction at Harken would have violated Bush's reform proposals as well: On Thursday, the White House confirmed that Harken made two loans to Bush while he served on the board of directors, a practice that Bush now wants publicly held companies to prohibit.

The loans, totaling $180,375, were made in 1986 and 1988 at a below-market interest rate to enable Bush to purchase Harken stock under an incentive plan for board members. They were later converted into stock options that Bush never exercised, the White House said.

Suspicions about the Aloha Petroleum deal have been fueled by the fact that most of the principals refuse to talk.

Of the seven Harken directors who served on the board with Bush, five declined to discuss the deal or did not return calls seeking comment. Executives at Aloha, now a privately held company, also declined to comment. So did past and present officials at Harken, Arthur Andersen and the SEC.

Former director Talat M. Othman, who chaired the three-member audit committee, said he did not recall the details of the Aloha sale or the company's reasons for arranging it. "I'm not sure that our motivation was to create instant profits," said Othman, a Palestinian who represented Saudi investors who owned 13% of Harken's stock. "It was a normal part of the business to be buying and selling."

The third audit committee member, E. Stuart Watson, also said he didn't remember much about Aloha. "I don't know about that Hawaiian outfit because I was getting off the board about that time," Watson said.

Aloha dispensed gasoline at 40 or so service stations, convenience stores and mini-marts on Oahu and Hawaii. The little chain traced its history to J. Paul Getty, who installed the island's first gas pumps.

Harken acquired Aloha in 1986 when it bought a multi-state gas retailer called E-Z Serve. When it announced its plan to sell 80% of Aloha in 1989, it said Hawaii was too far away from its other gasoline markets and required too much management attention.

But the new owners looked an awful lot like the old owners. The buyers were an investor group controlled by the family of Harken Chairman Alan G. Quasha. The sales price was $12 million, of which $11 million would come in the form of a loan from Harken, with no payments due for several years. Although the company received only $1 million, it recorded a $7.9-million profit on the sale.

Harken reported a net loss of $3.3 million for that year. It was bad news for shareholders, but it could have been much worse. Harken's commodity trading losses had reached $16.6 million by year's end. Without the Aloha profit, the 1989 shortfall would have been a real shocker.

The Aloha transaction raised eyebrows at the SEC, which spent several months reviewing the relationship between Harken and the buyer group and the accounting procedures that produced the big profit.

In the end, the agency forced Harken to restate its earnings for 1989. The $3.3-million loss ballooned to $12.6 million.

In the meantime, Aloha had changed hands a second time. Quasha's investor group sold the chain to a firm headed by David Halbert, a business associate of Harken President Mikel D. Faulkner and a friend of Bush.

Once again, it was not a clean break. When Harken sold Aloha to Quasha's group, it had agreed to retain liability for any environmental problems associated with the chain.

In early 1990, it discovered that the commitment would cost it dearly. Aloha's new owner had 20 gas outlets tested and found that 11 had leaky underground tanks requiring expensive repairs. There were 21 sites still awaiting tests.

Meanwhile, Harken was experiencing a severe cash flow crisis and needed to raise money fast. Acknowledging in internal memos that it was negotiating from weakness, the company agreed to forgive $7.2 million of the money it was owed by Halbert for the Aloha purchase and related transactions in exchange for accelerated payments of the remaining debt.

King, the accounting expert, said the initial sale to the insider group and the subsequent concessions to the second buyer no doubt contributed to the SEC's conclusion that Harken had no business booking a profit.

"When it came time to have a third party put up real cash, they didn't get anywhere near what they were hoping for," he said. "That suggests they did not have a true sale at the nominal price."

Bush's audit committee colleagues, Othman and Watson, said they consider it unfair to hold the president responsible for a deal that was conceived and carried out by Harken's corporate executives.

"He was one of several directors," said Othman, president of Grove Financial, a Chicago-area investment firm. "Any sale or purchase of that nature doesn't hinge on one director's responsibility or one director's opinion. It's the consensus of the board."

Watson said he thinks Democrats in Congress are fanning the flames of the Aloha controversy in an effort to hurt Bush politically.

"George wasn't running that company," Watson said. "And by golly, I was with him for about four years on the board, and I liked him. I thought he was a straight shooter then, and I still think so."