Hasn't He Been Here Before?

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reference in the legal brief was tantalizingly obscure, like a clue in a board game. Neil Bush, the government lawyers claimed, "is again engaged in a venture with an individual to whom he looks for assistance in financing his obligations . . . the prospect of recurrent problems does not seem remote."

Lawyers for the federal Office of Thrift Supervision made that veiled reference last month to persuade an administrative-law judge to take a tough line in reprimanding the President's 35-year-old son for his performance as a director of Denver's Silverado S&L, which collapsed in 1988 at a cost of $1 billion to the U.S. When Judge Daniel Davidson issued his decision, he declared that Bush had broken conflict-of-interest rules. The judge ordered Bush to avoid future conflicts, a mild sanction. But the OTS lawyers' cryptic reference to a potential new problem intrigued congressional investigators.

The trail led them to Louis Marx Jr., a New York City financier. Marx, an heir to a toymaking fortune, supplied Bush with $2.3 million in government- guaranteed financing to bankroll Apex Energy, an oil exploration firm the President's son started in May 1989. Marx's venture-capital firms were declared insolvent a year later, triggering a $25 million federal bailout. As a result, taxpayers may once again have to underwrite a Neil Bush venture. Bush financed his earlier firm, JNB Exploration, with loans from two Silverado customers whose $130 million in defaults helped escalate the cost of the S&L's bailout.

Bush folded the money-losing JNB in 1989 and immediately launched Apex with financing from two Small Business Investment Corporations that Marx controlled, Wood River Capital and one of its subsidiaries. Marx started Wood River in 1979 with $15 million in private capital and a $30 million line of credit from the Small Business Administration. The Marx companies bought a 49% stake in Apex for $1.5 million and loaned it an additional $850,000 in SBA- guaranteed money.

When Wood River became insolvent last year, the SBA was obliged to pay off $25 million of its debts. Wood River officials signed an agreement with the SBA to liquidate in order to repay at least a portion of the money. The company has told the SBA it should be able to repay its entire government debt within 30 months.

Wood River defends its financing of Bush, which was handled personally by Marx. "The investment in Apex was made for good business reasons, and not because Bush was the President's son," says Wood River spokesman Don Dwight. Yet Marx also contributed more than $100,000 to the senior Bush's presidential campaign.

The SBA too views the Bush financing as legitimate, but the House Small Business Committee has launched an investigation. "We want to know how much money of their own Neil Bush and his partner, Brant Morse, invested in Apex," says a senior staff member of the committee. Wood River's failure is just one in a long list of Small Business Investment Corporation insolvencies totaling $500 million in the past five years, a record that has prompted the agency to overhaul the rules for such guarantees.