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Cheney Named in Fraud Suit over Energy Firm's Accounting Practices
Jul 11, 2002 (The Washington Times - Knight Ridder/Tribune Business News via COMTEX) -- Vice President Richard B. Cheney was named yesterday with the energy company he headed in a lawsuit by investors that cited bookkeeping practices under investigation by the Securities and Exchange Commission. The lawsuit, arranged by Judicial Watch, a government watchdog group, charges that Halliburton Inc. overstated its revenue by $534 million between 1998 and the end of last year by illegally booking revenue from oil construction projects that were in dispute and had not been collected from its clients. The suit says the accounting fraud resulted in overvaluation of Halliburton's stock, deceiving investors. Mr. Cheney was Halliburton's chief executive from 1995 until August 2000, after he joined the Bush presidential campaign. The White House and Halliburton yesterday said the suit was without merit, but both acknowledged that the SEC investigation is continuing. "We are working diligently with the SEC to resolve its questions regarding the company's accounting practices," said Doug Foshee, Halliburton's chief financial officer. "The claims in this lawsuit are untrue, unsupported and unfounded." SEC Chairman Harvey L. Pitt has vowed to pursue the investigation. "We don't give anyone a pass," he told ABC's "This Week" on June 30. "If anybody violates the law, we go after them." President Bush on Tuesday called for stronger SEC enforcement and longer prison terms for corporate executives found guilty of the kind of accounting fraud charged in the lawsuit. The suit was filed in the U.S. District Court in Dallas, where Halliburton is based. A unified Senate approved harsh new penalties yesterday for corporate fraud and document shredding, adding enforcement teeth to Mr. Bush's plan to curb accounting scandals. In a series of unanimous votes, senators added the penalties to an accounting oversight bill moving toward passage. Also named as a defendant in the lawsuit is the Arthur Andersen firm, Halliburton's former auditor, which was fired in April after the accounting firm was charged with obstructing an SEC investigation of Enron Corp. Andersen was convicted of the obstruction charge last month and is no longer permitted to audit public companies. The suit says Andersen was a champion of "aggressive" accounting tactics and masterminded the bookkeeping maneuvers that defrauded Halliburton investors. As evidence of Mr. Cheney's knowledge and approval of these maneuvers, the suit refers to his appearance in a promotional video for Andersen in which he said he got "good advice" from the firm, advice that went "over and above just the normal by-the-books auditing arrangements." The lawsuit cites a critical accounting change made by Halliburton and Andersen in late 1998. Halliburton was facing losses because of a recession in the oil industry and cost overruns on construction contracts in which the company had negotiated fixed, or lump-sum, payment plans. Before the accounting change, which was never formally disclosed to investors, Halliburton had booked the cost overruns as losses on such projects as long as they were in dispute and customers had not agreed to pay them. But starting in 1998, the company booked payment for the cost overruns as revenue if it believed the disputes would be resolved and the customers would pay the bills. As a result of this change, Halliburton showed a profit for several quarters in 1998 and 1999 when it otherwise would have posted losses, the suit charges. In some years, the disputed revenue appears to account for as much as half of the company's reported profits. "Halliburton overstated profits that many American citizens relied upon," said Larry Klayman, chairman of Judicial Watch. "That's fraudulent security practices, and it resulted in those Americans suffering huge losses." The suit says Halliburton and Andersen violated securities laws when they did not disclose and justify the accounting change in a letter to investors. Halliburton's financial statements starting in 1998 do note, however, that it was booking uncollected revenue from cost overruns.
By Patrice Hill