Halliburton Accused of Accounting Fraud
By Jonathan Stempel
Reuters
Friday 06 August 2004
New York - Halliburton Co. and several top executives intentionally engaged in "serial accounting fraud" from 1998 to 2001, including when it was led by Vice President Dick Cheney, according to a new filing in a shareholder class-action lawsuit against the company.
The filing accuses Houston-based Halliburton, the world's No. 2 oilfield services company, of systematic accounting misdeeds far more wide-ranging than those charged in a recent civil lawsuit by the U.S. Securities and Exchange Commission. Cheney was not named as a defendant in either proceeding.
Halliburton agreed on Tuesday to pay $7.5 million to settle SEC charges that it misled investors by not disclosing an accounting change that boosted profit in 1998 and 1999.
Among other things, the filing accuses Halliburton of inflating results, failing to disclose a big asbestos verdict in a timely manner, and being unable to account for $3.1 billion of profit and cash.
Halliburton in a statement called the lawsuit an abusive attempt to extort money from current shareholders and smear the company and its employees.
The allegations in the 101-page filing and the SEC action cover two years when Cheney was Halliburton's chief executive officer.
The filing with the U.S. District Court in Dallas was first reported by the New York Times. Reuters obtained a copy.
Named as defendants in the lawsuit are Halliburton and four executives: David Lesar, formerly the company's chief operating officer and now its CEO; Douglas Foshee, a former chief financial officer and now CEO of El Paso Corp.; Gary Morris, another former CFO; and Robert Muchmore, a former controller.
Muchmore has settled with the SEC, and like Halliburton, neither admitted nor denied wrongdoing. Morris did not settle, and is being sued by the SEC in federal court in Houston.
El Paso and lawyers for Foshee and Muchmore could not immediately be reached for comment.
Systematic fraud alleged
Halliburton said the Dallas court had "preliminarily approved Halliburton's settlement of approximately 20 class-action securities cases ... and ordered that no further complaints be filed."
These cases included two filed by class-action specialist Scott & Scott LLC of Colchester, Connecticut, on whose behalf the filing was made, the company said.
"We have filed what we believe to be a very complete, detailed complaint for securities fraud violation," said David Scott, managing partner of Scott & Scott.
He noted the proposed $6 million class-action settlement "is not in the best interest of the class and really puts a black eye on securities litigation. We feel, as members of the plaintiff securities bar, that the shareholders deserve better and that's what we're trying to do."
Halliburton said the new complaint, attached as an exhibit to a motion to file it, is a bid to "generate publicity, while violating the spirit but not the letter of that order." "Many of their complaints have already been asked and already been answered. It is virtually a recycled lawsuit."
The filing contends that Halliburton's Kellogg Brown & Root engineering and construction unit inflated results through artificially boosting revenue or understating expenses.
One employee said supervisors told her to do "whatever it took to make (projects) come back to plan," or profitability, the filing said.
The filing also said Halliburton did not disclose a $130 million jury verdict in September 2001 in an asbestos case involving its Harbison-Walker unit, and that five weeks after they learned of the verdict, Lesar and Foshee told analysts that news on asbestos liabilities was "positive."
On Dec. 7, 2001, after news of that verdict and other asbestos verdicts became public, Halliburton shares fell 42 percent.
The filing also said that from 1998 to 2001 about $3.1 billion "went missing" as the company generated $1 billion of profit and $2.1 billion from asset sales, yet ended the period with roughly the same amount of debt and cash as it started.
Shares of Halliburton were down 30 cents, or 1 percent, at $29.81 in midday trade on the New York Stock Exchange.
