You Don't Know Dick

By Jason Leopold, AlterNet. Posted August 27, 2004.

Recently, Halliburton agreed to a $7.5 million settlement with the U.S. Securities and Exchange Commission (SEC) over the company's suspect accounting practices while Dick Cheney headed the company. It's worth looking at what led up to that settlement – as well as Cheney's statements regarding all things Halliburton – with an eye towards the vice-president's culpability in the matter, not to mention his veracity.

After all, it was only a couple of years ago when both Cheney and President George W. Bush demanded higher ethical standards for corporations, tougher laws against corporate malfeasance and more responsible corporate executives. "We must usher in a new era of integrity in corporate America," Bush told the Association for a Better New York in July 2002. He called for an end to "cooking the books."

But it appears that tough talk by Bush and Cheney applies to all corporations and their executives – except Halliburton and Cheney.

Voodoo accounting

During his tenure as Halliburton's CEO (1995-2000), Cheney may have participated in getting the company's finance executives to use aggressive accounting methods that gave Wall Street the false impression that the oil-field services company was profitable between 1998 and 1999, which boosted the value of Halliburton's stock and helped Cheney earn more than $35 million when he sold his shares in 2000.

The SEC said that Halliburton changed the way it accounted for construction revenues in 1998 and did not report that change to investors for more than a year, a violation of securities rules. The accounting sleight-of-hand by Halliburton caused the company's public statements regarding its income in 1998 and 1999 to be materially misleading, boosting Halliburton's paper profits by $120 million.

"In the absence of any disclosure, the investing public was deprived of a full opportunity to assess Halliburton's reported income – more particularly, the precise nature of that income, and its comparability to Halliburton's income in prior periods," the SEC said.

The changes to the company's accounting practices led to a "significant difference in their respective effects on Halliburton's financial presentation: the new practice reduced losses on several large construction projects" and allowed the company to report a higher profit, the SEC said.

When Halliburton changed its accounting practices in 1998, the company was already enduring huge financial losses as a result of some of the long-term contracts it signed, quarterly filings with the SEC show. Halliburton's stock subsequently tanked, due in part, to a recession in the oil industry, which author Robert Bryce, who has written extensively on Halliburton, explained during an appearance on PBS' The News Hour on July 24, 2002 following Halliburton's announcement that it was under investigation by the SEC.

"In '98 the world oil industry was in a world of hurt," Bryce said. "Oil prices were depressed. Drilling activity was very low. And Halliburton had also just completed a merger with Dresser Industries..." It should be noted that the New York Times quoted two former Dresser Industries executives in a May 22, 2002 story as saying that after Cheney guided the merger of Dresser with Halliburton in 1998, Halliburton "instituted aggressive accounting practices to obscure its losses."

Bryce elaborated on this point during his interview, saying Halliburton "was eager to show any revenue that it could and by using mark-to-market on this one small segment of their business, they were able to add $90 million or $89 million in '98. And then in '99, it was $98 million. And then in 2000 it was $113 million. So again that's a relatively small figure compared to the tens of billions or over $10 billion that they were counting in revenue but it still counted significantly in terms of their profit statement."

When the investigation into Halliburton's accounting methods was first launched two years ago, Cheney was dogged by questions about his role in the scandal. Like Gary Winnick of Global Crossing, Dennis Kozlowski of Tyco, John Regas of Adelphia and Ken Lay of Enron, Cheney employed a Sgt. Schultz defense, saying publicly on a number of occasions that he was unaware of the financial machinations that went on at Halliburton while he was chief executive. (Of course, each of the aforementioned corporate executives has been prosecuted by the Justice Department for allegedly cooking the books at their respective companies despite their public denials.)

So how much exactly did Cheney know about Halliburton's accounting practices? Let's turn to Halliburton's current chief executive, David Lesar, who told Newsweek magazine in July 2002 that Cheney knew about Halliburton's accounting practices and that "Cheney was aware that the firm was counting projected cost-overrun payments as revenue."

Jason Leopold is the former Los Angeles bureau chief of Dow Jones Newswires where he covered the energy crisis and the Enron bankruptcy. He has written a book about the crisis, due out in December through Rowman & Littlefield.

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