Halliburton settles accounting fraud probe for $7.5 million
3 Aug. 2004
WASHINGTON, Aug. 3 (HalliburtonWatch.org) -- Halliburton today settled an investigation by the Securities and Exchange Commission (SEC) which accused the firm of providing "materially misleading" information to investors during the period when Vice President Dick Cheney was the chief executive officer. The SEC said it settled the case after Halliburton agreed to pay a $7.5 million fine and to stop "committing or causing future securities law violations." The company's former controller, Robert C. Muchmore, Jr., also settled the case by agreeing to pay a $50,000 fine. But Halliburton's former chief financial officer, Gary V. Morris, refused to settle the case. The SEC has filed a civil claim against Morris in a U.S. District Court in Houston.###
In settling the case, neither Halliburton or Muchmore admitted to violating the law.
Although Vice President Cheney testified under oath in the investigation, the SEC did not accuse him of any wrongdoing despite the fact that he was the CEO during the period when the fraud occurred. The alleged fraud was approved by convicted felon Arthur Andersen, the same accounting firm convicted for obstruction of justice in the Enron debacle and whose former employee, David Lesar, is now chief executive officer of Halliburton. See Cheney praise Arthur Andersen in a 1996 video by clicking here. In the video, Cheney said, "I get good advice, if you will, from their [Andersen's] people, based upon how we are doing business and how we are operating, over and above the normal, by-the-books auditing arrangement."
The SEC had been formally investigating Halliburton for 592 days, an unusually lengthy amount of time. The agency said in a press release that the $7.5 million penalty "reflects lapses in the company's conduct during the course of the Commission investigation." But it did not describe those lapses or how they contributed to a delay in completing the investigation.
The SEC had accused Halliburton of changing the way it recognizes cost-overruns on its financial statements. The accounting change involved recognizing cost-overruns as revenue, rather than expenses. The result was a healthier-looking financial statement. The accounting change increased reported profits by over $210 million. The SEC said "the new [accounting] practice reduced losses on several large construction projects. As a result, Halliburton's reported income was higher under the revised practice than it would have been under the prior practice."
The SEC further stated that, "Over six reporting periods, spanning approximately 18 months covering 1998 and 1999, Halliburton failed to disclose its change of accounting practice. In the absence of any disclosure, the investing public was deprived of a full opportunity to assess Halliburton's reported income...."
Although the new accounting method used by Halliburton is legal under accounting rules, the SEC said it was materially misleading for the company not to disclose to investors that it was using a more favorable method of accounting.
Halliburton settled civil lawsuits with investors in May 2003 for $6 million over the same accounting allegations settled today by the SEC.
Joan Claybrook of Public Citizen criticized the SEC's settlement for failing to address Cheney's responsibility for the fraud. "The failure of the SEC to address the responsibility of Cheney, who was in charge when the accounting irregularities occurred, and instead focus upon the company’s chief financial officer and controller at the time, indicates that politics may have spared Cheney from necessary enforcement action," Claybrook said. "The CFO and controller both reported to Cheney, and he ultimately should be held responsible."
SEC press release