Halliburton to pay fine for accounting miscues

WASHINGTON -- Halliburton, the beleaguered Texas oil services conglomerate, and its former comptroller have agreed to pay more than $7.5 million in fines for misleading accounting practices instituted when Vice President Dick Cheney directed the company.

Cheney was not charged with any wrongdoing. Instead Halliburton's former comptroller, Robert Muchmore, took responsibility for the scheme, and the former chief financial officer, Gary Morris, was charged with negligence for his part. Muchmore agreed to pay the Securities and Exchange Commission a $50,000 fine, while Halliburton agreed to pay a $7.5 million fine for interfering with the investigation once it was launched in mid-2002.

"We go where the evidence leads us," said Spencer C. Barasch, enforcement chief of the SEC's Fort Worth, Texas, office, when asked why Cheney was not charged.

The action closes the investigation of Halliburton's accounting practices, but the company still faces an array of Pentagon, criminal, overseas and congressional probes.

The change in accounting methods was prompted by $20 million in unexpected cost overruns on a Middle East gas production plant. Instead of continuing to account for overruns after the actual payments were received, the company in late 1998 began recording "probable" settlements as revenue.

From the middle of 1998 until the end of 1999, the SEC estimated that Halliburton overstated its earnings by $210 million. Its problem was that it never properly disclosed the changed accounting method.

There is no evidence that Cheney had any hand in the decision to change accounting methods. The vice president provided sworn testimony and cooperated with the investigation, Barasch said. The SEC interviewed 23 individuals and examined 340,000 documents.

"The SEC action today emphasizes the importance of complete transparency in a company's financial disclosures," said Harold F. Degenhardt, administrator of the SEC's Fort Worth office.

"We are pleased to bring closure to this matter," said Dave Lesar, chairman, president and chief executive officer of Halliburton. It was actually Lesar who went public with the misleading accounting when he boasted at a 1998 teleconference call for stock analysts that revenues for its Brown and Root subsidiary had grown 17 percent, when they had actually fallen 54 percent.

But it has been Cheney's role that has focused attention on the Houston conglomerate. Sen. Frank Lautenberg, D-N.J., a frequent critic, called for a full investigation Tuesday. A spokesman for Cheney declined comment.

"This latest scandal over Halliburton's illegal activity during the time Vice President Cheney was head of the company is just one more reason Congress must look into whether any other laws were violated," Lautenberg said. "While at Halliburton, we know the vice president used a foreign subsidiary for the sole purpose of doing business with the terrorist state Iran. At the very least, the American people deserve to know if any laws were broken."

The company has received $9 billion in federal contracts to provide a range of services for U.S. military operations around the world, but faces congressional, Pentagon and criminal investigations for overcharging.

Federal officials are also investigating a Cayman Islands-based subsidiary to see if one of its operating contracts violates a U.S. ban on doing business with Iran. The company's handling of a giant energy project in Nigeria is also being investigated by European officials for possible bribery.

Cheney earned an estimated $44 million during his five years at Halliburton, a term highlighted by the acquisition of Dresser Industries, another oil services business. But since then, legal liability arising from asbestos claims against Dresser has dragged several Halliburton sectors into bankruptcy.

Cheney left Halliburton to seek the vice presidency in 2000, but he receives $150,000 in deferred compensation each year, and his refusal to forego proceeds from an estimated $18 million in stock options has sparked ongoing criticism from Democrats and a Congressional Research Service study that concluded that the Cheney-Halliburton relationship constituted a conflict of interest.

Cheney has pledged to donate any proceeds from the options to charity, although 400,000 of his 433,333 options currently have little value since their strike price is above Halliburton's $31 price per share.