Annotated reporting from the NYTimes business section
August 4, 2004
Halliburton Settles S.E.C. Accusations
"Accusations"? — the company has admitted it cooked the books!

The Halliburton Company secretly changed its accounting practices when Vice President Dick Cheney was its chief executive, the Securities and Exchange Commission said yesterday as it fined the company $7.5 million and brought actions against two former financial officials.

The commission said the accounting change enabled Halliburton, one of the nation's largest energy services companies, to report annual earnings in 1998 that were 46 percent higher than they would have been had the change not been made. It also allowed the company to report a substantially higher profit in 1999, the commission said.

Gee, isn't it convenient that this commission, headed by Republican businessmen, has decided to exonerate the Vice President for crimes that he obviously knew about, and which are substantially the same crimes committed by executives at Enron? Cheney is a "bad apple"!

The commission did not say that Mr. Cheney acted improperly, and the papers released by the commission did not detail the extent to which he was aware of the change or of the requirement to disclose it to investors. The S.E.C. said that Mr. Cheney had testified under oath and had "cooperated willingly and fully in the investigation conducted by the commission's career staff."

"The Securities and Exchange Commission has five Commissioners who are appointed by the President of the United States...." (

A lawyer for Mr. Cheney, Terrence O'Donnell, said the vice president's "conduct as C.E.O. of Halliburton was proper in all respects,'' adding that the S.E.C. "investigated this matter very, very thoroughly and did not find any responsibility for nondisclosure at the board level or the C.E.O. level.''

Mr. O'Donnell, a partner at Williams & Connolly in Washington, declined to answer a question as to whether Mr. Cheney had been aware of the effect of the accounting change on the company's profits.

Declined to answer!!

The accounting change dealt with the way Halliburton booked cost overruns on projects. At the time, it was having large cost overruns on projects in the Middle East operated by its Brown & Root Energy Services business, which under its old accounting policy would have reduced its reported profit.

The actual change in accounting, the commission said, was permissible under generally accepted accounting principles, but the failure to inform investors that the change had been made - and of its effect on the company's reported profit - violated securities laws.

"At bottom, what this case is about is insuring that investors understand the numbers," said Stephen M. Cutler, the S.E.C.'s enforcement director. "If you change methodologies and don't explain that, then investors are not going to understand what they are seeing."

Halliburton's former controller, Robert C. Muchmore Jr., agreed to settle the S.E.C. action by accepting an order to cease and desist from further violations of securities laws and to pay $50,000. Neither he nor the company admitted or denied the commission's accusations. The company also accepted a cease-and-desist order.

Gary V. Morris, who was the chief financial officer at the time the actions took place, did not settle. The commission filed a civil lawsuit against him in Federal District Court in Houston.

A lawyer for Mr. Muchmore declined to comment while one for Mr. Morris did not return phone calls.

David J. Lesar, who succeeded Mr. Cheney as chief executive in 2000, said, "We are pleased to bring closure to this matter."

The commission said the $7.5 million penalty paid by Halliburton "reflects the commission's view that there were unacceptable lapses in the company's conduct during the course of the investigation, which had the effect of delaying the production of information and documentation necessary to the staff's expeditious completion of its investigation."

Given the enormous profits Halliburton has reaped with no-bid war contracts due to the influence of Cheney, this fine is a pathetic response to corporate corruption. While black and hispanic youths are given long sentences for petty drug crimes, white collar criminals are not convicted. The $7 billion in no-bid war contracts awarded to this dishonest company demonstrate that crime does pay if you have contacts high in the US government. The cost / benefit analysis of this situation will lead men like Cheney to continue swindling the people.

Until the second quarter of 1998, Halliburton had dealt with cost overruns on projects by taking a loss for the amount of the overrun unless and until the company that it was working for agreed to pay part or all of the overrun. But confronted with a large overrun on a fixed-fee project to build a gas production plant in the Middle East - the commission did not say in which country - Halliburton changed its policy so that it would record the income it thought the customer would eventually agree to pay.

That change in policy was not disclosed until March 2000, when the company filed its 1999 annual report with the S.E.C. The commission said that pretax profit for all of 1998 was reported at $278.8 million, 46 percent more than the $190.9 million that would have been reported under the old accounting.

The first three quarters of 1999 also had earnings that were about $40 million higher than they would have been, although the percentage increases were smaller.

At the time the accounting was changed, Halliburton was preparing to merge with Dresser Industries and was dealing with a decline in the company's share price partly caused by slumping oil prices. It reported a 34 percent gain in profit for the quarter, far better than other oil services companies were reporting, and Mr. Cheney said then that "Halliburton continues to make good financial progress despite uncertainties over future oil demand."

The commission said yesterday that the gain would have been just 6.7 percent without the undisclosed change in accounting policies.

In a call with analysts at the time, the company said that profit at Brown & Root Energy Services rose 40 percent during the quarter but did not disclose that the operation would have reported a loss had it not changed its accounting practices.

Halliburton's reported profits for the quarter exceeded analysts' estimates but would have fallen far short of them had the change not been made, the S.E.C. said. Nonetheless, the company took a cautious tone in that conference call, leading analysts to cut profit estimates and causing the stock to fall $3, to $37.88.

Halliburton said yesterday that it would take a $7.5 million charge in the second quarter of this year to reflect the penalty it agreed to pay. That will increase the per-share loss previously reported by a penny, to 13 cents.

Shares of Halliburton rose 8 cents yesterday, to $31.38.

This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.